INVESTING COMMENTARY
How Low Can Stocks Go?
By Morgan HouselNovember 19, 2008
Between Nov. 4 and Nov. 12, the Dow Jones Industrial Average dropped 1,300 points. If it kept falling at that rate, the index would hit zero in fewer than two months.
Of course, we won't see zero. No matter how ugly the markets get, the pain we saw over these past few weeks can't continue for long.
But here's the bad news: Even though zero is out of the question, that doesn't mean stocks won't plummet from here. In fact, they could fall much, much further.
And history agrees.
What goes up ...
The history of long-term market downturns is pretty abysmal. When times are bad, markets don't just get drunk with fear -- they start downing vodka shots of fear.
At times like this, nobody wants to own stocks. Their palms begin to sweat every time they watch CNBC. They bury their heads in the hope that the pain will go away. They throw in the towel and sell stocks indiscriminately. In short, everything gets ugly.
Just how ugly? Have a look at the average price-to-earnings ratio of the entire S&P 500 index over these three periods of market mayhem:
Period
Average S&P 500 P/E Ratio
1977-1982
8.27
1947-1951
7.78
1940-1942
9.01
Compare that to the average P/E ratio today of 18.86 and a seven-year average of more than 24, and it's pretty apparent that stocks could fall much, much further than they already have, just by returning to the lows they historically hover around during downturns.
Assuming that earnings stay flat, revisiting those historically low levels could easily mean a nearly 50% decline from here. For the Dow Jones Industrial Average, that'd correlate to roughly Dow 5,000 -- give or take. Of course, I'm not predicting, warning, or forecasting -- I'm just taking a long look at history.
But what if it did happen?
What would happen to individual stocks? Here's what a few popular names would look like trading at P/E ratios of 8:
Company
One-Year Decline
Further Decline From Current Levels With P/E of 8
Costco (Nasdaq: COST)
29%
51%
Cisco Systems (Nasdaq: CSCO)
46%
34%
Adobe Systems (Nasdaq: ADBE)
46%
47%
Google (Nasdaq: GOOG)
53%
56%
Procter & Gamble (NYSE: PG)
15%
52%
Baidu (Nasdaq: BIDU)
57%
75%
Johnson & Johnson (NYSE: JNJ)
13%
40%
Look scary? It is. And it could easily happen.
But here's the silver lining: Every one of those stocks -- heck, the overwhelming majority of stocks -- are worth much more than a measly 8 times earnings. The only thing that pushes the average stock to such embarrassing levels is an overdose of panic, rather than a good reading on what the company might actually be worth.
Be brave
As difficult as it is right now, following the "this too will pass" philosophy really does work. No matter how bad it gets, things will eventually recover. Those brave enough to dive in when no one else dares to touch stocks are the ones who end up scoring the multibagger returns.
Need proof? Think about the best times you could have bought stocks in the past: after the economy recovered from oil shocks in the '70s, after the magnificent market crash of 1987, after global financial markets seized up in 1998, and after the 9/11 attacks that shook markets to the core. As plainly obvious as it is in hindsight, the best buying opportunities come when investors are scared out of their wits and threaten to give up on markets altogether.
And that's exactly where we are.
Pick what side you'd like to be on
The next few years are likely to be quite a ride. On the other hand, the history of the market shows that gloomy, volatile periods also provide once-in-a-lifetime opportunities that can earn ridiculous returns as rationality gets back on track.
If you need a few ideas, our team at Motley Fool Inside Value is sifting through the market rubble to find those opportunities. To see what they're recommending right now, click here to try the service free for 30 days. There's no obligation to subscribe
This article was originally published on Oct. 18, 2008. It has been updated.
Fool contributor Morgan Housel owns shares in Procter & Gamble. Johnson & Johnson is a Motley Fool Income Investor recommendation. Google and Baidu are Motley Fool Rule Breakers picks. Costco is a Motley Fool Stock Advisor recommendation. The Motley Fool is investors writing for investors.
I Turned $3,000 Into $210,000
By Selena MaranjianNovember 19, 2008
This article's swaggering headline smacks of exaggeration -- but it's true.
How it happened
Picture it: New Jersey, 1995. Although not then a Motley Fool employee, I was, perhaps like you, an avid reader of Fool.com. Founding brothers David and Tom Gardner occasionally recommended stocks, and one of their recommendations was an online service provider, America Online.
I was still quite new to investing, and I didn't know enough to do much of my own research. But I did have one thing going for me: I was an AOL customer. I used the service every day, and I liked what I saw of its user-friendliness, utility, and potential. So I bought. I snapped up $3,000 worth of shares and hung on.
Over the next several years, the stock went up and down, sometimes significantly -- but I held on. It mostly went up, and it split and split. I remember checking my portfolio regularly -- several times a day! -- to see how rich I was becoming. Near the stock's peak, I had a 70-bagger! My $3,000 investment had turned into $210,000. If it doubled in value only twice more, I'd be (almost) a millionaire! All from a measly $3,000 investment.
Did I sell shares along the ride up? No. (Some of us don't know when to cut our losses.) Did I sell at least some near the top, when my mom told me to? Nope. (That strange thudding sound you hear is me banging my head on my desk. The silence is my mom, biting her tongue.) I held on.
AOL merged with Time Warner in 2001, and for years after that, the stock struggled. I remember when shares were priced in the $70s, but it's a fuzzy memory. They spent years below $20 until relatively recently, and now they're in the single digits. I did sell a big chunk of my shares -- in the teens -- when I needed money for a down payment on my house. And I finally got smart -- I sold more shares to diversify into other stocks instead of holding a big chunk of my net worth in a company in which I no longer had faith.
I continue to hold a few shares, though, and despite my inclination to curse my stupidity for not selling earlier, I'm still sitting on a handsome profit, even at current levels. My cost basis is ridiculously low, and this has still been one of my best investments ever. I shouldn't complain.
How you can do it
If any part of this story appeals to you, know that you have a chance to make it yours -- perhaps with a happier ending -- if you make a few decisions differently. (You might end up as an accidental billionaire!)
Buy what you know
First, pay attention to products and services you know, use, and love -- especially if you see more and more people using them. There may be a great stock behind them, and knowing their products or services will go a long way toward understanding the business. Plenty of well-known companies have done phenomenally well over the past decade or two -- let's look at a few.
Have you been getting a lot of prescriptions filled lately? Well, CVS Caremark (NYSE: CVS) has been an eight-bagger over the past 20 years. Are you wearing Nike (NYSE: NKE) sneakers? Despite the market swoon, Nike shareholders have averaged more than 9% gains per year over the past decade, trouncing the market's return.
Love your desktop computer or your trusty printer? Hewlett-Packard (NYSE: HPQ) shares have averaged 11% returns over the past 20 years. These companies have performed rather well, right under our noses. Cell phone companies have done well, too -- with Nokia (NYSE: NOK) averaging 13% annual returns over the past 15 years.
Beware what you don't
Along those same lines, be wary of what you don't understand. If you don't understand how a business makes money, you probably won't be able to tell when business is going badly. Biotechnology companies present a good example, as do new-technology companies. Think of Amgen (Nasdaq: AMGN). If you're invested in it, do you have a good grasp of its multiple treatment modalities -- large-molecule proteins, small molecules, and antibodies, among other things? If you're invested in Oracle (Nasdaq: ORCL), do you have a solid handle on the database software industry?
You'd do well to learn from the mistakes of others, too.
Hang on for the ride
If you buy into a company hoping that it will be a multibagger for you, buy to hold as long as you continue to understand the business, strategy, and leadership. If you have faith in the company's future, it's often best to just hang on, despite inevitable hiccups. If you still have long-term confidence, don't let naysayers in the media get you out of a stock because of short-term concerns.
Consider the home-building specialist Toll Brothers (NYSE: TOL). For some of its earliest investors, it's been a 17-bagger over the past 20 years. For those who've hung on for just the past decade, through some down years and the market's recent upheaval, it has still averaged a 12% annual gain, far surpassing the S&P 500's negative average. So -- not bad, eh?
Sell if things get too crazy
Consider selling some of your shares if they hit levels you can't justify or if the company is facing some long-term problems. That was my main mistake -- irrationally and greedily hoping to get even richer. If a stock is trading for far more than you know it's worth, and you still hang on, you're no longer investing -- you're speculating, and at great risk.
This kind of issue is what investors in companies such as customer information management specialist salesforce.com need to think about. Its stock was recently trading at a P/E ratio around 100, based on trailing-12-month earnings. Is that reasonable, or has the stock gotten ahead of itself?
Get help from the pros
Finally, consider checking out the stocks that David and Tom Gardner recommend. Their Motley Fool Stock Advisor service, launched more than six years ago, offers two picks (and two investing styles) each month. They have a few losers, of course, but on average, their recommendations are beating the S&P 500 by more than 23 percentage points.
I invite you to try Stock Advisor free for 30 days, when you'll have full access to all past issues and recommendations. I've found some good stocks for my own portfolio there.
Here's to big profits in your future!
This article was originally published Feb. 2, 2006. It has been updated.
Longtime contributor Selena Maranjian owns shares of Time Warner and Amgen. Nokia is a Motley Fool Inside Value pick. The Motley Fool is Fools writing for Fools.
