According to our snap poll from yesterday on a potential housing bubble, Fools have a variety of opinions. A majority -- nearly 60% -- of respondents did say they're not worried about a bubble because they plan to live in their home for a long period of time. But some Fools are thinking about cashing in their house and tenting it down by the river. Now that would really be living below your means!
Check out the results of the poll, and vote if you haven't already.
The Motley Fool 50 lost about 2.5% today, but the markets turned in a rare positive performance for the week, with the Fool's index gaining almost 1.5%.
In today's Motley Fool Take:
- Intel Gets Trimmed
- Quote of Note
- Is Your Fund in Trouble?
- Discussion Board of the Day: Index Funds
- Patterson Dental Drills Competition
- Shameless Plug: Motley Fool Stock Advisor
- Quick Takes: TiVo, Delta Air Lines, Weight Watchers, more
- Fool Radio Wants You
- And Finally...
Intel Gets Trimmed
Trim, trim, trim. Wall Street has been a busy barber lately with Intel
As reported on CBS MarketWatch, the Bear Stearns analyst wrote: "Intel's competitive position remains strong, but PC demand has remained sluggish. Intel is well positioned to capitalize on a recovery in the PC market [but] that appears unlikely until sometime in 2003. We think Intel is a good investment for investors with a 12- to 18-month horizon."
What exactly will spur a recovery in the PC market in 2003? Probably the same nebulous force that was supposed to bring a recovery in the second half of this year. By now, it should be evident that PC growth is stagnating, and this economy isn't showing the potential for a strong rebound. Is there any reason to believe next year's earnings at Intel will be materially higher than this year's? We don't think so.
Intel is not the economic engine it once was. Average annual sales growth over the past five years is 4.9%. The company's ROIC has dwindled each of the past five years as well, and now stands at only 8.8% for the trailing 12 months through June.
Nevertheless, investors continue to price Intel as if the FY03 earnings estimate of $0.80 is a shoo-in. The credibility of this estimate is the only thing holding Intel at its current perch of around $18.20. At that price, the stock trades for almost 23 times the 2003 estimate. In and of itself, that's not exactly cheap, and it looks lofty if you consider the very real possibility of that estimate continuing to come down. This year's earnings are currently expected at $0.55, which is only three cents higher than last year's. What if Intel could only muster, say, $0.60 next year? In that case, the stock is trading at a 30 times forward multiple. That's rich.
Historically, Intel has made most of its money by selling leading-edge technology at a premium. But now we're well into a period of lagging demand for the latest and greatest technology, and that's hurting Intel's margins. Until there's a catalyst to spur demand for the most advanced technology, Intel's margins will likely remain under pressure.
We estimate Intel's fair value to be closer to 20 times its 2002 estimate of $0.55, which would put the stock at $11. Read Bill Mann's recent article to learn why he's choosing to sell Intel from the Rule Maker Portfolio.
"The world has to learn that the actual pleasure derived from material things is of rather low quality on the whole and less even in quantity than it looks to those who have not tried it." -- Oliver Wendell Homes
Despite an August rally in which the S&P 500 rose 5.6%, from March 2000 to July 2002, the U.S. stock market's total market capitalization declined by $3.7 trillion. That kind of evaporation could claim the livelihoods of fund managers in as many as half of the industry's equity funds. While you probably don't care whether the suits keep their day jobs, you may be concerned about money you've entrusted to mutual funds.
Most funds are part of a larger family, which means if your mutual fund is closed, the parent company moves your money to another fund in its stable. Fund consolidation is the name of the game, rather than bankruptcy. The larger issue for most people is knowing where your money is and how it's doing against the market averages.
According to the Investment Company Institute, the number of U.S. funds since 1990 has rocketed from 3,679 to 8,325, with assets under management rising from $1.1 trillion to a peak of $7.3 trillion, when the S&P 500 reached its high of 1,527 in March 2000.
The bull market brought a ton of money -- and new investors -- into the U.S. stock market. Unfortunately, even during a time when monkeys throwing darts seemed to be an effective stock-picking technique, managed mutual funds lagged in performance. U.S. stock funds garnered annual returns of 10.8% during the 1990s, according to the Investment Company Institute. That compared with the S&P's 18% average annual gain.
The moral of the story: While you probably don't have to worry about battling for your money in bankruptcy court, should your fund be closed, you do need to worry about paying higher fees in managed funds, only to lose to a cheaper, passive market index. You still need to compete against the total market index fund or the S&P 500 index fund -- whether we're in a bear market or not. If you can't beat 'em, join 'em.
Are you concerned that your mutual fund may close? What's the buzz on various funds, and which ones will weather the storm? Share your thoughts with fellow Fools and read what they have to say on the Index Funds discussion board. Only on Fool.com.
Patterson Dental Company
Patterson Dental's primary business is the "consumable dental supplies" that dental offices go through like water: X-ray films, hand instruments, sterilization products, and those scary-looking dental instruments. It's an extremely specialized business, and its common equipment needs differ from those in other medical fields. As such, a company like Patterson, which only focuses on dentistry supply, can create a pretty good franchise for itself.
That is the case here, as Patterson's growth -- even excluding its acquisition of J.A. Webster and its veterinary supply business -- has been robust and its gross margins have consistently remained at about 6% to 7%. This past quarter was no different. In fact, the biggest concern was its rapid and sudden increase in receivables, which was inordinate with revenue growth, pointing to a longer cash-conversion cycle.
Some of this could be explained by the acquisition, but we'd like to see greater improvement. We would also rather the company didn't buy back a high number of shares (247,000) this year with its stock price so high. Patterson's stated reason was to alleviate the dilutive effects of the J.A. Webster transaction. Yet several directors and executives were selling significant chunks of stock, so the company clearly didn't buy its stock back because it was undervalued.
Patterson Dental's stock remains expensive, with multiples of free cash flow exceeding 41, meaning that the company is going to have to show good, consistent growth for some time in order to meet these assumptions.
Searching for stock ideas? The Motley Fool Stock Advisor, written each month by co-founders David and Tom Gardner, features an easy-to-follow stock scorecard so you can monitor the performance of their head-to-head investment picks in a multiyear battle. (You should hear them going at it here at Fool HQ...).
Like America Online dial-up users in the busy signal tatters of 1996, it's getting awfully hard for AOL Time Warner
Devo may have had a big 1980s new wave hit with "Whip It," but it's TiVo
Diversified consumer products company Lancaster Colony
One if by land. Two if by sea. Three if by turbulent air. A trio of airlines is huddling together to produce a joint marketing campaign to aim high while keeping costs low. Delta
Morgan Stanley initiated coverage of many homebuilders, such as Lennar
Labor Day is just around the corner, and The Motley Fool Radio Show on NPR would love to hear from you for its "How's Business?" special. If you've got an interesting job, call us at 866-NPR-FOOL or drop us an email at firstname.lastname@example.org. Farmer? Performance Artist? Steelworker? Puppeteer? Pet mortician? We want to hear from you!
Today on Fool.com: Bill Mann explains why getting rich isn't all it's cracked up to be.... Check the tax implications before you sell your stuff.... In Fool's School, should you be scared of the triple-witching hour?
Bob Bobala, Robert Brokamp, Jeff Hwang, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim