This is a big day on Wall Street, as a dozen brokerage firms have reached a settlement that should go a long way toward ending analyst conflicts. Read all about it below.
Also notable today is Meg Whitman's resignation from the board of directors of Goldman Sachs. The eBay CEO has been under fire since a congressional investigation found she had received shares of 100 IPOs managed by Goldman. Representatives of both companies say Whitman stepped down because she wants to be able to consult Goldman in the future without any hints of impropriety.
With less than five shopping days until Christmas, the FOOL 50 moved ahead 1% today, then went to the mall.
In today's Motley Fool Take:
- Wise Guys Settle for $1.4 Billion
- Quote of Note
- Nike Sprints Forward
- Discussion Board of the Day: Nike
- Chewing on Fast Food
- Shameless Plug: Holiday Sale
- Global Concerns Tip Tupperware
- Quick Takes: Alan Greenspan, George Soros, Halliburton, more
- And Finally...
Wise Guys Settle for $1.4 Billion
After months of wrangling, it all finally comes to an end today as the major Wall Street brokerage firms are agreeing to pay some $1.4 billion to settle charges of biased and misleading research. And after years of campaigning for such reforms, The Motley Fool looks upon this as a landmark day -- especially since the settlement includes reforms that will help curb future abuses.
The largest fine -- $400 million -- was levied against Citigroup
More important than the fines, however, is the fact the companies are agreeing to sweeping changes in the way they do business. No longer will stock analysts' pay be tied to the amount of investment-banking business they generate. No longer will the firms be able to "spin" IPO shares to executives in exchange for future business. Each of these companies will also be required to contract with no less than three independent research firms that will provide research to the brokerage firm's customers.
"This agreement will permanently change the way Wall Street operates," said New York Attorney General Eliot Spitzer, who teamed with the SEC and other agencies to enact the settlement. "Our objective throughout the investigation and negotiations has been to protect the small investor and restore integrity to the marketplace. We are confident that the rules embodied in this agreement will do so."
The agreement doesn't include criminal punishment for individuals involved, but that could come later. Some of the fine money will go toward "investor restitution."
We know today's settlement doesn't scrub Wall Street clean of conflicts of interest and other abuses. We'll still have to keep our Eyes on the Wise. However, this is a huge win for individual investors, and perhaps a precursor of better things to come.
Quote of Note
"The agreement involved heavy give-and-take between the Street and regulators, and reaching a final pact was elusive. At times, it was 'like hugging a bear made of jelly,' a regulator said." -- The Wall Street Journal, on today's settlement.
Nike Sprints Forward
If you heard a round of "Swoosh" last night, it was probably the cry of joyous Nike
With earnings climbing by 18% for a $0.57 a share showing on $2.5 billion in revenue, it might seem like smooth treading for the company. Unfortunately, the laces are coming undone. Yes, Nike scored a strong quarter, but that came on the heels of big gains in Europe and Asia. Domestically, it saw an 8% dip in revenues. Recent events are also uninspiring.
Earlier this week, Foot Locker
Whether Foot Locker is reacting to customer demand or shifting its product mix to produce higher margins, it doesn't bode well for Nike if others follow suit. As a matter of fact, even the company's mouthpieces are getting cold feet.
Last week, Nike settled with Minnesota Vikings quarterback Daunte Culpepper over a lawsuit that Nike initiated over the summer when the scramble-happy passer wanted to ditch a Nike endorsement deal to hawk Reebok
Discussion Board of the Day: Nike
Do you own a pair of Nike sneakers? More than a pair? Are you worried over the company's stateside slump or excited about the 35% spurt in Europe? What went wrong with the Vikings, anyway? All this and more -- in the Nike discussion board. Only on Fool.com.
Chewing on Fast Food
Restaurant stocks were hot earlier this year; now they're not. Fast-food restaurant stocks, in particular, have been taking it on the chin recently as rivals duke it out with new lower-price menus. The resulting price war has already caused casualties to several of these players' earnings estimates. Nevertheless, a contrarian investment stance may be in order, given the bargain valuations now being assigned to this group.
Here's a rapid-fire summary of what's caused the carnage in this group recently. Two weeks ago today, Wendy's
The result has been stock market carnage for these stocks. Compared to its 52-week high, McDonald's has fallen 49%; Wendy's, 35%, Jack in the Box, 51%; and Yum! Brands, 28%. The upshot, however, is that the current bad news has largely already been discounted into these companies' stock prices. Check out where P/Es for this group stand based on current earnings estimates for 2003:
Recent 2003 EPS Forward Price Estimate P/E McDonald's $15.57 ~$1.40 11.1 Wendy's $27.04 ~$2.11 12.8 Yum! Brands $23.84 ~$2.06 11.6 Jack in the Box $16.61 ~$2.03 8.2
For a group that over the past seven years has an average P/E of around 20, the current prices look awfully cheap. Wendy's, in particular, seems to represent a company that's not in the throes of reorganization, but is merely suffering in sympathy with its peers. Also, consider that Wendy's is owner of fast-growing subsidiary Baja Fresh, a tex-mex grill which, if you haven't tried it, is fantastic.
Shameless Plug: Holiday Sale
We've discounted some of our best Fool merchandise to help you save a little coin this holiday season. Save 20% on The Motley Fool Select, Stocks 2003, TMF Money Advisor, Motley Fool Stock Advisor, and Fool Community subscriptions, now through Dec. 31. We know you've been a little more naughty than nice this year, but that's OK. We won't tell Santa about the naughty part.
Global Concerns Tip Tupperware
Tupperware expects earnings for 2002 to be $1.30 a share, excluding one-time charges and gains. For 2003, it predicts earnings will be between $1.50 and $1.60 a share.
In response to the warnings, its shares are melting more than 10% today, toying with a new 52-week low.
Weakness in Mexico, Venezuela, Korea, and the Philippines is creating this angst for Tupperware. Don't people in those countries like keeping their leftovers fresh and tasty? Why, of course, they do, but each country has distinct problems that are hurting Tupperware's sales.
In Mexico, consumer spending is slow and has been that way for most of the year. Venezuela's political unrest and the oil strike are the culprits there. South Korea instituted a new regulation requiring all Tupperware salespeople to be registered with tax authorities. This has affected the company's recruitment and employee retainment. And, in the Philippines, a decline in household income translated into a decline in spending.
Its operations in North America and Europe have shown strength and growth this year, but not enough to offset the difficulties elsewhere. Just goes to show you how challenging running a business in a global environment can be. Political and governmental policies and problems completely outside of the company's control have a direct impact. Until these key markets can overcome their various issues, overall results from the company will be pressured. Shareholders will just have to be patient.
The Green Man spoke again last night. Fed chief Alan Greenspan told the Economic Club of New York that the U.S. "is nowhere close to sliding into a pernicious deflation." After scrambling for their dictionaries, investors found some comfort in the news, and pushed stocks up a bit today.
Billionaire George Soros has been found guilty of insider trading by a French court. The 72-year-old president of Soros Fund Management, saying he was "astounded and dismayed," will appeal the decision and the $2.3 million fine.
In local news, 8-year-old Sally Walmer finally discovered the truth about Santa Claus. "We told her last night," said her father, Jim. "She caught me assembling the bicycle she'd asked Santa for, and I just felt it was time." Sally was hardly surprised, however. "I know plenty of kids that have no chimneys, and they still get presents. What do you take me for?"
Today on Fool.com: Bill Mann says the $1.4 billion fine for analyst conflicts is not enough..... In Fool's School, what to look for when test-driving a car.... Behold, last-minute tax tips.... And the Post of the Day: generous Foolish elves.
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim