Phew. Who would have thought our first foray into the world of penny stocks would be such a challenge?

With much bluster, this morning we announced the launch of our new product, The Motley Fool's Penny Pal. We were so confident in our new penny stock-picking strategy that all day long, we bought into some micro-caps we thought would dominate the market, if only for a few hours. But even with the major market indexes moving forward, we took it on the chin.

Here's how our first picks stacked up: 

  Ticker  % Gain
  BARCO    28.57
CMWO    -87.50
LUBR    -45.45
JASS    -75.00


PAPU     50.00

FPAL    -17.65
DAMS     -3.00


---------------
AVG     -20.58

A negative 20.58% return was not what were hoping for on Day 1, but one day does not build a strategy. We will press forward in this hot area of stock picking, and as always, we ask for your advice. Join us on our Penny Pal discussion board -- all can post for free -- and help us learn together. And come back tomorrow to buy our new newsletter -- you'll get 20% off!

In today's Motley Fool Take:

Car Wars: The Sequel

General Motors (NYSE: GM) , which spurred the first round of customer-friendly financing after the 9/11 attacks, is at it again. And just like last time, competitors are already following suit.

GM's new promotion offers 0% loans for up to five years, or cash rebates of $3,000, for nearly every model. The incentives -- the most extensive ever offered by the world's No. 1 auto maker -- are valid through April 30. Already, DaimlerChrysler's(NYSE: DCX) Chrysler unit has responded by virtually matching those terms, and Ford(NYSE: F) is expected to announce much the same later today or tomorrow.

These incentives are a double-edged sword for the struggling industry. They helped spur sales to record levels last time around, but the increased revenue didn't fall to the bottom line because of the cost of the programs. GM management knows this, of course, but sees them as the lesser of two evils. CEO Rick Wagoner is quoted in The Wall Street Journal as telling a bankers' conference, "We're not crazy about incentives, but we like them a lot better than closing plants and not selling cars."

Even though rivals are matching GM, they aren't at all thrilled about it. As a Ford spokesman told the Detroit Free Press, "We see our largest competitor, who has lost market share in five of the last six months -- while spending more than anyone else on incentives -- throwing good money after bad."

It's easy to understand Ford's bitterness, as those remarks come on the same day the company announced U.S. sales were down nearly 8% in March.

Quote of Note

"To laugh at men of sense is the privilege of fools." -- Anonymous

A Stumble on the Pier

War, bad weather, rising unemployment, a nine-year low in consumer confidence -- retailers have a growing list of excuses from which to draw in explaining why business is down.

Today, home-furnishings retailer Pier 1 Imports(NYSE: PIR) mentioned war and bad weather in its explanation of worse-than-expected March same-store sales. And with business trending poorly, the company also guided down its earnings outlook for the coming fiscal year, which ends in February '04. On this news, the stock today is down more than 4%, near a 52-week low.

Comparable-store sales for March are now predicted to be down 5% to 7%, which is worse than the -4% result management had called for only a month ago. The implication? Business is rapidly getting worse. In Pier 1's defense, however, the company is up against very tough year-ago comps of +10.3%.

Over the past three years, Pier 1 has been a huge beneficiary of home-improvement spending, as consumers bought new homes or refinanced old homes, and then filled them up with new furnishings. As retail watcher Kurt Bernard said in a recent interview, "...every time a home changes hands or is occupied for the first time, thousands or tens of thousands of dollars are spent to decorate, to furnish, to add or to take away, from new door knobs to things to cover the wall -- anything that relates to home enhancement."

Arguably, the home-improvement retail sector should continue to fare well, based on all the housing activity in the recent past. After all, the thousands of dollars put into a home's furnishings aren't purchased all at once, but rather over a period of a few years. So, even if home sales were to suddenly fall off a cliff, the home-improvement retail sector should continue to experience good sales for at least a few more years.

