We've got stocks for everyone here at the Fool -- small caps, large caps, mid caps, growth stocks, value stocks, dividend payers, you name it. But today, we've even got 5 Stocks for Your Bundle of Joy, or, as Tim Beyers puts it, stocks that will help you overcome the financial burden of parenthood. After all, once you have kids, there's no turning back. But you might be able to invest in the new companies you get to know.
In today's Motley Fool Take:
- An $8 Billion Problem
- Shameless Plug: Motley Fool Income Investor
- Microsoft Wants Your Thoughts
- Discussion Board of the Day: Buying and Maintaining a Car
- Gap Takes a Spill
- Quote of Note
- Sara Lee Has Indigestion?
- More on Fool.com Today
An $8 Billion Problem
For all of the ranting I do over the ridiculousness of the "decrease in earnings" arguments regarding expensing employee stock options, it would be disingenuous of me not to start out this article by noting the following: What we're talking about here are accounting, not economic, changes. General Motors
But GM isn't all that excited about having to wipe away 14% of its reported earnings per share, either. So the company has come up with a plan to counteract the impact to its reported earnings should a proposed accounting rule go into effect as expected.
Here's the deal. When you read a company's earnings per share, that share count contains a number of different things: Actual shares, options that are in the money, and potential dilution from warrants and bonds with a stock conversion element, known as "convertible bonds." What has not been included to date is dilution due to what are actually stock-bond hybrids, so-called "contingent convertible bonds." Unlike convertibles, which have an embedded option to convert at a preset strike on the price of the bonds, contingent convertibles can be converted only when the company's stock price exceeds the conversion price of the bond for a predetermined period of time.
One of the attractive things about "CoCo" debt is the very fact that it avoids impacting diluted-share counts. But this seems very likely to change, and for a company struggling in a market beset by overcapacity and economic losses, even the appearance of a decrease to the bottom line is tough to swallow. So GM announced yesterday that it had come up with a plan to dull the impact of an accounting change for CoCos: GM will waive the right to convert to stock (the conversion is at GM's option) on at least the principal amount and use cash instead of stock as the instrument of conversion. This would apply to its nearly $8 billion of CoCos.
GM relied heavily on CoCos this past year when it raised money to fund its cratering pension fund. At the time, I noted that GM's pension liabilities far exceeded the implied value of the company and that the debt GM raised wasn't going to capital projects but to fund its obligations to retiring and retired workers. Which it absolutely should do, of course -- they are obligations. But in an environment where the Big Three -- GM, Ford
Bill Mann owns none of the companies mentioned in this report.
Shameless Plug: Motley Fool Income Investor
You've, of course, heard that 2004 is the Year of the Monkey, but we bet you didn't know it's also the Year of the Dividend. Now that you do, why don't you celebrate by taking a free trial of Motley Fool Income Investor right now and find those dividend-paying companies to round out your portfolio. It's one party you don't want to miss.
Microsoft Wants Your Thoughts
Blogs are pages where users can publish their thoughts online, aided by a host site that automates most of the process. They have long evolved from teenagers whining about their love life to a useful tool for corporate communication. One of the forerunners of this was id Software programmer John Carmack, who used a ".plan" file to update users of his progress when developing the PC game Quake. Soon many developers followed his lead.
Indeed, blogs and their uses have become a significant part of today's business landscape. A recent example would be how Sun Microsystems
By introducing blog services, Microsoft has entered a new front in its battle with Google, which got a head start by acquiring the Blogger platform last year. The two already have competing Web-based e-mail services and are about to lock horns over search technology. Later this year Microsoft plans to premiere MSN NewsBot and MSN BlogBot, tools for searching news and blogs, respectively (bet you didn't figure that one out).
When it comes to Internet technologies, Microsoft has always been late to the party, but it does make a spectacular entrance eventually. Its competition with Google for eyeballs will definitely be one to keep tabs on. With so much attention being paid to blog services, a penny for someone's thoughts may not be enough anymore.
Want to read more about Google? Try:
- Google's Virtual Casino, by Tom Taulli
- Will Investors Go for Google?, by Alyce Lomax
- Going Dutch With Google, by Bill Mann
- Wall Street Ticked Off at Google, Selena Maranjian
Fool contributor Tim Goh does not own any stake in the companies mentioned.
