Since 1993, The Motley Fool has been doing its darndest to help people make the best decisions about their money. Sadly, we still have a lot of work to do.
Last week, yet another bizarre eBay auction made headlines when Seattle Mariner's injured relief pitcher Jeff Nelson decided to auction off three bone chips surgically removed from his elbow. eBay quickly removed the auction from its site -- company policy forbids the auction of body parts -- but not before the highest bid reached $23,600.
We don't know what's worse -- how bizarre human nature can be or how we're so willing to blow our money. And for a middle reliever no less. People, we can lead you to the water, but we can't make you drink!
The Motley Fool 50 index throws a great screwball. But today it was bested again, losing another 1.5%.
In today's Motley Fool Take:
Just six weeks after the New York state attorney general's office uncovered a "shocking betrayal of trust" on the part of Merrill Lynch (NYSE: MER), the two sides have come to a settlement -- one that investors should cheer. You'll recall Merrill was accused of counseling clients to buy stocks it thought were poor investments in order to generate or maintain lucrative investment banking relationships with the companies.
Today's settlement includes several concessions from Merrill. It agrees to:
- Pay $48 million to the state of New York
- Pay a total of $52 million to the other states
- Sever the link between compensation for analysts and investment banking
- Create an "investment review committee" to approve all research recommendations
- Issue notice once coverage of a company is terminated, and state that the last rating should no longer be relied upon
- Issue a statement of contrition for failing to address these conflicts of interest
- Appoint a monitor -- to be approved by the attorney general -- to ensure compliance with the agreement
The agreement also calls for the continuation of prior disclosure arrangements, the most important being that Merrill "provide conspicuous notice on all research reports of whether the company being rated is an investment banking client."
New York Attorney General Eliot Spitzer says the agreement "should bolster the integrity of stock analyst research" at Merrill and "[set] a new standard for the rest of the industry to follow." He's right, and it's comforting to know that his conflict-of-interest probe is still ongoing against most other big Wall Street firms.
However, Merrill points out that "the settlement represents neither evidence nor admission of wrongdoing or liability." This may be an attempt to stifle some investor lawsuits, but it's important to note that it may still face criminal charges, and it's also under investigation by the Securities and Exchange Commission. In some respects, it got off easy, but the settlement is heartening nonetheless.
"And how is education supposed to make me feel smarter? Besides, every time I learn something new, it pushes some old stuff out of my brain. Remember when I took that home winemaking course, and I forgot how to drive?" -- Homer Simpson
Why eBay Went to Market
Like a seemingly inconsequential impulse item purchase, eBay (Nasdaq: EBAY) announced that it would be making a $2 million investment in tiny FairMarket (Nasdaq: FAIM). That's pocket change in the online auctioneer's world and an even stranger purchase at first glance.
For starters, when eBay sees something it likes -- as was the case with upscale auction house Butterfield & Butterfield and fixed-price, second-hand marketplace specialist Half.com -- the company doesn't mess around. It swallows the target whole.
You also have FairMarket on the receiving end of the line. The Internet-based marketing and commerce services provider has more than $40 million in cash and short-term investments and lives a life relatively free of debt. Does it really need the money? And, if so, does it really need so little?
Well, FairMarket and eBay share a bit of history. FairMarket and eBay have hooked up this year to create online customer loyalty programs for Burger King as well as eBay itself. Last year, they teamed up as software development partners after setting aside their differences as rivals. However, FairMarket hasn't been able to ride the coattails of eBay's equity success. The upstart has lost four times as much money as it has booked in revenue over the last two years, despite landing the accounts of retail notables like Dell (Nasdaq: DELL) and Wal-Mart's (NYSE: WMT) SAM'S Club.
But if eBay is sold on FairMarket, why didn't it buy it all? The company's $36-million market cap at yesterday's close was actually less than the company had in the bank at the start of the year. But the losses and cash burn levels are troubling, and it seems as if eBay was simply making a statement, hoping its deed of equity kindness will help give the upstart some market credibility. After all, even down Wall Street, sometimes you have to look after your friends.
