We try to stay away from the political fray here at The Motley Fool, but with the presidential candidates facing off in their first debate tonight, we couldn't resist offering up a Duel of our own. Jeremy MacNealy and Chris Rugaber go head to head on the economic policies of President Bush and Sen. John Kerry, and they pull no punches.

Once you've read both sides -- and their rebuttals -- go to our main page and vote on which candidate has won your support. It'll be good practice for the real thing on Nov. 2.

In today's Motley Fool Take:

Merck's Headache

By

W. D. Crotty



Dow 30 component and Motley Fool Income Investor recommendation Merck & Co.(NYSE: MRK)announced today that clinical study results detected "cardiovascular events, such as heart attack and stroke, beginning after 18 months of treatment in the patients taking Vioxx compared to those taking placebo." Yikes! In a classic understatement, the company said it was making a "voluntary" worldwide withdrawal of the drug.

Launched in 1999, Vioxx was the company's leading drug for pain due to arthritis, menstruation, and, as of March, migraines. The loss of Vioxx sales, which totaled $1.3 billion in the first six months of 2004 (11% of sales), caused Wall Street to create a quite a headache for Merck shareholders -- an almost 30% drop in the stock's price today.

In last quarter's earnings report, the company was still looking for "new populations" in order to "extend the clinical benefits" of Vioxx. Dash that expectation. Dashed too is earnings guidance. Originally forecast at $3.17 for 2004, the company now expects to reduce that number by up to $.60 a share (19%).

For those wondering if this news creates a buying opportunity in Merck, review fellow Fool Ben McClure's recent evaluation. With a weak pipeline, only three new products launched since 2000, and the 2006 loss of patent protection for Zocor, the company's blockbuster cholesterol-lowering drug, Merck already sells at a discount to its peers. Don't expect that to change anytime soon.

Speaking of those peers, Pfizer(NYSE: PFE), with painkillers Celebrex and Bextra, appears to be the best positioned to benefit from the Vioxx withdrawal.

But, before you invest your hard-earned cash in pharmaceutical companies like Pfizer, Eli Lilly(NYSE: LLY), and Bristol-Myers Squibb(NYSE: BMY), consider the business realities these companies face. With skyrocketing R&D costs, the political football of "drug costs," and extreme competition, this is a tough business with no easy path to increasing earnings.

Merck investors need to look beyond the $802 million it costs to develop a new prescription drug, and consider the "L" word -- lawyers. Phones are ringing across America as lawyers try to find victims of Vioxx. It is the expectation of what could happen in America's courts that will keep producing migraines for Merck shareholders.

And speaking of headaches, Merck's stock has fallen from $96.69 in November 2000 to a new 52-week low of $32.46 a share today. Ouch! Now that hurts!

However, despite today's pain, Merck's big dividend payouts don't appear to be in jeopardy at the moment. That's good news for Mathew Emmert and other lovers of income investing, who appreciate the company's now-4.63% yield

Fool contributor W.D. Crotty is recovering from a headache called Hurricane Jeanne -- and four days without power.

Discussion Board of the Day: Political Asylum

Want to talk about tonight's debate? What do you think of the candidates? Would you care for a little discussion with like-minded people and political opponents? If so, check out the Political Asylum discussion board. Only on Fool.com.

Pepsi's Winning the War

By

Nathan Slaughter

On a micro level, the events of the past two weeks illustrate how Pepsi(NYSE: PEP) and Coca-Cola(NYSE: KO) have taken divergent paths. First, Coke released a surprisingly grim outlook, cautioning that flat worldwide unit case volume growth would leave second-half results below expectations. Management cited a number of reasons for the adverse operating conditions, running the gamut from "environmental legislation" to "retail de-stocking" to "unseasonably cool and rainy weather in the highly-profitable Northern European markets."

The dour news sank Coke's stock to 19-month lows, and as Rick Aristotle Munarriz recently noted, to within shouting distance of levels not seen since 1995. Meanwhile, while Coke has been mired in profit warnings, management shake-ups, and analyst downgrades, Pepsi has quietly put together another solid quarter. This morning, the company posted a 35% rise in net income to $1.36 billion, on revenues that climbed 6.3% to $7.26 billion. Excluding a tax gain, earnings jumped 14% to $0.66, a penny ahead of estimates.