Then again, Pier 1's recent comp-store sales seem to defy this logic. But arguably, weather and the war could be legitimate sources of temporary sales weakness. Pier 1 seems to be planning as if this were the case. The company said today that its store-growth plans for the coming year are unchanged, with 85 net new stores still in the offing. Pier 1 did, however, also hint that it's keeping a finger on the abort button, in case the economy weakens farther: "We will continue to closely monitor the business and are prepared to defer projects in order to control expenses."

Apparently, its view of consumer spending is no different from that of most other observers: uncertain. In the face of this uncertainty, however, Pier 1's stock can be had for a very reasonable price. At today's reduced earnings-per-share guidance of $1.44 to $1.50 for the coming fiscal year, the stock trades at about 10 times forward earnings. That's a nice discount to the company's five-year average earnings multiple of 15. Pier 1 also pays a 1.5% yield and is buying back stock aggressively.

For a net-debt-free retailer with a track record of conservative growth, the current quote on Pier 1 looks appealing.

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AMD's Flashy Future

Computer chip maker Advanced Micro Devices(NYSE: AMD) and Fujitsu are merging their respective flash memory businesses to form a new company, FASL. Combined, the new entity will be the second-largest flash memory seller in the world, with 7,000 employees and $2.5 billion in gross assets.

Flash memory chips are arguably the most important semiconductor invention of the 1990s (a man at Toshiba was responsible). Flash technology retains information when a product is powered off, making it indispensable in handheld organizers, cell phones, computers, MP3 players, cameras, cars, coffee makers... you get the idea.

The world market for flash memory was an estimated $11 billion in 2001, although prices will eventually decline as the chips move toward "commodity" status. Intel(Nasdaq: INTC) leads, with estimated 28% market share. AMD and Fujitsu's new FASL business will follow, with 19% market share.

The merger will give AMD 60% ownership to Fujitsu's 40%, and is an extension of an existing manufacturing partnership already shared by the parties, called Fujitsu AMD Semiconductor Limited. Both companies stand to gain by cutting costs and consolidating manufacturing, marketing, distribution, and research and development efforts (Intel often leads the way in flash chip innovation).

There is no plan for a separate stock, so FASL's results will be "bundled" with AMD's core processor results. FASL looks to open its doors in California in the third quarter.

Typical merger risks aside, today's news is seen as a positive for AMD, which generated about one-fourth of last year's $2.7 billion in sales from flash memory. However, the company doesn't score enough net profit on flash to excite most investors.

Discussion Board of the Day: E-Commerce

Does the first-quarter success of Ask Jeeves leave you hungry for more dot-com survivors? Most of the companies who have made it this far are faring pretty well. Got e-commerce? All this and more -- in the E-Commerce discussion board. Only on Fool.com.

Quick Takes

The Nasdaq put another nail in the coffin of once high-flying software maker i2 Technologies(Nasdaq: ITWO). The Naz halted trading yesterday with shares at $0.79 after the company announced two zingers: First, that it would delay filing its year 2002 annual report pending financial restatements, and second, that the informal SEC investigation into its financial reporting has turned formal. Ouch.

The HealthSouthscandal continues to unravel like a bawdy soap opera. A day after firing founder and CEO Richard Scrushy and auditing firm Ernst and Young, HealthSouth announced it has booted Emery Harris, the company's vice president and assistant controller. He pled guilty yesterday to criminal fraud charges for his role in helping create fake earnings at the rehabilitation clinic operator. Two former HealthSouth CFOs, William Owens and Weston Smith, have also pled guilty to fraud in the past several weeks. In addition, the company said today that it's delaying filing its 10-K and is postponing its annual meeting. Shocker.

February construction spending eased 0.2%, as the government pulled back expenditures for public works projects. The Commerce Department said the value of all construction projects stood at $872.2 billion at month's end, following a 2% rise for January. Residential building levels rose 0.6% for the month, though, suggesting that home construction is staying strong.

And Finally...

Today on Fool.com:

Contributors:
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim