OUR TAKE
The Motley Fool Take on Tuesday, July 16, 2002
The Green Man Speaks

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In a flurry of activity over the past two days, your fearless leaders in Washington, D.C., have been taking actions to get Wall Street's "infectious greed" (Alan Greenspan's term) under control. Today, in an effort to buoy investor confidence, the G-Man told Congress, "The fundamentals are in place for a return to sustained healthy growth." See our translation below.

"We will get past this corporate governance issue," he said, and Congress is taking steps to ensure that. Yesterday, by a remarkable vote of 97-0, the Senate approved a bill sponsored by Sen. Paul S. Sarbanes (D-Md.) that would tighten regulation of corporate auditors and make executives more accountable.

In the meantime, companies such as Pfizer (NYSE: PFE), Target (NYSE: TGT), and Colgate Palmolive (NYSE: CL) are said to be considering joining Coca-Cola (NYSE: KO) and Washington Post Co. (NYSE: WPO) in formally recognizing stock options before Congress makes its move.

It was another volatile day on Wall Street. The FOOL 50 finished down about 2%.

In today's Motley Fool Take:

The Green Man Speaks

With the markets teetering and investors a far sight from sangfroid, Federal Reserve Chairman Alan Greenspan spoke to Congress today. This is a big event for market-watchers, sort of like an all-star game (that doesn't end in a tie) in baseball. Here are the headlines leading up to Al's speech:

  • Dollar Vulnerable, Seeks Greenspan Help
  • Asia Stocks Slide Ahead of Greenspan
  • Stocks and Dollar Tumble, Await Greenspan
  • Can Fed's Greenspan Soothe the Markets?

So, with Wall Street watching and hoping, Al spoke. Here are snippets from his testimony, along with our translation:

"Spending will continue to adjust for some time to the declines that have occurred in equity prices." -- We're all broke from the market crash, so don't expect us to spring for that new swimming pool this summer.

"By early this year, with inventory levels having apparently come into better alignment with expected sales, the pace of inventory reduction began to ebb, and efforts to limit further drawdowns provided a considerable boost to production." -- I read Rex Moore's helpful two-part series on inventory analysis.

"The difficulties of judging earnings trends have been intensified by revelations of misleading accounting practices at some prominent businesses." -- Can you believe those idiots at Enron and WorldCom?

"Manifestations of lax corporate governance, in my judgment, are largely a symptom of a failed CEO." -- I blame investing's sad lexicon: Skilling, Ebbers, and chance. Ruthlessly pricking our gonfalon bubble: Skilling, Ebbers, and chance.

"With profitable opportunities for malfeasance markedly diminished, far fewer questionable practices are likely to be initiated in the immediate future." -- Because the market's in the crapper these days, you won't be seeing as much abuse from management.

"The effects of the recent difficulties will linger for a bit longer but, as they wear off, and absent significant further adverse shocks, the U.S. economy is poised to resume a pattern of sustainable growth." -- Like anyone, I have no clue what will happen in the near future, but we'll be fine in the long term.

And we'll leave it at that. Thanks, Mr. Chairman!

Quote of the Day

"I knew the more I understood about the company, the better off I would be." -- Famed value investor Benjamin Graham

J&J Stays Jolly

Johnson & Johnson (NYSE: JNJ) topped Q2 earnings estimates of $0.58 by $0.02 per share, excluding $189 million in acquisition charges. Including charges, the company earned $0.54 per share, or $1.7 billion, up 11.6% from the same quarter last year. Revenue rose 10.9% to $9.1 billion.

After stumbling badly in the '90s, J&J's medical device division is back on its game. Sales rose 13.7% to $3.2 billion. The Cordis stent division grew sales 20% to $409 million.

Pharmaceutical sales rose 10.2% to $4.3 billion on continued strength in sales of Procrit/Eprex for anemia, among many others. Even the slow-growing consumer products division saw sales rise 7.8% to $1.6 billion. Neutrogena and Aveeno remain strong.

J&J's margins continued a gradual climb that began around 1999. Gross margin rose to 71.6% from 71% last year. Operating margin jumped to 28.8% from 26%, partly on decreased sales, marketing, and administrative expenses as a percentage of sales; and net profit margin was a record-strong 18.2%.