While a 4% drop in carbonated soft-drink volume drove overall North American beverage volume 1% lower, the non-carbonated beverage volume rose 5%. Sales of Gatorade X-Factor, Propel Fitness Water, and a new line of Tropicana juice drinks were particularly brisk. Segment operating margins expanded 100 basis points, resulting in an 8% increase in operating profits to $542 million.

International operations were even stronger, as both carbonated and non-carbonated beverage volumes improved by double digits. Year to date, overseas snack volumes and beverage volumes have risen 9% and 12%, respectively. Quarterly operating profits in the international segment soared 29% to $370 million (with currency fluctuations taking a fractional bite out of the bottom line) on an 11% rise in revenues.

Frito Lay's revenues grew 5% to $2.3 billion, but a waning public appetite for salty snacks has forced Pepsi to consolidate by shuttering four facilities, scaling back the workforce by a few hundred positions. The company expects to record a pre-tax $160 million fourth-quarter charge related to the closings. Despite the charge, Pepsi raised its 2004 forecast by $0.06 to $2.35.

While Coke's fortunes are largely tied to a carbonated beverage market that is stuck in the doldrums, Pepsi has a far more diversified revenue stream. With 200 new products launched last year alone, Pepsi is clearly the leader in product innovation. Furthermore, only 37% of the firm's sales are derived from beverages, with the rest coming from Quaker Foods and Frito Lay, which has a stranglehold on the salty snack market.

Consumers are increasingly washing down those snacks with non-carbonated drinks, where Pepsi maintains a decided advantage. It has done a better job of keeping its finger on the collective pulse of the consumer, and was much quicker to jump into the faster-growing non-carbonated market. This subcategory now represents 30% of Pepsi's overall beverage sales, a number that continues to rise steadily.

We may never see an end to the cola wars, but for now at least, Pepsi's tactics appear to be paying off.

Would you like a soda-industry refill? Try one of these:

Fool contributor Nathan Slaughter owns none of the companies mentioned.

Quote of Note

"Politics is not a bad profession. If you succeed there are many rewards; if you disgrace yourself you can always write a book." -- Ronald Reagan

1999 All Over Again?

By

Dave Mock

Investors partied like it was 1999 yesterday with the IPO of new issue JamdatMobile(Nasdaq: JMDT), a publisher of mobile games and wireless entertainment. Jamdat's stock spiked more than 50% from the opening price of $16, which was above the previous target of $13-$15 set by underwriters. The stock closed the day at $22.51 -- up more than 40%.

The red-hot reception of this issue by investors was predicted by many analysts and industry watchers. Private capital has been flooding into mobile content developers at a rapid rate recently, and individual investors have obviously been eager to dig into the mobile gaming market as well.

Since wireless networks have been upgraded over the last several years to support mobile devices with data capabilities, color screens, and multimedia functions, mobile gaming and entertainment has been a growing focus for investors. Wireless service providers have found that customers are willing to pay to have entertainment-related applications on their phone or PDA. For this reason, most market research points to a mobile entertainment market growing in excess of 50% annually for the rest of the decade.

So is Jamdat Mobile worthy of such attention? Does the mobile gaming market really hold that much potential for investors? From this Fool's perspective the answer is yes and yes. Does this mean you should sell the farm and jump on Jamdat? No, not yet anyway.

Foolish investors know that IPOs, especially ones that fly out of the gate, are bastions of hype and extreme volatility. At the current price, Jamdat is valued at roughly $440 million -- high expectations for a company that shows six-month revenues of just over $15 million. But Jamdat has substance; it has turned a nice profit of $1 million in the first six months of 2004 and revenues are growing exponentially.

Jamdat also has strong industry backing -- the venture funds of Qualcomm(Nasdaq: QCOM), Sun Microsystems(Nasdaq: SUNW), and Intel(Nasdaq: INTC) all own sizable portions. The company is also well connected with carrier partners such as VerizonWireless(NYSE: VZ) and Sprint PCS(NYSE: FON), only two of the 70 carriers offering Jamdat products globally.

The bottom line: It's very early in this market and Jamdat has many challenges ahead, so look before you leap. However, mobile entertainment is precisely the type of market and risk that David Gardner likes to look in for his Rule Breaker stocks. Investors eager to find the next 10-bagger should keep a close eye on Jamdat and this sector.

Fool contributor Dave Mock is addicted to bowling on his mobile phone. He owns shares of Intel.

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