Today, we could all sit back and feel pretty smug about our knowledge of the world. Ricky Williams told his lawyer that he isn't particularly interested in resuming his career as an NFL running back... shocker! Jason Giambi allegedly admitted he used steroids... huge surprise! Starbucks is selling more cups of coffee than ever... tell me something we hadn't already figured out while waiting 15 minutes to pick up our lattes.
So here are our predictions for tomorrow: Strong buys will outnumber strong sells on Wall Street by at least a 26-to-1 ratio. Paris Hilton will be linked "romantically" with some new boy toy. And General Franco will still be dead.
In today's Motley Fool Take:
- One Superstar Stock
- Discussion Board of the Day: Help with this STUPID Computer!
- Starbucks' Stunning November
- Quote of Note
- Disney Offers More Cheese
- A Discounted Tech Company
- More on Fool.com Today
One Superstar Stock
By
It's basketball season again, and while Lebron "King" James rules the hardwood, we're interested in companies crushing the market average.
When one thinks of steady stellar performers of the past six years, popular stocks such as eBay(Nasdaq: EBAY), Moody's(NYSE: MCO), and FedEx(NYSE: FDX) come to mind. And though not blessed with the catchy moniker of super performers Starbucks(Nasdaq: SBUX) and Pixar(Nasdaq: PIXR), a little-known entity with a snorer of a name is quietly doing its part to wallop the market average.
Since 1999, Corporate Executive Board's(Nasdaq: EXBD) stock has gained a reverse alley-oop to the tune of 600%. Its powerful display of free cash flow caught the eye of Tom Gardner and became an August 2002 recommendation in Motley Fool Stock Advisor. The stock pick didn't disappoint, continuing its "from the foul line" flight trajectory with a 139.1% return, compared with the S&P 500's 28.9% over the same period.
What does Tom Gardner think of the company now that it's priced at around $67? If you are a casual reader of The Motley Fool, take the opportunity to become more involved in this dynamic investing community. You'll be surprised at who may stop by to drop a message on the board of one of your favorite stocks. Recently, Tom posted his thoughts on Corporate Executive Board, where he contends the company still has market-beating potential for those with a long-term investing approach.
Let's take a closer look. From its most recent quarterly report, we find the company is continuing its strong growth. With quarterly revenues of $74.4 million and net income of $11.9 million, its year-over-year growth sits at 34.7% and 116.8%, respectively. And an important measure of its membership performance, its annualized contract value nine months ending, has risen to $270.5 million, a 30.2% increase compared with the same period a year ago.
While its growth continues its gravity-defying ways, how is its valuation holding up? With cash of $52.5 million and no long-term debt, Corporate Executive Board is currently tagged with an enterprise value (EV) of $2.5 billion. Accounting for its latest quarter, the company's trailing-12-month structural free cash flow (SFCF) stands at a healthy $50.4 million -- giving it a fully valued EV-to-SFCF of 49.6.
Much like NBA teams pay up to grab superstar hoopsters, investors too must face the same decision to pay a premium for top-notch performers. Don't let Corporate Executive Board's rich valuation scare you away -- even at this level, the company could continue its high-flying, market-beating ways.
Fool contributor Jeremy MacNealy owns no shares of companies mentioned.
Discussion Board of the Day: Help with this STUPID Computer!
Riding the wave of folks seeking answers on the Internet has been great for InfoSpace, but where do you find answers when it comes to your computer? Got spyware? Hate spam? Did you get a flu shot but forget to treat your computer's virus? All this and more -- in the Help with this STUPID Computer! discussion board. Only on Fool.com.
Starbucks' Stunning November
By
Alyce Lomax (TMF Lomax)No wonder the lines have been so darn long. (You obviously don't want to know me in the morning!) Citing, among other things, the popularity of its holiday offerings, Starbucks(Nasdaq: SBUX) delivered home-run same-store sales in November. This would normally be a big, fat yawner, given the coffeehouse's same-store sales traditions, except that Starbucks was facing an extremely tough comparison to last year's November sales. Deck the halls, indeed.
Sorry, Wal-Mart(NYSE: WMT). It seems that some of those shoppers that apparently didn't want to deal with you were sipping their seasonal Pumpkin Spice Lattes in peace. (Er, maybe it wasn't so peaceful, but in fact, a bit crowded.) On Black Friday, my own trip to an outlet mall found me in a drive-through Starbucks, which seemed to be doing a booming business.
Anyway, back to the issue at hand. Starbucks' November same-store sales increased by 13%, with revenues up 26% to $486 million. (Last November, Starbucks' same-store sales increased 11%, giving you an idea of how tough the comparison was.)
In its press announcement, the company credited its early holiday promotion, its Christmas Blend coffee, the continued popularity of its seasonal Pumpkin Spice Lattes, and growth in its fledgling music business for the "outstanding" results.
Another aspect that makes the November numbers less yawn-worthy has been a bit of nervousness about Starbucks lately. Some people, such as Fool contributor Jeff Hwang, have explored the idea of selling while the getting's good. September sales felt a little tepid compared with usual standards (even though they were still at the high end of management's long-term guidance). Last, judging by some reader feedback I received, recent word from Germany gave some pause, contemplating Starbucks' effectiveness in pushing its brand in certain European markets.
Last night's stunning same-store sales announcement likely assuaged some fears. It's pretty apparent that the $0.11 price hikes, as expected, did little to slow down Starbucks' customer traffic. And we might glean that Starbucks is a good destination for holiday shoppers looking for small gifty items like a bag of Christmas Blend or gift cards, or even a respite from shopping insanity. For now, it certainly looks like a shiny, happy holiday season is in store for Starbucks shareholders.
