Stock Madness 2005: Snap-on vs. Lexar

The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment.and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn.and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

Snap-on (NYSE: SNA  )
Pleasant Prairie, Wis.
$31.50
52-week high-low: $35.40-$27.15
$1.8 billion market cap

By James Early

So let's get started the easiest way I know how: by irreparably maligning the competition. As my opponent Seth "SanDisk" Jayson points out, his company, flash memory maker Lexar, has been borrowing heartily and sports vulnerable margins. But it's also enveloped in a high-growth business. That spells a conflicting mix of characteristics.

Lexar's a dangerous investment that can go either way in a hurry. And it has. Think Brownian motion after six cups of coffee. Beta, a measure of past volatility, is 1.3 for Snap-on, versus 1 (by definition) for the S&P 500. For Lexar? 3.7! That means Lexar is among the most fluctuating of the fluctuators, an impossible-to-call stomach-churner.

And in my corner? Dependable tool stalwart and Motley Fool Income Investor pick Snap-on, which brings to the table two things, among others:

  • A rock-solid, 85-year-old brand. It has got the best tools around -- and there's never a substitute for having the best product.

  • A healthy 3.1% dividend yield.

Following some operational difficulties a few years ago, this company has gone from down and out to up and up, beating analyst estimates, reducing debt, repurchasing shares, and growing sales.

Nothing sexy here, folks -- except a bizarre-but-clever "lifestyle" magazine for technicians (you call them "mechanics"), just announced that should further suck them into what's already a cult brand -- something I know from personal experience. But really, we're just talking top-notch tools and a solid company. And that's the whole point. This is investing, not gambling, right?

James Earlyowns no shares discussed in this article.

Lexar (Nasdaq: LEXR  )
Fremont, Calif.
$2.76
52-week high-low: $18.55-$2.55
$225 million market cap

By Seth Jayson (TMF Bent)

In stocks, just like in sports, you can make money betting on losers. It's called shorting, and over the past half year, few companies would have made a better short than Lexar. As head coach of the "short Lexar" team in our Foolish stock tournament, I'm taking a different tack from the pandering cheers my colleagues are going to give you as they coach their picks through our tournament.

You've heard of point-shaving? We don't need it. I'm here to tell you straight up: Bet against us. We won't win. We won't get close to the bottom edge of the spread. Our fundamentals stink. We can't hit from the charity stripe. Most of our guys are too short to get on the rides at Disney's (NYSE: DIS  ) Magic Kingdom, and they dribble the ball with two hands. The other day, one of them showed up for practice wearing a football helmet and asked whether he could "go long" every play.

OK, I'll drop the hoops analogies for a moment. Although it makes frequent claims to technological superiority and panders to the pro market, Lexar can't deliver on the basics and it isn't playing the right game. Earnings warnings have become as regular as rain. Best of all, management -- and many shareholders -- remain in complete denial, even though some of us saw the writing on the wall a good while back.

What's the solution to losing money? If you ask Lexar, it's losing more money. Partnerships with Eastman-Kodak (NYSE: EK  ) , liberal price protection guarantees that come back to bite you in the tuckus? Just keep trying to sell more! It'll all work out some day, right? And in the meantime, the banks are happy to dole out more bread to keep the company fed.

Nothing in Lexar's strategy can fix its core problem, which is a larger, profitable, and aggressive competitor called SanDisk (Nasdaq: SNDK  ) .

If there were ever a team to bet against, Lexar looks like it.

Seth Jayson owns shares of SanDisk. View his stock holdings and Fool profile here.

Who won? Click here to cast your vote.

The Motley Fool is investors writing for investors.


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Related Tickers

4/22/2014 4:00 PM
DIS $79.45 Up +0.34 +0.43%
Walt Disney CAPS Rating: *****
KODK $29.65 Up +0.24 +0.82%
Eastman Kodak Comp… CAPS Rating: *
SNA $117.00 Up +0.63 +0.54%
Snap-on, Inc. CAPS Rating: ****
SNDK $84.80 Up +1.15 +1.37%
SanDisk Corp CAPS Rating: ***

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