Cash for Clunkers: 100% Gainers to Sell Now

Our so-called junk rally has been unusually kind to the market's weakest links, with the likes of Ford (NYSE: F  ) , Las Vegas Sands (NYSE: LVS  ) , and Palm (Nasdaq: PALM  ) , for example, sporting triple-digit returns on the year.

Never mind the sorry state of their financial "health." A deeply bought-into belief that happy days are here again has led to yet another spiked punch bowl -- and with the lampshade only recently fastened back on the lamp and the glass-cleaner barely dry on the copy machine, too.

Party on, Wayne
Yes indeed: The market is drunk yet again. How else to explain the rise of the aforementioned powerless trio? Each hemorrhaged cash during its past fiscal year and all trade at more than 25 times the rosy next-year earnings scenarios of Wall Street's eternally optimistic, Gucci loafer set -- 25 times!

The you-can't-be-serious shoe also fits Sirius XM Radio (Nasdaq: SIRI  ) -- another triple-digit gainer on the year despite its 0-for-10 free cash flow record over the past decade -- as well as Freeport-McMoRan Copper & Gold  (NYSE: FCX  ) , an admittedly sturdy operator, but one whose fortunes (or misfortunes, as the case may be) are tethered to the mercurial demand for commodities. Not for nothing did Freeport's operating margins shrink by more than 100% during fiscal 2009.

What goes up ...
Investors have nonetheless bid up Freeport's stock price by some 150% on the year, a trajectory that underscores my point: All these concerns should concern any investor who holds their shares.

Here's why. Parties are fun while they last, but no one Fool should be the last to leave. Investing ain't Sunday school, it's true, but fundamentals (and, um, fundamentalist investors) will eventually trump a "technical" rally, a rise powered in large measure by the fact that money has begun flowing back into equity mutual funds and that money managers don't get paid to sit on cash.

To snip the title from a favorite Fool commentary, the bottom line is this: Danger, horror, get out. Unlike that must-read write-up, though, no irony is required here. Now really is a great time to cash out of clunkers and trade up to tougher stuff, vehicles poised to provide greater mileage over the long haul.

Two for the road
Intel (NYSE: INTC  ) , for example, is still trading below its yearly high despite impressive year-over-year growth in operating income during a tough fiscal 2008. Like Intel, Apple (Nasdaq: AAPL  ) boasts a rock-solid financial profile as well as a fat and happy figure when it comes to return on equity (ROE) -- a key indicator of both profitability and the managerial acumen of the companies' honchos.

Art and science
No matter what data swirls around it, though, free cash flow (FCF) is my mainstay metric. Add up the cash a company has taken in from operations, subtract its capital expenditures, and voila: FCF, the lifeblood of any going concern that aims to remain a going concern.

The science of analyzing FCF involves assessing the present value of a company's future cash flows. And then the art kicks in; determining whether a stock's current price is right in light of the return you require given its risk and how wide your margin of safety must be.

That latter phrase refers to the gap between a company's stock price and your estimate of its intrinsic value. And that's where I'm currently stuck with both Intel and Apple. Attractive in fundamental terms though they are, both currently trade above my buy-below price -- and therefore outside my margin of safety.

Bargains galore!
I'm a patient Fool, though, particularly when bargains abound elsewhere and are being conveniently served up on a silver platter. To wit: Even after the market's fast and furious run-up, the list of recommendations at Motley Fool Inside Value -- a service for dyed-in-the-wool cheapskates like moi -- includes more than 20 companies trading at discounts of more than 30% to intrinsic value.

If you're looking to winnow your watch list down to just those stocks you might actually buy, check out Inside Value's complete list of recommendations for the low, low price of ... free. No investment is risk free, of course, but there's a margin of safety in Inside Value's numbers. Click here to snag a free 30-day guest pass.

Shannon Zimmerman runs point on the Fool's Duke Street and Ready-Made Millionaire services, and he runs off at the mouth each week on Motley Fool Money, the Fool's fast 'n' furious podcast. A fresh edition of MFM hits iTunes each Friday, and you can listen by clicking here. (Link opens iTunes.) Shannon doesn't own any of the stocks mentioned. Apple is a Motley Fool Stock Advisor selection. Intel is a Motley Fool Inside Value pick. You can check out the Fool's strict disclosure policy right here.


