Some happy and some not-so-happy news today. On the joyful side, guitar god Eric Clapton married his 25-year-old American girlfriend on New Year's Day, proving that the 56-year-old Slowhand still has some love left in him after all those years of blues. It's Clapton's second marriage. He divorced his first wife -- Patti Boyd, former wife of the late Beatle George Harrison and the inspiration for Clapton's classic Layla & Other Assorted Love Songs -- in 1988 after nine years of marriage.
On the sadder side, former "first dog" Buddy was killed yesterday after the chocolate Lab was struck by a passing car outside the residence of former President Bill Clinton in Chappaqua, New York. Dog lovers everywhere are in mourning. Cynics wonder where former "first cat" Socks was at the time.
The Motley Fool 50 Index continued its positive run for 2002, racing up another 1.5%. The FOOL 50's fourth-quarter report just came out today. The index is shedding three members and gaining three new ones. Check it out.
In today's Motley Fool Take:
IRA Limits Increased
Now that the Discover Card ball, Times Square (brought to you by GE), and Dick Clark (sponsored by Pfizer) have rung in 2002 ("The Year of Tostitos"), working Americans are able to take advantage of many of the benefits of last year's tax cut. To wit: Beginning this year, the contribution limits to Individual Retirement Arrangements (IRAs) and employer-sponsored retirement plans will increase. In other words, you'll be able to sock more money away in tax-advantaged accounts, and maybe reduce your taxable income too. Here are the details:
IRAs: The contribution limits have increased to $3,000 per year for traditional and Roth IRAs. The limits will increase to $4,000 in 2005, and $5,000 in 2008.
401(k), 403(b), 457, and SARSEP plans: The limits will increase to $11,000 for 2002, and will increase $1,000 each year until they reach $15,000 in 2006.
Catch-up contributions: If you're 50 years old or older, you can make an additional $500 contribution to your IRA and an extra $1,000 to your plan at work.
Is putting away an extra thousand or two such a big deal? It sure is. For example, using the previous Roth IRA limit of $2,000 a year (or $167 per month), a person would have $144,562 after 20 years (assuming an annual return of 11% -- the historical average for stocks). However, if that person increases her annual contribution to the new limit -- $3,000 a year, or $250 a month -- the same investor would have $216,410 in 20 years. That's a $71,848 difference!
Now is the time to adjust your retirement plans:
- If you haven't funded an IRA for 2001, you have until April 15, 2002. But remember that a 2001 contribution has the old limit of $2,000. (Of course, you can start contributing to your IRA for 2002 right now, too.)
- If you have money automatically transferred to a retirement account, contact the plan administrator and find out how you can increase your contributions.
- If you aren't saving for retirement yet, what are you thinking!? Take our Roadmap to Retirement Seminar and get going!
If you'd like to learn more about how the new tax laws will benefit you, read this article or check out our hot-off-the-presses Tax Guide.
We're about to close the books on our annual Foolanthropy charity drive -- only three days remain. If you haven't done so already, please take a look at the five impressive charitable organizations we're raising money for this year. Consider contributing a little something to them (or a lot). Even if you don't chip in, they'll truly be delighted if you just take a few minutes to learn about what they do.
Find out how America's Second Harvest is feeding millions of hungry people and giving thousands job skills, how Ashoka is giving smart people with brilliant ideas the support they need to change the world for the better, how Grameen is spurring the micro-credit movement around the world by helping the poorest of the poor help themselves, how Heifer is lifting families out of poverty through gifts of plants and animals, and how Lifewater is bringing safe drinking water to hundreds of thousands who are living without it. We've prepared some short profiles of each -- take a look and see if they don't wow you.
Fair Isaac Treated Unfairly, as Are Investors
Risk assessment software provider Fair Isaac & Co. (NYSE: FIC) rose about 60% in 2001 on the back of strong revenue and earnings growth. This morning the stock tumbled $12, or more than 20%, to below $50 after an analyst at brokerage house Robertson Stephens reported disappointment upon viewing the company's most recent SEC filing.
The problem?
The analyst said Fair Isaac recently beat earnings estimates due to "non-core" revenue. Robertson Stephens's note (sadly, that's all it takes for a stock to tumble: a short note from a brokerage house that isn't even distributed to the public) said that the company's 10-K report, made public December 28, seems to have recognized $6.2 million in non-core revenue, adding $0.05 to $0.09 per share in fourth-quarter earnings.
We combed over the 10-K and found this, on page 45: "During the fourth quarter of fiscal 2001, the Company recognized $6.2 million of revenue related to the resolution of usage fees on a large client account. The cost of sales related to this revenue was insignificant."
We don't know where the analyst is getting his $6.2 million revenue figure, and as of press time, not surprisingly, phone calls to Robertson Stephens and Fair Isaac (which is probably swamped) were not returned. However, it's reasonable to assume that he is concerned about the same statement that we found. But should he be? As we understand it, usage fees are paid to Fair Isaac throughout the year based on estimates and are adjusted at the end of the year based on actual usage, so this $6.2 million number would not be "non-core" revenue the way Robertson Stephens thinks.