Smiling Through the Sell-Off
By Shannon ZimmermanNovember 19, 2008
Market sell-offs are painful, and adding insult to injury is that their pain isn't distributed equally -- at all. Just ask shareholders of Pfizer (NYSE: PFE), IBM (NYSE: IBM), and BP (NYSE: BP), three companies that are more than 30% below their 52-week highs through Monday's market close. Meanwhile, while the market has been in free fall over the last 12 months, Wal-Mart (NYSE: WMT), Genentech (NYSE: DNA), and General Mills (NYSE: GIS) have actually managed to notch gains.
Bandages for your portfolio
Then there's the fate of fund investors versus folks whose portfolios include just individual picks. Even seemingly conservative plays can suffer protracted periods of decline: GE (NYSE: GE), for example, has posted a negative annualized return for the five-year period that ended Monday. And while funds are hardly immune to volatility, a carefully calibrated portfolio of picks stands a much better chance of standing up over the long haul.
It's even possible to make money during sell-offs. Take, for example, Yacktman (YACKX), one of the funds I recommended back when I was running point on the Fool's Champion Funds newsletter service. Between 2000 and 2002, that puppy racked up a gain in excess of 50% while the market was tanking to the tune of more than 37%.
And make no mistake: Funds -- at least the kind that we focus on -- can provide plenty of participation during bull runs, too, particularly when they're paired with stocks whose forward-looking earnings-growth prospects aren't even close to reflecting their value.
That's what we strive to do at the Fool's Ready-Made Millionaire, where the bedrock principle behind our compact, set-and-forget portfolio is this: A carefully vetted selection of Grade A mutual funds and deeply discounted stocks is the kind of lineup worth building your nest egg around.
Needle in the haystack
That said, when it comes to funds, of course, it pays to be a snob. The vast majority of 'em can't keep pace with a dirt cheap index tracker like SPDRs (SPY). But if you focus on certain key attributes, you can go a long way toward finding the needles in the fund industry's haystack.
No single metric is determinative, but cost is crucial because every basis point of expense represents a higher hurdle that money managers have to clear just to stay within spitting distance of their expense-free benchmark. And while it's an investor's after-tax return that ultimately matters most, getting attuned to tax efficiency is important when it comes to determining which kind of account (taxable or tax-favored) is the best holding pen for a pick. Managerial tenure is vital information, too: A fund can only be as strong as the honchos who are calling the shots now.
The Foolish bottom line
If you want to be a savvy investor -- not to mention a smiling one -- zeroing in on those three items can help narrow the universe of funds down to just those that are worth considering for your portfolio.
Which brings us back to where we began: Even investors of the stock-jock persuasion can benefit from a sneak peek at the fund industry's best and brightest. That's a precept we put into practice at Ready-Made Millionaire, which offers something of an investment two-for-one: We've cherry-picked the fund industry's brightest prospects for our members, rounded out our line up with four stocks and an ETF we think will outperform the market, and we've put these picks together in a carefully calibrated portfolio. It's been a tough market, to be sure, and our portfolio has taken its lumps as well. In our recently released quarterly report, though, we re-vetted and reaffirmed our original investment thesis for each selection, and here's the verdict: We think our portfolio is a veritable blue-light special.
RMM will open to new members early in the new year. In the meantime, we invite you to learn more about the service and grab a free copy of our The 11-Minute Millionaire special report by clicking right here. Read up, prep for the market's next upswing, and we'll see you in just a matter of days!
This article was originally published on July 31, 2007. It has been updated.
Shannon Zimmerman is the lead analyst for the Fool's Ready-Made Millionaire service. Pfizer and Wal-Mart are Motley Fool Inside Value recommendations. Pfizer is also an Income Investor choice. Yacktman is a Champion Funds pick. The Motley Fool owns shares of Pfizer and SPDRs. The Fool has a strict disclosure policy.
4-Star Stocks Poised to Pop: Elan
By Brian D. PacamparaNovember 19, 2008
Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Irish biotech company Elan (NYSE: ELN) has earned a respected four-star ranking. While five-star stocks have been the best performers, our data has shown that four-star stocks still outshine the market by a significant margin and shouldn't be taken lightly; conversely, low-rated stocks have woefully lagged the market average.
With that in mind, let's take a closer look at Elan's business, and see what CAPS investors are saying about the stock right now.
Elan facts
Headquarters (Founded)
Dublin, Ireland (1969)
Market Cap
$2.88 billion
Industry
Drug Delivery
TTM Revenue
$949 million
Management
CEO G. Kelly Martin
CFO Shane Cooke
Return on Capital (average last three years)
(6.4%)
Competitors
Biogen Idec (Nasdaq: BIIB),
Pfizer (NYSE: PFE)
CAPS members bullish on ELN also bullish on:
Johnson & Johnson (NYSE: JNJ),
General Electric (NYSE: GE)
CAPS members bearish on ELN also bearish on:
Sangamo BioSciences ,
Ford Motor (NYSE: F), MEMC Electronic Materials (NYSE: WFR)
Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.
Over on CAPS, some 93% of the 848 members who have rated Elan believe the stock will outperform the S&P 500 going forward. These bulls include postbusters and stockdoc00.
Last week, postbusters urged our community to keep the faith:
I've been following ELN for years and have been burned terribly, but each time the stock rises from the ashes to head for the stars. They have such a great success at innovative new treatments that I have to believe they will be back in the fight for the title again.
A pitch from stockdoc00 in September shares that contrarian spirit, tapping Elan as a misunderstood biotech bargain:
A high risk high reward company with a very promising pipeline, in particular for Alzheimer's and multiple sclerosis. The recent Tysabri scare that precipitated its sudden drop was a huge overreaction by the investor community. While its fundamentals are not up to par compared with other premier pharma co's, it is way oversold and a great buy at its current levels.
What do you think about Elan, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 120,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.
Time to Copy Buffett's Buy Order?
By David Lee SmithNovember 19, 2008
Sometimes I'm struck by the fleeting idea that we pay too much attention to Warren Buffett's thoughts and the stocks that make up Berkshire Hathaway 's (NYSE: BRK-A)(NYSE: BRK-B) portfolio. Nevertheless, from my perspective, my Foolish colleague Morgan Housel's recent news that Buffett's been actively buying ConocoPhillips (NYSE: COP) is a big positive.
Oh sure, Buffett may have bought it for reasons that wouldn't hold today, since as of June 30, it was reported that Berkshire owned 59.7 million shares of the Houston-based member of Big Oil. And by Sept. 30, Buffett's Conoco stash had climbed to 84 million shares, making Berkshire the company's largest holder. So, he apparently did a majority of his buying when oil prices were zooming upward, before they topped out above $145 a barrel in July.
But, while Warren and I don't travel in the same circles, I'd be surprised if he were to use a descent to $55 crude -- or even $45 -- as an excuse to lighten his Conoco load now. As you know, he practices exactly what we constantly counsel our Foolish friends to use as their investment mantra: buy and hold. And while the precipitous slide in crude has shocked the pants off energy seers everywhere, there's logic in the notion that, with all sorts of major oil and gas projects being chopped across the globe, any sort of return to economic normality risks leaving crude supplies well short of demand.
So, where Buffett has led the way by gobbling ConocoPhillips shares, it's an ideal time for Fools to follow suit at significantly lower prices. After all, ConocoPhillips' shares are currently trading about 50% lower than their 52-week high.
That being the case, there are actually several ways to approach a Big Oil component of your portfolio. For instance, ConocoPhillips gives you a skinny 5.9 times forward P/E and a 4% yield, while BP 's (NYSE: BP) forward P/E is 6.3 times, and its dividend yield is an eye-opening 7.7%.
And then there's industry leader ExxonMobil (NYSE: XOM), whose 10 times forward P/E may tell you something about the company's exalted position among its peers, despite its yield of 2.2% being less than a third of BP's. I also wouldn't rule out Chevron (NYSE: CVX), the second-largest U.S.-based oil company.
The key is for Fools to realize that, despite what we might have thought last spring, energy hasn't shed its cyclicality. As such, it appears that we've been dropped into the middle of a time when buy-and-hold practitioners can build positions in some very solid companies at far less than they'd have paid not too long ago.
More than 4,000 Motley Fool investors have accorded ConocoPhillips a top-of-the-line five-star CAPS rating. Does that include your vote?
For related Foolishness:
4-Star Stocks Poised to Pop: ExxonMobilWarren Buffett Goes ShoppingBP Stands for Big Profits5-Star Stocks Poised to Pop: ConocoPhillips
By Brian D. PacamparaNovember 19, 2008
Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, oil and gas giant ConocoPhillips (NYSE: COP) has earned a coveted five-star ranking. Our data has shown that five-star stocks outperform the market by a significant margin; conversely, one-star stocks have woefully lagged the market average.
With that in mind, let's take a closer look at Conoco's business and see what CAPS investors are saying about the stock right now.
Conoco facts
Headquarters (founded)
Houston, Texas (1917)
Market Cap
$74.4 billion
Industry
Integrated Oil & Gas
TTM Revenue
$233 billion
Management
CEO James Mulva (since August 2002)
CFO Sigmund Cornelius (since October 2008)
Return on Equity (average last three years)
19.6%
Dividend Yield
4%
Competitors
Chevron (NYSE: CVX),
Exxon Mobil (NYSE: XOM)
CAPS members bullish on COP also bullish on
Chesapeake Energy (NYSE: CHK),
General Electric (NYSE: GE)
CAPS members bearish on COP also bearish on
BP (NYSE: BP),
General Motors (NYSE: GM)
Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.
