The market may have slept earlier this week on some big developments overseas, but it was sure hopping (or should we say hoping) today. What's the buzz? Looks like we're rounding up the usual suspects: big name earnings, analyst upgrades, and -- could it be -- hot IPOs. You know we're all about earnings. We've even talked some IPO here lately, though our position remains that investors should keep their distance.
As for the power of the analyst upgrade... watch your tongue, this is The Motley Fool! Let's just call today a Santa Claus rally and enjoy.
In today's Motley Fool Take:
- Wal-Mart Goes Digital
- Discussion Board of the Day: Muggle Friends
- Vive la 3Com
- Quote of Note
- Why Saddam Didn't Goose the Markets
- Shameless Plug: Investor's Business Daily
- More Fool News
- And Finally...
Wal-Mart Goes Digital
By LouAnn Lofton (TMF Bling)
Think everyday low pricing can't be applied to digital music? Think again, Fool.
Digital music is a hot business, and is growing even steamier. Jupiter Research predicts that today's $80 million market could explode to $1.6 billion in 2008. Wal-Mart, never one to shy away from potential profits or the opportunity to put its pricing muscle to work, understandably wants a piece of the action.
Wal-Mart has a history of seismically changing just about any industry it dares step into, driving down prices and making competitors' lives much more difficult. However, this may be a case where Wal-Mart won't crush the competition. That's not to say it won't succeed in skimming some green off the top, but Apple's Steve Jobs isn't losing sleep over Wal-Mart. Can't say I blame him, either.
First, while $0.88 a song is certainly cheaper than the $0.99 a song Apple's iTunes is charging, there's more at play here than strict price competition. For one thing, Wal-Mart's digital music store only supports Windows. For another, it abides by the same censorship policies that Wal-Mart implements in its stores. Songs will be tagged "edited" to show that "offensive lyrics" have been changed. That may be enough to keep some audiophiles away.
I'm not shortsighted enough to completely discount Wal-Mart's entry into digital music. I do think, though, that it will be the competition from all the combined entrants into this field next year that will create the most change, instead of Wal-Mart causing it alone.
For Wal-Mart, this is hardly a mission-critical business extension, so whatever it makes here will be gravy. Next year, however, developments in the world of digital music will be even more interesting to watch.
Discussion Board of the Day: Muggle Friends
Are you anxiously awaiting the sixth installment in the Harry Potter series or next year's theatrical release? Where would the sorting hat land you if you were to attend Hogwart's? What is quidditch, and is it anything at all like macramé? All this and more -- in the Sirius Black's Muggle Friends discussion board. Only on Fool.com.
Vive la 3Com
On Wednesday, the maker of data and voice networking equipment reported that it beat second-quarter 2004 estimates with a 12% sequential increase in revenue, due mostly to strong results in its European operations. But losses widened to $0.37 per share from $0.19 in the same quarter a year ago.
Europe accounted for 48% of the firm's $182 million in revenue during the second quarter, easily outdistancing the 33% contribution from the Americas. Sales were down 11% in the U.S. and Latin America during the same period.
Management cited seasonal strength in Europe and weakness in the Americas as the reason for the heavy overseas influence on sales, but the trend is too powerful to ignore: Europe has outpaced the Americas in revenue contributions for three of the past four quarters. If 3Com is to forge a turnaround in its tête-à-tête with chief rival Cisco Systems
CEO Bruce Claflin waxed optimistic on the possibilities during last night's earnings conference call, citing strong European channels and better brand awareness than competitors in the region.
Claflin and Chief Financial Officer Mark Slaven also pointed to 3Com's newly approved joint venture with Chinese router and switch maker Huawei as a source of future growth.
Indeed, Huawei gives 3Com leverage by allowing it to reduce costs and expand its product line for larger businesses. The strategy involves providing customers with what Claflin characterized as a converged networking infrastructure that includes products for high-speed data transfer, voice calling over the Internet, wireless connectivity, and network security.
