One media outlet actually said that stocks bounced higher today on reports that Saddam Hussein's sons Qusay and Uday may have been killed in Iraq (news that has since been confirmed). But, seriously, would such news make you want to rush out and load up on Procter & Gamble(NYSE: PG)? We didn't think so.

Here on, we're asking the age-old question: Are value investors market timers? You may be surprised at the answer.

In today's Motley Fool Take:

3M Rides the Dollar

If beating expectations is the glue that will hold the recent market gains, 3M(NYSE: MMM) is doing its part.

The diversified conglomerate behind household names Post-It Notes and Scotch tape, among others, bucked yesterday's pullback with a healthy 5% gain. The company's second quarter and increased guidance for full year 2003 were so well-received that a buy-order imbalance delayed the stock's opening on the New York Stock Exchange.

But peel back the tape and something doesn't quite stick. The company posted a 10% gain in overall sales for the June period, but that's just the middle of a very large seesaw. Domestic sales were up a mere 2% while the international side grew by a more impressive 17%.

The reason for the disparity should be reason for concern: A weak U.S. dollar boosted 3M's sales and earnings overseas. Indeed, half of the growth outside the U.S. can be attributed directly to the faltering greenback. As one can imagine, as the dollar falls, 3M is able to generate favorable currency translations and better margins on its exports. Would the company be raising its 2003 profit target to a range between $5.75 and $5.90 a share if the dollar were stable? Of course not.

Let's applaud 3M for being one of the few global players to take advantage of buoyant international denominations rather than blame the SARS outbreak for any global shortfall. But let's not dismiss the lessons of gravity. Scribble it on a Post-It Note and stick it on your computer monitor if you must, but remind yourself to keep an eye on the dollar. The same buck that propped the company's results can eventually hurt the bottom line by getting stronger. In a world where currency values are never stagnant, the buck doesn't stop here.

Quote of Note

"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools." -- Douglas Adams, British author, 1952-2001

This "Merc" Is Rolling

Volatile interest rates and currencies are playing havoc with the real economy, but they're just what the doctor ordered for the Chicago Mercantile Exchange(NYSE: CME). This morning the exchange announced record quarterly results, sending the stock some 4% higher and capping a 76% run-up since the company's IPO in December.

In just its second quarter as a public company, CME announced record revenues and profits that beat the consensus analyst estimates. Net revenues of $142.4 million were up 32% from the year-ago quarter, while net income jumped an incredible 67%. Both reflect strong trading volumes in CME's three largest markets: interest rates, equities, and foreign exchange. Overall average daily volume increased 23% year over year to nearly 2.7 million contracts.

CME offers the first "public" report of the strong economics of financial exchanges. The first exchange to be traded publicly, CME is the largest futures exchange in the United States and the world's second largest for trading futures and options on futures. Like all hubs of trading -- consider, for example, eBay(Nasdaq: EBAY) -- CME generates superb free cash flow (FCF) and enjoys the benefit of a formidable moat against competitors.

Over the past three years, CME's revenues have grown 30% annually. FCF has grown even faster, thanks to the economies of scale afforded by the high-fixed, low-variable cost nature of exchange technology. CME's scale is reaching the point where cash profitability is starting to really explode. Over the past year, the exchange generated about $109 million in FCF on revenues of $513 million, for an FCF margin of 21%. That's stellar.

CME's cash-generating ways, along with the proceeds of its initial public offering, have resulted in a cash hoard of $392 million. Subtracting that from the current market cap of $2.6 billion leaves an enterprise value (EV) of $2.2 billion. That puts CME at an EV-to-FCF multiple of about 20. Not bad at all for a cash-rich business with strong growth and high barriers to entry.

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Take a Load Off

J.P. Morgan Chase (NYSE: JPM) just announced some interesting changes to its mutual fund offerings. If other fund companies follow suit, investors could benefit.

Morgan will no longer offer "Class B" and "Class C" shares of several of its mutual funds. Essentially, these classes refer to loads -- which are fees that mutual fund companies extract from shareholders, sometimes as steep as 8% or more. There are several kinds of loads -- front-end, back-end and level loads, which are essentially ongoing annual fees.

With many mutual funds, you'll see several classes of shares of that single fund available -- these are labeled "Class A," "Class B," "Class C," etc. Class A shares are generally those with front-end loads. If a fund carries a 5% front-end load and you invest $5,000, then you're really only investing $4,750. A full $250 is skimmed from your investment to cover the load.

Class B shares typically carry a back-end load, meaning that a percentage is taken from your investment when you withdraw your money. Many back-end loads decline the longer you remain invested. Class C shares often feature a back-end and/or level load. Both B and C shares often sport higher expense ratios (annual management fees) to make up for the money they don't get upfront via front-end loads. (Are you following this? Take a deep breath.) In essence, B and C shares serve investors less well than do A shares.

What's J.P. Morgan's motivation? Well, perhaps it's out of the goodness of its heart, perhaps due to good business sense, or perhaps due to the fact that the National Association of Securities Dealers recently alerted investors to the cost of back-end loads, making them harder to sell. Oh, and regulators are investigating fellow fundster Morgan Stanley's(NYSE: MWD) fund practices, too. None of this is making B and C shares all that attractive these days.

What's an investor to do? For starters, avoid loads (though some solid funds do sport them). Give serious thought to investing in an index fund -- the best ones are no-load and charge extremely little fee-wise. With an S&P 500 index fund, you can immediately own shares of companies such as Microsoft(Nasdaq: MSFT), General Electric(NYSE: GE), Wal-Mart(NYSE: WMT), Dell(Nasdaq: DELL) and PepsiCo(NYSE: PEP).

Learn more about the more insidious classes of fund shares in this article and this one, too. And learn all about mutual funds in general in our Mutual Fund Center.

Discussion Board of the Day: Mishedlo

Got some thoughts on currencies? What about the Max Pain notion that most options expire worthless through broker manipulation? All this and a whole lot more -- in Mike Shedlock's Mishedlo discussion board Only on

Quick Takes

Smile-helper Colgate-Palmolive(NYSE: CL) reported higher Q2 EPS today. The company said that earnings climbed 10% year over year on a 7% increase in revenues. Shares inched up about 1% from yesterday's $56.30 close.

Semiconductor maker Texas Instruments(NYSE: TXN) was the New York Stock Exchange volume leader, with its stock climbing as much as 8% after reporting Q2 profits up 27% on revenues 8% higher than a year ago. The company said Q3 sales could rise 11% on increased demand for mobile phones -- presumably using TI chips -- with such nifty new features as cameras and MP3 players.

Mr. and Ms. Brown are busy people. UPS(NYSE: UPS) bragged a 13% EPS jump on a 7% year-over-year climb in revenues. Shares moved down imperceptibly from yesterday's $64.79 close.

Just amazing. Corning(NYSE: GLW) stock jumped 9% after the company said its Q3 EPS would be $0.01 to $0.03 on higher sales of optical fiber and glass for flat-panel displays. The Street expected $0.01. Boy, has this been a stunning resurrection from the 52 week low of -- can you believe it? -- $1.10.

And Finally...

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