Red Sox icon Nomar Garciaparra is wearing a Cubs uniform. The erstwhile Iron Mike Tyson got knocked out by someone named Danny Williams. Women will participate in freestyle wrestling in the upcoming Olympics for the first time. It's a topsy-turvy time in the wide world of sports. That makes us especially thankful for the relative calm and stability of the market, which continued its business as usual even in the face of specific terror threats against financial institutions around New York City and Washington, D.C. For that, we say: Boo, sports; yea, finance!

In today's Motley Fool Take:

Franklin's Settlement Unsettling

By

Tim Beyers



If you follow baseball at all, you might know some of the game's most infamous deals, such as Babe Ruth from the Red Sox to the Yankees for little more than cash, or Milt Pappas for future Hall-of-Famer Frank Robinson, as lamented by Susan Sarandon in Bull Durham. Unfortunately, bad deals occur in the investing world, too.

Yesterday, the Securities and Exchange Commission settled its investigation into Franklin Resources(NYSE: BEN), parent of the Franklin Templeton family of funds, by obtaining $50 million in penalties. But Franklin doesn't have to admit to any wrongdoing, nor will it lower fees for investors, as others such as Bank One(NYSE: ONE), Janus(NYSE: JNS), and Wells Fargo's(NYSE: WFC) Strong Capital unit have. Uh, yeah, OK. How is this good?

The SEC found that Franklin, like so many others in the $7.6 trillion fund industry, abetted market timing, a technically legal but highly unethical practice that allows some clients to rapidly trade in and out of funds, effectively stealing from long-term investors who would typically pay big penalties for early redemptions. In its defense, Franklin says that it moved to prevent market timing as early as 1999, and largely did. But the SEC also found several instances when market timing continued through 2001, including one when a private investor may have curried favor by promising to invest $10 million in one of Franklin's hedge funds.

An SEC spokesperson quoted in The Chicago Tribune said that Franklin deserved "serious sanctions." But the $50 million penalty seems anything but serious when compared with the settlements agreed to by firms that have truly humbled themselves. Janus, which has agreed to pay $225 million and make fundamental changes, comes to mind here.

Yeah, Franklin investors will get back $50 million, and that's better than nothing, but it's still only a one-time event. Franklin recognized early that market timing was happening at the firm, and still some corporate officers chose to look the other way. That's why New York Attorney General Eliot Spitzer has demanded permanent changes in the way funds do business. Franklin faces no such concessions.

That stinks. Indeed, this particularly unsettling settlement is a slap on the wrist Dick Strong would be proud of and is just as wrong as what Franklin did in the first place.

Fool contributor Tim Beyers wants Eliot Spitzer running the SEC. He owns no shares in any of the companies mentioned, and you can view his Fool profile here.

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Macrovision's Big Profits

By

Rich Smith

Small-cap hunters like myself, and my co-subscribers to the Motley Fool's Hidden Gems small-cap newsletter, just love to find companies priced under $2 billion that turn in consistently great profits quarter after quarter. An interesting confluence of circumstances turned me on to one such possibility last night -- and it's a company that I have actually been following for a few months now: Macrovision(Nasdaq: MVSN).

Thanks to the magic of Amazon.com(Nasdaq: AMZN), I was watching the recently released DVD of Viacom's(NYSE: VIA) CBS division's erstwhile hit show, Northern Exposure. And what should I see patrolling the streets of Cicely -- before even the moose walked by -- but Macrovision's logo, following a strong suggestion that I refrain from any piratic disc-copying urges I might be entertaining.

A few hours earlier, Macrovision had released its second-quarter earnings numbers, and they were strong, too. Net income per share doubled over the year-ago quarter to $0.18; revenues were up 22%. Incidentally, both numbers topped Wall Street's estimates, leading to a surge in demand for Macrovision's shares on the after-hours market that has continued into today.

Now, Hidden Gems seekers enjoy generally accepted accounting principles profits as much as anyone (even as we mock Macrovision's recitation of "what-if" pro forma numbers). What we really like to see, however, is free cash flow -- preferably combined with a low enterprise value and a fast earnings growth rate. Macrovision has all of the above. At an enterprise value of $915 million, and with trailing free cash flow of almost $50 million, the company's EV/FCF is a respectable 18.3. Pair that with the company's projected growth rate of 20% over the next five years, and you have a company with serious gem potential.

Ordinarily, I view projected growth rates with a bit of skepticism -- predicting the future is a tough trick to pull off consistently. But when you look at Macrovision's past performance, laid out for your reading pleasure on Yahoo!(Nasdaq: YHOO) Finance's analyst estimates page, you will see that Macrovision has achieved the same 20% annual growth over the previous five years as well. That lends a bit more credence to the projected earnings numbers.

Putting it all together, at an EV/FCF/G ratio of about 0.9, Macrovision looks only slightly undervalued today. But if you keep an eye on this one, I suspect a buying opportunity will present itself eventually. It has happened before on some of Mr. Market's moodier days. It will happen again.

Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.

