The Motley Fool would like to reassure our readers that reports of pigs flying over the skies of Boston this afternoon were completely false. Those were the four horsemen of the apocalypse. Don't be alarmed, however. Hell already froze over last week when the Red Sox beat the Yankees for the American League pennant.
Congratulations, Red Sox Nation. You're champions of the world. Enjoy it. Just be careful not to slip and hurt yourself when you're coming down off cloud nine.
In today's Motley Fool Take:
- Stay Off the Volatility Carousel
- Discussion Board of the Day: Best Travel Spots/Tips
- Garmin's Got the Goods
- Quote of Note
- Saucony Laces Up
- Is Verizon's Call Waiting?
- More on Fool.com Today
Stay Off the Volatility Carousel
A few weeks ago all of the brokers and market makers were coming to the confessional claiming that their earnings were down as a result of reduced trading and volatility in the stock market. Well, the last few weeks should have been quite a relief from the drought for Schwab
The most popular gauge for market volatility is the VIX, which measures the implied volatility of the Standard & Poor's 100 companies' puts and calls. But it's not the largest companies on the market where things have obviously heated up -- it's the little guys. Everyone's looking for "the Next Taser"
Over the last few weeks, we've seen some companies that have moved 40, 50, 60% or more in a single day, sometimes on no news, or on news of marginal importance. Tuesday, Mace
But Mace isn't alone. Travelzoo
Whereas the big movers on the markets had generally been in the 9-12% range over the last several months, routinely each day you'll find companies moving several times that amount. Wednesday, for example, aaiPharma
There is really nothing fundamental that suggests most of these violent moves are appropriate. The last time we saw an extended period of time where the most speculative companies on the market acted like this was just before the meltdown happened in 2000.
All I'm saying is that if the big moves up and down give you the impression that there is easy money floating around out there, put it out of your head. This is rank speculation, plain and simple, and a great number of people who feel pretty smart at this moment are going to get mauled when the carousel stops.
Bill Mann owns none of the companies mentioned in this story. He does think that the brokers are a little interesting, though. For true hidden gems, not traders' playthings, consider a free trial to the Motley Fool's Hidden Gems newsletter .
Discussion Board of the Day: Best Travel Spots/Tips
Pilates of the Caribbean? What do you think of cruising spa services? Which boats are worth sailing on? Have any cruising horror stories to share? All this and more -- in the Best Travel Spots/Tips discussion board. Only on Fool.com.
Garmin's Got the Goods
Quick, somebody pinch me.
That's always my first thought when a company goes almost exactly the way I thought it would. It's pretty rare that I put a strong endorsement on a stock, but Fools have seen me gushing about Garmin Ltd.
After seeing a lot of potential in pessimistically priced shares, Garmin's stock roared ahead in 2003, nearly tripling in 12 months. Still a solid company but pushing an excessive earnings multiple, I was hoping to see the stock back at a more reasonable valuation again to pick up more of the company. I got my chance earlier this year when it turned in less-than-stellar, but still solid, earnings. Shares then were available for a little more than $30.
Thanks to a good second quarter and blockbuster earnings released yesterday, shares now sell for north of $50. Garmin logged $193.6 million in revenue for its third quarter, an increase of 43% from the prior year. Earnings were $67.1 million, a 90% increase from last year. With foreign currency fluctuation factored out, Garmin earned $0.58 per share, knocking the socks off its previous guidance of $0.42 to $0.45 per share and impressing analysts.
One of few negatives from Garmin's last earnings release was a drop in its gross margins to the low 50% range, which had management concerned. This quarter showed improvement in this area, with gross margin kicking back up to 57.7%. Nothing makes me feel better than a team that spots "soft areas" of the business and then corrects them.
Going forward, Garmin is once again priced as a performer. Garmin has sustained 20%+ revenue growth for almost a decade and should be able to continue on this path, putting it in a stable growth category. Many investors are more comfortable in high growth investments such as Garmin or Starbucks
At a recent major wireless industry show, the floor was lined with companies promoting all sorts of GPS solutions for mobile consumers. There's certainly more opportunities out there for Garmin's products, and the company looks well positioned to capitalize on its share.