Over on CAPS, fully 3,996 of the 4,122 members who have rated Conoco -- some 97% -- believe the stock will outperform the S&P 500 going forward. These bulls include blkwhtcorp and TMFmrquakeroats.
Just yesterday, blkwhtcorp noted that Conoco "is currently trading below its book value of $60 per share. Oil will continue to be the popular energy source for the near future. Excellent balance sheet. Classic Graham no brainer pick."
In an earlier pitch from last week, TMFmrquakeroats agrees, citing the Oracle's steadily increasing stake in Conoco as reason to remain confident:
High quality, major oil and gas company. Buffett has invested over $6 billion in COP recently and the stock is currently selling for a margin of safety below his cost basis.
I also like the fact they are very diversified across the globe and have been buying back shares at very low PE multiples and pay a nice dividend.
What do you think about Conoco, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 120,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.
The Insider Edge
By Selena MaranjianNovember 19, 2008
With the market having swooned as deeply as it has, there seem to be too many bargains. I'm having trouble deciding which stocks to buy.
If that's your problem, too, here are some solutions. The first is making sure to do plenty of research. It's easy to compile a list of compelling companies, but it takes work to dig into each of them. Do so and you may find that some have high profit margins, suggesting that they wield more pricing power than other companies. (Higher margins can also lead to higher profits -- though not always.) You may find that some companies are carrying a lot of debt. That could be a disqualifier, because that debt will require repayment, and will limit the companies' flexibility, especially in a shaky market.
(Hop over to the completely free Motley Fool CAPS investing community to access a bunch of information on 5,400 stocks and to read what your fellow Foolish investors are saying about them.)
Here's another thing to look at: insider trading. And no, I don't mean what Martha Stewart in the past and Mark Cuban in the present were accused of. I just mean the publicly recorded purchases and sales of stock by company bigwigs.
For example, I noticed that Cisco Systems (Nasdaq: CSCO) insiders have been largely selling over the past year. That's not too encouraging. To be fair, insider sales aren't as meaningful as buys -- because an executive might be reluctantly selling in order to buy a home, pay for college, or what have you. But they pretty much buy only because they think the price will go up. Still, seeing hardly any purchases at all is a little unsettling.
On the other hand, some company insiders are buying. Here's a short list of some recent buys:
Stock
Insider Buying, Last 30 Days
Burlington Northern Santa Fe (NYSE: BNI)
$65.7 million
H&R Block (NYSE: HRB)
$50.1 million
Systemax (NYSE: SYX)
$173.5 million
Calpine (NYSE: CPN)
$65.6 million
Source: MSN.com.
Upon closer inspection, I note that most of H&R Block's many insider purchases over the past year were all by one director. I'd rather see a bunch of different insiders buying. When I looked up Caterpillar (NYSE: CAT), I saw a bunch of different insiders, but they were selling. Perhaps I'll hold off on that stock for a while.
This can be a good way to check up on your current holdings, too. For eBay (Nasdaq: EBAY), I found departing CEO Meg Whitman doing a lot of selling, but the CFO spent a quarter of a million dollars buying in the summer. That's encouraging.
7 Highly Rated Stocks on Sale
By Matt KoppenhefferNovember 19, 2008
I am always looking for a good deal, whether that means buying an extra box of Golden Grahams when they're on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than its worth may seem silly, but legendary value investor Ben Graham (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis to offer to sell you interests in businesses he owns or to buy from you interests in businesses you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, while at other times he'll be inconsolably depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.
So to find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:
Stock
30-day return
One-year return
Current CAPS rating
Ctrip.com (Nasdaq: CTRP)
(36.6%)
(63.6%)
****
Corning (NYSE: GLW)
(31.1%)
(62.6%)
*****
ABB
(29.4%)
(58.8%)
*****
NYSE Euronext (NYSE: NYX)
(23.3%)
(71.4%)
*****
Activision Blizzard (Nasdaq: ATVI)
(22.4%)
(0.8%)
*****
UnitedHealth (NYSE: UNH)
(22%)
(64.4%)
*****
Berkshire Hathaway (NYSE: BRK-A)
(20.2%)
(30%)
*****
Data from Motley Fool CAPS as of Nov. 18.
As the table shows, these stocks are all still very well-regarded by the CAPS community, despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off some further research. I'll even get you started with some thoughts on Stock Advisor favorite Berkshire Hathaway.
Why so blue?
That's easy, Berkshire's stock is down because all stocks are headed to zero. Right? What? You don't think that all stocks are tumbling into oblivion? Well, then you are obviously in the minority.
Extreme pessimism aside, the drop in Berkshire shows that not even the former market darlings have been spared from Mr. Market's current wrath. It's not totally without basis, though, since investment losses and a soft insurance market helped drag down third-quarter and year-to-date results. Earnings per share for the third quarter fell hard, dropping 77% from the prior year. Year-to-date doesn't look too much better, with earnings per share off 53%.
At the same time, Buffett -- who is usually held up as a paragon of investing -- has started becoming the subject of the inevitable "has he lost his touch?" articles, since many of his equity holdings have lost ground.
What the bulls say
I certainly don't believe that Buffett is infallible; it's possible that his big investments in GE (NYSE: GE) and Goldman Sachs (NYSE: GS) could go wrong. However, it seems to me that though both companies are hitting tough times now, they have good longer-term prospects and he got some pretty smokin' terms with the preferred stock he bought. Of course, to see that you have to shake off recenct bias and consider the fact that we may not be mired in muck forever. At the same time, Buffett has not only been talking up stocks, he's been buying them.
It's also important to remember that though so much is made of Buffett's prowess when it comes to stocks, there's a heck of a lot more to Berkshire Hathaway than its investment portfolio. Though recent insurance profits are down, Berkshire is one of the best property and casualty insurers and reinsurers in the world and owns, among others, the GEICO brand. Outside of insurance, Berkshire owns a host of top-quality companies, ranging from NetJets to Business Wire to See's Candies. Though these businesses will likely see some softness from the economic downturn, they're all strong, well-run companies that should continue to kick out cash for Berkshire for years to come.
There's no need to convince CAPS members that Berkshire is a stock to have on your list. Of the 2,615 members that have rated Berkshire's A shares, 2,539 of them think the stock will outperform, versus just 76 that think it will underperform. And the margin of optimism is even greater when it comes to the company's B shares.
CAPS member Jeffreyw recently gave Berkshire the thumbs-up on the hopes that Buffett could use the current depressed market to shareholders' advantage:
Buffett is the best value investor in the world, and now is his best chance to find incredible values. I just hope he doesn't run out of cash to buy them before the recovery is under way!
So do you think the recent drop has created a good buying opportunity? Or will Berkshire's struggles expand? Let the community know what you think -- head over to CAPS and share your thoughts with the other 120,000-plus members currently part of the community. Even if you'd prefer to pass on Berkshire, you can check out a couple of the other stocks listed above or any of the 5,400 stocks that are rated on CAPS.
More CAPS Foolishness:
5 Dynamic Dividend Stocks5 Top-Rated Value Stocks7 Must-Read Stock BlogsA Cheap Tech Stock You Shouldn't Buy
By Tim BeyersNovember 19, 2008
Microsoft (Nasdaq: MSFT) may look cheap at around 10 times earnings, but it won't be worth buying until CEO Steve Ballmer and his team aim higher than they have with Vista, Mr. Softy's widely loathed yet surprisingly resilient operating system.
Meeting low expectations
Vista has been a commercial success and a failure of expectations. Commercially, uptake has improved nicely in recent months. Researcher Net Applications found that Vista's share of PCs accessing the Web increased by about a percentage point in October. Mac OS X's share declined slightly during the same period. (However, the Mac now accounts for roughly 8% of the market -- well above the 5% share it had not long ago.)
That said, Vista's failure to meet inflated expectations -- a failure that has been well-documented and has spurred brilliant satire -- appears to be almost entirely the result of infighting at Microsoft, trade magazine Computerworld reports.
Court documents show that Ballmer capitulated on specifications for what would qualify as a "Vista Capable" PC, an important designation around which Microsoft would craft a marketing campaign. Initially, Computerworld reports, Mr. Softy held the line -- demanding that "Vista Capable" hardware include advanced graphics chips. So Hewlett-Packard (NYSE: HPQ) prepared as Dell (Nasdaq: DELL) resisted.
But then Intel (Nasdaq: INTC) complained. The line disappeared shortly thereafter, emails show.
HP's management and some of Microsoft's top engineers fumed at the decision, including Jim Allchin, who led the development of Vista at the executive ranks. "I am beyond being upset here," Allchin wrote to Ballmer in an email released by the court. "This was totally mismanaged by Intel and Microsoft. What a mess. Now we have an upset partner, Microsoft's destroyed credibility, as well as my own credibility shot."
Allchin retired from Microsoft on the day of Vista's release. Dell has chosen to allow some PC customers to choose Windows XP over Vista. And Intel -- the longtime partner to which Mr. Softy yielded -- has refused to upgrade its own PCs to Vista.
