Google: What You Must Know

Stocks took another hit today on the back of disappointing job growth numbers for July. The U.S. Department of Labor reported that the U.S. economy added 32,000 non-farm payroll jobs last month, compared with the 235,000 economists had expected. Ouch.

The S&P and Dow fell about 1% while the Nasdaq dropped 2%, after closing the day down sharply yesterday as well. The weekend couldn't come any sooner. Let's all just pack it up and go home.

In today's Motley Fool Take:

Google: What You Must Know
Shameless Plug: Rule Your Retirement
The Need for eSpeed
Discussion Board of the Day: Crafty Fools
DHB's Bulletproof
Quote of Note
Lower Your Property Taxes
More on Fool.com Today

Google : What You Must Know

Bill Mann (TMF Otter)

My colleague Richard Duprey wrote today about the revelation that Google(Nasdaq: GOOG) had failed to register as much as $3 billion worth of shares issued to employees over the past several years while it has been a private company. Some have stated that this late revelation -- though the rescission was generally discussed in the company's April registration statement -- may delay Google's initial public offering, which is anticipated as soon as next week.

I have two takes on this. First, private companies with inexperienced management often have some missteps when dealing with stock. The only reasons this is a big deal is because Google grew to be such a smashing success, and the correction came fairly late in the game.

The other is that any talk about this being a reason Google would delay its IPO is complete balderdash: Google's IPO is not drawing the investor interest that everyone thought would be its divine right. After all, this is Google. GOOO-GUL. We all use it every day, and everyone's been waiting for this moment, well, forever. The reason that Google's thinking about delaying an IPO in which everyone seems to be interested in principle but not actuality is because few people are stepping up to buy its atrociously overpriced stock. You hear whispers about the company wanting to give fund managers a little more time to digest the offering. Bunk. Folks have been hot and bothered about a Google IPO for two years. This isn't a company that people need to get up to speed on; it's an IPO that, for once, people seem to be smart enough not to chase.

Essentially, what's driving the demand for Google coverage is a media that wants this to be a big thing, wants an event about which people can get excited. This isn't it, and yet it still creates its own interest. The Google IPO is like those famous people whom people are interested in mostly just because they're famous and not on any real intrinsic merit. Pia Zadora. Anna Nicole Smith. Carrot Top. Kato Kaelin. A giant heap of "whatever" that still seems to attract interest in some circles.

Google's managing to do something that I really thought would be impossible: Spoil the Dutch auction for future IPOs. This is supposed to be the great equalizer, a way for the common man to get shares alongside the big Wall Street houses. It also tends to prevent those infernal first-day pops in pricing, and it lowers the need for underwriting services. Needless to say, Wall Street hates Dutch auctions, though they've been very successful for RedEnvelope(Nasdaq: REDE) and Overstock.com(Nasdaq: OSTK). A bad showing for a Google IPO would certainly have the effect of souring people on the auction format. Too bad it's not the format: It's the goods that are the problem.

Google's sorta like the senior prom: really interesting and exciting in concept, a bit underwhelming in actuality. You have the dual-class share system, meaning that though Google will take your money, it's not really interested in what minority shareholders think. Its stock has been priced at simply absurd levels, with a P/E that could exceed 350 at the open and cash flow generation that's not much better. And no, I'm not talking about the price per share. There have been some grumblings from people who have balked at the $108 to $135 per-stub projections -- which is just silly. Google stock isn't expensive because the quote per share is high, it's expensive because its implied price for the company is high. And if the IPO fails, it wouldn't be because of inherent weakness in the Dutch auction system (though Wall Street would press this point very hard): It would have everything to do with Google's price it set for itself.

Anecdotal evidence informs me that the underwriters are finding little demand for the Google IPO. If this is true, perhaps people are coming to the conclusion we came to back in April: This is an IPO that we're happy to watch but not participate in. It's kinda like a bullfight -- I wouldn't go anywhere near that ring until I'm sure there's nothing named "toro" anywhere in the building. Great to be a spectator, but I'm afraid the participants may get mauled.

Bill Mann owns shares of RedEnvelope. Please check out the Motley Fool's newest newsletter service, Motley Fool Inside Value. A free trial is yours, well, for free!

Shameless Plug: Rule Your Retirement

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The Need for eSpeed

Rick Aristotle Munarriz (TMF Edible)

Nobody needs to explain the meaning of loss to eSpeed(Nasdaq: ESPD). It's something that is rooted far deeper than the fact that the electronic bond trading specialist's stock has surrendered roughly two-thirds of its value since its November highs.

Paper losses seem almost inconsequential when you consider what the company lost on 9/11. Along with its parent Cantor Fitzgerald, eSpeed's workforce was decimated perched high atop the World Trade Center that fateful morning.

That's why it's worth noting that the company is battling its resolve and resiliency on a significantly smaller scale these days as it tries to tackle its waning growth. Last night, the company posted second-quarter earnings of $0.16 a share on a modest 9% uptick in revenues.

That news was already baked into the stock's sluggish share price, taking its lumps after the company warned investors about the shortcoming last month. However, the company sees sequential weakness as it expects to close out its fiscal year with taxed operating profits coming in between $0.53 and $0.55 a share.

When David Gardner singled out the stock back in the March issue of Hidden Gems, it was a more optimistic company. It closed out its first quarter in worthy fashion, growing operating profits by 72% and sporting operating margins of better than 40%. Yet there is a downside to taking such big steps. It draws in the competition. Surrendering market share -- and now looking to close out the year with operating margins closer to 30% -- hurts. How can it not? But let's approach eSpeed from another perspective.

On any given day, the Federal Reserve is moving about $500 billion in volume, and eSpeed continues to grab a profitable chunk of that action. Rising interest rates may also spark even more interest in short-term fixed income investments.

Then you come across the company's sparkling balance sheet sporting more than $4 a share in cash; you may want to keep an eye on the stock as a value-hunting opportunity. Over in our Green Gene discussion board, some Community members would gladly point out how the company is really not too far away from its liquidity cushion.

While it may seem ironic that eSpeed -- a company catering to heavy-hitting fixed-income investors -- doesn't pay out a quarterly dividend, it has been buying back its shares. While you may prefer the generous payouts of such companies as Merck(NYSE: MRK), Pitney Bowes(NYSE: PBI), and Sara Lee(NYSE: SLE), it's a tempting value play at this point.

Just don't get me started on how eSpeed knows the meaning of yield.

Longtime Fool contributor Rick Munarriz knows the difference between a government bond and James Bond. He does not own shares in any companies mentioned in this story.

Discussion Board of the Day: Crafty Fools

Would you subscribe to the new Martha Stewart Kids magazine? Have you ever made alphabet sponges or sewn fabric building blocks? What crafts did you come up with to keep your kids busy this summer? All this and more in the Crafty Fools discussion board. Only on Fool.com.

DHB's Bulletproof

W.D. Crotty

Body armor company DHB Industries(AMEX: DHB) reported a gem of a quarter yesterday, with revenue increasing 52% and net income 91% year over year. The order backlog is up 83% from last quarter. Not bad!

How could you have heard about this winner? Motley Fool co-founder Tom Gardner selected DHB in Stocks 2004 -- a pre-2004 look at what might be hot. Not only did Tom find a winner but DHB has already exceeded his three-year price target.

Readers of Tom Gardner's Motley Fool Hidden Gems newsletter learned about DHB in February. Each month, Tom recommends one gem, then he discusses three other finalists (of which DHB was one) and why they merit inclusion on his "Watch List." DHB has more than doubled since being put on watch.

What caught Tom's attention in February was a great product, a big order, a stock trading at a discount to its growth projections, and a free cash flow run rate of $13.1 million. In hindsight, it was a 20-20 vision. Add in Tom's preference for high insider ownership and little Wall Street coverage (only two analysts), and you have the catalyst for something great.

Today's reaction to the earnings news -- the stock is down 10% -- looks like DHB disappointed. Hardly! Earnings beat the two analysts' estimates by $0.03 cents per share. Just to give perspective to 2004, the $383 million backlog exceeds 2003's sales of $260 million (and 2003 sales were up 76%).

What may concern investors is the stock's meteoric rise from a 52-week low of $3.80 to a high of $17.40. At today's $14.80, the stock trades at 25 times 2004 earnings. Worse, it trades at 32 times 2005 estimates.

Compatriot Rich Smith recently identified the company's greatest weakness when he wrote, "To make a long story short, DHB's biggest customers may just be its worst enemies." In the latest quarter, 80% of shipments were to the military and 5% were to federal agencies such as the FBI.

War has driven a lot of sales DHB's way. But, just as Taser(Nasdaq: TASR) has taken a foothold and grown quickly, DHB has a similar opportunity -- and one internationally too. Those opportunities could make 2005 a winner also.

The company is using its strong cash flow for debt reduction -- a great move. It is also innovating by introducing new products such as the ballistic blanket. While it lacks the diversification of fellow competitors Ceradyn(Nasdaq: CRDN) and Armor Holdings(NYSE: AH), DHB is gaining market share and has an excellent reputation.

While giants such as General Dynamics(NYSE: GD) and Raytheon(NYSE: RTN) will appeal to investors looking for a conservative investment in defense, DHB is a gem with products that are bulletproof and ready for the war on terror.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.

Quote of Note

"Management is doing things right; leadership is doing the right things." -- Peter Drucker, economist and management sociologist

Lower Your Property Taxes

Selena Maranjian (TMF Selena)

Property taxes have been zooming up across America. They rose 4.7% in Wisconsin last year, and they're going up 5.7% in Bayonne, N.J. Nevada politicians are proposing capping property tax hikes at 6%, while some counties there face double-digit property tax rate increases. This all seems horrifying for homeowners, but take heart (at least a bit) -- many home value assessments, on which taxes are based, are off the mark. Don't think you have to accept and pay all of your recent property tax increase.

The American Homeowner's Association (AHA) recently put out an eyebrow-raising press release:

According to Consumer Reports, "Records show an error rate of 40% exists in estimating property values."
According to the National Taxpayers Union, "Up to 60% of all homes are overassessed and not in line with their actual value."
The AHA states that "... although less than 2% of assessments are appealed, usually 75% to 90% of all appeals result in a reduction of taxes."

The kinds of errors your home's assessment might feature include some little inaccuracies that can have a major impact on what your tax bill is. The size of your home might be off, and the number of bedrooms and bathrooms could be incorrect. Sometimes things such as unfinished basements are counted as finished or non-existent garages are factored in.

Study your assessment report for errors, and compare your home's value with that of similar ones in your neighborhood. Once you're ready, you probably won't need to take anyone to court. Oftentimes, a simple visit to the assessors' office will do. If you can provide proof of an error, you're likely to get a rapid reduction.

To help you through this process, check out a free trial of AHA's property tax reduction kit at www.homeownertaxcut.com.

Learn more about the ins and outs of buying or selling a home in our Home Center, which also features special mortgage rates. Also, visit our Buying or Selling a Home and Building/Maintaining a Home discussion boards for great insights and tips from fellow Fools.

Selena Maranjian is a longtime Fool contributor.

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