Read/Post Comments (28) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2009, at 2:54 PM, vairman wrote:

    I agree with JRSmithman, the Fool being a fool once again. Trying to persuade people to sell by bashing again, not looking at the long term picture. The sky is falling for Sirius, so sell, sell, sell. BULL!

  • Report this Comment On September 08, 2009, at 3:17 PM, mipakaco wrote:

    Your almost daily (uninformed) bashing of LVS has become monotonous. MF has been screaming "SELL" since LVS was in the $2's. It is now in the $16's. What buss me most, is how uneducated your endless supply of columnists actually are on this stock. It is never mentioned that most of LVS revenues come from Asian markets, that they are spinning off an IPO on Macau, or the fact that they have Marina Bay Sands opening in Singapore (an untapped market) in a few months. Just keep on bashing ad nauseum, just as you have at $2, $4, $6, $8, $10, $12, $14, $16, etc. etc. etc. There are actually some INFORMED analysts out there that have LVS at $26 by year end. Obviously MF has an agenda against LVS (short?). It's blatant. And wrong. I , and all the other LVS stockholders have made a small fortune with this stock by NOT listening to the Motley Fool BS. Keep on publishing these foolish daily commentaries on LVS, as we watch the share price keep rising. Maybe you should do a little homework on this stock that you love to badmouth every day.

  • Report this Comment On September 08, 2009, at 4:29 PM, Goosie69 wrote:

    Whatever the real story is, i've been making money with LVS since it was in $2's. We all know know - who missed that rally would never agree on being wrong, they rather keeping bashing a stock until the next "great depression" (MF in 2032 - "LVS falling from $250 to $95 - if you had listened to us, you would have preserved your capital!"). I'd rather be a contrarian with 800% gain than a serious investor on the sidelines.

  • Report this Comment On September 08, 2009, at 4:30 PM, RAF22 wrote:

    As usual, the Motley Fool is dollar cost averaging the wrong way, in reverse, with Sirius XM. The Fool has been advising selling every other day, all the way up from the low .30's. Nice advice, guys - at this rate you will have your followers joining you as roadkill along the market highway!

  • Report this Comment On September 08, 2009, at 4:43 PM, JRSmithman wrote:

    I see MF knocked my post off see its all agenda bad bad bad

  • Report this Comment On September 08, 2009, at 4:44 PM, trammen0 wrote:

    I think the Fool is trying to make the idiots that listen to their advice broke....... Again another crap load of jibberage!!!!!!

  • Report this Comment On September 08, 2009, at 4:52 PM, JRSmithman wrote:

    We now know what the Agenda is for MF trying to keep the stocks low even when they are up to try to bring them down. They have no facts or real data. I can not wait until the truth is uncovered and the site is brought down by the hole you dig keep digging the whole deeper the SEC wont stand for it / the truth will be known

  • Report this Comment On September 08, 2009, at 4:56 PM, JRSmithman wrote:

    Come on Shannon Zimmerman

    Stand up for your facts instead of hiding any news of truth can you really back up your own theory on this report

  • Report this Comment On September 08, 2009, at 5:09 PM, ozzfan1317 wrote:

    I agree with the author Is Sirius even profitable? If they make it to a dollar take your gains and walk away.

  • Report this Comment On September 08, 2009, at 5:13 PM, richardk33 wrote:

    You people a truly a Joke, you constanly brag about the stocks you picked 20 years ago and try to make people believe they would have made a fortune paying MF for your worthless garbage. You are still picking INTC in your other articales yet Intel stock has been $20.00 for five years a ZERO return on my money if I buy it like you reccomend. That would really make me a fool, The stock market is NO LONGER a "Buy and Hold environment like it was 20 years ago, now its just day trade market and try and beat the thieves like You and Cramer, Sorry I'll keep buying LVS and making money.

  • Report this Comment On September 08, 2009, at 5:24 PM, stan8331 wrote:

    Trying to tell the market it's stupid seems like a losing game to me. During the crash, a lot of companies were priced for likely bankruptcy but didn't in fact end up going bankrupt. In that scenario, of course many of those stocks have had large percentage gains. They may or may not be good investments going forward, but a huge run up from NEAR ZERO does not necessarily indicate a stock is greatly over-valued.

    Dollar amounts do matter - someone who bought 1000 shares of SIRI at $0.10/share was risking losing everything, but "everything" was only a hundred bucks. If you believed there was a good chance SIRI would avoid bankruptcy, it was an excellent speculative investment at that price.

