The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

Los Gatos, Calif.
52-week low-high: $9.10-$38.62
$0.5 billion market cap

By Rick Aristotle Munarriz

Why go for a hog when you can buy into a pig on a spit? With Netflix trading in the single digits these days it's clear the stock isn't getting a whole lot of love down Wall Street. That's fine. Red mailers are for love letters -- and rented DVDs.

By now, everyone is pretty much familiar with the company's movie rental service. If you've got $17.99 burning a hole in your pocket you can borrow three DVDs at a time for a whole month and keep them as long as you like. Want more? Return a disc. Netflix foots the postage both ways. Blockbuster (NYSE:BBI)? We don't need no stinkin' Blockbuster store! Now the latest releases are as near as your mailbox.

Netflix and its content library of more than 35,000 discs rock. It's easy to see why Blockbuster is willing to sacrifice the value proposition of its bread-and-butter stores by going online and why (NASDAQ:AMZN) wants in badly. This is where the growth is at. But Netflix already has 2.6 million subscribers. It's looking to close out the year with about 4 million members. Good luck catching up.

With a cash-rich balance sheet giving Netflix an enterprise value of roughly $300 million, how can you not like a new market leader selling at a fraction of the $700+ million in revenues that the company is guiding Wall Street to expect this year?

Netflix can't lose. Either it rises on its own or Amazon acquires it at a premium. It's as simple as that. Blockbuster is a threat but it's also wrecking its store model these days by making its online service more attractive, and Amazon doesn't have the distribution centers in place and critical mass of millions of paying subscribers to assure next-day delivery in most of the country through regular first-class mail delivery.

This Motley Fool Stock Advisor recommendation may have had a rough go lately, but it doesn't take too much imagination to predict a happy ending here. As Netflix grows its subscriber base, expands its offerings, and draws the respect of sponsors, how can it lose? Even the two-wheeling crowd in Sturgis can agree to that.

Rick Munarriz does own shares in Netflix.

Harley-Davidson (NYSE:HDI)
Milwaukee , Wis.
52-week low-high: $49.68-$63.75
$17.78 billion market cap

By Stephen D. Simpson, CFA

So, now I face Motley Fool Stock Advisor pick Netflix in Round 2. Although I realize it's usually bad policy to go against the bosses' picks, I frankly have a few bones to pick with Netflix.

Does Netflix management even understand what they're doing? After publicly smack-talking rival Blockbuster, it has been forced to publicly retreat and acknowledge that it "underestimated" its larger rival.

Secondly, the company has had three different price points for its service in less than a year. That suggests to this Fool that the company either really doesn't understand the marketplace, or is desperately locked into a price-competition game with Blockbuster.

Thirdly, the company's cost structure is highly variable and seems negatively leveraged to usage -- in other words, the company appears to make less money when customers use their service more.

That's not a good thing for what amounts to a kissing cousin of an "all you can eat" service.

What's more, for all of Blockbuster's perceived shortcomings, it does generate copious amounts of free cash flow -- funds that can be used to batter Netflix. And as for Amazon... when Amazon entered the toy and software businesses, it partnered with established names such as Toys "R" Us (NYSE:TOY) and Gamestop (NYSE:GME). Do you really think it's going to choose Netflix as a partner, assuming Blockbuster is interested?

For my money, Harley-Davidson is the far superior company. It has a time-tested brand, great margins, and strong free cash flow. What's more, if people buy more Harleys, the company actually makes more money.

Considering that Harley has been around for more than a few battles in the marketplace, I'm not sure why an investor should pick a company (Netflix) that is still untested and faces competition from two much larger companies that are both considerably better able to pound it on price.

While Harley's not perfect (I wish management owned more of the company's stock), it pays a solid dividend, has a rabidly loyal customer base, and sports a return on assets of nearly 18%. Investing may be about the future, but if you always look only at the road far ahead, you may miss that big pothole.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.

Harley's been around for 100 years, but investing is about the now and later. Harley's December quarter revenues? Up just 5%! In 2004 Harley shipped 9% more bikes yet grew retail revenue by only 7%. It would be hypocritical for a Harley supporter to knock Netflix for lower selling prices. Besides, if those "odd" single-digit growth rates have you slowing down Netflix is the real speedster looking for sales this year to grow by 40%. -- R.A.M.

Sure, maybe Harley-Davidson isn't growing as fast as Netflix, but I'm pretty confident it'll be around in 5, 10, and 20 years. If Netflix can't figure out a way to build operating leverage into its model, it might not be around for the first of those anniversaries.

And you know, I was just thinking. I wonder why it is that Harley-Davidson has beaten the market over the past year, while Netflix is down close to 70%. -- S.S.

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