Fool contributor Dave Mock is not afraid to pull over and ask for directions when he's lost -- though if he owned a Garmin GPS, he could save himself the embarrassment. He owns shares of Garmin and Starbucks.
Quote of Note
"One person with a belief is equal to a force of 99 who have only interests." -- John Stuart Mill
Saucony Laces Up
Athletic footwear maker and Motley Fool Hidden Gems recommendation Saucony
Dilution aside, though, Saucony's overall profitability shows few signs of coming apart at the seams. The quarter's superb results were anything but an aberration, as can be seen from the company's year-to-date results, also reported Tuesday: Sales were up 26% year-on-year, generating net profit growth of 53% and about 37% growth in diluted earnings per share. Since the third-quarter growth rate exceeded the average growth over the past nine months, it appears that this company is gaining speed -- not slowing down -- as time jogs on. What's more, the third quarter's numbers actually carried a handicap -- $300,000 in extra legal fees incurred as part of the company's search for a buyer of this little cash-generating powerhouse.
Strengthening margins was one factor helping the company's earnings outpace revenue growth. Year-on-year, all of gross, operating, and net margins for the first three quarters of the year have increased. The bottom line result was a rise in the net margin from 6.6% to 8.0%.
Saucony now projects full-year 2004 profits of about $1.54 per diluted Class A share and about $1.69 per diluted Class B share. With both classes currently priced at approximately $23.30, that gives Saucony's shares forward P/E ratios of 15 and 14, respectively. Considering that for fiscal 2003, the two classes earned profits per diluted share of $1.26 and $1.38, yielding a year-on-year earnings growth rate of 22% for each (and PEGs of 0.68 and 0.64), both classes of Saucony stock appear to be quite attractively priced. They also carry a significant discount to the valuations attached to shares of competitors Reebok
Read more about these three sneaker sellers in:
Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.
Is Verizon's Call Waiting?
Today's press announcement, of course, emphasized the positive aspects in its headline, such as Verizon's 6.7% increase in overall sales to $18.2 billion and the 23% increase in wireless revenues alone. (In fact, Verizon Wireless contributed more than 40% of the company's total sales.) However, the company's third-quarter net income was flat, at $1.8 billion, or $0.64 per diluted share, after a $20 million, $0.01-per-share special item related to pension settlements.
Industrywide, stalwart telecom companies such as AT&T
Despite the increasing migration of just about everyone and their brother to broadband, even that is questionable as a growth vehicle, though Verizon showed some positive aspects in that regard, with a 52% increase in DSL subscriptions since this time last year.
However, it's still impossible to ignore the fact that cable companies such as Comcast
Other notes of interest included Verizon Wireless's low churn rate of 1.5%. The company's free cash flow decreased a bit compared with this time last year; on the other hand, it reduced its debt burden by 10.7% to $40.5 billion.
Although some may argue that now's the time to pick the future winners in the telecom industry, it's clear that it's still experiencing a massive amount of turmoil and competition. With some of the positive aspects of today's quarterly results, it's arguable that Verizon is one of the stronger players in the beleaguered industry, with its hold on wireless customers and its high-speed Internet offerings. However, given the current climate, the industry is enough to make anybody a bit skittish.
Alyce Lomax does not own shares of any of the companies mentioned. She gets her home broadband service from Verizon.
More on Fool.com Today
In Invest Like a Monster, Rick Munarriz asks: Which Hollywood creature do you resemble when you're nibbling at the market?... Is your financial advisor working for you? In Don't Be Financial Prey, Robert Brokamp offers three questions you should ask.... In Tom Gardner's Finding Baseball and Stock Opportunities, Moneyball author Michael Lewis explains the "mother of all inefficiencies."
In other news:
- The Call of Caffeine
- Steiner's Love Boat
- Daimler-Chrysler Waiting for Mercedes
- Skechers Misses a Step
For a list of all our stories from today, see our Today's Headlines page.