Alyce Lomax does not own shares of any of the companies mentioned, though she's one tough Starbucks' customer.
Quote of Note
"The undertaking of a new action brings new strength." -- Evenius
Disney Offers More Cheese
By
Rick Aristotle Munarriz (TMF Edible)If Mickey Mouse's pockets have some extra jingle next month, it's probably because Disney(NYSE: DIS) is giving investors a little more pocket change after it announced that it would be hiking its annual dividend by 17%.
At $0.24 a share, the new payout isn't going to find our Income Investor readers storming the castle. The stock will still be yielding less than 1%, and now that the Fed has hiked the federal funds rate four times this year, it's not as if the payout will rival high-yielding money market funds.
In fact, because Disney's shares have appreciated by just over 20% over the past year, it will actually have a lower yield now than it did a year ago.
But that's the point, isn't it? You're not buying a stock with a sub-1% yield to strike it rich from your dividend checks. It's a welcome bonus. It's a pat on the back for believing in the company. But naturally you would rather have a stock appreciate by 20% and dole out next to nothing than pay out a meaty 5% dividend and have its shares slide by 20%.
Total return is the name of the game. Yet in Disney's case in particular, the dividend hike seems to provide a comforting nod of continued improvement. After scoring record cash flow in fiscal 2004, the company has been comfortable projecting double-digit profit growth for the next few years.
Could Disney afford to open up its purse strings a little wider? Of course. It earned $1.12 a share last year. Yet earmarking the money coming in to pay down its debt, repurchase shares, and invest in its future will ultimately prove more rewarding than two-dozen pennies in your pocket.
If you need meatier payouts, then consider some winning picks of our Income Investor newsletter like Sara Lee(NYSE: SLE), H.J. Heinz(NYSE: HNZ), Pitney Bowes(NYSE: PBI), and ServiceMaster(NYSE: SVM). They all sport high yields and have also appreciated since being singled out in the monthly research publication.
That's not Disney. Mickey loves his Minnie dividend and that's just fine.
Longtime Fool contributor Rick Munarriz has been to all six of Disney's domestic theme parks this year, and even though he has owned shares of Disney since the 1980s, he has never counted on the dividend as a get-rich-quick scheme. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks today.
A Discounted Tech Company
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Rich SmithWhen you hear "tech stock," your first thought is probably "expensive." And that's generally the case. With stocks such as Travelzoo(Nasdaq: TZOO), Yahoo!(Nasdaq: YHOO), and Google(Nasdaq: GOOG) selling at triple-digit P/Es, it's certainly one pricey sector of the stock market.
But back up a minute and look at the tech sub-sector of semiconductor stocks. Motley Fool Stock Advisor pick Silicon Labs(Nasdaq: SLAB) is selling for a P/E of just 21, and industry standard Intel(Nasdaq: INTC) for just 20! Bargains? They look to be. And today, an even deeper discount appeared on this Fool's radar screen, in the form of chip design-software maker Synopsys'(Nasdaq: SNPS) fiscal 2004 earnings report.
Before we get to those numbers, let's look at the company's valuation. On the surface, with a P/E about halfway between Intel's and Silicon Labs's, it looks only about as cheap as the kinds of companies that use its software. But look deeper, Fool, and you'll see a company with an enterprise value-to-free cash flow ratio of just half its P/E.
Intrigued? Great -- we'll look at the specifics in a sec. But first, let's see why Mr. Market so hates Synopsys's stock. According to the earnings report, in comparison to 2003, fiscal 2004 was a rough one for Synopsys. Revenues declined 7% to $1.1 billion year-on-year. And profits declined by more than half, ending the year at just $0.45 per diluted share.
As bad as 2004 was, however, Synopsys's predictions for fiscal 2005 make 2004's results look like Utopia. The company expects revenues to continue to decline by about 13% over the next 12 months. And as for profits, they could go missing completely -- although in the best case, Synopsys thinks it can earn up to $0.11 a share. Interestingly, if Synopsys's predictions pan out, then by next year the company will almost certainly reach the lofty valuations of its tech counterparts -- the hard way. Earnings of $0.11 a share against a stock price that at yesterday's closing bell had reached $18.64 would give Synopsys a P/E of 169.
Of course, it's more likely that Synopsys's price will fall as its bleak near future comes to pass, dropping its valuation into the double-digits. While the stock would still look pricey at half its current market cap, any significant drop in price should perhaps be viewed as a buying opportunity. Here's why: Synopsys sports an enterprise value of just $2.2 billion, but even in this difficult year, it generated $221 million in free cash flow. What's more, it has about $600 million banked to help it weather the cyclical semiconductor storm. One day not far off, I'd wager, Synopsys, at an EV/FCF of less than 10, is going to look awfully cheap.
For more views on Synopsys, read:
- Flush Five to Survive
- Subscription Software Is Sweet
- The MoSys Synopsys: A Rip-Off
- Synopsys' Q2 Surprises
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.
More on Fool.com Today
The principles Tom Gardner used when recommending a company for Stocks 2005 can boost your own portfolio, and they're highlighted in 6 Signs of a Great Stock.... Find profit in the realm of low expectations, Sam Subramanian says in Stodgy Stocks Can Grow Your Portfolio.... Has Disney lost its touch, or is it just the pause that refreshes? Rick Munarriz finds out in When Quality Mattered.... Don't take the headlines too seriously, because they're long on facts, short on truth, and they just don't matter, Seth Jayson says in Of Bobbleheads and the Beast.
In other news:
For a list of all our stories from today, see our Today's Headlines page.
