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The Motley Fool 50 lives in a swanky 18-room estate in the Hamptons, financed at 6.5%. The index rose over 1% today.

In today's Motley Fool Take:

Burnt Ciena

For several quarters, investors have parsed remarks by the major optical networking equipment makers for any hint of a bottom. Today, Ciena's(Nasdaq: CIEN) Chief Executive Officer Gary Smith let it all hang out, when he reportedly said on the company's conference call, "We'd like nothing more than to say the worst is over, but it's not clear we're there just yet.''

Yes, the floor keeps dropping for his company -- and its competitors. Ciena announced that Q3 revenue plummeted to $50 million from a year-ago $458 million. Down 89%. Yet Ciena finished the quarter with $1.30 billion in cash and short-term investments. That's a huge wallet, but investors are watching the cash burn -- $68 million, sequentially.

Here are the last five quarters' revenues and cash and equivalents for Ciena and two other optical gear makers:

          Ciena      JDS Uniphase   Avanex 
     Revs.     Cash Revs. Cash  Revs. Cash
Q3*  $50 mil. $1299 $222  $1450 $ 8 $136
Q2    87       1368  262   1564  10  153
Q1   162       1523  286   1653   8  160
Q4   368       1300  329   1754   7  195
Q3   458       1398  601   1812  18  204
*or company's equivalent quarter

All three are watching revenues tumble and cash decline. Ciena shares closed yesterday at $4.49 a share, 9% above its $4.13 a share in cash and short-term investments net of debt. JDS Uniphase(Nasdaq: JDSU) finished at $2.40, with about $0.96 per share in cash, and Avanex(Nasdaq: AVNX) ended at $2.38, with $2.12. If cash burn were to end, these cash-rich, almost debt-free companies would suddenly have vastly improved margins of safety. They may not be the best businesses, but if they had no cash burn and maintained their substantial reserves, they would have terrific upside. Investors who want to examine companies selling at or close to cash per share may want to look into the concept of net net working capital, explained by Matt Richey in Quest for Deep Value.

None of these companies is anywhere near a value stock yet -- though if you really understand the industry, you may know something others don't. Please share it on the Ciena discussion board. But the market is assigning odds that these companies may fail, and a little studying might send you in the direction of some intriguing possibilities.

Quote of Note

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it." -- Art Buchwald, political humorist and Pulitzer Prize winner

Panera: Great Bread, Lousy Stock

Panera Bread (Nasdaq: PNRA) reported second-quarter earnings this morning, meeting analysts' estimates of $0.13 per share. But upon the market's open, the stock promptly fell nearly 7%. That kind of reaction to an earnings report that met expectations is the telltale sign of a momentum-driven stock. Momentum investors bail in situations like this because even they know that only expectations-beating growth can support Panera's sky-high earnings multiple of 57.

The stock's decline may also relate to some signs of margin deterioration that showed up during the quarter. Even though the overall operating margin and net margin increased versus the year-ago quarter, some individual expense line items (such as cost of food/paper and labor) accounted for a higher percentage of sales than last year. As a result, overall bakery-café expenses increased to 83.1% of sales, up from 82.1% of sales in the comparable quarter a year ago. This may seem like a small difference, but on a business with a net margin around 6%, every percentage point counts for a lot.

A higher cost structure would certainly cause investors to grow more leery of the company's aggressive forward-earnings guidance. Panera management reiterated its guidance for 40% EPS growth in 2003. Given the uncertain economy and recent signs of a weakening consumer demand, that could easily prove a tall order.

At a recent price of $32, Panera stock trades at 32.7 times estimated 2003 EPS of $0.98. That's almost twice the P/E multiple of what the average restaurant trades at on a trailing EPS basis. Those multiples look especially rich given that Panera's bakery-cafés don't have the distinguishing qualities of a Starbucks(Nasdaq: SBUX) or a Krispy Kreme(NYSE: KKD).

