As many of you know, every year we put out a compendium of stock picks. This past year has been good to us; every selection in Stocks 2004 crossed the finish line in positive territory. That kind of steadiness is no easy feat with the ups and downs of the market, so we'll admit we're happy. But one year is only one year, and you're only as good as your last pick.

What will 2005 bring? Our Stocks 2005 product offers 12 new stock ideas that we hope will win over the long run. And you can get them in your hot, little hands right now.

In today's Motley Fool Take:

Is Priceline out of the Cold?


Seth Jayson (TMF Bent)

You know the online travel biz is changing when news of the breakup between a major air carrier and a major dot-com travel survivor fails to generate much interest on the Street. After all, we're talking about Priceline(Nasdaq: PCLN), a stock that can easily swing 10-12% in a single day. Don't believe me? Take a trip back in time to here and here.

Today, we found out that Priceline and Minnesota-based shuttle-to-the-tundra Northwest Airlines(Nasdaq: NWAC) would be parting ways more or less for keeps. Apparently, there was a dispute over distribution. Like many juicy divorce settlements, the details on this one remain confidential for now, but we do know that it's been quite a while since the firm sold Northwest tickets as part of its famous -- and increasingly irrelevant -- name-your-own-price model.

So why the lack of action? There are a few reasons. First off, Priceline management is confident that it can make up any Northwest losses with other airline bookings. But a more important factor is the paradigmatic shift that's crept through the online travel biz. Gone are the heady days when the original dot-coms made headlines simply by providing a clearinghouse for comparison-shopping. That's good news, because as time has passed, it's become increasingly easy for just about anyone to provide price comps.

Today's bargain hunters have their pick of dozens of price-trolling services, from to swappin' sardineTravelzoo(Nasdaq: TZOO). Where established outfits such as InterActive's(Nasdaq: IACI) Expedia, Sabre Holdings'(NYSE: TSG) Travelocity, and Cendant's(NYSE: CD) Orbitz stand to make their real dough is in providing full service and packages with handy add-ons such as hotel booking, cars, theater tickets, massages -- the whole trip. Ironically, they are thriving in part by mimicking the services of the human travel agents they helped make obsolete.

To judge by recent results, Priceline is doing a good job in this brave new world. Sometimes, no news is indeed good news. And the market's reaction to today's split looks like a prime example.

For related Foolishness:

Seth Jayson booked his last vacation through Expedia, 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.

Discussion Board of the Day: Vegetarian and Vegan Fools

Are you planning to avoid the holiday turkey and ham? What are the advantages and disadvantages to a meatless diet? Are you looking for some new recipes? Or would you just like to learn more? Discuss all of this and plenty of other topics in our Vegetarian and Vegan Fools discussion board. Only on

One Ripe Rule Breaker


Tim Beyers

Before you read on, let me get this on the record: I love Apple Computer(Nasdaq: AAPL). I love the company and I love its products. In fact, there's one PC in my house and three Macs, including the G4 PowerBook I'm using to write this story. (The PC, by the way, sits idle in a cabinet.)

I'm hardly the only one who loves Apple's products, of course. The iPod has become a cult icon in the same way the flat-screen iMac was when it first burst onto the scene. That's why I've taken a shining to the stock. Indeed, just last month fellow Fool Seth Jayson and I dueled over Apple's prospects, with me arguing that the firm is a Rule Breaker. In February, I wrote that the stock was a strong value pick for the year ahead.

I still believe Apple is a Rule Breaker, and I'm thrilled that my prediction from February was correct (though I wish I had profited from it). But Apple's stock has gone too far, too fast, and now appears poised for an awfully messy fall.

Yesterday the stock was up more than 6% on essentially nothing, and is up 72% since I defended the iEmpire in October!

Sure, three analysts upped their price targets and had nice things to say. One even propagated a rumor that Apple would soon release a new server for managing digital entertainment, a la Microsoft's(Nasdaq: MSFT) Windows Media Center. Yeah, OK, that's all well and good, but is any of this more than hot air? Probably not.

The worst part is that the stock now trades at a forward P/E of more than 40, well above Street growth estimates for 2005 and beyond. Yeah, I know, it's not like Apple hasn't defied logic before. That, after all, is what makes it a Rule Breaker. But even Motley Fool Rule Breakers chief analyst and Fool co-founder David Gardner has sold stocks he's seen go up too fast without proper justification.

Take Netflix(Nasdaq: NFLX), for example, a company David recommended Motley Fool Stock Advisor subscribers sell a year ago after racking up huge gains. Why? Too much, too soon. And Netflix ultimately did come back to earth. (And, as he said he might at the time of the sell recommendation, David has recently re-recommended Netflix to Stock Advisor subscribers at its new lower price.)

Fools, sometimes a stock is so good it's bad. So maybe it's simply time to call Apple what it is: ripe, and ready for picking. Wait too long, and this juicy stock will surely turn rotten.

For related Foolishness:

Fool contributor Tim Beyers has no position in any of the companies mentioned, but he sure wishes he had taken a bite of Apple in February. You can view Tim's Fool profile and other stock holdings here.

