While the Dow and the S&P remained flat, the Nasdaq headed 1.15% higher today. Investors were bullish on Internet stocks after word got out that Cendant(NYSE: CD) was to acquire the airlines' online travel agency, Orbitz(Nasdaq: ORBZ). Orbitz shares rocketed more than 30%. Almost as high as SpaceShipOne, which today traveled 67 miles into suborbital space -- enough to put it halfway to the Ansari X Prize for $10 million.

In today's Motley Fool Take:

Intel Says: Why Fi?


Seth Jayson (TMF Bent)

In what looks like a good move, champion chip maker Intel(Nasdaq: INTC) recently announced that it would drop the wireless networking capabilities it had promised for its upcoming "Grantsdale" chipsets.

Tech heads -- the kind of people who enjoy the sound of whirring cooler fans and the smell of thermal paste; in other words, nerds like me -- greeted the news with eye-rolling and approving nods. Investors should be pleased as well. This is the final word in the long, sorry saga of onboard WiFi for this chipset. In fact, continual problems dictated that Intel begin shipping it earlier this year without the networking feature.

For those who don't know thermal paste from Preparation H, here's a primer: The chipset is the set of controllers on a motherboard that dictates how information flows between different parts of the computer, like the more familiar CPU, the graphics system, RAM, hard disks, etc. What Intel had hoped to do was make the chipset itself a wireless hub, giving computer buyers no need to go out and purchase a desktop unit from, say, Cisco Systems(Nasdaq: CSCO).

The strategy aimed to put Intel on the path toward becoming the featured player in a line of future home-entertainment PCs. But that's a bit like putting a digital clock in your toaster. Sure, it could be useful, but odds are, you've already got a watch.

In fact, wireless base stations cost next to nothing for those who want them. And external stations provide other important benefits not shared by chips soldered to a motherboard, such as easy replacement should the thing go on the fritz. Finally, with Internet service providers like Comcast(Nasdaq: CMCSA), SBC(NYSE: SBC), and Cox Communications(NYSE: COX) stepping all over each other to attract customers, it won't be long before these are free. (Cox ponied up a free cable modem when we signed on in August.) In the end, it made no sense to include the features in the chip.

Though investors may still be stinging from the recent earnings whiff and other screw-ups that benefited competitorAMD(NYSE: AMD), they should at least be glad that the firm has the guts to drop problematic pet projects and get back to basics. Intel has plenty of other problems to solve.

Seth Jayson loves the smell of thermal paste in the morning. At least he thinks that's thermal paste. At the time of publication, he had positions in none of the companies mentioned. View his stock holdings and Fool profile here. Fool rules are here.

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Out of Orbitz


Bill Mann (TMF Otter)

Relative valuation is a pretty simple concept, really. Companies that provide similar services with similar competence ought to be valued similarly. If one is larger than the other, it most likely will command a higher market capitalization. If one is growing faster, the same will be true. Overreliance on such measures can be suicidal. I still remember the screamfests that took place over whether CMGI or Internet Capital Group was overvalued in 1999 as compared with the other. Derrrrrrr, they both were overvalued, by a metric ton.

Still, relative valuation within an industry can be instructive. So the news that Cendant(NYSE: CD), owner of travel services such as CheapTickets, Avis, and Budget Rent-a-Car, had purchased Orbitz(Nasdaq: ORBZ) for $1.25 billion allows us to apply some chalk to the most recent trader's plaything, Travelzoo(Nasdaq: TZOO).

Let's make some comparisons, rough ones.

Current enterprise value (market cap + long-term debt - cash):
Orbitz: $1.082 billion (based upon the $1.25 billion purchase price)
Travelzoo: $945 million

Trailing 12 month (TTM) revenues:
Orbitz: $280 million
Travelzoo: $23 million

Growth rate:
Orbitz: 37%
Travelzoo: 82%

Price/free cash flow per share (TTM):
Orbitz: 12.7 (based upon purchase)
Travelzoo: 378

Free cash flow growth per share (TTM):
Orbitz: 82%
Travelzoo: 18.2%

For a company that has a similar enterprise value to Orbitz (post takeover premium, mind you), by even these basic measures Travelzoo is clearly phenomenally more expensive. For there to be such a discrepancy between two companies, some reason that one's future is so much sweeter than the other's would have to be apparent. Travelzoo's growing its top line faster, but not its free cash flow. Naturally -- and here's why relative valuations should not be relied upon too heavily -- companies aren't valued on where they've been, they're valued on where they're going. Travelzoo really actually could have retina-burning future potential. For the life of me, while I think this is at its root a good little company, I just don't see it.

On the other hand, there may be a hope among Travelzoo investors that Cendant's purchase of Orbitz puts Travelzoo in the sights of some other company that wants a foot in the sector. It's possible, but who? Yahoo!(Nasdaq: YHOO) is preparing to launch its own competing service; the artist formerly known as InterActiveCorp(Nasdaq: IACI) already owns Expedia, Hotels.com, and Hotwire. Time Warner(NYSE: TWX)? I cannot imagine it'd be that excited. Google(Nasdaq: GOOG) has plenty of cash, but there's no way it'd muddy the water for its own paid search revenue stream.