Discussion Board of the Day: eBay
A lot is going on in eBay's world right now. Is Amazon's (Nasdaq: AMZN) renewed emphasis on used goods going to hurt eBay? Our community's own swapusa seems to think so. Is the company still a sound Rule Breaker holding? All this and more -- in the eBay Discussion Board. Only on Fool.com.
Top national discounters continued a parade of good results, with Home Depot (NYSE: HD), Target (NYSE: TGT), and Staples (Nasdaq: SPLS) announcing Q1 profits up 35%, 36%, and over 100%, respectively.
But while sales increased year-over-year, the good EPS (earnings per share) numbers were due more to efficient management. Home Depot and Target's profits jumped more than double their year-over-year sales increases. And better inventory management and closure of weak stores led Staples to super-earnings while sales inched up an anemic 2.6%.
Some believe that Kmart's (NYSE: KM) woes and store closings may benefit competitor Target, whose Target stores have been already making hay through discount products with a design flair -- notably but not only through its Michael Graves partnership. However, Target the company is more than its booming Target stores division: Revenue at its Mervyn's and Marshall Field's stores dropped off 0.9% and 0.7%, respectively.
For now, money is flowing through the discounters' doors as we are all willing to loosen our purses and flash our wallets. But investors' money? The discount retail sector has been popular since 9/11, with shares of all three recovering to within 10% of 52-week highs before today. With P/E (price to earnings) ratios of 35, 38, and 28, and EV/FCF (enterprise value to free cash flow) ratios of 28, 44, and 24, respectively, these three are all priced beyond their growth rates and leave little room for multiple expansion.
Bottom line for investors: These discounters may sell bargains, but their shares aren't.
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While a Jack-in-the-Box is designed to elicit surprise, shareholders of the burger chain that bears the toy's name are never out for the same kind of shock value. Jack in the Box (NYSE: JBX) reiterated that third-quarter profits would come in according to plan. Despite a 1.3% dip in comps, which the company hopes to rectify with an aggressive marketing campaign, it's all good when this Jack in the Box holds off on the surprise.
Keeping the trend alive as noted in our own Industry Focus 2002, the retailers that are truly thriving are those catering to the cost-conscious. Discount department stores, warehouse clubs, and deep discounters continue to move forward, with or without the economy's tailwind. Focus fave Target (NYSE: TGT) saw profits soar by 36%, with its $0.38 a share bottom line showing topping analyst projections. Same-store sales were up a healthy 6.8% at its namesake stores.
At Big Lots (NYSE: BLI), where distressed inventory levels at other retailers create bargain closeout opportunities in "big lots," the earnings are also being stocked in large amounts. The deep discounter reported quarterly profits of $0.11 a share, four cents ahead of Wall Street's target. Sales came in at $904.1 million, 17% higher than last year's run at the registers. Big Lots is now looking to earn between $0.50 and $0.55 a share for the full fiscal year.
Discount department stores prospering? Check. Deep discounters milking the value card? Check. Warehouse clubs hitting their stride? You bet. BJ's Wholesale Club (NYSE: BJ) also beat the Street in bulk fashion. The warehouse club earned $0.32 a share on $1.3 billion in revenue, on the heels of a 4% spike in store traffic.
The collective at BorgWarner (NYSE: BWA) is motoring along nicely. The vehicle powertrain specialist is putting the metal to the earnings pedal, now expecting to earn between $1.55 and $1.65 a share for the second quarter. Strong demand is leaving Wall Street's profit forecast of $1.42 a share in the dust.
And Finally...
Today on Fool.com: According to Matt Richey, a concentrated portfolio of 8 to 10 stocks might be your best bet for beating the market.... Tom Jacobs explains the role of valuation when the Rule Breaker Portfolio buys and sells.... Selena Maranjian lists 18 mutual funds that are worth a closer look.... Get great ideas on how to plan for early retirement.... Fool's School demystifies the balance sheet.
Contributors:
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim
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