Quote of Note

"In taking revenge, a man is but even with his enemy; but in passing it over, he is superior." -- Sir Francis Bacon

An Earnings Pig-Out


W.D. Crotty

Pork producer Smithfield Foods(NYSE: SFD) is pigging out on what counts. Net income for the latest quarter rose a downright porky 61% from year-ago levels on a 32% gain in sales.

To the causal observer, Smithfield is a mishmash of variables. From prices on raw materials such as live hogs and grain to the retail prices for its meat products, there is a lot to consider. But this isn't a witch's brew.

The company recently added cattle feeding (beef is 16% of sales) to its business model. The goal is to produce profits in different economic conditions through vertical integration. High live cattle prices, which usually result in poor retail margins, will benefit the feeding business -- and vice-versa. In the countercyclical world of live versus processed meat, Smithfield's business model is aimed at dampening earnings volatility.

The countercyclical nature of the business is crystal clear in this quarter's pork results (75% of total sales). Hog production produced a profit of $3.4 million last year. Near-record live hog prices for this time of year produced a $98.2 million profit -- almost a 30-fold increase in profits! At retail, higher hog prices pressured retail pork profits, which fell from $42.5 million to $39.9 million.

Smithfield also knows how to manage assets. In 2003, it sold Schneider, one of Canada's largest food processing companies, for $378 million (nine times EBITDA). Then it acquired the sizable pork operations of bankrupt farmers co-operative Farmland for six times EBITDA. Farmland, which had $75 million in EBITDA in the year prior to the acquisition, earned $104 million in EBITDA during its first year with Smithfield.

Smithfield is hardly a perfect investment. Its 3.2% operating margin this quarter trails those at pork-fed competitor Hormel Foods(NYSE: HRL) and more broadly diversified Tyson Foods(NYSE: TSN). Compare that to the 17.9% margin at cash-rich and former Motley Fool Stock Advisor recommendation Sanderson Farms(Nasdaq: SAFM) -- or even the 11.0% and 8.5% margins at Gold Kist(Nasdaq: GKIS) and Pilgrim's Pride(NYSE: PPC) respectively -- and chicken looks like the king of white meat.

Also detracting from Smithfield's luster is nearly $1.9 billion in net debt (total debt minus cash). The saving grace is that Smithfield is selling for 13 times this year's estimated earnings. So, while the company is pigging out at profit's trough, the stock is reasonably priced for a company expected to grow earnings at low double-digit rates.

For additional pork related takes, click on:

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

Focus on Future Dividend Yields


Selena Maranjian (TMF Selena)

If you're interested in dividend-paying investments, good for you! Healthy dividend-paying companies can offer a bit of a cushion during market downturns. If the market heads south for a while, at least you'll keep receiving your dividends. (Of course a legitimate contrary take is that by eschewing dividend payers for non-dividend-paying fast-growers, you may end up making more money -- check out our Rule Breaker newsletter for some suggested stocks.)

Still, dividends have their place in many, if not most, portfolios. But don't just look for companies that are paying hefty dividends today. Here are two reasons why:

  • Sometimes, a very high dividend yield reflects not a generous company but one in trouble. That's because a stock's dividend yield rises as its stock price falls. It may be attractive, but if the company is really in trouble, that next dividend may never arrive. Companies try hard to never reduce or eliminate a dividend, but it sometimes happens.

  • Even if you find a strong company with a solid (but not over-the-top) dividend, it may not be your best bet. Ideally, you want a company that increases its dividend regularly. As Mathew Emmert describes in How to Achieve 20% Yields, when companies keep boosting their dividends, you can end up making a lot of money. (Take advantage of a free trial of his Income Investor newsletter.)

According to a recent Forbes magazine article, "Out of 12,000 stocks traded in the U.S., a mere 156 have raised dividends in every year of the last ten and have raised them at an average annual rate of at least 10%." The article went on to list some dividend payers held in high regard by money managers. Here are a few of their picks, with their recent dividend yields:

If you haven't considered adding dividend payers to your portfolio, you should do so. Learn more with these articles:

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson, Microsoft, and Pfizer.

More on Today

In 7 Ways to Retire, Bob Bobala offers up seven ways to get on easy street and stay there.... Charly Travers provides a quick screen for making winning picks in Picking Biotech's Winners.... Shannon Zimmerman offers a Champion Funds performance update in We're Beating the Market. Are You?... If your knee-jerk reaction to a negative opinion is to attack the source, your chance of investing success is reduced, Bill Mann says in Beware Confirmation Bias.... In the second part of his car show-inspired hunt for investment ideas, Where the Rubber Meets the (Virtual) Road, Jeff Hwang tosses up three video game publishers and a tire maker.... All dressed up and nowhere to invest? Try one of Wall Street's ugly ducklings. You just might find a swan, Tim Beyers says in How to Profit From Wall Street's Wallflowers.... In Click Here for a Free Credit Report, Dayana Yochim discusses a legit way to peek into your personal financial file.

In other news:

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