On the most recent occasion that I wrote on Travelzoo, I received a nose full of emails from snarfy trader types saying that the fact that it had continued to go up was proof positive that I was wrong. Quatsch. The market will do what it will do over the short term. But I have full faith that it will always do what it should do. What I do not know, and nor does anyone else, is when. The assumptions that are built into Travelzoo's market capitalization are astounding, and the chances of this being anything but the speculator's version of the game "Chicken" is extremely small.

Bill Mann has no beneficial interest in any company mentioned in this story.

Cat Avoidsa Soft Spot


Seth Jayson (TMF Bent)

To judge by recent headlines, you might imagine that Wall Streeters are unlocking their windows and preparing to step out on the ledges while Americans line up for soup and hardtack on the sidewalks below. (Never mind that -- as pointed out in the latest issue of Stock Advisor -- the S&P 500 index has already returned more than its historical average over the past 12 months.) I suppose you can't blame the media. After all, in "journalism," if it bleeds it leads. And the closest thing to blood in investing is the earnings warning.

So while fashionable pundits have been predicting stock-market doom-based downgrades and misses from the likes of Wal-Mart(NYSE: WMT), Intel(Nasdaq: INTC), and Cisco Systems(Nasdaq: CSCO), construction and agricultural bellwethers such as Deere(NYSE: DE) and Caterpillar(NYSE: CAT) have put up record years, sometimes trouncing expectations, other times missing by a hair. Yesterday, Caterpillar's brass announced yet another increase in expected revenues, heralding the jackpot in a most suitable locale, Las Vegas.

Apparently, the people who produce minor little things like roads, bridges, and buildings aren't so concerned with the worries of the economic girlie-men. They can't get enough heavy equipment. Chair and CEO Jim Owens said his firm is experiencing unprecedented demand. That should put sales up 25-30% over last year's $22.8 billion. Earnings are expected to be 80-85% over 2003's $3.13 per share. The hypothetical $5.85 per stub would put the firm at a forward PE around 13 today. That looks OK given the growth the company expects, but it's not much of a margin of safety for strict value investors. Dividend fans may find the 2% yield appealing, but worshippers of free cash flow will likely be troubled by the firm's years of negativity on that front.

In the end, a bet on Caterpillar today is still a bet on the economy. A double since two years ago, the easy money has been made. A cyclical heavy industry like this one depends on faith in underlying spending. So while today's good news bodes well for both the economy and the company, investors need to stay alert and make sure that they, and Caterpillar, are not underfoot when the next shoe drops.

Seth Jayson digs the heavy machinery, but at the time of publication, he had positions in no company mentioned. View his stock holdings and Fool profile here. Fool rules are here.

Quote of Note

"I have the consolation of having added nothing to my private fortune during my public service, and of retiring with hands clean as they are empty." -- Thomas Jefferson

TiVo's Cruisin'


Alyce Lomax (TMF Lomax)

Those who dubbed TiVo(Nasdaq: TIVO) an "advertising killer" may have spoken too soon. Today, TiVo announced a foray into interactive advertising, through a partnership with Royal Caribbean(NYSE: RCL) that will use the TiVo platform.

Last spring, it became apparent that Motley Fool Stock Advisor pick TiVo was going to launch some advertising-related programming in the fall. Right on target, TiVo announced that Royal Caribbean will use TiVo to advertise a one-hour TV special airing on the Travel Channel. Upon TiVo users' request, they'll be able to learn more through two-minute video spots about Royal Caribbean's destinations.

Though TiVo's deal with Royal Caribbean is a pilot program, it highlights a necessary evolution in TV advertising: the need for interactivity and a more customizable TV viewing experience. For example, as much as Internet advertising is disliked, recent studies have shown that advertising that is seen as more relevant to users' tastes is more effective than more random ad blanketing of yesterday. Meanwhile, TV advertising could become more powerful if curious consumers can learn more about products they're interested in.

Furthermore, done well, and geared to an individual's interests, TV advertising may lean further still toward being information and content. Other recent signs of the death -- or is it rebirth? -- of traditional advertising included Oprah's General Motors(NYSE: GM)giveaway and Wal-Mart's(NYSE: WMT)advertising network.

Of course, this experiment could very well fizzle. If the ads aren't interesting, nobody will bite. It's always a risk that any perception of intrusiveness will turn users off, and there's always the privacy issue that many people are thinking about these days, when it comes to technology and its ability to track interests. Last but not least, any danger of filling up TiVo's hard drive with ads that knock your TiVo'ed content out of the queue might generate some angry users.

Given its hoards of copycat competitors, TiVo does need to figure out as many ways as possible that its DVR box can be used to ensure plentiful revenue streams. And today's move is a good example of that, as well as a reminder that TiVo tends to do an exemplary job in seeing how to revolutionize TV. In that regard, not much has changed.

Look back on some previous TiVo stories from the last few months:

Alyce Lomax does not own shares of any of the companies mentioned.

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