Think about it. There are countless coffee lovers who go to Starbucks every day. And if you're a doughnut fan, you want to make those fat grams and calories count by only eating the finest: Krispy Kreme. But what strong niche does Panera fill? Panera is no different than all the other reasonably priced, quick-serve restaurants like Cosi and Baja Fresh. Panera's growth could taper in the not-so-distant future, while the true category-killer franchises such as Starbucks and Krispy Kreme continue to grow steadily for years.

Bottom line: There doesn't seem to be an upside for Panera, at 57 times trailing earnings and 33 times forward earnings. Others apparently agree given that 15% of the stock's float is short. Fools, beware.

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Game On

How hot is the video game sector right now? Forget the fact that developers such as Electronic Arts(Nasdaq: ERTS), Activision(Nasdaq: ATVI), and Take Two Interactive(Nasdaq: TTWO) are within shooting distance of their 52-week highs. Well, maybe we shouldn't forget that, with so many stocks in the tank, but let's go retail.

This morning, Gamestop(NYSE: GME) reported a 23% surge in same-store sales for the second quarter. Twenty-three percent? That's not a figure one usually associates with comps. Last night, Electronics Boutique(Nasdaq: ELBO) posted a profit on a similarly huge 20% spike in comparable store sales.

There's big news, even in the smaller numbers. While Electronics Boutique mustered a scant $0.03-a-share profit for the period, it's the first time the company has closed out the July period in the black in three years. Video game retailing is a seasonal business with the logical holiday spikes, but demand for the Xbox, PlayStation2, GameCube, and their related software titles continues to fuel the industry, even during the traditionally sleepy lull of summer.

History indicates console sales don't peak until the third year, and the systems are just one or two holiday seasons young, so the fundamental upside should continue through for at least a few more quarters.

In short, the game's not over yet.

Discussion Board of the Day: Video & PC Games

Where does your home video game loyalty lie? Sony's(NYSE: SNE) PlayStation2? Microsoft's(Nasdaq: MSFT) Xbox? Nintendo's GameCube? Or are you a multi-platform opportunist? Where do the game developers stand, and who will be putting out the hot sellers for the upcoming holiday season? All this and more -- in the Video & PC Games discussion board. Only on

Quick Takes

More retailers reported today, with Williams-Sonoma(NYSE: WSM) announcing Q2 EPS of $0.12, substantially up from $0.01 for the same quarter last year, on a 16% jump in sales. The company lowered its year same-store sales growth forecast to 2% to 4%, from 5% to 6.5%.

With an army of retailers including The Sports Authority(NYSE: TSA), Wal-Mart(NYSE: WMT), Federated Department Stores(NYSE: FD), Foot Locker(NYSE: Z), Men's Wearhouse(NYSE: MW), and Wet Seal(Nasdaq: WTSLA) all reporting or forecasting sluggish sales, we love this from Bloomberg: "'The consumer right now is a little bit of a question mark,' said Joshua Brooks, who helps manage $87 billion at Delaware Investments, including 2.7 million Limited(NYSE: LTD) shares." Well, knock us over with a feather!

Give 'em some love. Southwest Airlines(NYSE: LUV) lowered its last minute one-way fares $100 to $299 to drum up more long-haul business. Too bad for the airlines that depend on business travelers -- as in, gee, almost all the rest!

Office-supply retailer Staples(Nasdaq: SPLS) said it would buy Pinault-Printemps-Redoute's (that's pee-no preh-taw reh-doot, more or less, for those of you in need of French lessons) catalog business for $807 million. Both Staples and Office Depot(NYSE: ODP) are looking to Europe to bolster growth, and Staples' Q2 sales grew four times faster there than those in North America. Next time you're waltzing down the Champs-Elysee, you may be able to load up on Post-Its.

New jobless claims numbered 389,000, down from last week's 391,000. A Federal Reserve Bank of Philadelphia survey of economists says that unemployment will average 6% for the rest of the year.

And Finally...

Today on Are dividend-paying retail stocks becoming the hot fashion item of the season?.... Is real estate safe?... The risks and merits of REITs. Plus, stay ahead of the buy curve, and vacation suggestions.... In Fool's School, what makes a company great.

Bob Bobala, Robert Brokamp, Jeff Hwang, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim