The question of the day is this: Is real estate a safe investment, or are we in the midst of a housing bubble that's going to deflate just like stocks have? Tom Jacobs tackles a tough issue in today's Fool on the Hill. Do you find refuge in your home as an investment after being burnt out on stocks? Take our poll and let us know.
The Motley Fool 50 lives in a swanky 18-room estate in the Hamptons, financed at 6.5%. The index rose over 1% today.
In today's Motley Fool Take:
- Burnt Ciena
- Quote of Note
- Panera: Great Bread, Lousy Stock
- Shameless Plug: Get a Discount Broker
- Game On
- Discussion Board of the Day: Video & PC Games
- Quick Takes: Williams-Sonoma, Southwest Airlines, Staples, more
- And Finally...
Burnt Ciena
For several quarters, investors have parsed remarks by the major optical networking equipment makers for any hint of a bottom. Today, Ciena's
Yes, the floor keeps dropping for his company -- and its competitors. Ciena announced that Q3 revenue plummeted to $50 million from a year-ago $458 million. Down 89%. Yet Ciena finished the quarter with $1.30 billion in cash and short-term investments. That's a huge wallet, but investors are watching the cash burn -- $68 million, sequentially.
Here are the last five quarters' revenues and cash and equivalents for Ciena and two other optical gear makers:
Ciena JDS Uniphase Avanex Revs. Cash Revs. Cash Revs. Cash Q3* $50 mil. $1299 $222 $1450 $ 8 $136 Q2 87 1368 262 1564 10 153 Q1 162 1523 286 1653 8 160 Q4 368 1300 329 1754 7 195 Q3 458 1398 601 1812 18 204 *or company's equivalent quarter
All three are watching revenues tumble and cash decline. Ciena shares closed yesterday at $4.49 a share, 9% above its $4.13 a share in cash and short-term investments net of debt. JDS Uniphase
None of these companies is anywhere near a value stock yet -- though if you really understand the industry, you may know something others don't. Please share it on the Ciena discussion board. But the market is assigning odds that these companies may fail, and a little studying might send you in the direction of some intriguing possibilities.
Quote of Note
"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it." -- Art Buchwald, political humorist and Pulitzer Prize winner
Panera: Great Bread, Lousy Stock
Panera Bread
The stock's decline may also relate to some signs of margin deterioration that showed up during the quarter. Even though the overall operating margin and net margin increased versus the year-ago quarter, some individual expense line items (such as cost of food/paper and labor) accounted for a higher percentage of sales than last year. As a result, overall bakery-café expenses increased to 83.1% of sales, up from 82.1% of sales in the comparable quarter a year ago. This may seem like a small difference, but on a business with a net margin around 6%, every percentage point counts for a lot.
A higher cost structure would certainly cause investors to grow more leery of the company's aggressive forward-earnings guidance. Panera management reiterated its guidance for 40% EPS growth in 2003. Given the uncertain economy and recent signs of a weakening consumer demand, that could easily prove a tall order.
At a recent price of $32, Panera stock trades at 32.7 times estimated 2003 EPS of $0.98. That's almost twice the P/E multiple of what the average restaurant trades at on a trailing EPS basis. Those multiples look especially rich given that Panera's bakery-cafés don't have the distinguishing qualities of a Starbucks
Think about it. There are countless coffee lovers who go to Starbucks every day. And if you're a doughnut fan, you want to make those fat grams and calories count by only eating the finest: Krispy Kreme. But what strong niche does Panera fill? Panera is no different than all the other reasonably priced, quick-serve restaurants like Cosi and Baja Fresh. Panera's growth could taper in the not-so-distant future, while the true category-killer franchises such as Starbucks and Krispy Kreme continue to grow steadily for years.
Bottom line: There doesn't seem to be an upside for Panera, at 57 times trailing earnings and 33 times forward earnings. Others apparently agree given that 15% of the stock's float is short. Fools, beware.
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Game On
How hot is the video game sector right now? Forget the fact that developers such as Electronic Arts
This morning, Gamestop
There's big news, even in the smaller numbers. While Electronics Boutique mustered a scant $0.03-a-share profit for the period, it's the first time the company has closed out the July period in the black in three years. Video game retailing is a seasonal business with the logical holiday spikes, but demand for the Xbox, PlayStation2, GameCube, and their related software titles continues to fuel the industry, even during the traditionally sleepy lull of summer.
History indicates console sales don't peak until the third year, and the systems are just one or two holiday seasons young, so the fundamental upside should continue through for at least a few more quarters.
In short, the game's not over yet.
Discussion Board of the Day: Video & PC Games
Where does your home video game loyalty lie? Sony's
Quick Takes
More retailers reported today, with Williams-Sonoma
With an army of retailers including The Sports Authority
Give 'em some love. Southwest Airlines
Office-supply retailer Staples
New jobless claims numbered 389,000, down from last week's 391,000. A Federal Reserve Bank of Philadelphia survey of economists says that unemployment will average 6% for the rest of the year.
And Finally...
Today on Fool.com: Are dividend-paying retail stocks becoming the hot fashion item of the season?.... Is real estate safe?... The risks and merits of REITs. Plus, stay ahead of the buy curve, and vacation suggestions.... In Fool's School, what makes a company great.
Contributors:
Bob Bobala, Robert Brokamp, Jeff Hwang, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim