Throw the scoundrels in jail and make them give back the money!
That is, by a long shot, the most popular response so far to our Polling All Fools feature, where we're looking for the one measure you most want to see whenever Congress finally hammers out a new corporate governance bill.
"Mandatory jail time and confiscation of ill-gotten gains" has 66% of the 4,794 votes cast so far. "A verifiable split between analysts and investment banking" and "an independent board overseeing the conduct of auditors" are a distant second and third.
Thanks for voting, and it's still not too late if you want to express your opinion.
The Motley Fool 50 closed out the week on a down note, giving up about 1%.
In today's Motley Fool Take:
Home Depot Down, But Not Out
Shares of Home Depot (NYSE: HD) got hammered nearly 8% today after Merrill Lynch downgraded the home improvement retailer to "neutral/buy" from "strong/buy," citing competition from rival Lowe's (NYSE: LOW).
So, let's think about this. Home Depot has fallen 43% since it reached $51 last January, and now Merrill is downgrading it? Is this part of Merrill's commitment to make its analysts more hard-hitting since it had to pay out $100 million in May to settle charges of biased research?
In the meantime, Jefferies Group Inc. downgraded Lowe's -- the competition Merrill supposedly fears -- to "hold" from "buy." Part of Jefferies' rationale: The decline of Home Depot's stock has put "a ceiling" on Lowe's upside potential. (Lowe's was also whacked about 8% today).
Does this make any sense? Why does anyone still pay attention to analysts at all? And what should you, the individual investor, do?
Look beyond the analyst ratings -- which really mean nothing and, despite attempts to clarify them in recent months, are often nonsensical, anyway. If you're inclined, read the analyst's research and think about its merits. You can learn from their full reports.
In Home Depot's case, Merrill said, "Lowe's competitive impact on Home Depot could be increasing" (emphasis ours), and Home Depot's store inventories may have been depleted too much while product assortments were narrowed. While that could be a problem, it can't be as bad as having a surplus of inventory sitting on its shelves and in its warehouses. And have you ever not been able to find something you were looking for at Home Depot?
The company is standing firm by its earnings guidance of $0.47 per share for Q2 and revenue growth of 15% to 18% over the next three years. Profits are projected to increase 18% to 20% during that time.
When you're comparing Home Depot to Lowe's, you're still comparing a $70 billion company (Home Depot) to a $30 billion company (Lowe's) in terms of market capitalization. And Home Depot's carrying $5 billion in cash and short-term investments on its balance sheet, an increase of $2.5 billion since February. Lowe's has $1.5 billion, an increase of $700,000 since February.
No matter how you slice it, Home Depot is still the gorilla of the home improvement space. When times are uncertain, bet on the gorilla -- especially when its stock now sits at near a four-year low.
Discussion Board of the Day: Home Depot
Do you think Lowe's presents a serious challenge to Home Depot? Would you stay away from either company now? Do you give analyst ratings any credence? Bring your comments to the Home Depot Discussion Board. Only at Fool.com.
Dell Earns Its Keep
After the bell last night, Dell (Nasdaq: DELL) used two words we rarely hear anymore from companies: increased guidance. The world's second-largest computer maker, behind Hewlett Packard (NYSE: HPQ), reported that its second-quarter revenue and earnings are expected to come in a tad higher than previously expected. This news bolstered the entire market today and was particularly beneficial to Dell shares, which were up 5%.
Digging into the new guidance, Dell is now calling for $8.3 billion in second-quarter revenue, up from its previous estimate (announced on May 16) of $8.2 billion. Dell also said that its operating profit margin will be up sharply on both a sequential and year-over-year basis. This led the company to boost its second-quarter earnings-per-share estimate by a penny to $0.19.
Dell attributed the higher forecast to strength in the U.S. education, government, and consumer business segments. Noteworthy in its absence is any mention of the corporate segment, which is presumably still weak.
Overall, this announcement is being interpreted as Dell-specific good news, as shares of Hewlett-Packard and Apple (Nasdaq: AAPL) are actually down on the day. Dell's stronger-than-expected results are directly attributable to gains in market share, which means Dell's good news is competitors' bad news.