Management increased its 2002 earnings outlook by $0.02 to $2.25 per share. The $50 stock trades at 22 times that estimate. The company maintained guidance of $2.55 to $2.60 for 2003 earnings, up 15%. The stock trades at 19 times those estimates.

Discussion Board of the Day: Johnson & Johnson

Looks like investors liked J&J's earnings. The stock was up in a down market. What's your take? Share it, please, on the Johnson & Johnson Discussion Board. Only on Fool.com.

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The Enlightened Consumer

Light bulbs. The very words scream excitement. As late as 1929, Thomas Edison was celebrated in worldwide festivals of light held in his honor. The technology was still novel. Now we take it for granted. We don't even realize that most of us are still using the same old light bulb design that came about in the 1800s.

The most popular light bulbs are incredibly inefficient. As much as 70% of the energy they consume is emitted as heat rather than light. This is an immense waste of power, not to mention your money!

It's time to change those bulbs! General Electric (NYSE: GE), Philips Lighting, and others are selling energy-efficient light bulbs, called compact fluorescent lamps (CFLs), which can last up to eight years and use 25% the energy of traditional bulbs. By investing $5 to $12 per bulb (cost depends on the wattage), you can literally save 75% on your electric lighting costs.

CFLs have been around for more than a decade, but they're just becoming available in places like Target and Wal-Mart (NYSE: WMT). Sold in the traditional light bulb size, you can replace your old bulbs with efficient CFL lights, get the same or better lighting, and use just 25% the energy. (We already said that, but it bears repeating.)

If you have 25 light bulbs in your home, you could save $1,190 to $1,900 in electricity costs over five to eight years (calculated at $0.10 per kilowatt hour). Not to mention you help the environment. What a bright idea! Sorry, couldn't resist.

Quick Takes

Like a pair of diners fighting over the check at an upscale steakhouse, the bidding war is afoot for Morton's Restaurant Group (NYSE: MRG). Castle Harlan, a private equity firm headed by a Morton's director, had a $16-per-share bid on the table before Carl Icahn upped the ante with $17 per share for the Morton's of Chicago chain. Now Castle Harlan has raised its bid to match the $17-per-share offer. Who will win? I think Icahn. Get it? Check, please.

There's a peculiar tinge of optimism this earnings season, and when you begin to assemble the names of companies that blew past profit targets, remember Too (NYSE: TOO), too. While the specialty apparel retailer is nearly a month away from posting its next quarterly report, Too indicated that it is on track to earn either $0.14 or $0.15 a share. Wall Street has the figure pegged at a $0.12 a share showing. Going from pre-teens to teens -- which just happens to be the key shopper age group at the namesake stores -- will be achieved despite relatively flat to slightly positive same-store sales.

You can call off the Maytag (NYSE: MYG) repairman. The country's third largest appliance maker saw its second-quarter earnings from continuing operations triple, as a surge in new-home sales found new homesteads fitted with Maytag's wares. The company behind the Amana and Hoover brands announced that sales for all of 2002 should climb by 15%. The sector's upside continued a few hours later when Whirlpool (NYSE: WHR), the top domestic player in the appliance space, also topped analyst expectations.

All's well at Wells Fargo (NYSE: WFC), as well as for the rest of the financial services sector. The company saw second-quarter profits fall in line with estimates at $0.82 a share, on the strength of mortgage-lending gains stemming from rock-bottom rates. Bank One (NYSE: ONE) also nailed its bottom-line targets. There's no need to cross State Street (NYSE: STT), as the investing services specialist beat out consensus projections, gained new clients such as Nuveen, Sweden's Second National Pension Fund, and J & W Seligman in the process.

And Finally...

Today on Fool.com: Bill Mann tells Washington that options expensing has no economic effect.... In Rule Breaker, you might be surprised to hear which key government roles are going unfilled.... Which 529 savings plan is best for you?... In Fool's School, do you really understand how companies make money?

Contributors:
Bob Bobala, Robert Brokamp, Jeff Fischer, Jeff Hwang, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim

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