Q. Will my shares of Halliburton Co. continue to go up like they have? I am hoping they will. - CR, via the Internet.

A. The world's second-largest oilfield contractor is best known to many as the company where vice-president Dick Cheney was CEO from 1995 through 2000.

But while discussion of Cheney's stock options, deferred compensation and potential influence has drawn undesired attention, higher oil prices are the primary driver of this stock.

Energy companies have considerably more incentive these days to spend money on extracting hydrocarbons from difficult underground sites and sea locations. Halliburton benefits because it offers them a variety of services ranging from pressure pumping to drilling.

Shares of Halliburton (HAL) are up 18 percent this year following last year's 22-percent increase. The only downside is volatility from fluctuations in oil and natural gas prices. Halliburton has a solid balance sheet and strong cash flow.

Business has been growing most rapidly outside North America. Halliburton has operations in about 80 countries and derives more than half of its revenues from foreign markets, especially the Middle East, Asia, Europe and Africa. It opened a second corporate headquarters in Dubai last year.

Global expansion also means some uncertainty. For example, the company ended its projects in Iran last year following protests about its involvement there from a New York City pension fund. There are also risks involved in its investment in countries such as Venezuela, Russia and Libya.

Halliburton last year spun off its controversial government contractor unit KBR Inc. into a separate company. However, it agreed to pay any fines or damages that might be assessed in the wake of a long-running investigation of whether that unit bribed Nigerian officials in the construction of a natural gas plant.

Consensus Wall Street analyst rating of Halliburton shares is "buy," according to Thomson Financial, consisting of 10 "strong buys," 10 "buys" and one "hold".

A $3.6 billion all-cash bid by Halliburton for the British well-testing company Expro International Group plc. was spurned by that company. Its subsequent sale to a rival group has since been upheld by the British High Court.

Halliburton earnings are expected to increase 17 percent this year versus 25 percent forecast for the oil and gas equipment and services industry. Next year's projected 28 percent rise compares with 23 percent for the industry. The forecast of a five-year annualised return of 15 percent compares with 20 percent forecast for its peers.

Q. Is anything going to get better for Buffalo Small Cap Fund? - FR, via the Internet.

A. Several factors add up to disappointing returns for this fund:

— It missed out on the boom in energy and basic materials that boosted many funds.

— Its patient managers have been willing to tough it out with some underperforming stocks in their portfolio. For example, the for-profit education firm Corinthian Colleges foundered badly on worries about impact of the credit crisis on student loans.

The $1.5 billion Buffalo Small Cap Fund (BUFSX) is down 19 percent over the past 12 months and posted a three-year annualised decline in total return of one percent. Both results rank in the lowest one-fourth of small growth funds.

"This fund's strategy has fallen out of favor over the past couple of years, but we view the setback as temporary," said Miriam Sjoblom, analyst with Morningstar Inc. in Chicago, who considers the fund's management team to be strong. "We like that it is sticking to its approach even in the hard times."

Unlike many small-cap funds that capture growth spurts of companies and jump from stock to stock, Buffalo Small Cap takes a longer-term view with companies likely to grow faster than the economy the next three to five years. It is value-conscious and doesn't go after many high-flying growth stocks.

Kent Gasaway and Robert Male have co-managed the fund since its inception a decade ago, with Grant Sarris joining them in 2003. They do careful research and follow themes in the market, often hunting for bargains in beaten-down areas.

"It is the combination of thorough fundamental research and a long-term outlook that we like about this team's approach and that make this a unique fund in the small-cap field," said Sjoblom.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of one percent.

Q. For $50,000 in investments, is there a rule of thumb for diversification? How much is necessary? Is it best to stay under a dozen investments or does it matter? - DC, via the Internet.

A. Diversification does not just mean your number of holdings, since you might have investments that are too similar. In addition, do not own so many that you cannot keep track.

For example, once you determine your personal time horizon and risk tolerance, your stock holdings should be distributed across investment styles such as growth and value; capitalisation size; and US and international.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com

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