We all want more of it -- it's probably why you're here right now, but does money equal happiness? Dayana Yochim and her dog, Poe, get to the root of this vexing question in her column this week. In the end, if you have to weigh kittens vs. dollar bills (and the work it takes to bring them in), which do you choose?
In today's Motley Fool Take:
- Shameless Plug: Income Investor
- Harley's Long Road
- Discussion Board of the Day: Harley
- Seeing Nothin' But Fannie
- Quote of Note: Charlie Munger
- Sonus Spurns Investors
- More on Fool.com Today
Shameless Plug: Income Investor
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Harley's Long Road
Even the most exciting story in the world can get boring the eighteenth time around. And maybe that's just the problem at Harley-Davidson
For Q4, revenues were up 12.8% to $1.16 billion. Net income climbed nearly 21% to $182.4 million. That fueled a 22.4% increase in earnings per share, to $0.60 a stub. Things were also great for the year. Full 2003 revenues climbed 13% to $4.62 billion, while diluted earnings per share hit $2.50, a 31.6% jump over 2002.
With numbers like that, what's not to love?
That's the $14 billion question. While Harley's income has been shooting up like a weed for a long time, the stock price has stagnated in the $40s for most of 2003. The reason seems simple: Investors wonder how long Harley can continue to grow. Just how many motorcycles can it sell?
Harley answered that question this morning, saying it aimed to meet demand for 400,000 motorcycles per year by 2007. The company predicted upcoming earnings growth in the mid-teens, quite a drop from some of its more recent successes.
Harley has put off aging for quite a while, spending the past five years trading at price-to-earnings ratios north of 25. That's territory normally reserved for companies that don't have to perform capital-intensive operations like building motorcycles and factories. But middle age seems to be catching up, and as Harley's growth cools, so too has its stock price.
That's not to say that there's nothing left for investors at Harley. It commands what many consider the strongest brand name in the world. It remains an incredible cash generator (helped by profitable accessories and financing divisions). And given its history of increasing net margins and returns on equity of around 25%, Harley-Davidson could provide a stable long-term investment -- if you can get it at the right price.
Discussion Board of the Day: Harley
Wondering how long Harley can keep it going, or just which one of those shiny bikes you should take home? From valuation to hydrogen-powered tanks, the experts on our Harley-Davidson discussion board have all the answers. Only on Fool.com.
Seeing Nothin' But Fannie
Amid a continued housing boom, Fannie Mae
This shouldn't shock anyone. First, we are in the midst of a credit-fueled housing boom, spurred on by the second year of rock-bottom rates. That the largest credit provider would generate spectacular returns in such an environment should be expected. Second, after the Freddie Mac
On Monday, Fannie Mae's CEO Franklin Raines testified before Congress, warning that a move to require advance government approval for mortgage finance products would crimp Fannie's and Freddie's ability to adjust their products to home buyers' needs. "If we cripple our ability to innovate, then your customers are going to pay," said Raines. "It's all going to come out in higher prices, and higher prices, as you know, means less demand."
Apparently, Raines either missed or ignored the December report (pdf file) from the Federal Reserve that showed that the two government-sponsored entities do not appreciably lower costs to homeowners in aggregate, thus making his "less demand" argument essentially bogus. The report states that much of the benefit of an implied federal governments guarantee of Fannie's and Freddie's credits accrue not to homeowners, but to shareholders of the two companies. We don't really blame Raines for talking up his own book, but it's not like the Fed has a big Fannie Mae axe to grind in this case.
So whether one should look at the fourth-quarter earnings as being harbingers of bigger, better returns, we wouldn't bet the farm on it.
Quote of Note
"The art of investing in public companies is... simply to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter you need only monitor whether these qualities are being preserved." -- Berkshire Hathaway vice chairman and Warren Buffett sidekick, Charles Munger
Sonus Spurns Investors
Imagine tailgating to the biggest concert of the year and the band decided not to show. Not only that, no one thought to tell you in advance. So you endured traffic for hours to sit with thousands of other fans on hard seats and stare at a dark stage before someone came out to announce that the big event was postponed indefinitely. The action would surely earn more than a few disgruntled fans.
Well, essentially the same thing happened on Wall Street yesterday. Next-generation telecom equipment supplier Sonus Networks
Analysts had estimated that Sonus would report quarterly revenues of $32 million, but recent reports from peers had many believing that the company could blow significantly past this target. The telecom sector has been seeing signs of life in Q4 of 2003, and the network equipment sector -- particularly, voice over Internet protocol (VOIP) -- has been hot.
Yesterday's faux pas further damaged the credibility of the VOIP equipment maker, which has already tested investor patience by significantly diluting the share base to raise much-needed cash. In April and Sept. 2003, the company sold a total of 37 million shares to net almost $183 million in cash, pushing outstanding shares to more than 244 million. The company has a heavy dependency for revenues from emerging service providers such as XO Communications (OTC BB: XOCM.OB) and newly revivedGlobal Crossing (Pink Sheets: GLBCF), giving skeptics plenty of ammunition to call the $2 billion company immensely overvalued.
While there's too much potential in the VOIP area to count Sonus Networks out, this latest move will be a hard pill for some investors to swallow.
More on Fool.com Today
Don't miss today's Fool Commentary: Bill Mann says 2003 was a great year for investors -- whether they deserved it or not.... Robert Brokamp asks: Can you count on your pension?... And, just for fun, Rick Munarriz has a look at what Survivor's winners have done with their money on the eve of CBS's all-star incarnation of the show. There are lessons to be learned there.
Plus, we were giving you our take on the most relevant business news all day. Here's just a few more:
- Drugstore Now, Boy
- Circuit City Flees Financing
- Steak 'n Shake It Up, Baby
- Return of the Trader
- CheckFree Pretties Up Results
For a list of all our stories from today, see our Today's Headlines page.