Just about every day in this space we mention The Motley Fool 50, our index of what we think are the 50 most relevant companies in the world. We have some fun with it -- the FOOL 50 roller skates, goes on dates, visits its index brethren on the holidays -- but today we're actually going to give the FOOL 50 some props. After all, it's been a tough year to be a stock market index.
We just released our FOOL 50 update for the first quarter. On March 15 it closed at 1427.33, just a smidge higher than its fourth-quarter close at 1421.61, a gain of 0.04%. The Dow Jones Industrial Average rose 5.7% during the same period, while the S&P 500 gained 1.9%, and the Nasdaq lost 3.6%.
To find out how the index has done over the past year, which companies performed the best and worst, and a whole lot more, check in with the full report. You won't regret it. The FOOL 50 craves attention. It's a lonely, socially insecure index. Give it some love.
In today's Motley Fool Take:
Word is Microsoft's (Nasdaq: MSFT) popular computer writing program, but lately it's getting pretty hard to take the company's "word" at face value. The world's largest software maker reported lackluster fiscal third-quarter results yesterday and talked down the current quarter.
While CFO John Connors noted that operating results "exceeded our expectations," one has to wonder why those targets were off the $0.51 a share in earnings that Wall Street was looking for. Microsoft reported earnings of $0.49 a share on $7.25 billion in revenue. In its prime, the company would relish giving a cautious tone to analysts only to blow past those numbers.
The company is in a difficult funk right now, one in which it can't manage its earnings higher to offset the business reality that includes companies who aren't spending as freely to upgrade their information technology. On the consumer side, the recent hike in computer memory prices seems to be fending off potential new system buyers and that's not helping the adoption of Microsoft's Windows XP operating system.
While Xbox sales have been brisk stateside, the video game consoles aren't the fat margin fare the company has feasted on in the past. That will come from the system's software down the line, but Microsoft isn't painting a very pretty picture of the future anyway. The company expects the top line to dip sequentially to close out the 2002 fiscal year, with fourth-quarter earnings missing the $0.44 a share consensus by two or three cents.
For fiscal 2003, the company is also guiding analysts lower. The software giant is now looking to earn between $1.89 and $1.92 a share. Wall Street was perched at a forecast calling for profits of two bucks a stub. Analysts used to snicker at the company's cautious ways. Now, it has little choice but to believe it. Word.
Is Microsoft in trouble? If "Halo" is a popular Xbox game, what will it take for the company to wear one again? All this and more -- in the Microsoft Discussion Board. Only on Fool.com.
Your Mutual Fund's Future Performance
Are you still scouring through data, trying to predict the future performance of your stock mutual fund? Take some Alka-Seltzer and forget about it.
According to a report by Financial Research Corporation (FRC), while the future performance of bond funds was somewhat predictable, the same for stock funds was nearly impossible. The report, "Predicting Mutual Fund Performance II: After The Bear," defines "predictability" as a top-ranking fund staying in the top half of its peer group in future periods. FRC used past and future quarterly returns for fifteen years, comparing average returns for one-year, three-year, and five-year periods.
The leading reliable predictor? Expense ratios! Funds with lower expenses delivered "above-average future performance across nearly all time periods." Gee, that sounds like something we've been saying since The Motley Fool stumbled out of the cradle. Fees kill. Compare and discuss: Would you rather invest in the Vanguard 500 Index (VFINX) with no loads and an expense ratio of 0.18 or the Wells Fargo Equity Index (SFCSX), another passive S&P 500 index fund, that charges an expense ratio of 0.71 (four times Vanguard's fee) plus a 5.75% front-end load(!)?
Some other factors you might think are telling:
- Hotshot managers: According to FRC, manager tenure had very little effect on future returns.
- Past performance: While this criteria did well for bond funds, for stock funds it was only a "moderate predictor" for periods of one year, but no longer.
