From our stopped clock files: Wall Street bull-in-residence Abby Joseph Cohen is back in the mix. And what the heck, she was spot on when the market "crashed" and then recovered back in 1996, 1997, and 1998. OK, things get a little dicey from there, but let's not split hairs.
Frankly, we're happy to hear Ms. Cohen's optimistic song again. It brings back thoughts of strong stock charts, good economies, and good times. So the bull market's for real? Fair enough. We'll keep focused on the fundamentals just the same.
In today's Motley Fool Take:
- Anheuser-Busch Hops
- Quote of Note
- EA's Mad(den) Dash
- Shameless Plug: Fool Snags Barron's Award
- The ABCs of 401(k)s
- Discussion Board of the Day: Apple
- More Fool News
- And Finally...
By Rex Moore (TMF Orangeblood)
The world's largest brewer earned $0.80 per share in the third quarter, up 12.7% from the previous year, and saw a 4.5% spike in gross sales. In addition, it set a 12% EPS growth target for 2004.
What are the reasons for continued optimism in double-digit earnings growth? It's a good question that all investors should ask about their stocks. One of the points in my recent 12 Investing Must-Knows column was knowledge of what will drive a business to greater and greater profits. I summed up Anheuser-Busch thusly: new products and the pricing power it has achieved by the strength of its brand.
There's no reason to believe this won't continue. A-B is currently in the midst of a two-stage price increase on products that cover about 40% of its total volume. This marks the sixth straight year it has implemented such an increase, and shows why it keeps growing earnings and expanding margins even though total beer volume was up just 2.1% for the quarter.
Also, the brand remains extremely strong. Budweiser is the world's top-selling beer, and is edged out in the U.S. only by Bud Light. Those two -- along with names like Busch, Michelob, and O'Doul's -- helped the company gain market share once again this quarter, keeping it far ahead of rivals Miller and Coors
Quote of Note
"I have not failed. I've just found 10,000 ways that won't work." -- Thomas Edison
EA's Mad(den) Dash
Gearing up for another holiday season, Electronic Arts
Madden 2004's 3.6 million units sold in the second quarter is a new record for video games. Companion NCAA Football 2004 set its own franchise record at 1.3 million units. All told, EA's sales grew 17% to $530 million. Net income surged 52% to $77 million, as gross margins improved from 56% to 60%. EPS jumped 47% to $0.50, sacking the analyst estimate.
Just pick up any video game magazine or visit any video game website to find out why. Sega's ESPN Football franchise is roughly considered Madden's equal by diehard gamers in terms of gameplay -- some even prefer it. Yet Sega's game hasn't even outsold NCAA Football, much less Madden.
Madden and NCAA are one-two among football titles on Sony's
None of this is lost on investors. Since David Gardner picked Electronic Arts in Motley Fool Stock Advisor back in May 2002, the stock has nearly doubled. For what it's worth, with the stock reaching all-time highs, the company announced a 2-for-1 split.
There are issues, however. Net income climbed significantly, but cash flow from operations fell 21% to $62.6 million from last year's quarter. Blame this on a nine-fold jump in accounts receivables from $19.2 million last year to $188.8 million.
Further, while Nintendo's price cut boosted GameCube sales four-fold, EA now expects Sony PlayStation 2 full-year unit sales of between 8 million and 9 million, rather than 9 million to 10 million. As the leading platform, Sony's loss means a smaller potential revenue base for EA.
This goes a ways toward explaining why, even with the stellar quarter, the stock got hit an extra 4% to under $98 in after hours trading yesterday.
Still, optimism remains surrounding holiday season contributions from new The Lord of the Rings, Medal of Honor, Harry Potter, among other popular titles. What's more, the stock looks reasonably priced at 25 times $592 million in trailing free cash flow.
As the second half gets underway, Electronic Arts is heading only in one direction -- towards the end zone.
Shameless Plug: Fool Snags Barron's Award
For the second year in a row, The Motley Fool has received the top honors from Barron's for online investor education. We also got a perfect score for our editorial content and ease of use. (Yay!) Thanks to all our readers for making us among the best of the Web!
The ABCs of 401(k)s
Here's virtually everything you need to know about a 401(k) plan:
It's one of the very best ways to save for your retirement. Few alternatives are better.
There's a good chance that your employer will give you money for participating in the company plan.
You should start contributing to your retirement plan as soon as possible.
- If you are more than 10 years away from retirement, you'd probably fare best by putting all of the money that you defer into an equity index fund.
You may need to read no further than this. Seriously.
We wanted to get all the information we could to you right up front because this stuff is pretty important. Studies show that if you're the average Internet reader, your attention span is so limited that you've probably already clicked over to some other website by now, although the big bright words in red at the bottom of your screen just might have kept your attention. Ha! Got you to look!