While aggressive, the plan doesn't promise a fast payoff. Executives wouldn't comment on when 3Com will turn a profit, choosing to hold off on further guidance until its analyst conference in New York on January 8.
3Com hasn't posted a quarterly profit since fiscal 2000, due to shrinking margins for low-end connectivity products such as PC modems as well as increasing competition from Cisco and smaller players such as Juniper Networks
Time will tell if 3Com's overseas push proves to be the pièce de résistance in its effort to return to profitability. In the meantime, the firm has nearly $1.4 billion in the bank to assist with the transition.
This last point is particularly important for the value investor. Closing yesterday at $7.70, 3Com stock traded for barely more than two times its $3.70 in net cash per share. For those math phobes like myself, I reached that number by subtracting other long-term obligations from cash and short-term investments on the balance sheet and dividing by the total number of shares on the income statement:
$1,392.356 million - 5.002 million = $1,387.354
$1,387.354 million / 375.332 million shares = $3.696 a share (rounded to $3.70)
Buying a piece of ongoing operations for $4 per share could be a steal if a recovery is under way.
Quote of Note
"He uses statistics as a drunken man uses lamp-posts ... for support rather than illumination." -- Andrew Lang
Why Saddam Didn't Goose the Markets
If you were cheering the capture of Saddam Hussein on Sunday but were left scratching your head when the market didn't go through the roof on Monday, you weren't alone. A few investors have written in or posted on our lively discussion boards to share similar sentiments.
While the market opened strong on Monday morning, it dipped into the red by day's end. Fine. Get over it! Political events can shape the direction of equity markets, but they do so over the course of months -- if not years. You can't rest it all on one day, especially when all of the major market indices are sporting healthy double-digit percentage gains this year.
The situation in Iraq is serious. There's no point in arguing otherwise or stirring the pot in getting partisan about the ramifications. But if we're allowed a brief respite to find some levity in the worries that the market didn't shoot up a kazillion points on Saddam's arrest over the weekend, here are the top five reasons why finding Saddam didn't save Wall Street earlier this week.
1. Repeated viewings of the footage of Saddam opening his mouth for inspection lulled the country into slumber. Folks didn't wake up eager to buy until just after Monday's closing bell.
2. Sure, the New York Stock Exchange sputtered, but you should have seen the three stocks that trade on the Tikrit Trading Post.
3. Down day on Wall Street? Bah! I don't know about you, but I made a mint shorting the bejeezus out of Spider Hole Security Solutions PLC.
4. Investors were saving up for the eventual eBay
5. The market had risen "Saddam" much over the past year, it was due for a breather.
Then again, maybe it was the country lamenting Geraldo Rivera's bad timing or the possibility that the capture would inspire illusionist David Blaine's next contortionist endurance stunt. Or could it be that income investors were left wondering if tightwad Microsoft
No. It was none of the above. Well, except maybe for the fifth. The markets have been resilient since bottoming out last year. Pauses are to be expected along the way. Let's measure the market's success in yardsticks -- not teaspoons.
Shameless Plug: Investor's Business Daily
As Fools, you know that the world is crawling with sources of information on companies, their stocks, and the general economy. And you know that one stands tall above all others (hint, hint). But don't sleep on Investor's Business Daily -- it's absolutely bursting with info and data to supplement your Foolish research. Best of all, you can learn to use IBD Foolishly for free just by clicking here.
More Fool News
- Standing by Family Dollar
- Winnebago Motors On
- Dodge Drops Lingerie Bowl
- Glaxo to Tackle SARS
- Activating Activision
For all of today's stories, see Today's Headlines.
We certainly hope it's been a good year for you on the investing front. And just as certainly, that next year is every bit as good. That being said, Jeff (the ole' wet blanket) Fischer would be remiss were he not to ask, A Tougher 2004? Speaking of wet blankets, Tom Taulli takes a hard look at corporate governance at big-splash, new-issue Orbitz in Orbitz Loses Altitude.
Tim Beyers, 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