FOOL ON THE HILL
Plan for Tomorrow

It's never too late to start planning for a brighter tomorrow. With the economic recovery fashionably late, but with every intention of eventually showing up, Rick Munarriz says one should begin mapping out the potential winners and losers now.

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By Rick Aristotle Munarriz (TMF Edible)
December 11, 2002

Do you find yourself chasing the carrot of contentment all the way around the race track? The CEOs behind the companies in your stock portfolio may be peddling optimism in a 2003 wrapper, but weren't these the same rainbows being doled out last year? And the year before last?

If your faith in corporate visionaries has been shaken, stirred, and splashed back in your face, grab a towel and join the club.

History retreats
Back in April of 2001, just weeks before Sun Microsystems (Nasdaq: SUNW) kicked off its 2002 fiscal year, CEO Scott McNealy was upbeat.

"Our refreshed product line is positioned to be the best we've had in years," he said. Revenues went on to tumble by 32% in 2002.

A year ago, Oracle's (Nasdaq: ORCL) Larry Ellison was confident -- as he usually is. "Our business has at least stabilized," he announced at the Oracle OpenWorld customer conference. "It's not getting worse. It's getting a little better." In the meantime, we've been treated to three quarters of lower revenues.

Yes, even Oracle can't see everything. Jaded is more than just a fashion statement -- it's the appropriate dress code for a time when "The Little CEO Who Cried Bull" seems like a fitting bedtime story.

But the truth behind all of the hollow chest-thumping and helium-filled bravado is that the recovery will eventually be realized. Sooner or later, the economy will right itself. Yes, Annie, the sun will come out --tomorrow. Just don't hold me to which tomorrow.

The myth-conception misconception
Some folks assume that when the economy bounces back, we'll be back to the point where we left off. That's a na�ve notion, as if we've been floating in a formaldehyde Jacuzzi for the past few years. No chance on that, chum. A lot has changed, even while we've been camping out under the pause button. For starters, the glory days of yesterday are gone. The capital spending spurred by investment bankers, who convinced companies they needed to raise money to spend it on infrastructure and hiring fresh faces, was a bogus mirage.

Companies that have laid off half their workforce or shut down half their underutilized facilities aren't half as productive as they used to be. Investment bankers may be bummed that there's nothing financial to skim off the return to ingenuity. There's no markup churn to be had in rediscovering common sense.

So, yes, the recovery will be back, after what has been a long and sometimes cruel intermission. Just don't assume the pieces weren't moved while we were out.

One step ahead
As investors, it's important to analyze everything that happened during the economy's downtime. Was there a shift in market share? Is it still a market worth sharing? Now is the time to ask these questions, because once the business climate improves, the list of winners will be as obvious as your advantage is gone.

Remember Cisco Systems (Nasdaq: CSCO)? At the time the market was peaking, it had overtaken General Electric (NYSE: GE) and Microsoft (Nasdaq: MSFT) to own the country's largest market capitalization. Capital spending won't be there in the same free-spending sums as before, which may cast a dark cloud on the networking specialist... until you consider the company's role in IP telephony.

What? You're not up to speed on Internet Protocol telephony? You're not alone. Over the past couple of years, the money just hasn't been there to upgrade private branch exchange (or PBX) phones. If it weren't for Burger King moving to new corporate headquarters down here in Miami, I may have missed it, too. The world's second-largest fast-food chain turned to Cisco to set up its IP telephony network. It wasn't cheap, but Burger King expects the efficiencies created through the new system to pay for itself within the first 18 months.

Cisco owns 52% of the IP telephony market. Others such as Nortel (NYSE: NT) and Avaya (NYSE: AV) are carving out meaty slices. With the convergence of voice and data networks, IP telephony will be a hot commodity when companies have spending money again. With the return of corporate travel iffy, at best, global communication will be a priority. If it saves money down the road and improves efficiency, who can deny the market from booming?

It's that same necessity to enhancing productivity that should bring Oracle back into favor, as well. Yes, the same Oracle that appears to be walking in place now is actually improving its margins, putting the marketed savings of its enterprise resource planning (ERP) software to the self-test. While companies may never return to buying fancy Herman Miller (Nasdaq: MLHR) Aeron chairs in bulk, there's no harm in spending money to become a more efficient entity.

As far as employees go, companies will eventually rehire -- though nowhere near the peak levels of the past. That may mean a return to favor for online recruiter TMP Worldwide (Nasdaq: TMPW) and trainer and retooler Learning Tree (Nasdaq: LTRE). Office supplies are forever, so chains such as Staples (Nasdaq: SPLS) and Office Depot (NYSE: ODP) should grow their sales.

What about consumers? Will the folks weaned off Nordstrom (NYSE: JWN) and herded into Wal-Mart (NYSE: WMT) for the sake of pinched pennies return to the upscale retailer? Is it safe for those who found Target (NYSE: TGT) a worthy substitute for Gap's (NYSE: GPS) Old Navy stores to head back into the water? What about those who traded down on eats, going from Morton's to Outback (NYSE: OSI) or from Outback to Sizzler (NYSE: SZ)? Will they move back up the food chain or continue to eat out below their means?

The end of the beginning
Every answer seems to bring up a new question. You also have buzzwords like "nanotechnology" and "bioinformatics" in need of reclassification. I think the former will hold up well in the recovery. The latter may have to earn its former hype.

But there's so much to consider here. Need some advice and suggestions? The Fool's doing its part with its annual compendiums of stock ideas: Stocks 2003 and The Motley Fool Select. Now you take the baton and run. Look into the stocks you own and might eventually own, and do your best to figure out where they will stand tomorrow. Only, do it today. That way, there's still a race to run, only this time, you're the carrot.

Rick Aristotle Munarriz thinks that the economic recovery's alarm clock has a worn-out snooze bar. He mentioned a whole lot of stocks this time. He doesn't own a single one of them. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.