The market reacted passively to the advent of World War III today, hovering right around breakeven as the Yankees and Red Sox prepared for Game One of their league championship rematch tonight.

Will this be another devastating defeat for the Sox? One Fool, while still having panic attacks, thinks the Sox have made the right business moves to get over the top this year. Read the article, and then tell us who you think will win in our main page poll.

In today's Motley Fool Take:

Take It Away, J&J


Alyce Lomax (TMF Lomax)

Pharmaceutical and consumer products giant Johnson & Johnson(NYSE: JNJ) reported nice third-quarter earnings today. However, in the company's conference call, management admitted that next year will yield somewhat lower rates of top-line growth.

Third-quarter profit for Johnson & Johnson increased by 13% to $2.3 billion, or $0.78 per share, based in part on sales of prescription drugs. In addition, in its conference call, the company raised its outlook for the year based on the strong showing to $3.05 to $3.07 per share from $3.03 per share. Sales increased 10.5%, which includes currency impact of 2.8%.

Johnson & Johnson's strong suits in pharmaceuticals included such names as Risperdal, Duragesic, Topamax, Remicade, and Sporanox, among others. However, Duragesic, a pain patch, will soon face generic competition, and Procrit, for anemia, is already losing traction due to competition from Amgen(Nasdaq: AMGN).

Meanwhile, the stent wars, which we watched closely last year, continue. J&J said that sales of its Cypher stent slowed due to competitive pressures from rivals like Boston Scientific(NYSE: BSX). In fact, sales of the Cypher stent decreased by 37%.

Although investors gave Johnson & Johnson shares a lift earlier today on the short-term good news, it wouldn't be the first time hints of slowing growth and competitive concerns have appeared. Investors would do well to keep their eyes on the company's pipeline and what new products may be on the way to ensure that it continues to deliver sales and earnings growth.

However, for long-term investors, or those who invest the Income Investor way, there are lots of things to like about Johnson & Johnson, including its historic stability, dividends, and wide product portfolio that provides some insulation against the ups and downs of the economy. Even though Johnson & Johnson has had a pretty successful year, investors should still keep a careful eye on 2005.

For more thoughts on Johnson & Johnson, be sure to check out Mathew Emmert's piece from March, "J&J Prescribes Growth and Income."

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

Discussion Board of the Day: Online Banking

What about banking through the Internet? Are you comfortable pursuing higher rates and lower fees through the many online outfits? How safe is it? All this and more -- in the Online Banking discussion board. Only on

Cisco's Signal Is Fading


Nathan Parmelee

The thing I like most about SEC filings is that companies remove almost all the rah-rah that plagues earnings press releases. This is the case with Cisco Systems'(Nasdaq: CSCO) 10K filing, available at the SEC website for the past couple of weeks, and Cisco's fourth-quarter and year-end press release available at the company's website.

The press release is full of information about how much earnings grew and each financial record set. The SEC filing is just the facts and more of them. That said, Cisco did throw up some pretty impressive growth numbers last year. For the first time since 2001 sales growth was up for the year, and sales increased more briskly each quarter, concluding with a 26% gain for the fourth quarter and 16.8% for the year.

When taken alone that's impressive sales growth for a company of any size, let alone a titan such as Cisco. Ah, but when Cisco's sales are compared with accounts receivable and inventory growth, the story doesn't look as compelling. As seen in the table below, in every quarter last year accounts receivable and inventory grew faster than sales.

Quarterly Growth vs. Same Quarter 2003

Q4 Q3 Q2 Q1
Sales Growth 26% 21.7% 14.5% 5.3%
A/R Growth 35.1% 33.1% 84.3% 25.2%
Inv Growth 39% 48.8% 21.6% 8.3%

The most common causes of rapid accounts receivable growth are collection problems and giving customers generous terms in order to recognize sales. Neither should make you feel warm and fuzzy inside, though both are fixable if not allowed to get entirely out of control. What makes Cisco's case interesting is that the company has previously done a pretty good job here.

Inventory increasing faster than sales generally means that either the company made the wrong stuff or their sales forecast was overly ambitious. Again both are correctable if contained early enough, and Cisco has been burned here before.

Companies with abnormal accounts receivable and inventory growth often miss future earnings estimates, because sales that would have fallen into future periods were pulled forward, inventory gets written down, or the balance sheet becomes so bloated that the company can't respond to the demands of the marketplace.

In Cisco's case the balance sheet is still rock solid with $19 billion in cash. This allows Cisco flexibility that competitors Nortel(NYSE: NT), Lucent(NYSE: LU), and Juniper(Nasdaq: JNPR) can't match. However, analysts are expecting another year of robust growth from Cisco, and Cisco's forward P/E of 20 reflects those expectations. All this means that Cisco's 2005 isn't a cakewalk financially, and investors should keep a close eye on the balance sheet.

Fool contributor Nathan Parmelee does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.