    If you believe a stock is a bad investment from this point forward, by all means make your case. But please don't try to tell people who've made nice profits that they're stupid. Of course anyone who bets everything on one or more speculative investments is accepting extreme risk, but if handled as a limited portion of a well-diversified portfolio, speculative investments can make perfect sense and offer significant rewards.

  • Report this Comment On September 08, 2009, at 5:49 PM, fw190a8 wrote:

    I think these FOOL writers get paid by the number of hits they get on their articles..cuz it sure isn't content.

    And they keep bash writing LVS on the rule of "Even a blind squirrel gets a nut once in awhile."

    But when they change their tune it's time to sell.

  • Report this Comment On September 08, 2009, at 6:38 PM, ybnvsbu wrote:

    All this BS just to lure people in to a 30-day free trial that one would have to jump through hoops to get canceled. Peddle your crap at the freeway on ramp, tramp!

  • Report this Comment On September 08, 2009, at 8:41 PM, beawinner2 wrote:

    JRSmithman's comment was DELETED???

    WHAT!?! deleted comments for WHAT reason?!!!!

    OMG I'm so embarassed for the FOOLS!!!

    Say it's NOT so Joe FOOL.

  • Report this Comment On September 08, 2009, at 8:43 PM, beawinner2 wrote:

    My brothers laughed at me when I sub'd the FOOLS.

    I feel like an idiot now because they WERE RIGHT???!!! WERE THEY???

    Why FOOL brothers...why...........

  • Report this Comment On September 08, 2009, at 9:35 PM, Pat999 wrote:

    First bought LVS at 2.90$ a few months ago. A few days later the CEO buys a few million shares. The point is that you can say it's junk but the CEO drops a huge sum of money into the stock and they're opening two casinos in Asia soon so I'm going to opt out of your suggestions.

    It's a free country, you don't HAVE to buy LVS. It's just that you should...

  • Report this Comment On September 08, 2009, at 10:58 PM, vegasinsider wrote:

    WOW! I hade to repond. I don't get involved with CRAP (MF) like this but with this article on LVS I felt I needed to respond. I am impressed with some of the comments by others regarding this article, MF, you can't FOOL everyone, every now and then you run into people who are educated in life and the stock market. MF, along with the likes of Jim Cramer, have had a hidden agenda against LVS from the start, I have several friends who have made over 2 million dollars on LVS, due your own research and don't listen to the propaganda pushers who have a secret agenda. WE all had a chance to see the real Jim cramer when John Stewart, chewed him a new ASS, MF, would do the same when cornered like the RATS they are. All the readers of MF should be asking the same question I am, why am I reading this CRAP. MF contributors along with Cramer must have had a bad experiance with a transexual they had picked up in Vegas a while back... :)

  • Report this Comment On September 08, 2009, at 11:25 PM, CarrboroFool wrote:

    **sniff....

    Doesn't anyone like MF anymore??

    And why do all these people who rant and hate MF so much even read the articles? Is it just so they can post a disparaging comment?

    And if we really are at the end of "buy and hold" tactics, why are some so adamant about holding onto the stocks whose values are being questioned?

    More seriously, the low quality of the comments here disturbs me more than the advice of the original article.

  • Report this Comment On September 09, 2009, at 5:28 AM, plange01 wrote:

    time to sell aapl,gs,hog,car,dtg,htz,siri,aig,goog,just to name a few.....

  • Report this Comment On September 09, 2009, at 9:55 AM, georcole wrote:

    CarrboroFool- I second your sentiments.

    I read most of the MF articles and enjoy doing so. I do not follow thier picks absent-mindedly though. I do not feel that anyone should follow the MF with every call, and the MF even tells you to do your own due diligence. All of the bashers should go find something else to do.

    I like to see some EDUCATED contrary opinions in the comments so that the reader can get an opposing opinion of whatever the article happens to be about. A lot of the comments though, are just bashing without any information to really back them up. I constantly see comments backing up SIRI and some of them are well thought out and very good. Most of the comments though, just say that the MF has been so wrong on SIRI and should stop being bearish on them. Everybody is entitled to thier own opinion on thier own stock picks, and anything else for that matter, but, please be an adult about it.

    plange01- Thank you for your well though out reasons for your picks. That is exactly the useless information that we don't need cluttering up the comments.

