As if things couldn't get any weirder in the California gubernatorial melee, Warren Buffett has now signed on as Arnold Schwarzenegger's "economic adviser." Apparently they're longtime buddies from Buffett's days of pumping iron on Venice Beach. Who knew underneath that grandfatherly appearance that he's ripped as hell?
It's an odd alliance. Here you have the world's greatest investor who stayed out of the tech companies that crashed the California economy because he "couldn't understand them" advising the world's greatest action hero on how to repair the state's finances.
Perhaps we'll see an influx of Dairy Queens and Arnold will model Fruit of the Loom underwear as Buffett brings steady, old-world businesses (and Berkshire Hathaway subsidiaries) to California.
Or maybe Buffett will just open up his wallet to help out with the state's fiscal crises.
Buffett's real motive? We think a cameo in Terminator 5: Rise of the Geeks.
In today's Motley Fool Take:
- Target Misses the Mark
- Quote of Note
- ATI Chips Away at Nvidia
- Shameless Plug: The Motley Fool Credit Center
- Happy Birthday, Social Security!
- Discussion Board of the Day: Consumer Credit/Credit Cards
- Quick Takes: Pegasystems, Quality Systems, BearingPoint, more
- And Finally...
Target Misses the Mark
While Target has been a noted clothing retailer for years, Wal-Mart only recently entered the fray with threads and brand names (including Levi's) that are strong enough to swipe business from the likes of Target, and swipe they are. Tough competition and declining department store prices unraveled Target's second-quarter results just enough to disappoint investors.
Net income rang in at $358 million ($0.39 per share), up 4% from last year's $344 million ($0.38 per share). Target's income all but treaded water even as total sales climbed 9% to $10.9 billion, bolstered by an 11% revenue gain at the Target chain. New store openings and Target's growing credit card business accounted for a bulk of the increase.
Meanwhile, the Marshall Field's and Mervyn's department store chains did anything but help. Sales declined 3.4% and 7.3%, respectively, at Target's two higher-priced retailers.
Looking closer at the numbers, Target continues to manage inventory well, but its cash balance remains in decline, down to $430 million from $1.7 billion a year ago, while long-term debt is mounting, now topping $11 billion. The company rarely achieves free cash flow, and when it does it's slight, so it's financing much of its growth from the balance sheet rather than the cash flow statement.
Management is comfortable with consenus 2003 earnings estimates of $2.01 per share. Target's $39 stock, which is up 30% this year, trades at 19.4 times that forward estimate. At this price, there's no discount for stock shoppers here.
Quote of Note
"Facts and truth really don't have much to do with each other." -- William Faulkner, 1897-1962, American author, Nobel prize winner
ATI Chips Away at Nvidia
Shares of ATI Technologies
ATI and Nvidia both make chips that deliver speedier and better 3-dimensional graphics to PC monitors --essential to realistic game software. Console leaders Sony
ATI already produces chips for Nintendo's GameCube, but Microsoft's choice of the company for the better-selling Xbox is a real boost, just as Sony's pick of Rambus'
But should either ATI or Nvidia attract chip-savvy investors? Nvidia's trailing-12-month (ttm) revenues of $1.7 billion have declined year over year for the last two quarters, though the company still churned out free cash flow and GAAP profits. And new products are coming. Nvidia did not look pricey at 16 times -- and an enterprise value at 12 times -- trailing free cash flow. But with today's news, and with Xbox related-revenues representing 19% of the latest quarter's sales, the cash machine may slow, the valuation may rise, and the shares may be no deal.
ATI sports $1.2 billion in ttm revenues and, on a year-over-year basis, these have climbed for the last four quarters. The company churned out sweet free cash flow during the last two quarters, and six out of the last eight, but the stock is likely priced too high at 114 times free cash flow and at an enterprise value 78 times free cash flow.
But even if confirmation that ATI will displace Nvidia in the next Xbox is forthcoming, neither sales declines for Nvidia nor sales gains for ATI appear particularly imminent. After all, Microsoft CEO Steve Ballmer recently said that the next Xbox (they should call it NextBox, don't you think?) won't appear until 2006.
Shameless Plug: The Motley Fool Credit Center
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Happy Birthday, Social Security!
How far has the program come since the mid-30s? Earlier this summer, the Social Security Administration (SSA) released Fast Facts & Figures About Social Security, which contains a wealth of information. Contained therein are some instructive nuggets for the aspiring Social Security recipient.
For those who choose not to work
Sixty-five percent of "aged persons" rely on Social Security for at least half of their monthly income; for 20%, it's the only source of income. On the aggregate, Social Security provided 39% of the income for the aged population in 2001.
Clearly, Social Security is a major source of retirement income. This is a startling state of affairs. Why? Because the average monthly benefit is $914 for new retirees. In other words, there are millions of retirees living on approximately $10,968 annually.
For those who can't work
While most people think of Social Security as a retirement benefit, only 63% of recipients are retirees. The others are disabled workers and their spouses and dependents as well as the survivors of deceased workers.
So should Americans who pay FICA taxes (the chunk of the paycheck that funds the Social Security programs) not bother with disability or life insurance? Hardly. The average monthly benefit is $898 for disabled workers, $229 for their spouses, and $239 for their children. Widowed parents receive $650 a month, and their children receive $605 each. Both disability and survivors benefits are subject to family maximum limits.
How many families could survive on approximately $2,000 a month or less? That's why workers, especially those with dependents, need disability and life insurance.
Will the program continue to work?
Social Security's impending problems are well-known. It's a "pay as you go" system, whereas today's taxes pay today's beneficiaries. However, due to the looming retirement of the baby boom generation, there won't be enough workers to generate enough taxes in the future.
Today, the ratio of workers to recipients is 3.3 to 1. By 2031, that ratio will decrease to 2.1 to 1. According to Facts & Figures, "At that ratio, there will not be enough workers to pay scheduled benefits at current tax rates." By 2042, the projected inflow will be able to cover just 73% of program costs. The estimated cost of meeting the program's shortfall has risen 20% since 1999, from $2.9 trillion to $3.5 trillion.
So get to work!
Social Security was never meant to replace a worker's entire income. So if you want to retire on more than $11,000 a year, contribute to your 401(k) and IRA. And to make sure you'll have money to contribute while working -- and that your survivors will have money if you take a "permanent vacation" -- get enough insurance. Finally, if you'd rather talk to an expert about all this instead of following a bunch of Internet links, consider TMF Money Advisor.
Discussion Board of the Day: Consumer Credit/Credit Cards
Rick Munarriz doesn't think Bank of America's Mini Card is a big winner. What do you think? Will it become the new standard, or is it simply a passing fad? Are you receiving more or less credit card pre-approved applications by mail these days? All this and more -- in the Consumer Credit/Credit Cards discussion board. Only on Fool.com.
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Share of software maker Pegasystems
That's not all. Stock of Tom Gardner's pick (twice!) for our Stock Advisor newsletter, Quality Systems
For the fourth week in a row, new U.S. unemployment claims stayed under the psychological barrier of 400,000. Meanwhile, producer prices in July rose for the second month in a row, giving some comfort to those who had feared deflation.
Today on Fool.com:
- Jeff Fischer considers 10 more of America's favorite stocks, panning some, but not all.
- 10 Great Quotes: From George Foreman to Mr. Rogers, these are some of the best we've heard.
- If you want our Foolish perspective on the stock market, bookmark our ever-changing News section.
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