Quote of Note

"I don't necessarily agree with everything I say." -- Marshall McLuhan

Apple Tempts Virgin


Seth Jayson (TMF Bent)

With the entry of Virgin Group's new MP3 player into the market, Apple(Nasdaq: AAPL) finally has some competition in the hype department. If there's any coddled billionaire who can out rock-star Steve Jobs, it's balloonist, spaceman, and rule-breaker Sir Richard Branson.

My opinion of Apple's stock notwithstanding, the portable player market has been Cupertino's to keep or lose since the launch of the iPod and mini. Competitors were slow to enter the business, and their products were universally clunky to operate as well as throw-me-out-of-the-nest ugly. Just take a look at offerings from Dell(Nasdaq: DELL), NEC's(Nasdaq: NIPNY) Packard Bell, and others. Creative Labs(Nasdaq: CREAF) and Rio have done better with their Muvo and Carbon players, but neither of these will benefit from the consumer cache of Virgin.

Perhaps there's something to be said for the importance of personality in designing these gadgets, because there's plenty to suggest that the rest of the competition doesn't quite get it yet. Sony's(NYSE: SNE) scattershot iPod attack includes players of multiple brands including the tired old Walkman moniker and the squishy computer tag, Vaio. Moreover, the firm is making the same prideful mistakes as Apple, supporting only its pet encoding scheme onboard, relying on software to translate MP3s or WMAs.

Branson's player -- named, of all things, "player" -- looks like one of the first designs that will be able to compete with the iPod on style. The tiny, 3.1-ounce player is slightly larger than the mini but lighter, and, at 5 gigs, it has 25% more disk space. It features a screen that is derivative of the iPod, to say the least. Virgin's ships with an FM tuner and will support Microsoft's(Nasdaq: MSFT) audio format with the "plays for sure" guarantee. You can bet Branson and crew will try to neutralize iTunes by capitalizing on the synergies available to them as a diversified music and communications business.

The moral of the story is that competition is coming for the iPod. And it's improving. The oft-mentioned iPod mini wait lists are not necessarily good. If Cupertino cannot deliver enough product (even the less sought-after iPod demands a one-month wait in some markets, according to an Apple store employee who emailed me from Germany), Apple will be leaving money on the table for Virgin and others to collect.

For related Foolishness:

Seth Jayson prefers to listen to Cheap Trick. At the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.

Viacom Getting Sirius?


Rick Aristotle Munarriz (TMF Edible)

Is Howard Stern's rowdy radio show becoming the next hot spot for stock trading tips? Last week he beat Sirius Satellite Radio(Nasdaq: SIRI) to the punch by announcing that the two would team up come 2006 to produce three channels of no-holds-barred content before Sirius could issue a press release to make it official.

Yet now some investors are dissecting comments that Stern made later, suggesting that his deal with Sirius didn't necessarily mean an end to his relationship with his friends at Viacom(NYSE: VIA).

That birthed two juicy rumors. The first was that former Viacom COO Mel Karmazin would be joining Sirius. That makes sense. He left Viacom four months ago, and while his name has been tossed around as a possible successor to Michael Eisner at Disney(NYSE: DIS), only Karmazin knows whether he is truly interested in the Mickey Mouse gig or whether he's willing to wait until next year for Disney's board to arrive at a decision.

The second rumor is a bit more radical. However, it was more widespread and had even the New York Post wondering whether Viacom would just flat-out acquire Sirius.

A merger would make sense on the most basic of levels. Viacom stands to lose the most with Stern's departure. It's not just that the show is highly rated in its syndicated markets; it's more dire than that. If Stern's switch to Sirius causes a migration away from free radio, Viacom's Infinity Broadcasting will be dealt a brutal blow.

Sirius and XM Satellite Radio(Nasdaq: XMSR) spent billions to get their protected satellite streaming services off the ground, so if a company wants a financial stake in this promising sector, it pretty much boils down to scooping up one or the other. However, each company is already valued in the billions, and that lucrative potential, plus recent investor enthusiasm, means it would probably cost billions more to close a deal.

So why is no one bringing up a third option? Come 2006, Sirius and Stern will need more than word-of-mouth to promote the show to those who have yet to subscribe. That's where Viacom's many cable properties like Spike TV, MTV, and Comedy Central make sense to keep Stern visible beyond the realm of satellite radio. What kind of deal is possible? Will it involve Viacom taking some of the money it made in unloading Blockbuster(NYSE: BBI) -- a cash cow with a bleak future -- and funneling it into a minority stake in Sirius, a cash drain with a bright future?

Perhaps. But Viacom swallowing Sirius whole? I don't think that Viacom can afford to be that hungry -- or that Sirius is that anxious to be served on a plate.

Longtime Fool contributor Rick Munarriz likes the move by Sirius in landing Stern and doesn't feel that it is overpaying for his services. He owns shares in Viacom and Disney.

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