It was back to the future today on Wall Street as the S&P 500 broke through the 1,000 level for the first time since June 20, 2002. A looming potential rate cut from the Fed and manufacturing data that was more positive than expected stoked investors, who pushed each of the three major indexes up more than 2.2%.
It was a heady day, one that should remind investors that it pays to be invested all the time. However, if you can, step aside from the exuberance and remember it's still a market of public companies. In the end, many of those that rose today will succeed wildly. But many of them will also fail. Keep your eyes open, investors.
In today's Motley Fool Take:
- Reinventing Kmart
- Motley Fool Savings Center
- Best Buy Sheds Musicland
- Quote of Note
- Time to Refinance?
- Discussion Board of the Day: Buying or Selling a Home
- Quick Takes: Pfizer, Guidant, PeopleSoft/Oracle, more
- And Finally...
After all, it's been less than a year since shareholders of Kmart's original equity were wiped out by bankruptcy proceedings, yet apparently there are still plenty of folks who are willing to hitch their success to the back of this shopping cart.
Kmart emerged from bankruptcy protection just last month after stiffing creditors to the tune of about $7 billion. Its new shares, which the company issued to pay down debt, hit the Nasdaq last week. The unfortunate news for investors who are snatching the new stock up like it's a Blue-Light Special is the company is still much the same.
Make no mistake: Despite the green arrow in front of the stock price today, this is a weak business. Kmart reported a $1 billion drop in net sales today, but that number appears worse than it is due to the 316 stores it closed as part of its bankruptcy restructuring. Still, same-store sales dropped 3.2%, and that number is as real as real can get. Couple that with the fact that its distribution infrastructure is inefficient and its gross margins remain weak compared to competitors, and you're left feeling a little blue (without the special).
The company also has a big image problem. That might not be too serious in another industry, but it's life or death for a retail firm. When Tom Cruise's character in Rainman brashly stated, "Kmart sucks," I thought it was a seminal moment for the company -- the beginning of the end. That statement may have been a bit harsh, but investors who lost it all on the company's original equity probably share the sentiment.
Kmart's emergence from bankruptcy in a weak economy and an intensely competitive retail environment is a risky move, especially when you consider that many of the problems that drove the firm into bankruptcy still exist.
The new management team is certainly a strong point, and the company has adequate liquidity (thanks in part to the issuance of the new shares). But as long as the retailer is getting its clock-cleaned by Wal-Mart
If you find yourself wanting to take a flier on this turnaround story, just remember that history isn't on the side of those who go digging in the bottom of the retail basket. Often, all they come out with are a melted Icee and a few leftover coupons.
Motley Fool Savings Center
If you needed a new furnace in the middle of winter (cost: $2,000-$5,000) or faced some other big-ticket surprise, what would you do? For one, you can avoid digging deep into debt by having a stash of cash just for life's big (and small) emergencies. To learn more about emergency funds -- such as how much you need and how to get the best bang for your buck -- visit our Savings Center today.
Best Buy Sheds Musicland
Sometimes businesses make really stupid decisions. That's what Best Buy
Originally, Best Buy had intended to grab younger customers through Musicland's web of mall locations, but the plan never played out that way. In what can only be described as colossally bad timing, Best Buy got into the music business just as CD sales really started to slide. When Musicland's chains (Sam Goody, Suncoast, and Media Play) started shifting more to DVDs and video games, those lower-margin items weighed on profits.
The confluence of the music business' difficulties and the growing presence of lower-margin goods squeezed results. Musicland's sales dropped to $1.73 billion in fiscal 2003 from $1.89 billion the prior year. The division recorded a 2003 operating loss of $72 million vs. operating profits of $31 million in 2002. And the number of its locations also dropped, to 1,195 at 2003's year-end. The chain had 1,309 locations when Best Buy bought it.
Best Buy finally cried "Uncle!" and put it up for sale back in late March. Today, it announced that it has unloaded Musicland to private investment firm Sun Capital Partners.
Best Buy practically gave the chain away, which is hardly surprising. Sun Capital acquired all of Musicland's stock, and instead of giving Best Buy cash, it assumed responsibility for Musicland's liabilities and lease obligations.
You have to applaud Best Buy for not slumping along with Musicland on its back because of some misguided hubris. The company recognized that it flubbed and decided to act.
Of course, it would have been nice had it never shelled out for it in the first place, but that can't be helped now. What's important for Best Buy, and its shareholders, is what the future holds: The company can now get back to focusing its efforts and resources on its core consumer electronics business.
"Music is spiritual. The music business is not." -- Van Morrison
Time to Refinance?
The housing market is a lot like a casino: The "house" always wins. At least that's the way it seems lately as falling borrowing costs continue to fuel the sector's boom.
Last week, homebuilder Lennar
But even if you're completely happy where you are living, that doesn't mean you can't profit from the interest rate freefall. With yields on the 10-year bond hitting a 45-year low this past week, there might be a whole lot of you out there in 30-year mortgages that can save money and shave time by refinancing at significantly lower rates on a 15-year loan.
Traffic to our Home Refinancing Center has been brisk and with good reason. The savings are real. With the soft economy, lower monthly mortgage payments are a welcome sight. Not only do the savings help you stretch your budget but it also helps ease the cash you should be hoarding away as an e-fund.
By definition, a good home is built on a solid foundation. If that home also happens to be financed at historically rock-bottom rates, that same solid foundation can probably also apply to its homeowner.
Discussion Board of the Day: Buying or Selling a Home
Are you ready to refinance, have you just refinanced, or are you out of the loop because you're still renting? When do you think interest rates will start to head back up? How do you make a house a home? All this and more -- in the Buying or Selling a Home discussion board. Only on Fool.com.
In local news, sixth-grader Billy Taylor rebuffed James Hansen's hostile offer to buy out his lunch-money loan business for $3.84 in cash and four Tootsie Rolls. Taylor finally relented after school, however, during a five-minute meeting with Hansen and several of his "business partners."
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Matt Richey serves up three deep-value stocks to consider.
- Meet the Earnings Yield: It can tell you when a bond makes more sense than a stock.
- The House of Representatives passes a bill to limit most big class action suits in federal courts.
- In Fool's School, understanding intrinsic value.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Kate Southerland, Dayana Yochim