Injury, meet insult.
Where have all the innovators gone?
What's so awful about this story is that it isn't surprising to investors. Not our 120,000-strong Motley Fool CAPS community, anyway:
Metric
CAPS stars (out of 5)
***
Total ratings
12,013
Bullish ratings
10,241
Percent bulls
85.2%
Bearish ratings
1,772
Percent bears
14.8%
Bullish pitches
1,998
Bearish pitches
494
Data current as of Nov. 19, 2008.
"The giant is in a long, slow decline," wrote CAPS All-Star brianlucas over the weekend. "It is huge and well-entrenched, so it will take a long time to fall and will use every tool at its disposal to hang on. However, their flagship products like Vista are failing and their monopoly, especially in Europe, is being challenged legally and also in the marketplace as alternatives are becoming more and more attractive and practical. I'm betting on Microsoft's decline in the long term."
To be fair, every firm capitulates from time to time when it comes to technology -- even Apple (Nasdaq: AAPL). For example, you can't replace your iPod battery without a factory refit. Birthing technology often creates awful acts of capitulation that squeeze users.
If Apple isn't as subject to this problem as others, it's only because of CEO Steve Jobs's desire to keep his company vertically integrated. Intel is a partner for microprocessors, sure, but it's the iEmpire that controls design and assembly of both OS X and the hardware that runs it. Jobs can therefore make, and enforce, impossible design demands.
Microsoft, on the other hand, provides specs and recommendations, but it's up to the PC manufacturers to build machines that make its software sing. Coordination is key -- because when you have multiple break points, something usually breaks.
Which brings me back to Vista. Today, the OS is catching on. But, at release, it offered more problems than solutions for far too many. That misstep may help to explain why, thanks to improved Mac and iPhone sales, one analyst thinks that Apple is about to enjoy the mother of all earnings blowouts.
I've got my "i" on you, Mr. Softy
There's a lot to like about Microsoft at these levels. Windows is still the world's dominant operating system, Google 's (Nasdaq: GOOG) Docs has yet to displace Office as the top software productivity suite, and its partnership with Netflix (Nasdaq: NFLX) could transform the Xbox into a leading digital entertainment hub. Mr. Softy, in some ways, is a tech hardbody.
But Vista's poor rollout, and errors like it, reveal stretch marks. That's a problem. Developers have more platform choices than they used to. And they don't always choose Microsoft. Rather, they're writing for the iPhone, or for cloud computing environments, or for Google. Give them long enough, and they'll find ways to produce software that will, at the very least, seriously damage Windows and Office.
Microsoft is cheap. Maybe it's for a good reason.
Tuesday's Biggest Stock Stars
By Brian D. PacamparaNovember 19, 2008
Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Tuesday's biggest winners among the stocks with a top rating of five stars.
Without further ado:
Company
Yesterday's % Gain
Cresud
11.35%
Infinera (Nasdaq: INFN)
10.09%
ConocoPhillips
6.69%
Walgreen (NYSE: WAG)
4.86%
Schlumberger (NYSE: SLB)
4.75%
There's a reason I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday, such as low-rated Freddie Mac (NYSE: FRE): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?
Our community of more than 120,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.
Written in the (five) stars?
For example, 98% of the 971 CAPS members who've rated Motley Fool Rule Breakers pick Infinera have a bullish opinion of the stock. In September, one of those Fools, TMFBreakerThiel, explained why the optical-networking company seemed relatively attractive: "Starting to look like its priced as a commodity component maker, and it's not. Almost identical P/E and similar mkt cap to [Ciena (Nasdaq: CIEN)] ... but a lot less troubled."
With the help of yesterday's surge, Infinera is beating the market by 16% since that call.
The bullish lesson?
Learn to apply the theory of investment relativity when analyzing stocks. There are several different methods for valuing a company, but comparing a stock's price-to-earnings ratio to that of its peers is one of the most straightforward (and useful) ways to sniff out a bargain. As long as you're cognizant of its many limitations, relative valuation should be at least one step in your investment-appraisal process.
And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Tuesday's biggest one-star decliners:
Company
Yesterday's % Loss
General Growth Properties
31.88%
DivX
22.06%
Saks (NYSE: SKS)
14.55%
Macy's
13.12%
Sealy
12.85%
While yesterday's plunge in highly rated Allied Irish Banks (NYSE: AIB) may have caught our community off guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks dropped by an average of 11.4%, annualized.
Did CAPS call the fall?
Last month, for instance, CAPS member palumbah made this bearish prediction on Saks:
This will be a bad Christmas shopping season for Saks. ... [Clothing on display] is very '60s with little embellishment, nothing from any couture lines, and not a Christian [Louboutin] in sight. ... [L]uxury retailers only bank on conservative clothing when they realize their customers have to work harder to rationalize their purchases and that they will likely have lower sales. My suspicions were confirmed when I read that Saks is cutting its sales projections for the coming quarter.
Not surprisingly, shares of the luxury department-store operator are already down 48% since that call. In fact, yesterday's drop came after the company posted a third-quarter loss of $42.8 million and warned of a dismal holiday season -- just as palumbah had.
The bearish takeaway?
Master the Mosaic Theory method of analysis. Mosaic Theory simply involves collecting bits and pieces of info about a company -- both qualitative and quantitative -- and figuring out whether they tell a story that makes sense. As CAPS' palumbah demonstrated perfectly, all of the visits to Saks could lead to only one reasonable conclusion: underperform.
The final Foolish move
Investors often focus strictly on stock price movements without realizing that developing a proper stock-picking process counts most.
Over at Motley Fool CAPS, tens of thousands of investors are Foolishly sharing insightful investment tips to help, above all else, identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you become a more Foolish investor.
Log in to CAPS today, and start participating. It's absolutely free -- and a lot of fun!
5-Star Stocks Poised to Pop: Dolby Labs
By Brian D. PacamparaNovember 19, 2008
Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, audio technology company Dolby Labs (NYSE: DLB) has earned a coveted five-star ranking. Our data has shown that five-star stocks outperform the market by a significant margin; conversely, one-star stocks have woefully lagged the market average.
With that in mind, let's take a closer look at Dolby's business and see what CAPS investors are saying about the stock right now.
Dolby facts
Headquarters (founded)
San Francisco, California (1965)
Market Cap
$3.10 billion
Industry
Diversified Electronics
TTM Revenue
$640.2 million
Management
Founder/Chairman Ray Dolby
CEO N. William Jasper
Return on Equity (average last three years)
19.7%
Competitors
Sony (NYSE: SNE),
DTS (Nasdaq: DTSI)
CAPS members bullish on DLB also bullish on
Apple (Nasdaq: AAPL),
Cemex (NYSE: CX)
CAPS members bearish on DLB also bearish on
Ford Motor (NYSE: F),
Netflix (Nasdaq: NFLX)
Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.
Over on CAPS, fully 2,738 of the 2,800 members who have rated Dolby -- some 98% -- believe the stock will outperform the S&P 500 going forward. These Foolish bulls include jagdme and InternetSecurity.
Last week, jagdme ran down Dolby's sweet, and simple-sounding, bull case: Brand moat, solid fundamentals, good management. Poised to ride out the economic woes and thrive long-term.
In an earlier pitch from September, InternetSecurity agrees, citing Dolby's underrated brand-power as the real reason to remain bullish:
How Dolby has held onto its intellectual property and licensing even beyond the 17 years a patent would last is a mystery to me. I think it is a brand that is barely noticed by the mass consumer market even though the logo is on much of what they own. I suspect Dolby's licensing agreements of being deeply ingrained in systems and that somebody is making sure they stay that way. That will be the reason for their continued existence and success - not technological superiority or the inability of anyone to copy their technology.
What do you think about Dolby, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 120,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.
The Trillion-Dollar Bailout
By Rich DupreyNovember 19, 2008
In ancient China, the execution of especially heinous criminals was achieved by the slow, painful torture known as death by a thousand cuts. My colleague Morgan Housel penned an essay that, while not exactly extolling the virtues of the financial industry bailout, obliquely defended it using arguments that remind me of this gruesome form of death.
In short, with the original arguments in favor of the bailout now revealed for the chimera they are, proponents are suggesting that things aren't as bad as they seem because Uncle Sam will eventually be repaid (well, at least we hope he will be) and he's not dumping the entire $700 billion at risk into the market all at once, but doling it out slowly in targeted dollops.
Friends of Paul
The fallacy of the argument is that it presupposes the government knows which investments are the smart ones to make, and won't be guided by any sort of favoritism, collusion, or political pressure. I know. That never happens. We might never know the real reason why Lehman Brothers was allowed to fail but others saved. We might not be allowed to understand why National City (NYSE: NCC) was denied TARP funds leading directly to PNC (NYSE: PNC) acquiring it on the cheap, but other similarly situated banks like Marshall & Ilsley and Comerica received money.
Paulson now admits the original idea to buy troubled assets was whack (guess we'll have to call the TARP something else), so suggesting they know which institutions will make good investments gives them more credit than they deserve.
Treasury's gear changing is somehow supposed to calm us because, as John Maynard Keynes once said, "When the facts change, I change my mind. What do you do, sir?"
