Next to April Fool's Day (for obvious reasons), Halloween is probably our favorite holiday. This week, we'll regale you with a series of Tricks (companies we'd stay away from) and Treats (companies we think deserve investment consideration) in our annual special.

We're out of the gates quickly today, playing a trick on Yahoo!(Nasdaq: YHOO). We'll see if the online behemoth TPs our office later. In the meantime, you'll find a new stock Trick or Treat each day this week on

In today's Motley Fool Take:

BofA Pays for Fleet

Shareholders of FleetBoston(NYSE: FBF), the 7th-largest financial holding company in the U.S., should be showering thank-you notes on Morgan Stanley(NYSE: MWD). After all, Morgan Stanley's advice prompted Fleet to accept a 41.5% premium in a merger with Bank of America(NYSE: BAC).

The merger will require Bank of America to issue 0.5553 shares for each Fleet share -- or 583 million new shares -- and will give Fleet shareholders 28% of the combined company.

Are Fleet's $196 billion in assets worth $47 billion to Bank of America? Tough call.

Fleet looks like damaged goods if you consider just the last eight quarters, two of which boasted net losses. Most others came in below analyst earnings estimates. And there were some large losses, like the $2.4 billion debt default and currency devaluation in Argentina, not to mention bad loans to Enron and United Airlines, to name a few.

To Fleet's credit, it bolstered its loan-loss reserves to a conservative 2.5% of total loans, while nonperforming loans have fallen off for five consecutive quarters. By financial measures, the bank is solid, with $10 billion in cash, a debt-to-equity ratio of 1.0, a return on equity of 13%, and nine-month net income of $1.9 billion.

Bank of America, by comparison, has $25 billion in cash, a debt-to-equity ratio of 1.2, an impressive 21% return on equity, and nine-month net income of $8.1 billion.

Financially, both companies appear sound. Bank of America carries more debt, but gets better returns. In the end, the acquisition could benefit Bank of America holders if Fleet's returns can be improved.

On the balance, however, the purchase price seems rich, especially on a net income basis.

In more merger news... Big Hookups in Managed Care.

Quote of Note

"Why make trillions if you could make... billions?" -- Dr. Evil

Procter Gambles, Wins

Procter & Gamble's (NYSE: PG) first-quarter earnings results are good enough to cure acid reflux. Thanks to help from new products such as the heartburn drug Prilosec, the stock moved to a three-year high this morning.

The consumer products giant earned $1.26 per share, up 21% from the year before. Net sales increased by 13%, and organic sales -- which exclude acquisitions, divestitures, and the foreign exchange impact -- were up 7%. What's more, gross margin increased by a significant 180 basis points, not including restructuring charges.

While most of the company's categories were strong performers, the Prilosec story is the most compelling. Several months ago, P&G took a chance by entering into a licensing agreement with the drug's original maker, AstraZeneca(NYSE: AZN). After a dosage and labeling adjustment, the FDA agreed to allow the companies to market Prilosec without a prescription.

The move did not sit well with competitors Johnson & Johnson(NYSE: JNJ) and Merck(NYSE: MRK), which suddenly saw stiff competition for Pepcid and other products. The two filed a lawsuit last month, accusing P&G of false advertising.

That didn't stop what is by all accounts an extremely successful Prilosec rollout. In today's conference call (transcript provided by CCBN StreetEvents), CEO A.G. Lafley called it " the obvious highlight of the quarter," which could have produced even stronger results. It sold "faster than anybody thought it would. So, we have a supply chain system that just isn't perfect."

What can we expect from the drug in the future? "We're all smiling here," Lafley said, "because there has been a lot of discussion about Prilosec potential over the last week, as you might imagine. We are not going to know until we get enough initial trials with enough heartburn sufferers and more importantly, until we get enough repurchase."

But the conference call seems to indicate that sales will likely be well above the initial estimates, as management is already looking at the $200 million to $400 million range for the first year alone.

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Buffett on His Mistakes

By Jeff Fischer (TMF Jeff)

Warren Buffett is not one to give copious interviews, so when he does, it's a treat worth reviewing.