Discussion Board of the Day: Viruses, hoaxes, & spam, oh my!

CNET's flagship Download.com site has always been the place to go for authorized software downloads, but if you aren't careful, your downloading ways might lead you to catch something. Is your computer clean? Is your email ripe with unwanted sales pitches? What can you do about it? All this and more in the Viruses, hoaxes, & spam, oh my! discussion board. Only on Fool.com.

Investing in the Golden Egg

By

W.D. Crotty

When your stock sells for 4.6 times trailing earnings, what do you do? Cal-Maine Foods(Nasdaq: CALM), the largest egg processor in the U.S., decided it was time to repurchase its own shares.

Cal-Maine, during its un-golden years, traded sideways. In fact, the stock did not see the equivalent of $5 a share until late in 2003 -- before pecking its way quickly to $22.80 a share and being labeled by this reporter as having "flown the coup."

Cal-Maine, which closed at $11.51 yesterday, has transformed its balance sheet since egg prices hit 20-year highs in 2003. As Brian Gorman noted, "The company has increased its cash holdings to $73 million from $6 million and reduced long-term debt to $80 million from $96 million." The company is the modern version of the goose that laid the golden egg -- although we are talking chickens here.

Owning a golden goose is great. Knowing how to manage that goose is the key -- and Cal-Maine clearly did that when it canceled a stock offering in April. Why sell at bargain price-to-earnings levels? Better yet, at today's prices, why not buy what you know best -- your own company!

For those, like me, who say, "Eggs are a commodity business" -- you are right. But consider that while heavyweights such as General Mills(NYSE: GIS) and Kraft Foods(NYSE: KFT) have had little success trying to catch the low-carbohydrate food craze, Cal-Maine was already in the right place with its golden eggs. It didn't need to invest millions like Anheuser-Busch(NYSE: BUD), Coca-Cola(NYSE: KO), and PepsiCo(NYSE: PEP), tailoring its product to changing consumer tastes.

Also gone is the image that eggs are not healthy. Eggs are a commodity, but, when egg production gets back in step with demand, demand will be at elevated levels.

Cal-Maine grew to its No. 1 position by acquisition. With 64 producers with 1 million or more layers, there are plenty of opportunities for Cal-Maine to use its cash (and the market's low valuation of egg producers) to make accretive acquisitions. For now, it makes more sense (and cents too) to buy its own stock.

Cal-Maine has approval to buy approximately 10% of its shares on the open market. With egg demand still strong, 2005 looks like another good year -- just not as golden as 2004.

Fool contributor W.D. Crotty owns stock in PepsiCo. W.D. Crotty also has three hens and a rooster keeping egg costs down and the lawn bug-free.

Quote of Note

"Nearly all men can stand adversity, but if you want to test a man's character, give him power." -- Abraham Lincoln

More Next-Door Search

By

Alyce Lomax (TMF Lomax)

Local search has hit the radar again today. Despite the fact that it hasn't been that long since news headlines touted local search upgrades from the big boys, today Yahoo!(Nasdaq: YHOO) and Ask Jeeves(Nasdaq: ASKJ) both announced souped-up local search options.

Yahoo!'s new local offering is already live and can be found here. Something about the clean, Spartan interface -- no ads here yet, folks, as compared with other pieces of Yahoo! real estate -- and the word "BETA" in tiny font below the Yahoo! Local headline certainly strike one as Googlesque.

However, what Yahoo! clearly intends to be a differentiator is what looks to be a bit of niche searching power -- sample searches include "romantic restaurants in... " and "casual bars near.... " In an interesting twist, it allows users to rate certain restaurants, much like Amazon.com(Nasdaq: AMZN) allows its users to review products.

This is an example of Yahoo! moving even more local, considering another foray into the space in late June, when Fool contributor Tim Beyers reported on Yahoo!'s Local Match. (Of course, Yahoo! has always had a certain degree of local content, with its Yahoo! Local pages based on cities as well as Internet Yellow Pages searching.)

Ask Jeeves, on the other hand, is entering the local search game by teaming up with Citysearch. However, given the competitive landscape, it seems unlikely that this is the last we hear of local concerns from Ask Jeeves.

Google, of course, has had a specialized local search function of similar proportions live since March. Time Warner's(NYSE: TWX) America Online unit serves up some localized content through its Digital City guides.

What's with the onslaught of local search "me too" news? Market researcher Kelsey Group predicted that localized searching will ring up $2.8 billion in sales by 2008. Also, as lucrative and popular as generalized search might be, localized search has even more potential of weaseling into the daily habits of Internet users.

All of these initiatives in the buildup of products in the search wars are intended to keep users glued to their sites as much as possible. (And at this point in the game, not having certain features begins to look downright remiss.) Some mixture of product quality versus search brand effectiveness will likely tell us whether Yahoo! can capture the flag in local search.

Alyce Lomax does not own shares of any of the companies mentioned. Just this morning, before she even knew about Yahoo!'s and Ask Jeeves' local search news, she used Google's search function to track down the address of a local restaurant

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In other news:

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