How about it scares the bejesus out of bailout opponents because it really represents reckless bouncing about, pinging from one idea to the next, hoping something -- anything! -- will work. The passionate pleas made beforehand, Paulson getting down on one knee and begging, and assertions that the original plan was not only the right plan but the only plan that would work, was just so much high-school drama-club theatrics.
It ain't cheap
If there's one thing I agree with Morgan about is that assigning this bailout a "$700 billion" price tag is a misnomer. We'll be lucky if that's the final tab.
Let's not forget the $29 billion taxpayers are spending backing Bears Stearns portfolio so that JPMorgan Chase (NYSE: JPM) wouldn't have to shoulder any risk, or the $200 billion given to Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Let's also add in the $140 billion tax giveaway to banks like Wells Fargo (NYSE: WFC) to buy distressed rivals; the triple dip for American International Group (NYSE: AIG) totaling about $150 billion; the Fed holding more than $226 billion for the commercial paper market; the FHA's $300 billion Hope for Homeowners program; and $540 billion in loans for money markets funds.
$700 billion? Hah! Fellow Fool, Christopher Barker, came up with a number much closer to $4 trillion -- and that was last month!
Blind leading the blind
No, Paulson & Co. don't know what they're doing, but it is cold comfort to say that it doesn't appear that anyone does. That's certainly not a clarion call for opening the nation's purse strings, or for giving unprecedented authority to regulators to go on a spending spree. Instead it means we should wait to get some understanding before forging ahead blindly.
An amputation drastically reducing the bloated credit running loose in the system would be far more humane than the slow, painful cuts this bailout is inflicting.
"Superbad" Move for Sony, Netflix, and Microsoft
By Rick Aristotle MunarrizNovember 19, 2008
There's no McLovin lost between Sony (NYSE: SNE) and Microsoft (Nasdaq: MSFT).
Just as Microsoft is rolling out open availability of Netflix (Nasdaq: NFLX) movie streaming through Xbox 360 consoles this morning, Sony is pulling out as one of the few major studios to back Netflix's digital push.
Roughly an eighth of the Netflix catalog of more than 100,000 titles is available through online streaming. The service began as a modest PC-tethered offering last year, but has migrated into the home theater now that Netflix has teamed up with component makers like LG, Samsung, TiVo (Nasdaq: TIVO), Roku, and Microsoft to stream right into televisions.
Sony has played along, offering up even some of its more recent hits like Superbad, Across the Universe, and Spider-Man 2 through the ambitious Netflix broadband-pitched offering. Well, now it's pulling out, but only on the Xbox. It will still stream online through Netflix's other partners.
What the --
How is a 360 different from a TiVo DVR, a Samsung Blu-ray player, or a Roku Wi-Fi set-top box?
Oh, I see. Sony has competing PS3 consoles to move during the holidays. The last thing it wants is to contribute to a rival platform's success. Even if Sony stands to collect a royalty from Netflix on subsequent streams, it would be giving diehard gamers one more reason to choose the 360 over the PS3 during the telltale holiday selling season.
It's a hollow argument, of course. Sony sells televisions right alongside LG. Samsung Blu-ray? Heck, Sony is Blu-ray. Why isn't it going after those home theater appliance makers?
Clearly, Sony is cherry-picking here because there is so much to gain in the video game war. Done right, a blockbuster gaming console can generate a high-margin revenue deluge of software sale royalties. The prospects are even higher now that developers are reaching out directly to the gamers through digital delivery. The stakes are so high that both companies have been slashing their console prices, widely believed to be selling below cost in order to make it up in software volume.
So maybe one can sympathize with Sony's move. Cut it some slack, as it's already making a bold move to devalue its films by offering them through Netflix, instead of saving them for more lucrative piecemeal sale through leading digital video retailers like Apple (Nasdaq: AAPL) and Amazon.com (Nasdaq: AMZN). Holding back on Superbad streaming for Xbox 360 owners isn't personal. It's just business.
A brief history of Netflix's shot to bridge the gap between PC streaming and the home theater:
hooked up with select LG high-def components.The Netflix Player by Roku came out in May.A deal with Microsoft was struck two months later, with Xbox 360 playback debuting today.The Day My Satellite Radio Died
By Rick Aristotle MunarrizNovember 19, 2008
It was a week ago today that I turned on my car to learn that Fred is dead. That's what I said.
Fred, the 80s-sipping new wave channel on Sirius XM Radio 's (Nasdaq: SIRI), was one of the many XM commercial-free music stations replaced by somewhat similar Sirius alternatives last Wednesday morning. Fred was toast. 1st Wave is the new Fred.
I recounted the experience with Mike Snider from USA Today over the weekend. I wound up being the anecdotal lead in his column yesterday.
Being singled out is typically the result of standing out. Unfortunately for Sirius XM, I am not the only one.
I hear you
There have been 79 comments tacked on to the end of my original article on the satellite radio switch last week. Apparently the satellite radio provider has hit a nerve with its subscriber base.
There's more, but you get the point. Obviously a few negative reactions make for an incomplete sample. The vast majority of the company's 18.9 million subscribers are either fine with the moves or are willing to stomach the changes. However, how many cancellations can Sirius XM take at this point?
Not many, one would think.
Bad press at a bad time
Cyberspace is alive with cancellation stories over the past week, many of them alleging to be axing multiple receivers. Sirius XM has already hosed down its expectations for the current quarter. It expects to close out the year with just 19.1 million active receivers, a mere 200,000 net gain sequentially. If the cancellations are in the thousands or tens of thousands, the company's monthly churn rate will bump higher than the 1.7% rate it posted in the third quarter. However, what if we're talking about hundreds of thousands of cancellations?
I can't be the only one recalling last year's XM promise.
"XM's programming, including Major League Baseball, Oprah & Friends, Bob Dylan, Opie & Anthony, and commercial-free music channels, will not be interrupted by the merger," XM promised last summer.
It may have bended that promise when it temporarily suspended Opie & Anthony after some on-air remarks, but how about now when so many channels are being replaced? Can Sirius XM afford to be moving the furniture at this penny-pinching moment?
Consumers are really being prudent with their money. Just consider the following recent nuggets that indicate tighter guarding of discretionary income:
Netflix (Nasdaq: NFLX) lowered its subscriber targets last month, with the average consumer paying nearly $1 less monthly for the service than he was a year ago.On the satellite television front, Dish Network (Nasdaq: DISH) closed out its latest quarter with fewer subscribers than when it started. Rival DirecTV (NYSE: DTV) gained subscribers, as it typically does heading into the NFL season, but at a much slower pace than a year earlier.Rhapsody provider RealNetworks (Nasdaq: RNWK) saw a slight uptick in music subscriptions during the third quarter, but is lowering its overall guidance for the current period.Clearly we're in a very sensitive market. The last thing a subscription service needs is to give its cost-slashing customer a reason to cancel. The timing also couldn't be worse, with more than $1 billion of the company's $3.4 billion in debt due to be repaid next year. Creditors applaud cost-cutting initiatives, but it's a different story if growth turns the other way.
Searching for a scapegoat
If Sirius XM does come up short in the holiday quarter, you can be sure that it won't point at last Wednesday's switcheroo as the culprit. It will seek out external factors. It can certainly do that, as the weakness at other subscription-based entertainment services justify the softness.
However, what if an analyst asks the company specifically about the number of cancellations immediately following last week's programming shift? Will CEO Mel Karmazin own up to the numbers? I hope he does. I hope he's also armed with the cost-savings behind the move to at least deflect any of the potential criticism.
If the holiday quarter finds Apple (Nasdaq: AAPL) booming on the iTunes front and music subscription services like Rhapsody and Best Buy 's (NYSE: BBY) Napster faring relatively better, Karmazin will need to justify the reasons to kill Fred, Lucy, and Ethel.
For Sirius XM shareholders' sake, let's hope they didn't die in vain.
Some other tales of low-priced stocks on the move:
5 Reasons Why Sirius XM is at $0.435 Stocks on Wall Street's New Dollar MenuThe Greatest Secret of All7 Stocks Losing Top Investor Support
By Motley Fool StaffNovember 19, 2008
"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." -- Sir John Templeton
Just as it makes sense to research the stocks attracting top investors, it's equally important to figure out why smart money is leaving other investments. Using Motley Fool CAPS, the Fool's 120,000-member-strong investing community, we can see which stocks are losing support from CAPS All-Star players.
A sudden decrease in interest from top-rated investors could signal that the stock is losing steam, which might make it an awful stock to avoid for now. At the very least, such drops should signal that further research is in order.
Here are seven stocks receiving less support from CAPS All-Stars over the past month:
Company
Industry
% Change in All-Star Bulls From 10/20 to 11/19
CAPS Rating (out of 5)
CAPS Research
The Steak n Shake Company (NYSE: SNS)
Hotels, Restaurants and Leisure
(48%)
SNSRoyal Caribbean Cruises Ltd. (NYSE: RCL)
Hotels, Restaurants and Leisure
(48%)
RCLNasdaq Stock Market, Inc. (Nasdaq: NDAQ)
Diversified Financial Services
(46%)
NDAQAmerican Reprographics Company (NYSE: ARP)
Commercial Services and Supplies
(45%)
ARPMorningstar, Inc. (Nasdaq: MORN)
Media
(44%)
MORNMDC Holdings, Inc. (NYSE: MDC)
Household Durables
(42%)
MDCAmbac Financial Group, Inc. (NYSE: ABK)
Insurance
(42%)
ABKSource: Motley Fool CAPS, as of Nov. 19, 2008.
Come join us on CAPS, absolutely free, to learn more about these and countless other interesting stock ideas. Sign up for free.
Today's 5-Star Movers
By Motley Fool StaffNovember 19, 2008
As fundamentals-focused long-term investors, Fools never base an investment decision on the daily gyrations of the market. But the market's daily price movements can be useful when looking for new stock ideas for further research, or to keep tabs on watch-list stocks.
Below you'll find today's biggest movers among our five-star stocks -- the highest rating awarded by our CAPS community of more than 120,000 investors. Have a look, and then visit us on CAPS to dig in further on each of them.
Up Today
Sector
Sector Past 30 Days
Fools Saying Outperform
Research
Minefinders Corp. Ltd. (USA)
(AMEX: MFN)
6.03%
Metals and Mining
(17.47%)
215 of 220
Premiere Global Services, Inc.
(NYSE: PGI)
5.99%
Diversified Telecommunication Services
(9.98%)
131 of 139
Other Five-Star Metals and Mining International Royalty Corp (AMEX: ROY) up 13.27%Golden Star Resources Ltd. (USA) (AMEX: GSS) up 8.49%Other Five-Star Electronic Equipment, Instruments and Components China 3C Group (OTCBB: CHCG) up 5.88%Orbotech Ltd. (Nasdaq: ORBK) up 4.21%Other Five-Star Diversified Telecommunication Services Hellenic Telecommunications S.A. (ADR) (NYSE: OTE) up 0.42%Tele Norte Leste Participacoes SA (ADR) (NYSE: TNE) down 0.09%Great Call on Valero! What's Next?
By Matt KoppenhefferNovember 19, 2008
The boom and bust in oil prices has mangled a lot of investment portfolios -- legendary oil investor T. Boone Pickens' BP Capital among them. For obvious reasons, anyone who produces oil has been hit hard as oil prices have fallen. Oil refineries like Valero (NYSE: VLO), though, could have hoped that such a fall in crude would reverse their fortunes, since gasoline prices tend to be stickier on the way down than crude. Not so this time. Even as crude plummeted, the margins that refiners made changing crude to refined products stayed tight.
Despite the continued tight times for refiners, members of the Motley Fool's CAPS community have stayed very positive on Valero. More than 4,000 members have weighed in with their expectations for the stock, and nearly 96% have been bullish. None of them, however, has been quite as on the money when it comes to Valero as buccayew, who has made two calls on Valero during his time on CAPS -- one outperform and one underperform -- and has been right both times, scoring more than 60 points.
buccayew is one of CAPS' All-Stars -- players with a rating of 80 or greater -- and he has managed an impressive stock-picking accuracy of more than 65% on his calls while racking up more than 1,600 points. Valero hasn't been his only great call. Here's a look at a few of his other prescient picks:
Company
Date Picked
Call
Points
CAPS Rating (5 max)
Unifi
11/7/06
Outperform
79
*
MBIA (NYSE: MBI)
2/12/08
Underperform
53
*
Las Vegas Sands (NYSE: LVS)
2/5/08
Underperform
51
**
Data from CAPS.
So what is this investor looking at these days? Here are a few of his most recent calls on CAPS:
Company
Date Picked
Call
CAPS Rating (5 max)
Wal-Mart (NYSE: WMT)
11/13/08
Underperform
****
Chico's FAS
11/11/08
Outperform
***
Cimarex Energy (NYSE: XEC)
11/3/08
Outperform
****
Data from CAPS.
While not all of these picks may pan out, they could be a good place to start some further research. I decided to take a closer look at Wal-Mart.
Playing the expectations game at Wal-Mart
Investors obviously believe that Wal-Mart will weather the current economic environment better than just about anyone else. Over the past year, the stock is up more than 10%, while the rest of the market has run for the hills. Fellow discount chain Target (NYSE: TGT) has shed more than 40% over the same period, and department stores like J.C. Penney and Macy's (NYSE: M) have fared even worse.
So why would we expect Wal-Mart to underperform now? For precisely the above reason. Investors already have high hopes baked into the stock price. As Wal-Mart bear SilverSliver99 pointed out last week in CAPS:
While this is a safe play, I don't think it's a very good play. This stock at best will sit at the same price. With a 1.7% dividend, a small upside and a lot of potential downside, you're better of putting your money in bonds or savings.
Despite the bearishness of buccayew and SilverSliver99, the vast majority of CAPS members that have weighed in on Wal-Mart have come down on the opposite side. rlloydevans recently came in with a positive view on the stock, and he seems to believe that the recession-fighting properties of the business are worth potentially paying a premium:
Walmart is the most efficiently run discount seller in the global marketplace. While most consumers will be cutting their spending the next several quarters while under the gloom of the recession, most will go shopping where their money goes farthest. That means Walmart. While other retailers will suffer, and not a few implode, Walmart will weather the current recession and come out much stronger, ready for another round of aggressive, worldwide expansion to drive future earnings.
So what's your take on Wal-Mart? Will it continue to outperform even in this recessionary environment or will it finally succumb to tough times? Get in the action by clicking over to CAPS, an absolutely free community that already has more than 120,000 stock pickers chipping in to find the best stocks out there.
More CAPS Foolishness:
5 Top-Rated Value Stocks5 Dynamic Dividend Stocks7 Must-Read Stock BlogsA Pause at Petrobras?
By Toby ShuteNovember 19, 2008
Yesterday, I pointed to signs of life upstream emanating from national oil companies Saudi Aramco and Pemex. There's been a flurry of press about Petrobras (NYSE: PBR) lately, so let's try to assess how the Brazilian energy champion is responding to the petroleum implosion.
As mentioned in my colleague's roundup of Petrobras' record quarterly earnings, the firm was supposed to issue an update to its long-range investment plan in October. That roadmap has some fresh potholes to avoid and is still being redrawn.
Now, some comments would indicate that deepwater projects like the giant Tupi field are going to proceed as planned. General manager Jose Jorge de Moraes yesterday indicated that lower-priority projects were the ones being reshuffled, whereas "the pre-salt projects remain profitable."
Some analysts seem to disagree. Credit Suisse (NYSE: CS), for one, has argued that the break-even point for the Brazilian offshore bonanza is around $50 per barrel. Deloitte pegs the required price much higher, at $90 per barrel. The latter is in line with the figure cited by Total SA (NYSE: TOT) for its equally challenging oil sands endeavors.
Whatever the break-even number, this much we do know: Petrobras has pushed back its tenders for 28 deepwater rigs into 2009. I'm reluctant to read too much into this delay. It's conceivable that the company simply thinks it can save a bunch of reals by waiting for the drop in steel and other material costs to translate into lower quotes on newbuild rigs. In other words, I wouldn't be putting in a sell order on those Transocean (NYSE: RIG) or Noble (NYSE: NE) shares.
Still, the postponement, when combined with the pushback of its Chevron -partnered (NYSE: CVX) Papa Terra project, is evidence of unease, and I will do my best to keep Fools clued in to signs of upstream supermajors squirming further.
Let Me Be Your Horrible Warning
By Selena MaranjianNovember 19, 2008
"If you can't be a good example -- then you'll just have to be a horrible warning."
--Catherine Aird
I would love to be a good example of smart investing, I really would. And in some ways, I suppose, I am. I've made much more money than I've lost, after all. I once turned $3,000 into $210,000, and I also turned a series of small investments into enough for a down payment on a nice house.
But in some ways, I'm more of a horrible warning. I once lost $200,000, after all -- and that wasn't my only mistake.
Learn from me
How, exactly, did I lose so much money? Let me count the ways.
I gave in to simple, sloppy thinking. When Time Warner, for example, had fallen from around $70 per share to around $15, I figured it couldn't fall much further. That was dumb -- a stock's price reflects what people will pay for it, based on what they think it's worth, and nothing else. Last time I checked, it was just south of $10 per share. Gut feeling does not an investing thesis make.
What you should do
In addition to avoiding the mistakes I listed above, how should you invest? One strategy is to consider blue-chip dividend payers.
They may have a reputation as safe plays that won't net you big gains, but if you're truly a buy-and-hold investor, they'll pack a punch. According to Wharton Business School professor Jeremy Siegel, in the period from1871 to 2003, 97% of the after-inflation stock returns came from reinvesting dividends -- only 3% came from capital gains.
And in a volatile market like this one, companies with a sustainable dividend can help prop up your portfolio until prosperity returns. All of the companies below, for example, have increased their dividends every year for at least 20 years -- and that's a good indicator of their long-term prospects.
Company
Recent Dividend Yield
3M (NYSE: MMM)
3.1%
Coca-Cola (NYSE: KO)
3.4%
Johnson & Johnson (NYSE: JNJ)
2.9%
Consolidated Edison (NYSE: ED)
5.5%
Pfizer (NYSE: PFE)
7.2%
Any investment requires more research than just looking at the dividend yield, but a history of strong dividend payments is a good place to begin.
The Foolish bottom line
I've been both a good example and a horrible warning -- and I must say, I prefer being the former. So I'm avoiding the mistakes that made me a horrible warning and focusing on companies I understand -- especially dividend payers.
