After reaching a new 14-month high yesterday, the Dow took a breather and ended the day just a smidge over even. It's good to see investors weren't plunging headfirst into stocks just because an index of 30 blue chips struck a 14-month high. Remember, look before you leap. Buy businesses, not ticker symbols. And when it comes to investing, think years out, not months.

In today's Motley Fool Take:

Home Depot's Self-Improvement

Following Lowe's(NYSE: LOW) outstanding second-quarter earnings report yesterday, fellow retailer Home Depot(NYSE: HD) also put up some strong numbers this morning. The Atlanta-based mecca for construction companies and handymen alike boasted a positive same-store sale increase and double-digit top-line growth.

For the quarter ended August 3, Home Depot's revenues grew 10.5% to nearly $18 billion. Gross margins expanded to 31.2% from 30.4%. Same-store sales increased by 2.2%, reversing course from Q1's comps drop of 1.6% and Q4's decline of 6%.

The company earned $1.3 billion, up almost 10% over the prior-year quarter's net income. Earnings per share shook out at $0.56 vs. $0.50. Net margins remained roughly the same at 7.2%.

While Home Depot's results lagged Lowe's, the larger company is making progress with its remodeling and expansion efforts. Home Depot's definitely shelling out the cash for its growth, as it projected it would. It spent $1.7 billion in capital expenditures through the first six months of the year, compared to $1.3 billion during the same time period last year.

The company doesn't release a full cash flow statement with its earnings reports, but it did close the quarter with $5.2 billion in cash, a little below the $5.7 billion at the close of the prior year's Q2, but more than the $4.3 billion it had as of May 4.

After tanking in January to around $20 a share on pessimism that Lowe's was killing it, shares of Home Depot have risen to $32 and change. The company continues to make progress and is looking for 2003 sales growth of 9%-12% and earnings-per-diluted-share growth of 9%-14%.

Given that its share price has recovered so quickly this year, the stock's current P/E of around 21 assumes continued progress and benefits from the company's remodeling.

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Staples Guns It

Staples (Nasdaq: SPLS) , the 17-year-old company that pioneered the office-supply superstore concept, reported boffo earnings today for its second quarter.

Net income advanced by a whopping 47% over year-ago levels to $88 million. Quarterly sales rang in at $2.87 billion. Sales at North American stores open at least a year (referred to by those in the know as "same-store sales") increased by 6%. Given our current sluggish economy and many businesses' tentative purchasing outlooks, that 6% is pretty welcome news.

A Reuters report noted that, "To boost sales, Staples has been improving lighting and product presentation, hoping to make its nearly 1,500 stores more shopper friendly. Staples has also increased marketing to small businesses that use a greater number of more profitable items such as ink cartridges."

Management engaged in a common Wall Street dance today, expressing confidence that Staples would exceed analyst earnings estimates for the full year, which was met with huzzahs, an upward-propelled stock price, and upgrades (a U.S. Bancorp Piper Jaffray analyst upped his rating to "strong buy").

Such ratings make Fools wonder what the difference really is between "buy" and "strong buy" -- isn't the bottom line that we're being urged to buy?

Meanwhile, if you're interested in Staples, keep an eye on its competitor Office Depot(NYSE: ODP). It, too, is expecting rosy results.

Quote of Note

"And he is oft the wisest man, who is not wise at all." -- William Wordsworth

Underfunded Pension? Just Add Stock

The U.S. Department of Labor has granted struggling Northwest Airlines(Nasdaq: NWAC) permission to contribute stock from a subsidiary in lieu of cash to its underfunded pension plans.

So, instead of the $223 million scheduled funding requirement for Northwest's pension coming this year in cash, it will all be satisfied with stock of a closely held subsidiary, Pinnacle Airlines. Other companies that have massive pension liabilities are bound to be watching this with great interest. The Labor Department is calling this action at Northwest exactly what it should be known as: an exemption.

Some pension experts have pointed to this as another in an unnerving set of moves by companies to avoid putting cash into their pension plans. Northwest has received some dispensation to delay large components of its scheduled contribution for 2003. But by opting to pay other due amounts in stock, Northwest Airlines keeps from falling further behind on its funding requirements. It's just using a source that is normally unqualified to keep up.

Northwest has plans to take Pinnacle public, but at its present implied valuation, Northwest's pension fund will own more than 60% of the company. Under the Employee Retirement Income Safety Act, or ERISA, companies are generally prohibited from making in-kind contributions, but can be granted exceptions if they appoint independent fiduciaries. In this case, Aon Consulting(NYSE: AOC) is managing the grant, and can force Northwest Airlines to buy back the stock if its value drops too low. Of course, all bets are off in the event of Northwest going bankrupt.

This seems to be a dangerous precedent, as in-kind assets are generally less secure than good old cash, and provide the pension administrator substantially less flexibility in determining asset mixes. Northwest's pension manager cannot easily sell a 60% stake in Pinnacle, except back to Northwest. On the other hand, pension realities are pushing companies to the breaking point. Given the choice between taking an illiquid security into pension and the threat of the company collapsing, we suspect most people would accept Column A, even if it's not necessarily ideal.

Discussion Board of the Day: Discount Brokers

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Quick Takes

Semiconductor stocks climbed for a second day after Gartner(NYSE: IT) forecast an 11% rise in semi sales for 2003 and a 38% year-over-year rise in Q3 computer memory sales. The Philadelphia Semiconductor Index has risen six of the last seven trading days as traders -- and perhaps even investors -- anticipate a cyclical rebound in the industry.

Broadcom (Nasdaq: BRCM) was up as much as 10% after the company, which makes chips for cable modems, announced its Q3 sales would increase about 12% sequentially to $416 million. Earlier this month, a dark cloud blew clear of Broadcom's sky when the company resolved all its patent litigation with Intel(Nasdaq: INTC).

Hewlett-Packard (NYSE: HPQ) spin-off Agilent Technologies(NYSE: A) said it would break even or eke out a profit in its current Q4, sending its shares up 8%. The maker of testing and measurement equipment hasn't produced a quarterly profit from continuing operations since 2000.

Housing starts hit their highest monthly level in 17 years: 1.872 million homes in July. Residential construction comprises 5% of the total value of U.S. goods and services.

And Finally...

Today on If you've ever dreamt of hitting it rich -- and assuming you're not afraid of depths -- you'll definitely want to catch Jeff Fischer's can't-miss recipe for striking investment gold.... When the time comes and you can no longer keep your newfound wealth from the kids, please take a hint from Dayana Yochim and teach your children well. You'll be glad you did.

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