Dell's advantage is its much-vaunted direct sales model, which allows the company to carry an industry-leading low of 3.8 days of inventory. By way of comparison, Gateway (NYSE: GTW) carries 12.2 days, and Hewlett-Packard carries a whopping 50.3 days of inventory. By carrying less inventory, Dell is able to consistently configure its computers with the highest-performance and lowest-cost components. As a result, Dell offers the best price-for-performance computers in the industry.
In addition, Dell's low inventory also benefits its cash flow by reducing the need to tie up capital in inventory. This gives Dell consistently strong free cash flow, of which Dell currently trades at a multiple of around 20. As long as PC demand is weak, Dell's shares probably have a limited upside, but the shares are by no means overvalued given the proven financial benefits that accrue to Dell as the industry's low-cost provider.
"There was no malfeance [sic] involved. This was an honest disagreement about accounting procedures.... There was no malfeance [sic], no attempt to hide anything." -- Pres. George W. Bush, White House press conference, Washington, D.C., July 8, 2002
This Take brought to you by Dr. Willwe Ever Rebound, from the jungles of Wall Street.
Blimey, mate! I've taken a brief hiatus from croc hunting in the Outback to spend some time tracking wild bears! These bears are ferocious beasts that will eat you up and spit you out just as soon as look at you. Today, we're hunting the most terrifying of all bears, the dreaded "Portuscarnivorus Grizzly," indigenous only to these United States. In my 40 years of wild beast hunting, I've seen only eight such terrible creatures. They all wreaked havoc, spilling blood in the streets, and slashing the S&P 500 by more than 20% each time.
Three of them reared their fat ugly heads in the 1960s, when I was just a wee lad. In the '70s, there was only one sighting, but it was the most ferocious portfolio-eating beast I can recall. This brutal bear cut the S&P 500 by 50%! It wasn't until the '80s that these cataclysmic carnivores came out of hibernation, ripping 28.6% from the S&P 500 in 1980-82. Then again, only appearing for a brief period in '87, this very dangerous animal slashed the S&P 500 for 36%. Unlucky chap, that S&P 500.
Finally, we've seen just a few creatures since the beginning of the '90s. In 1998, a smaller grizzly hacked the S&P 500 for 22.5%. Rumor has it that disgusting varmint was imported from Asia during the Asian Contagion. Unfortunately, this imported grizzly beast may have spawned the most terrifying strain of portuscarnivorus ever known to man. In March of 2000, this vicious brute began shredding the S&P 500.
Today, the bear has eaten up 42% of our market index, and nobody's really sure when he'll leave, though fellow croc hunter Rick Munarriz seems to think that this giant grizzly is on its last leg. With the Nasdaq down 73% and this bear solidly in the 40% range, one would think that the bear should be full from the feast it's had. Hopefully this meal will allow it to hibernate for a long, long time.
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The world's biggest company delivered some good news today. General Electric (NYSE: GE) posted second-quarter earnings that were 18% better than the year-ago period, and said it's on target to meet third-quarter estimates. CEO Jeff Immelt said the NBC television network and the plastics and appliances divisions are looking particularly strong.
Vivendi Universal's (NYSE: V) chief financial officer will soon turn in his resignation, according to published reports. Guillaume Hannezo, along with ousted CEO Jean-Marie Messier, was one of the main architects in the company's acquisition-related rise from a water company to a media and entertainment giant.
In an effort to reduce expenses, Sprint (NYSE: FON) says it will lay off about 1,100 employees, or a little more than 1% of its workforce. The long-distance and wireless company will also "decommission" part of its DSL network in areas that are better served by other means.
Duke Energy (NYSE: DUK) confirmed it has received subpoenas from a couple of government agencies relating to its role in so-called "round trip" energy trading with other companies. Others involved in the round-trip scandal include Dynegy (NYSE: DYN), Reliant Resources (NYSE: RRI), Mirant (NYSE: MIR), CMS Energy (NYSE: CMS), and Williams Cos. (NYSE: WMB).
And Finally...
Today on Fool.com: Bob Bobala says, if you can accept it, the bear market might just work to your advantage.... In Fool's School, learn why "over-the-counter" stocks can often be risky.... In our Tax Center, Roy Lewis discusses the issues surrounding the alternative minimum tax.
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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