If you'd like some pointers to a bunch of promising dividend payers, I invite you to test-drive, for free, our Motley Fool Income Investor newsletter service. Its recommendations have been beating the S&P 500 by several percentage points on average, and those picks sport an average dividend yield of more than 6%. Just click here for your free trial -- it will give you full access to every past issue with no obligation to subscribe.
Longtime Fool contributor Selena Maranjian owns shares of Time Warner, Intuitive Surgical, Coca-Cola, Johnson & Johnson, and 3M. Pfizer and Johnson & Johnson are Motley Fool Income Investor selections. Pfizer, 3M, and Coca-Cola are Inside Value selections. Intuitive Surgical is a Motley Fool Rule Breakers pick. The Fool owns shares of Pfizer. The Motley Fool is Fools writing for Fools.
9 Things You Should Do Instead of Buying Stocks
By Tim Beyers and Austin EdwardsNovember 19, 2008
Most know Scott Adams only as the creator of Dilbert. But after a recent meeting with him at his Silicon Valley office, we think we know him a lot better than that.
We watched him draw Dilbert on a touch-sensitive PC that we're still salivating over. We got a closer look at one of the two local eateries that he owns. We heard first-hand about his new book, Dilbert 2.0. It was an engaging and entertaining conversation -- right up to the moment one of us mentioned stocks.
Whoops.
Here's what really caught our attention
Adams' passion for personal finance is matched only by his utter disdain for stocks. That's right, this keen observer of business and management trends believes that most people, himself included, cannot beat the market buying individual stocks -- especially when the companies behind those stocks are run by drunken chimpanzees.
It's a fair point -- drunken chimps can't do much. And yet, according to finance professor Kenneth French -- one-half of the team that revealed the market-beating potential of small-cap value stocks such as Middleby (Nasdaq: MIDD) -- investors paid $99.2 billion in fees trying to beat the market during 2006 and were on pace to spend more than $100 billion this year.
Confusing the confusopolies
And that doesn't even address today's business climate. After meltdowns at Lehman Brothers, Fannie Mae (NYSE: FNM), and Freddie Mac (NYSE: FRE), it's easy to imagine Dogbert, CEO of Confusopoly Corp . (Ticker: HUH), convincing the world's bankers that an active market for commercial paper would melt Greenland. Or that ritual cat sacrifices are the key to global liquidity.
Laugh all you want, but bankers at Bear Stearns, JPMorgan (NYSE: JPM), and elsewhere are the same Harvard-stupid morons who thought that credit derivatives weren't all that risky. Who's to say they wouldn't believe a cartoon character? Or that they wouldn't find synergies between CDOs and cat sacrifices? They're eerily similar, after all -- both begin with the letter "c."
Adams cites a severe distrust of weasels -- er, management -- as his reason for swearing off individual stocks. Makes sense to us. Investors were right to distrust the optimists at National City (NYSE: NCC) and Ambac Financial (NYSE: ABK).
So what should you do?
Adams has nine steps that he says, when performed in order, can help you to generate -- and protect -- your wealth. We think his suggestions are pretty Foolish and thus, with his permission (thanks, Scott), we publish them here:
You're not in Elbonia any more, Dilbert
Adams' nine steps look pretty familiar to us Fools -- we've always advocated paying off debt, saving for retirement, and having a substantial emergency fund. But avoid stocks altogether? We respectfully disagree.
But we do agree that if you're going to try to beat the market with stocks, you need to know what you're buying -- and you need to understand and trust management. That's why we and several of our Rule Breakers teammates recently spent a week in Silicon Valley meeting with executives at CV Therapeutics (Nasdaq: CVTX), VMware, and several of our other scorecard companies.
If you'd like to get the full story on what we discovered, read in-depth write-ups of each company we visited, and gain full access to our exclusive members-only website, we invite you to take a free, 30-day trial of Motley Fool Rule Breakers. To get started, all you have to do is click here -- there is no obligation to subscribe.
Neither Tim Beyers nor Austin Edwards owned shares of any of the stocks mentioned in this article at the time of publication. Tim is a member of the market-beating Motley Fool Rule Breakers team, which counts CV Therapeutics and VMware among its recommendations. Middleby is a Hidden Gems pick. JPMorgan Chase is an Income Investor selection. Our disclosure policy is thinking up new torture devices for Catbert, evil HR director, who jut took a gig consulting to some of Wall Street's biggest firms.
What's So Great About Being a Bank?
By Liz PeekNovember 19, 2008
I want a new toaster! Maybe a microwave, too. Anyone remember when banks tried to attract deposits with a veritable wagonload of small appliances? As more and more companies morph into banks, competition for deposits is going to again become fierce. I'm seriously hoping to update my kitchen.
So far, the only enticement I've seen from banks is a slightly better-looking CD rate than the guy next door. As I emerged from the subway the other day, someone handed me a flier advertising a 4% six-month CD from Citibank (NYSE: C). That's supposed to tempt me?
Somehow, handing over my hard-earned cash to an outfit seeking emergency help from the federal government just isn't that compelling, even for a 4% annualized payback. (At the least, I'd like a new coffeemaker thrown in.)
If you haven't noticed, cash is king, and everybody wants yours. The only way most firms can get hold of your cash is to become a bank. Consequently, banking has suddenly become cool -- everybody wants to be a bank. (If you doubt me, consider the new website Startabank.com.)
Most recently, American Express (NYSE: AXP) announced that it, too, had become a bank. Like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) before it, AmEx applied to the Fed a few days ago and got "express treatment." Why the rush? Because applications for funding from the Troubled Asset Relief Program (TARP) had to be in by Nov. 14, and you can't apply for funds under this program unless you're a bank or thrift holding company. Get it?
(By the way, do you find yourself wondering if the name TARP was accidental, and if not, how many hours of Treasury time were spent dreaming up a name with such a perfect acronym? It could, after all, have been something like Federal Lenders' Organization Plan, or FLOP.)
Congratulations, you're a bank
While being a bank exposes companies to greater regulatory oversight (not that the scrutiny of our government watchdogs amounts to much), it also puts these companies in line to borrow at the Fed window, to access TARP funds, and to participate in the new FDIC Temporary Liquidity Guarantee Program (TLGP). This new plan, which has just gotten rolling, allows companies to, in effect, "rent" FDIC insurance for 75 basis points for a period of three years on debt refinanced by June 30, 2009.
The need for deposit-generated funds is heightened by the drastic shrinkage in new bond issuance. In October, only $28.4 billion in new U.S.-dollar denominated bonds were sold, down from $102.3 billion the year before. The 2008 total includes only $698.5 million in speculative-grade sales -- one issue -- compared to $22.1 billion in the 2007 period. Furthermore, rates on recent sales have been punishingly high. For example, Time Warner Cable (NYSE: TWC) (barely investment grade) sold 10-year notes last Thursday with a pricey 8.75% coupon.
Consequently, more and more companies are trying to access cash held by individuals -- you and me. The only way to do that is to become a bank. Attracting deposits is considerably cheaper than the cost of issuing new debt. One financial services executive told me that the cost of bringing in deposits through a branch network is only about 250 to 350 basis points -- surely a bargain compared to prices being paid in the bond market. (Of course, that's before we get into the whole toaster issue.)
So sorry, you're not a bank
Surveying the possible survival routes open to financial services companies, it is clear that not all will enjoy the same opportunities. Until a week ago, the Federal Reserve had balked at allowing companies like GE Capital (part of General Electric (NYSE: GE)) and GMAC (a minority 49% of which is still owned by General Motors (NYSE: GM)) to participate in the bailout. (Although GE is already participating in the government’s Commercial Paper Funding Facility -- known on the Street as the "GE Rescue Plan" -- and the TLGP program. Think about it ... a bank insurer is now insuring up to $139 billion in debt of a non-bank).
However, in his press conference last Wednesday, Treasury Secretary Henry Paulson appeared to acknowledge the need to pony up assistance to a broader range of financial services companies, focusing especially on those making credit available to consumers.
The Fed is, in effect, making life-or-death decisions when accepting or rejecting a company for government assistance. Becoming a bank holding company and inclusion in federal programs pretty much guarantees survival. Exclusion can sound the death knell. By comparison, toasters seem pretty inexpensive.
ReneSola Reveals Solar Rot
By Toby ShuteNovember 19, 2008
Last week, JA Solar (Nasdaq: JASO) shed some light on the shaky solar situation over in China. Fellow countryman ReneSola (NYSE: SOL) followed up yesterday with some unsettling news of its own.
Like LDK Solar (NYSE: LDK) and MEMC Electronic Materials (NYSE: WFR), ReneSola is a supplier of the wafers that folks like Suntech Power (NYSE: STP) and Solarfun Power (Nasdaq: SOLF) fashion into solar cells. This firm has generated some remarkable growth, with over 100 megawatts of wafers -- an even balance between the high-efficiency monocrystalline and the cheaper multicrystalline variety -- produced in the third quarter. Annualized capacity is poised to hit 585 MW by year end.
That's all well and good, but ReneSola's profitable expansion requires somebody to buy all these wafers. Over the past few weeks, a whole bunch of the company's domestic customers chose not to. In other words, they reneged on their purchase contracts. International customers are apparently meeting their obligations, but ReneSola acknowledged that "a significant proportion" of output is contracted to Chinese firms.