  • Report this Comment On September 09, 2009, at 12:36 PM, ragie wrote:

    I've never posted on the FOOL before but have read many posts and articles. I have found that those, like us, that are private investors - that do good research and picks any stock because of solid reasons (or spec plays for that matter), are better off in this crazy market. As long as the reasons are still solid to keep that stock - just take what the FOOL, Cramer or anyone out there as just a part of the research, and you decide what is best. No need to knock everyone around for their opinion. Good investing everyone! I must admit I enjoy reading the many posts to the articles.

  • Report this Comment On September 09, 2009, at 12:48 PM, richardk33 wrote:

    Its obvious MF is losing their shirt trying to sell its worthless books and subscriptions garbage to people.

    I can't wait for the day you idiots go bankrupt or shut down by the FTC for blatantly giving people false information to enhance your business. here we go again telling people to sell LVS and its up another dollar today. Keep peddling your trash to stupid people, its the only way you can make money, MF is pathetic. Oh I forgot, your prize pick on INTC is up a whopping .21 today, gee, I'm so sorry I missed that, I could have made a fortune, you people are a real joke.

    Maybe ten years from now INTC will be over $20.00 like it was ten years ago when you first picked it and I can brag about the 2% I made on it,

  • Report this Comment On September 09, 2009, at 1:05 PM, richardk33 wrote:

    I'm just so excited about the MF article telling me you the 435% WMT is up since you reccomended it 20 years ago, gee I could have made a fortune only WMT is the same pathetic $50.00 its been stuck at for five years, Buying WMT is like putting money in a shoebox

    I guess I'll give the money I made on LVS to charity which is up 1100% in four months because you keep telling me its a junk stock and to sell it. You people are pathetic, go sell your worthless information to Cramer, he can use it. MF should be shut down for trying to get people to sell stocks so your Shorts make money

  • Report this Comment On September 09, 2009, at 5:35 PM, timd209 wrote:

    IF YOU WANT MF TO DISCONTINUE IS UNEDUCATED AND ATTACKS OF SIRI, COPY AND RE-POST THIS TEXT.

  • Report this Comment On September 12, 2009, at 12:43 PM, multi007 wrote:

    Sorry - timd209 - looks like no takers. lol

  • Report this Comment On September 14, 2009, at 1:30 PM, richardk33 wrote:

    Please keep trashing the LVS stock as I appreciate it and have learned most people tjink MF is a group of morons only dedicated to selling their trash and not really having any worth while knowledge about stocks, Every time you Trash LVS the stock rises and I make money, Why don't you keep bragging about picking WMT 20 years ago and making 435% on it, thats your only pick, on the contrary I've made 1100% in four months on LVS which you continue to tell people NOT to buy, you people are complete Fools just like your name.

  • Report this Comment On September 15, 2009, at 6:08 PM, nmvempaty wrote:

    I am surprised what scant regard the market is paying to value sermon dished out by MF on LVS...May be its time to lower case the F in Fool..

  • Report this Comment On September 16, 2009, at 12:58 PM, Investable1876 wrote:

    ash for Clunkers qualifying cars must be at least 8 years old and have at least 18 miles per gallon fuel rate. This new stimulus package passed by congress will pay you amounts up to $5000 dollars for your old clunkers that run, or maybe not even that. Who cares what condition your car is in if you can get your hands on some cold, hard cash for it?

    The purpose of this plan is to rid the country of old automobiles that pollute the environment with detrimental chemicals. The minimum that you'll receive is around $3500, granted your Cash for Clunkers qualifying cars are 8 years old and have an MPG of 18 or less. The trade in vehicle will be destroyed after trade in, and it will not be resold.

    Unfortunately, there's only one discount per person, but family members can cash in with separate clunkers.

    Trucks and SUVs have separate rules. For light trucks, SUVs, and minivans, the improved MPG must be 2 for a $3500 credit, and for an improvement of 5 MPG, you'll get a $4500 credit. The new, qualified truck or SUV must have at least 18 MPG.

    So what kind of vehicle can you buy? The new vehicle has to have a MSRP of under $45,000.00; if you lease a vehicle, then you must lease it for 5 years or more.

    ----------------

    Money is like muck, not good except it be spread.

    http://www.topinvestingtips.com

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