Additionally, given that Fair Isaac had $329 million in revenue for the 12 months ended September 2001, and $2.00 in diluted earnings per share, the possibility of $6.2 million in "non-core" revenue is not highly relevant.
The fear after Enron (NYSE: ENE), though, might be that Fair Isaac intentionally misled investors. But if that were the case, management probably wouldn't list the revenue in the SEC statement. Either way, until we have information from Robertson Stephens regarding what it's specifically talking about, we can't analyze their complaint beyond what we just did. And therein lies a big problem: Brokerage houses often move stocks sharply on short cryptic reports. That isn't fair, especially when reports are accusing a company of misleading revenue.
Until we can learn more, it appears that Fair Isaac and its investors are being treated unfairly. Meanwhile, the company has tangible products and services, hundreds of clients, consistent free cash flow, and a good balance sheet.
The irony is, where were all the negative brokerage reports on Enron? Almost all brokerage houses rated Enron a buy or strong buy right to the end -- and that company didn't even share its balance sheet properly.
Remember that old story about the blind men who felt different parts of an elephant and drew different conclusions? (One felt the tusk and thought the elephant spear-like, another felt the trunk and thought of a snake...) Investors looking at isolated aspects of Kmart (NYSE: KM) and Wal-Mart (NYSE: WMT) might likewise draw different conclusions.
For starters, consider market cap (which is simply the company's current stock price multiplied by the number of its outstanding shares, yielding an approximate price tag for the company). As of earlier today, Kmart's market cap was a paltry $2.4 billion, while its mammoth competitor weighed in at $260 billion. Jeepers -- the market is valuing Kmart at a mere 1% of the value of Wal-Mart. For the last reported nine months, Kmart has rung up $25 billion in sales, compared to $155 billion for Wal-Mart. Kmart's sales are about 16% of Wal-Mart's.
Viewed from one angle, with a price-to-sales ratio of 0.07 compared to Wal-Mart's 1.24, Kmart looks like a screaming bargain. But smart investors should try to feel many more parts of this elephant. Kmart is actually a struggling company. Its shares have tumbled more than 15% over the past two days alone, on a Prudential analyst's downgrade from "hold" to the hardly ever used "sell" and his raising the possibility of bankruptcy. Kmart has warned that its December sales growth are likely to come in at the low end of 0% to 2% expectations, while Wal-Mart expects to hit the high end of its 4% to 6% range. Blame for Kmart's shortfall has been laid on high prices, insufficient advertising, smallish stores with narrower merchandise mixes, and a monster competitor in Wal-Mart.
According to an article in The Washington Post, a company spokesman said that Kmart "has sufficient funds [to turn itself around], available lines of credit and a new corporate culture initiated by its newest chief executive, Charles Conaway, who joined Kmart in May 2000." We'll stay tuned.
"A fool and his money are soon parted. I would pay anyone a lot of money to explain that to me." -- Homer Simpson, quoted in Esquire
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The Labor Dept. said today that 447,000 Americans filed for first-time unemployment benefits last week, a rise of almost 9% from the previous week. The news may not be as bad as it sounds, however, as the four-week moving average -- which smoothes out weekly fluctuations -- actually fell almost 2%.
General Motors (NYSE: GM) has once again stepped ahead of its rivals in the promotion wars. Its highly successful zero-percent financing campaign, which was matched by Ford (NYSE: F) and DaimlerChrysler (NYSE: DCX), ended yesterday, but today the world's number one automaker announced $2,002 rebates through February for the purchase of most of its cars and trucks. Expect the others to follow-up again with something similar.
While pondering how to counter GM's new promotion, Ford announced today that its U.S. sales rose 2% in December on a year-over-year basis, helped by strong truck sales. Car sales were off nearly 20%. Total sales for all of 2001 fell 5.5%.
Later in the day, GM trumped Ford's figures... announcing a 7% rise in December sales, and a drop of 1% for all of 2001.
Officials at AOL Time Warner (NYSE: AOL) say they've fixed the security flaw in their popular Instant Messenger (AIM) chat program. An international group called "w00w00" exposed the flaw yesterday, saying it could allow remote hackers to gain control of an AIM user's computer.
Shares of Dow Chemical (NYSE: DOW) edged upward today despite word from the company that it wouldn't meet fourth-quarter earnings estimates. Dow blamed, among other things, "continued margin compression in basic chemicals and plastics." Sounds icky, doesn't it?
And Finally...
Today on Fool.com: Drip Portfolio manager (and newly published author) Jeff Fischer deciphers the new accounting standard for goodwill and sends out some warnings to investors.... Brian Graney has four New Year's "habits" that will get you saving more money and help you grow your retirement nest egg.... Ask the Fool has some tips for evaluating charities.
Contributors:
Brian Bauer, Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Dayana Yochim
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