Is it us, or is watching the Fed even more boring when it does nothing? Boring, yes, but the implications.... Today, the Federal Open Market Committee (FOMC) held firm on the federal funds rate, which indirectly affects most key bank rates. In so doing, the committee expressed that, while it has seen some economic improvement, the "risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future."
Investors focused less on the Fed's concern and more on the benefits of low interest rates. All major stock indexes jumped on the news.
In today's Motley Fool Take:
- A Regional Effect
- Shameless Plug: TMF Money Advisor
- Microsoft's New Windows
- Quote of Note
- Tobacco's Big Deal
- Discussion Board of the Day: Investing for Income
- More Fool News
- And Finally...
A Regional Effect
By Mathew Emmert (TMF Gambit)
Yesterday, we covered the details of the merger announcement. Today, I'd like to focus on what this deal could mean for our beloved regional banking all-stars.
My regular readers know that I'm fond of financial companies, particularly regional banking firms. I shared one of my favorites, Synovus Financial
Indeed, my first investment selection in the Fool's latest newsletter, Motley Fool Income Investor, was another quality regional. The bank's 10.7% total return has been a solid contributor to Income Investor's market-beating performance. (A free trial will reveal this company, as well as the newsletter's other diverse selections).
Just as I tend to favor the smaller regional banks to their larger brethren, I also prefer smaller acquisitions to yesterday's blockbuster. Many of the larger banks have taken years to recover from the indigestion related to such mega-deals. For instance, Wachovia
As one might expect, smaller, fold-in acquisitions generally produce the best results. Such deals tend to be accretive to earnings in a much shorter time frame as cost savings are rapidly squeezed from newfound synergies.
In fact, there's very little evidence that the large deals produce favorable results for shareholders. Often, there are just too many variances for large companies to comfortably absorb. It can take years to trim overlapping business segments in order to eliminate redundancy, and combining different corporate cultures often proves much more challenging than companies anticipate.
The good news for us, however, is that the acquisitions that tend to work the best are exactly the ones that our regional banking favorites would be involved in. If you add some exposure to these quality banks to your portfolio, you could reap the benefits associated with one of your companies being acquired at a favorable premium. However, just as importantly, you can own a quality investment while you wait.
Shameless Plug: TMF Money Advisor
Every once in a while, we all need a little help from our friends. That gets to heart of what it is to be Foolish, and is a big reason why The Motley Fool exists in the first place. But sometimes a community doesn't quite do it, and we need a little one-on-one. That's where TMF Money Advisor comes in. Take an advisor for a spin for free. It can't hurt, and it sure can help.
Microsoft's New Windows
There's no question that the world's largest software maker can deliver exciting and useful new features with Longhorn, which would be available to consumers in 2005 at the earliest. But it speaks volumes that almost all of the talk since the unveiling has revolved around security. Yes, the world is so fed up with worms and viruses, patches and critical updates, that the biggest buzz surrounding the largest software launch since Windows 95 is whether the system will be secure.
Unfortunately, there's some reason to doubt just how beefy Longhorn can be. Although Microsoft has now made security a top priority, Gartner research analyst John Pescatore told NewsFactor Network that "there is likely to be billions of lines of code in Longhorn that did not go through the new due-diligence security processes Microsoft recently set up." In addition, Pescatore says the more features Longhorn packs in, the less secure it will be.
Still, the new Windows will almost certainly be far more secure than its predecessors. And to its credit, management says it will not rush Longhorn to market before it's ready -- something it's been accused of doing with past operating systems, in essence using consumers as beta testers. "This release is going to be driven by technology, not by a release date," Chairman Bill Gates said last month. "Which probably means it is going to be late."
Quote of Note
"Knowledge speaks, but wisdom listens." -- Jimi Hendrix
Tobacco's Big Deal
Tobacco companies were getting their butts kicked. Cheap imported smokes were cutting margins. Litigation's tab kept mounting. If it weren't for the high dividends, would anyone other than fiscal rubberneckers even look at this sector?
That's why R.J. Reynolds'
If you can't collude, consolidate. With Altria
Still, folks who bought into the sector chasing puffy payouts need to be careful. The average yield of the three tobacco players is 6.5%, but readers of our Motley Fool Income Investor know that you can't always judge an income investment by the size of its quarterly distribution. The sector's turnaround is still hazy and investors are best served by waiting for the smoke to clear.
Discussion Board of the Day: Investing for Income
Have you been tempted by tobacco stocks given their high yields? What about the many other investment vehicles offering attractive payouts? All this and more -- in the Investing for Income discussion board. Only on Fool.com.
More Fool News
- JDS Uniphase on the Prowl
- Dick's Scores Again
- American Express Underwhelms
- KFC Fries Up Nutrition
- Can You Fear Me Now?
For all of today's stories, see Today's Headlines.
Hey, Fools. Tom Gardner is wrapping up his search for a research assistant to help out with the Motley Fool Hidden Gems 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.
Tom Jacobs would apply, but he works for no man. Just for Foolish readers like you. His latest, 7 Wireless Plays Plus Dell, will sure make you glad that he does. Halloween approaches: Grab a pumpkin and settle down with Rick "Howl at the" Munarriz's Marvel Entertainment: A Ghoulish Treat, then find out directly from the CEO why Netflix Churns Lower, Moves Higher and exactly what that means, anyway. Netfix is no trick.
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