- Morningstar, an entire business built on rating mutual funds: Out of 19 domestic equity categories, only the small-cap value and technology fund ratings were predictive. Morningstar's ratings had no predictive value for the other 17 categories, including large-cap, mid-cap value, blend, and growth funds.
So, what should you do when you're in the market for an equity fund? Get a crystal ball, learn more in our Mutual Funds area, take our "Pick the Best Mutual Funds" online seminar, or stick with the tried and true: a good, old-fashioned, low-fee index fund.
Thanks to Paul Farrell at CBS MarketWatch for doing a bang-up job reporting FRC's findings. You can learn a lot more from his column today. We did.
Nucor's Steeled Against a Slump
North Carolina-based Nucor (NYSE: NUE), the country's largest steel producer and largest recycler, reported earnings yesterday of $0.26 per share, compared with $0.32 for the same quarter of last year. The company's revenues were almost perfectly flat from last year, though its total steel production increased by 9%. In other words, Nucor had to produce significantly more steel just to reach the same revenue spot. With that in mind, it's a small wonder that earnings were lower.
With all of the recent turmoil surrounding American Steel companies -- tariffs and the like -- we're a little surprised to find a company that is at all profitable. One item we would want to know is whether or not the company produces free cash flow. Earnings are also affected by the current depreciation of a company's capital assets, which for steel companies are notoriously large. We're going to have to wait until the company's 10-Q is released, but over the years Nucor has done a good job in generating free cash flow from its operations, with 2001's FCF coming in at $135 million, though this amount is well below that of the prior year's haul of $410 million.
How does Nucor do it while other steel companies founder? Bethlehem Steel (NYSE: BS) declared bankruptcy last year, and USX (NYSE: X) has been howling about foreign companies "dumping" steel into the U.S. market. Nucor's bread and butter is its development of the mini-mill concept, where the company builds smaller facilities that take a fraction of the time and capital to come online. It's also very focused on using scrap metal for its production.
Still, the higher cost of sales and the lower revenue per ton statistics from this quarter show that Nucor is in no way impervious to general economics. There are likely to be excellent opportunities to buy Nucor at discount prices as the market focuses on what should be short term pressures on the industry.
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Merrill Lynch (NYSE: MER) says it has reached an agreement with the New York State Attorney General's office. Accused of counseling clients to buy stocks it thought were poor investments in order to protect lucrative banking relationships, Merrill now promises additional disclosures about conflicts of interest in its research reports. Reuters says the company is "still not out of the woods," and criminal charges are still possible, and the Fool's Bill Mann weighs in in today's Fool on the Hill.
Shares of eBay (Nasdaq: EBAY) moved slightly today after the company announced it doubled first-quarter profits from a year ago and raised guidance for the current quarter and full year. The online auctioneer earned $0.17 a share, and says it now expects profits between $0.73 and $0.75 a share for all of 2002.
Airline earnings: United Airlines parent UAL (NYSE: UAL) reported a loss of a staggering $9.22 a share in the first quarter. America West Airlines (NYSE: AWA) lost $10.62 a share. Excluding special charges and accounting changes, however, the loss was only $1.14 a share.
Box makers: In the PC sector, Compaq Computer (NYSE: CPQ) said it earned $0.03 a share excluding merger-related charges and accounting changes. That was a tad ahead of expectations. Gateway (NYSE: GTW), meanwhile, reported a loss of $0.39 a share.
Elsewhere, Sun Microsystems (Nasdaq: SUNW) said after the bell yesterday it lost a penny per share in the third quarter, and will reduce its staff by about 2.5% over the next few months, mostly through attrition. Also, International Paper (NYSE: IP) earned $0.12 a share in the first quarter, topping the consensus estimate by a nickel.
And Finally...
Today on Fool.com: Bill Mann asks analysts if they think they've earned their money or tricked people out of it.... Don't wait until April of next year to reduce your taxes.... In one Fool's opinion, Intel's research and development is hurting AMD (free trial required).... Selena Maranjian is answering a basic question about mutual funds in our daily Q&A.
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Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim
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