Therefore, in an ongoing effort to keep your fingers from tapping out www.gotta-be-more-interesting-than-401(k)s-for-goodness-sakes.com, we'll try to keep things moving -- beginning with mentioning again that there could be free money involved. Hey, we're not going to be dispensing any free money around here, but your boss just may be. If you can get some of that, various other studies show that you'll be happy you stuck around here for a couple hundred words.
To begin at the beginning, in 1978, section 401(k) of the Internal Revenue Code authorized the use of a new type of deferred compensation retirement savings plan for the benefit of employees of most private firms. Employees who participate in employer-sponsored 401(k) plans choose to defer part of their salary, and the employees themselves determine how much of their salary to defer and how to invest the money.
Participating employees choose to take home a smaller paycheck because there are several major advantages to saving for retirement through a 401(k), including:
- Immediate tax savings on contributions
- Tax-deferral of any investment earnings
- In-service loans and withdrawals
- Free money
Those first two or three might not have looked quite so interesting, but the free money item is an eye-catcher, ain't it? Before we get to that (we're saving the best for last) let's go over the first three, because they aren't so bad either.
When you defer compensation into an employer-sponsored 401(k) program, you immediately start paying less to Uncle Sam. The amount that you decide to defer is money that comes out of your paycheck before income taxes come out of it, and the money goes right into an account with your name on it. That's money that you're keeping out of the hands of the federal and state governments until you retire. (And, hey, you may decide to retire in some state where there are no income taxes.)
Just as important, because the taxes on the investment earnings are also deferred, you're not paying any taxes on anything that your deferred compensation earns until years from now when you're retired.
Another feature of some 401(k) plans is that Fools can lend back to ourselves some of the money that has been deferred for something important like buying a house or meeting expenses should an emergency arise. This is money that we can borrow from ourselves, rather than from a bank.
Fools, though, will borrow from a 401(k) plan only as a last resort. That's because we may change jobs before the loan is repaid. If we do, that loan is immediately payable with interest. Fail to come up with the necessary cash for that repayment, and there's a stiff price to be paid. Uncle Sammy will call the unpaid debt a "deemed distribution" from the 401(k). It will be taxed and -- assuming we're younger than age 59 1/2 -- penalized 10% as well for an early withdrawal of the money.
Additionally, the interest we pay ourselves on the loan comes from money on which we've already paid taxes. But for 401(k) purposes, it will count as untaxed earnings. That means we will pay taxes on that money again in retirement when we make withdrawals from the 401(k). Bummer on both counts! Thus, while the loan feature is attractive to some, Fools think it's really something to use only when all else fails.
The best reason of all to contribute to a 401(k) or other deferred compensation plan is that many employers match a portion of the money deferred by their employees. That's right -- these employers are giving away money. Woo-hoo! Find out about whether your employer is providing matching contributions. If it is, you absolutely should commit yourself to deferring every dollar you can up to the amount that your employer is willing to match.
How big a difference can employer matching make? Well, if your employer is matching your contributions dollar for dollar, you'll be, of course, doubling the amount of money put away for your retirement.
And that's the ultimate reason for contributing to your 401(k): more money for retirement. Social Security pays, on average, less than $11,000 a year. And fewer and fewer employers offer traditional pension plans. So if you want to retire, you'll need to rely mostly on personal savings. Using your 401(k) is one of the best ways build that nest egg.
Discussion Board of the Day: Apple
Remember Napster? Think it poses a threat to Apple's successful iTunes run? Will they be able to play together, like ebony and ivory, together in perfect harmony, side by side on my piano keyboard, oh Lord, why can't we? All this and more -- in the Apple discussion board. Only on Fool.com.
More Fool News
- Limited Pays for Peep Show
- PeopleSoft Carries On
- Small Bank, Big Dividend
- Roxio Gets Punk'd
- AT&T Wireless Spooks Investors
For all of today's stories, see Today's Headlines.
Calling all Fools. Tom Gardner's Motley Fool Hidden Gems has quickly become a favorite resource for small-cap investors. Tom's looking for an investment research assistant to help with the newsletter. If you or someone you know would be interested in joining the team at The Motley Fool, apply for the Hidden Gems position under the listing for "Newsletter Associate Writer" in the Editorial category on jobs.fool.com.
To get an idea what we're about, check out Jeff Fischer's 5 Investing Don'ts, David and Tom Gardner's Semel's Smartest and Dumbest Moves, and the illustrious Jeff Hwang's last casino royale, Harrah's Improves Its Odds.
Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Jeff Hwang, Tom Jacobs, LouAnn Lofton, Alyce Lomax, Bill Mann, Selena Maranjian, Dave Marino-Nachison, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim