Warren Buffett superstar? Someone on eBay agreed to pony up $250,000 to lunch with the Berkshire Hathaway front man in a charity benefit for the Glide Foundation. Two hundred and fifty Gs! Would Bono pull that? Mick Jagger?
Never underestimate the draw of the world's most successful investor, or the willingness of the eccentric rich to spend their dough -- for a good cause or otherwise. Our advice to the auction winner: Order the lobster!
In today's Motley Fool Take:
- Berkshire's Broken Home
- Discussion Board of the Day: Berkshire Hathaway
- Juniper's Jittery Outlook
- Tom Gardner's Motley Fool Hidden Gems
- Who Wants GE?
- Quote of Note
- Quick Takes: Sonus Networks, Enron, Tyco International, more
- And Finally...
Berkshire's Broken Home
When Berkshire Hathaway
Forget the sexy housing boom. Manufactured homes, which are new homesteads built in a factory and shipped to the eventual site, have been in a rut even as low mortgage rates have catapulted the rest of the housing market higher. While the industry continues to suffer through its fourth consecutive year of declining shipment, a third of the manufactured home plants in the country have closed down.
But everyone knows Buffett is not one for mercy killing. Berkshire Hathaway must have seen something in Clayton when it made its April Fool's Day acquisition announcement. And it's not alone. With Clayton shareholders set to vote on the buyout next week, such institutional investors in the company as Brandywine Asset Management and Cliffwood Partners have chimed in, urging fellow stakeholders to vote against the deal. Obviously, many people think that the deal won't fly at $12.50 because the stock closed at $13 yesterday.
Last night, things got even more interesting when Cerberus Capital Management announced its interest in making a competing bid for Clayton. Cerberus, you little homewrecker you.
Things are getting ugly here. Earlier this month, Clayton CEO Kevin Clayton made the unsavory move of trying to drum up support for the Berkshire offer by talking down the value of his own company. Ouch! That's a troubling about-face for a company that waxed so positive in its 2002 annual report. It had no problem bragging about posting profits for 28 straight years. It tooted its own horn about growing market share and its ability to keep 20 plants going while the competition faced closures.
You can't blame shareholders if they think there's enough gas in the tank to take this vehicle a few miles farther, even as Clayton focuses on an exit strategy. When a shrewd value hunter like Buffett makes a bid, it's only logical to think that the country's greatest investor believes that the company will be worth substantially more later.
Kevin Clayton sees a ceiling. Investors see the floor.
Discussion Board of the Day: Berkshire Hathaway
Do you think Berkshire Hathaway's buyout of Clayton will go through next week? Why does Warren Buffett buy such sleepy companies? Is it to catch the rest of the world while it's asleep? All this and more -- in the Berkshire Hathaway discussion board. Only on Fool.com.
Juniper's Jittery Outlook
As the first major network equipment provider to report results this quarter, investors had hoped for positive comments from Juniper regarding the future of the beleaguered industry, but they'll have to keep hoping.
In the second quarter, the networking company earned $0.03 per share, or $14 million, up more than 50% from last year's same quarter on a 41% rise in sales to $165 million. For the first six months of 2003, it made $17.3 million, or $0.04 per share, on $322 million in sales -- a vast improvement over last year's $40 million loss over the same period.
But that's where the good news stopped.
In the conference call, management suggested third-quarter sales would be flat, largely due to lackluster prospects in Europe, home to Juniper's largest customers, Ericsson
New partnerships with Microsoft
Juniper's cash from operations rose to $73 million in the first six months of 2003, up from $40 million last year. This made its past six months' free cash flow leap to $63 million from just $19 million in the first half of 2002. The company has $800 million in cash and investments, bringing its enterprise value to $4.3 billion. That gives it a very steep valuation multiple unless (and until) free cash flow can more than double again. That'll at least take patience.
Tom Gardner's Motley Fool Hidden Gems
In his latest newsletter, Motley Fool Hidden Gems, Fool co-founder Tom Gardner finds undervalued stocks that Wall Street overlooks. Take a free trial today!
Who Wants GE?
The drop in second-quarter earnings accompanied a less-than-1% increase in revenue, which CEO Jeffrey Immelt ascribed to positive but slow economic growth. Shares barely budged, trading today at $28 and change, a third above their 52-week low.
GE is perhaps the most widely held and followed stock in the U.S. It's consistently No. 1 or 2 in market capitalization and is the largest non-retail, non-oil, non-auto company in annual sales. As evidenced by its chart, it once made a lot of long-term shareholders very happy.
But let's look ahead, not back. A multinational conglomerate, General Electric, like peers Berkshire Hathaway
All companies depend on management skill when allocating capital, but as highlighted in a very provocative discussion about GE and Berkshire Hathaway on our discussion boards (which words alone are worth the subscription!), the typical conglomerate's survival too often depends on an individual charismatic leader. GE buys and sells businesses to move capital to more productive uses (ex-CEO Jack Welch masterminded this for decades), while Berkshire buys but so far doesn't sell, instead diverting cash flow to Warren Buffett and Charlie Munger to invest.
What happens when they're gone? To imagine the worst case for what can happen post-Welch and post-Buffett and Munger, look no farther than Harold Geneen, who in 18 years built ITT into a conglomerate of 150 businesses in 57 countries. Don't remember ITT? It died a long, slow death after Geneen's departure.
The most widely held companies become the most widely held companies because there's a consensus that they are safe -- remember General Motors
Whether GE's financial disclosure is sufficient or the SPEs present risk remains to be seen. By its existence, the very question augurs that GE is not only not "safe," but a company whose complicated businesses and financials are appropriate only for investors with an exhaustive knowledge of financial statements.
Don't despair! If you want to own individual stocks but the thought of GE's SPEs makes you cry, you can always buy a low-expense stock market index fund. These funds are weighted by market capitalization, so you'll get plenty of GE, but enough other stuff to balance your risk.
Quote of Note
"The 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there's a 90% probability you'll get it wrong." -- Andy Rooney, American author and commentator
Shares of telecom voice infrastructure company Sonus Networks
Enron filed its Chapter 11 reorganization plan today, revealing its road map for coming out of bankruptcy as a going concern. Creditors will reportedly receive 14.4 to 18.3 cents for each dollar they are owed, far less than the 36 cents creditors of another spectacularly bankrupt company, WorldCom, may receive.
The Producer Price Index core rate fell 0.1% in June after rising 0.1% in May. The core rate excludes energy and food and reflects discounting on cars, computers, and appliances. It fell 0.9% in April.
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Microsoft's Corporate Coup: Mr. Softy continues its transformation from bully to upstanding corporate steward.
- JetBlue's Beautiful Cost Structure: Low operating costs lift JetBlue above the crowd.
- Pizza Toss-Up: Want a bigger piece of the pie? See how pizza makers are getting theirs.
- Financial Peekaboo: What's on your fellow investors' minds? Take a look.
- In Fool's School, online financial resources galore.
Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Kate Southerland, Dayana Yochim