Although the chairman of Berkshire Hathaway(NYSE: BRK.A) writes extremely lucid and timely thoughts about investing every year in his company's annual report, the few interviews that arrive between those reports always offer new insights into a man who is refreshingly long term, delightfully honest, and successfully "unambitious" in his business dealings. Sometimes, he just sits back in his Nebraska office and waits.

That was his message in today's Barron's online interview. Buffett, his partner Charlie Munger, and the company they run are sitting on $24 billion in shareholder cash with few attractive places to invest it. As Buffett has written in his annual reports over the past several years, stock prices leave much to be desired, and finding good value is like finding a needle in a haystack.

During the last five years, Berkshire has completed relatively few acquisitions, and paid an average of seven times pre-tax earnings for each, about half the market's current 14 times multiple on pre-tax earnings (while the S&P 500 is at 20 times projected 2003 after-tax income). Today, even with the market far below its 2000 peak, Buffett said, "We're not finding anything. We have more cash than ideas. The question is whether that will prevail for an unduly long time."

This said, Berkshire has made two acquisitions in 2003, totalling $3.2 billion, buying a manufactured-home maker and lender, and a grocery wholesaler. Buffett continues to seek businesses that he can project results for well into the future, shunning the unpredictable nature of technology firms. Quoting from the Barron's article:

Buffett has never been comfortable with technology stocks, and he's somewhat puzzled by the current valuation gap between major tech and drug issues. Intel and Cisco command double the valuation of pharmaceutical leaders such as Pfizer and Johnson & Johnson. "Drugs are a better business in the aggregate than technology," Buffett argues, citing higher returns on capital and greater product longevity, owing to patent protection. "If you look at the top 10 drug companies ranked by sales, the No. 2 or No. 3 company from the bottom is still earning a good return. It's hard to find a drug company that has failed," Buffett says. In tech, by contrast, "the outstanding ones are outstanding," but there are fewer of them, he says. Tech companies, he adds, are more sensitive to the economy.

An editorial comment I'll add is that investors are, of course, hoping for large earnings rebounds -- 40% or greater -- at tech giants, while drug companies are maintaining earnings growth rates in the mid-teens. Still, it's interesting that investors are putting a higher premium on hoped-for results than they are on the almost-assured results at drug makers.

Buffett admits in the interview that not selling Coca-Cola(NYSE: KO) and Gillette(NYSE: G) in the late 1990s, when both were much higher than today, was a mistake. However, being on the board of both companies made it nearly impossible to sell and Berkshire has still done well owning both since the 1980s.

In his typical candid and humble fashion, Buffett also admitted that not buying Wal-Mart(NYSE: WMT) years ago because it looked overvalued was a large mistake that cost them $8 billion (so far). He professed to love Wal-Mart's business, arguing -- as the Fool's Lou Ann Lofton has -- that Wal-Mart is killing supermarkets and implying he wouldn't touch those firms despite low multiples. He did not provide thoughts on Wal-Mart's current valuation.

One sector that Buffett did imply looked attractive was banking, where multiples remain below market averages and returns on equity maintain a 20% level.

Despite the company's cash balance, Berkshire will not likely pay a dividend anytime soon. Not unless Buffett & Co. see little hope in reinvesting the cash for strong shareholder returns. A few years ago, Buffett projected that the stock market was likely to return about 6% annualized in the next 17 years, well below its historical average.

Discussion Board of the Day: Living Below Your Means

Will you be spending freely over the holidays or watching your pennies? Have some tips to share on stretching your gift dollar? All this and more -- in the Living Below Your Means discussion board. Only on

More Fool News

For a list of all our stories from today, see Today's Headlines.

And Finally...

Today on, LouAnn Lofton takes another swing at Resizing Gap to see if it looks any better this time around. In keeping with the theme, we bring you Adobe Keeps Building, Dell Inside Out, and Coke's New Twist. There's always something for everyone.

Bob Bobala, Robert Brokamp, W.D. Crotty, 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