This is big news, and the newswires appear to have missed it entirely. But when solid companies like JA Solar are temporarily idling 40% of their production lines, I suppose it shouldn't come as too much of a surprise.
Just how temporary these dislocations prove to be will dictate the extent of devastation owing to this solar deflation. Every company is, so far, putting a pretty rosy spin on things, but ReneSola still chose not to issue guidance for 2009. I would personally prefer to see a greater washout before dipping a toe into these swirling solar waters.
The Next Home Run Stock
By Tom GardnerNovember 19, 2008
I assume that you, like everyone and his Aunt Audrey, would love to find the next Wal-Mart -- to dig out the market's most precious small companies. Back in October 1977, Wal-Mart traded at a split- and dividend-adjusted price of $0.05 per share. Today, it trades for around $53. In a little more than 30 years, Wal-Mart has turned a $5,000 investment into more than $5 million.
Of course you'd love to buy the next Wal-Mart.
But you'd prefer not to take on extreme risk, right?
I think you're smart to think that way. So do a host of great money managers -- from Peter Lynch to Seth Klarman, Bill Miller to Charles Royce. They've all searched for small companies with a mixture of sales and free cash flow growth, superior returns on invested capital, heavy insider ownership, and healthy assets -- all at a reasonable price.
Forever great
But remember, companies like Wal-Mart typically exhibit excellent financials from the day they hit the public markets. Wal-Mart was never a penny stock (again, that share price of $0.05 back in October 1977 is split- and dividend-adjusted; the stock traded at $17 back then).
Wal-Mart didn't hype itself in press releases, nor did management make outlandish promises to its investors. As it turns out, if you want to find monster long-term winners, you shouldn't throw money at shaky, speculative companies.
Wal-Mart founder Sam Walton, who owned a massive stake in the enterprise, ran his company conservatively for decades. And just four years after its IPO as a tiny public company, Wal-Mart began paying a dividend. This business was run to sustain yearly profit growth indefinitely.
If you're going to invest in small-cap rocket stocks, as our team does at Motley Fool Hidden Gems, please avoid the whisper-stock party tips and hype jobs. They destroy wealth over time. Wal-Mart wasn't getting hyped. No one was following it!
Contrary to popular perception, you need not assume great risk to invest in the best small caps. You only need to train yourself to look for disciplined, conservatively run small businesses.
Finding these stocks doesn't involve a hopeless search through barn-sized haystacks for a lone platinum needle. The stock market features plenty of promising smaller companies, run successfully by founders with large personal stakes in the enterprise.
In fact, they thrive in every industry -- electrical, education, medicine, retail, and beyond. Take a look at these six great investments from 1996 to 2008, all of which were small caps in the mid-'90s.
Nov. 18, 1996
Nov. 18, 2008
Return on Investment
Celgene (Nasdaq: CELG)
$0.79
$57.57
7,187%
Ceradyne (Nasdaq: CRDN)
$3.28
$23.31
611%
Deckers Outdoor (Nasdaq: DECK)
$8.12
$50.08
517%
Lab Corp. of America (NYSE: LH)
$7.50
$63.60
748%
Lufkin Industries (Nasdaq: LUFK)
$8.00
$47.84
498%
QLogic (Nasdaq: QLGC)
$1.14
$10.44
816%
All prices adjusted for splits and dividends. Data from Yahoo! Finance.
Note, again, that this group hails from a broad variety of sectors. A few are familiar faces, while the others remain largely unknown on Main Street. But each was a small cap 12 years ago. And not only were they not industry stalwarts, but they were also flying below most consumers' and investors' radar. They had yet to attract a cadre of Wall Street analysts and big institutional investors.
Their stock prices reflected it. They were cheap because they were irrelevant! And these sorts of opportunities still exist today.
The next big thing
The 20- to 700-baggers of the next 12 years are out there right now, with their fuses lit and a wide-open sky above them. But they aren't Celgene, valued at $26 billion today. They're also not companies like Wal-Mart, valued at $210 billion and covered by more than 20 Wall Street analysts.
They're small companies with strong founders and executive ownership north of 10%. Companies without debt concerns. Companies that generate excess cash from their operations, some of which already pay dividends. Companies that function without any real reliance on Wall Street for financing or table-pounding "strong buy" ratings.
I know it sounds contrary, but I want you to see that many of these small businesses offer low risk and high rewards for their long-term owners. How could a small company be less risky than a giant? Ask the former owners of WorldCom. That company wasn't just overfollowed -- it was fraudulently run!
The exact opposite exists with great small caps. They're well-run and underfollowed on Wall Street, creating price inefficiencies that strongly favor long-term investors.
Does that sound possible? Does it sound logical? It's certainly contrary.
What you should look for
Our team at Hidden Gems advises you to track down the following:
If you're inclined to think that every small-cap stock is doomed to have a larger competitor stomp it out, I ask you to return to my list of strong performers above. Each rose from obscurity because of sound financial management and shareholder-friendly practices. The free markets gave them plenty of maneuvering room.
But not every small company is poised for enduring success. Of the thousands of stocks in the small-cap universe, I find that 90% are too richly valued or too speculative, given the underlying business. That remaining 10%, however, contains hundreds of small caps that will beat the market, and dozens that will rise more than 30 times in value over the next 10 to 15 years.
You can read about this, and all of our Hidden Gems recommendations, right now, by signing up for a 30-day free trial. There is no obligation to subscribe.
This article was first published Sept. 24, 2003. It has been updated.
Tom Gardner is co-founder of The Motley Fool. He does not own shares of any company mentioned in this article. Wal-Mart is a Motley Fool Inside Value recommendation. Lab Corp. is a Stock Advisor selection. Ceradyne is a Rule Breakers pick. The Fool has a disclosure policy.
This Just In: Upgrades and Downgrades
By Rich SmithNovember 19, 2008
At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the worst ...
For solar power investors, bad news has come in buckets these past few weeks. Plunging polysilicon prices. Contracting credit markets. Shrinking state subsidies. And downgrades -- oh, so many downgrades. But up on Wall Street, at least one investor has not yet abandoned all hope in this strange realm it's entered. Yesterday, beleaguered banking behemoth JPMorgan clambered way out on a limb and begged to differ with its fellow analysts, arguing that all is not yet lost in the solar space.
Despite downgrading Evergreen Solar (Nasdaq: ESLR) and Ascent Solar (Nasdaq: ASTI) yesterday, JPMorgan reiterated its support for solar installer SunPower (Nasdaq: SPWRA) and initiated coverage of thin-film star First Solar (Nasdaq: FSLR) with a "buy" rating.
Let's go to the tape
Why would we care what JP thinks? Good question. Fact is, this megabanker isn't so good when it comes to picking winning stocks, getting 55% of the picks tracked by CAPS wrong and ranking in the bottom quintile among CAPS investors. In the solar-related field alone, JP's scorecard already includes a couple of sizeable losers:
Company
JPMorgan Said:
CAPS Says (out of 5):
JPMorgan's Pick Lagging S&P 500 by:
Applied Materials (Nasdaq: AMAT)
Outperform
*****
9 points
MEMC Electronic (NYSE: WFR)
Outperform
****
38 points
But while its record fails to impress, when you read this banker's report, the logic rings true. According to JP, there's a flight to quality underway -- with "quality" being defined as cash-generating capacity. The banker predicts a 25% drop in prices for solar components and systems in 2009, which will cause "margin compression at all levels of the solar energy food chain." The industry's due for a shakeout, and in JP's view, only those firms capable of cutting their capital expenditures, and producing free cash flow to remain solvent, are worth investing in.
In this regard, JP doesn't think either Evergreen or Ascent is up to the task -- hence, the sell ratings. In contrast, while neither Sunpower nor First Solar currently generates positive free cash flow, both do generate positive cash from operations -- leaving open the possibility that if they cut their capital budgets to the bone, they may emerge from this crisis intact.
While not strictly solar (Applied Materials sells equipment used by solar companies, while MEMC makes the starting material for solar cells), these companies do generate positive cash from operations and are actually free cash flow-positive as well. However, Motley Fool Rule Breakers fave Suntech Power (NYSE: STP), is not generating positive free cash flow.
Foolish takeaway
JPMorgan's discovery of the virtue of cash warms the very cockles of my Foolish heart. Fact is, the only reason I don't own any solar stocks today is because I've yet to find a pure play in the space that has significant free cash flow to back up its attractive GAAP P/E ratio.
And in fact, I have my doubts that First Solar and Sunpower will fulfill JP's dreams. Maybe they can cut capital spending fast enough to generate the cash profits that underpin JP's investment thesis. Maybe not. If I were playing the solar sector, I'd "trust but verify" this point before committing funds.
Corning Goes Dark
By Rich SmithNovember 19, 2008
And so it was that Corning 's (NYSE: GLW) predictions came to naught, sucked into the black hole of a consumer-led recession.
For quarters on end, the (arguably) biggest name in glassware fought the rising tide of market pessimism. As recently as last summer, Corning was feeling good about its prospects in the LCD TV market, despite production cuts by AU Optronics (NYSE: AUO) and LG Display (NYSE: LPL), and bloated inventories at