In yet another twist in the long and winding Martha Stewart saga, fallen Internet superstar analyst Henry Blodget will reportedly cover the Stewart insider-trading case for online magazine According to Slate, Blodget's "inside status in the securities industry and knowledge of a lot of the people involved" make him just the man for the job.

It's an old standby that cub reporters invariably draw the crime beat. The hours are horrendous, and the subject matter is -- how should we say -- unsavory. Imagine if Slate's rationale catches on; it could get downright dangerous. And geez, it's already all we can do to believe what we read on the Net.

In today's Motley Fool Take:

Qwest's Quandary

By Mathew Emmert (TMF Gambit)

Qwest (NYSE: Q) shares have fallen about 26% since I advised Fool readers to avoid the stock on Sept. 3 of this year, just after it reported less-than-stellar earnings for the second quarter. And although shares are up over 5% today after beating third-quarter estimates by a penny, there is still substantial risk here.

I should note that I'm not making reference to my call on the stock to pat myself on the back, as my opinion was much more about the need to properly balance risk and reward when chasing turnaround stories than trying to make predictions about short-term price fluctuations.

All in all, Qwest's news was a mixed bag, but there are some signs of life here. The company met its earnings number, but missed revenue estimates. However, the market appears pleased with the forward revenue guidance, which predicts decent growth for 2004.

Also, management announced it would redeem up to $2.25 billion in notes of varying maturities, meaning upon close of the redemption, Qwest will have reduced its debt load by more than $7 billion over the past year. It still has a long row to hoe on this front, as even after the reduction it will be carrying more than $19 billion in debt, but this is definitely positive news -- and it allows for a little more faith in management.

"While the industry environment is still challenging," says CFO Oren Shaffer, "we are seeing signs of stabilization in our business." Though the earnings report and comments such as this brighten the outlook for Qwest's business, the ever-looming accounting investigation is still enough to keep me away from the shares. It's still simply not possible to make a reasonable valuation call with such little quantification of the downside associated with this investigation.

I feel even better about the decision when I consider that other telecom firms, such as BellSouth(NYSE: BLS), SBC Communications(NYSE: SBC), and Verizon(NYSE: VZ), are turning their businesses around and paying substantial dividends to shareholders in the process.

Mathew Emmert owns shares of BellSouth.

Quote of Note

"The telephone gives us the happiness of being together yet safely apart." -- Mason Cooley, U.S. aphorist.

Schwab Buys SoundView

Brokerage and financial services company Charles Schwab(NYSE: SCH) said this morning it would acquire investment banking firm Soundview Technology Group(Nasdaq: SNDV) for $15.50 a share in cash, or $371 million. The price is a 17% premium to SoundView's $13.25 Tuesday close, and shares rose this morning towards the purchase price.

SoundView specializes in 160 "technology" companies, offering sell-side research, investment banking, and venture capital management. It went public on June 4, 1999, with a split-adjusted first-day close of $74.37. The stock hit an all time-closing high of $179.37 a month later. As the losses piled up through 2001 and 2002, shares crashed to a $5.15 low last October and eventually were forced into a 1:5 reverse split this June. In one good sign, the company eked out earnings of $0.03 a share in the third quarter and its first year-over-year revenue gain after three quarters of double-digit percentage drops.

The announcement mentions only one aspect of SoundView's business: research. It appears that Schwab will merge SoundView into its capital markets subsidiary and use its research operations to drive revenue from "client-focused trade execution capabilities." (What a relief to know they aren't non-client focused.) The business model is to provide research to institutions with the proviso that if they act on it -- buy or sell large blocks -- they trade through Schwab and pay it the commissions. TSCM) has a similar model with its Independent Research Group subsidiary.

Discussion Board of the Day: Schwab

Does this mean that Schwab is killing the rest of SoundView -- or that investment banking is so controversial that it merits no mention? And more importantly, is this a good move for Schwab? Join those already talking about it on our Schwab discussion board. Only on

Longs' Long Run-Up

Shares of Longs Drug Stores(NYSE: LDG) rose significantly yesterday on heavy volume following published rumors that the company, which operates 467 stores in the western U.S. -- the vast majority of those in California -- was a takeover target. Citing company policy, Longs refused the NYSE's request for a statement. That, no doubt, only fueled the fire.

It wouldn't be far-fetched to imagine that Longs, with its massive West Coast footprint, would interest, say, competitors CVS(NYSE: CVS) and Walgreen's(NYSE: WAG). But there's no concrete evidence suggesting that a potential takeover by either company -- or, for that matter, factual information of any kind -- is behind yesterday's rumors.

What would an acquirer get in Longs? The chain has managed sales growth of 1.3% through the three fiscal quarters ended Oct. 30 despite decreased same-store sales. (Full quarterly financial results are scheduled for release after today's market close.) That's not particularly compelling, but since the company lowered the proverbial bar with a downbeat February press release, its shares have nevertheless risen steadily and have, in a roundabout way, managed to keep pace with the S&P 500 over the last 12 months.

Potential acquirers might also be encouraged by the Longs' efforts to meet targets, improve gross margins, manage inventory and distribution, and generate free cash flow in excess of net income in the first half. Management got a vote of confidence when the board elected Warren Bryant, already its president and CEO, to the additional post of chairman in August.

Whether all this means the company deserves its premium (on a trailing-12-month price-to-earnings basis) over CVS and Walgreen's -- not to mention companies like Rite Aid(NYSE: RAD) and Duane Reade(NYSE: DRD) -- is another question. Certainly as a smaller player it has more room to grow, but at its current size it can't match the big guys' economies of scale, which means thinner profit margins.

What's also likely is that investor interest will be trained increasingly on this sector. If Longs truly is "in play," that adds further drama to the soap opera being played out at J.C. Penney(NYSE: JCP), which claims it will make a decision about what to do with its Eckerd drugstore chain in the next few weeks.

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More Fool News

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

And Finally...

Tom Gardner draws back the curtain on his Hidden Gems approach to small-cap investing and also unveils 3 Rising Stars.... XM Satellite Radio CEO Hugh Panero talks about his nascent industry, and says Sirius doesn't provide serious competition.

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