Discussion Board of the Day: Buying and Maintaining a Car
Is it worth it to buy a 2004 automobile given the incentives, or is it better to hold out for the 2005 models? Are you leaning towards domestic or import for your next set of wheels? All this and more -- in the Buying and Maintaining a Car discussion board. Only on Fool.com.
Gap Takes a Spill
That category definitely includes Gap. In addition to its same-store sales slip (Wall Street had expected a 0.9% increase), overall sales fell 3% to $1.0 billion. The retailer also delivered a deep cut to its profit guidance, saying it now expects to earn $0.19 to $0.21 per share, as opposed to the previous expectation for $0.28 per share.
Granted, it looks as though July has proven difficult for many retailers. Ann Taylor
Seeing how specialty apparel retailers that appeal to a more mature female demographic -- such as Ann Taylor and Chico's -- have done well recently, I can see the power of the niche. These are slightly older women with solid pocketbooks and a desire to be fashionable, not trendy. So, with all the cutthroat competition for teens, it makes sense that Gap is trying to evolve from its past as a teenybopper retailer and appeal to a more general audience.
Several initiatives by Motley Fool Stock Advisor pick Gap point to an eagerness to expand the demographics for its self-titled stores as well as its Old Navy and Banana Republic storefronts. A hip new marketing campaign and a stepped-up plus-size line are meant to woo shoppers, some of which may have been disregarding Gap's portfolio of stores. At the moment, though, one might wonder whether Gap is succeeding.
On the other hand, maybe it's simply that so many shoppers shopped till they dropped in the springtime that they're all shopped out. Maybe that's compounded with the fact that high gas and food prices are eating into discretionary income, or people are worried about their credit card debt with interest rates threatening to rise. (Sound familiar? Our Credit Center can help.)
So, there are lots of reasons pocketbooks could be snapping shut right now, many completely circumstantial. However, such a surprising shortfall in sales numbers as well as drastically reduced profit guidance brings back a question Fool Rick Munarriz has asked before: Is Gap really back?
Alyce Lomax does not own shares of any of the companies mentioned. When shopping, she definitely prefers Ann Taylor to Gap.
Quote of Note
"The most incomprehensible thing about the world is that it is at all comprehensible." -- Albert Einstein
Sara Lee Has Indigestion?
The firm reported that net sales rose 11% for the fourth quarter, to $5.1 billion from $4.6 billion a year ago. Income rose to $0.44 per diluted share, an increase of 19% from the same period a year ago. For all of fiscal 2004, sales were $19.6 billion, up 7% from 2003. Net income for the year was $1.59 per diluted share, up 6% from last year's $1.50. Profits were up in every business unit except for apparel, which declined for a fifth straight quarter. Do you see much bad news here? Yeah, me either.
Unfortunately, it's not the past that concerns investors. The company said higher commodity prices on items such as pork and coffee will take a bite out of first-quarter 2005 profits. Excluding a $0.15-per-share gain for the sale of its European tobacco business, results are forecast to come in at $0.24 to $0.29 a share, well below the consensus estimate of $0.32.
But should investors really be so spooked? After all, Sara Lee says it will boost earnings from $1.59 to between $1.61 and $1.71 per share during 2005 -- and that's after an expected $250 million increase in commodity costs and $80 million more set aside for marketing. Further, free cash flow continues to rise like good dough. After dividends, free cash flow came in at just below $900 million for 2004. That's more than 50% better than last year and more than enough moola to allow Sara Lee to keep hiking its dividend, which at 3.5% already trounces the market's average payout of 1.67%.
Maybe I'm just too optimistic, but I see no reason to pull Sara Lee from the fatty five. I still think the company will continue delivering investors sweet returns on the way to high-carb heaven.
More on Fool.com Today
In Matt Logan's License to Make Money, Cherokee's CFO shares the strategy that made the apparel maker one of the leaders in licensed brands....Selena Maranjian shares some insightful comments from readers in Out of My Inbox.
In other news:
For a list of all our stories from today, see our Today's Headlines page.