Great Call on Marvel! What's Next?

 

 

Ahead of Monday's big buyout announcement, Marvel Entertainment's (NYSE: MVL) stock had collected well more than 3,500 outperform ratings from The Motley Fool's CAPS community.

There's little doubt why the community was so excited about the company. It controls more than 5,000 superheroes and villains (including the likes of Spider-Man and the X-Men), it delivers a huge return on shareholder equity, and just a few years back it launched a production studio to make its own movies.

While the collective opinion of the CAPS community wasn't quite high enough to earn Marvel a perfect five-star rating, there have been a lot of CAPS members who have racked up significant points by betting on this comic powerhouse. One is TMFMuse, who scored 167 points by picking Marvel to outperform back in May 2006.

TMFMuse is one of CAPS' All-Stars -- players with a rating of 80 or greater -- and has managed a stock-picking accuracy of 49% while racking up more than 1,000 points. Marvel isn't his only great call. Here's a look at a few of his other prescient picks:

Company	Date Picked	Date Ended	Call	Points	CAPS Rating (out of 5)
Green Mountain Coffee Roasters (Nasdaq: GMCR)	9/7/06	Still Open	Outperform	641	*
Netflix (Nasdaq: NFLX)	8/25/06	Still Open	Outperform	157	**
Chipotle Mexican Grill (NYSE: CMG)	11/17/08	Still Open	Outperform	70	***

Data from CAPS.

So what is this investor looking at these days? Here are a few of the most recent calls on CAPS:

Company	Date Picked	Call	CAPS Rating (out of 5)
Blackboard (Nasdaq: BBBB)	8/20/09	Outperform	***
Costco (Nasdaq: COST)	5/13/09	Outperform	****
Toyota (NYSE: TM)	5/13/09	Outperform	***

Data from CAPS.

While not all of these picks may pan out, they could be a good place to start further research. I decided to take a closer look at Toyota.

Puttering through the recession
There's nothing particularly impressive about the state of Toyota right now. Recession has taken the edge off the world's appetite to buy cars and has whacked Toyota's financial results.

When the company reported its first fiscal quarter in late June, it showed a near-40% drop in revenue and its bottom line swung from a profit to a sizable loss. The reduction in demand has been bad enough that the company decided to cut its capacity by 10%.

But let's not write Toyota off quite so fast. First off, remember that the auto business is cyclical and lean times are par for the course. The key issue -- as the hapless General Motors and Chrysler highlighted -- is whether the company has the financial wherewithal to survive the lean times.

While Toyota's balance sheet is hardly "spick and span," it does have a $33 billion cash hoard, which will come in very handy if we don't quickly pull out of this recession. It's also notable that though the company has been reporting losses since December 2008, it has produced positive cash flow from operations in the past two quarters.

And while it's hard to expect that "Cash for Clunkers" sales will turn the tides for the auto industry, Toyota claimed the crown for the most cars sold under the program, grabbing nearly 20% of total program sales.

While more than 3,000 CAPS members have rated Toyota's stock an outperformer, there have been enough detractors to keep the stock idled at a middling three-star rating. CAPS member torufii, one of the many Toyota bulls, weighed in last month with a tongue-in-cheek take on the auto industry's future:

It is hard to imagine that cars will be obsolete. The general concept of a mobile system is hard to take away, unless we find a totally different paradigm of mobility. It is not impossible but I would say the odds are low.

To take torufii's stance once step further, as long as autos continue to be the primary form of transportation, there will be plenty of customers for Toyota to sell to.

Wal-Mart Is No Amazon.com

Don't believe the headlines.

A recent upgrade at Wal-Mart's (NYSE: WMT) online shop has the financial press christening it the new Amazon.com (Nasdaq: AMZN).

Just check out some of the headlines.

• "Wal-Mart Pushes Deeper Into Amazon E-commerce Territory" -- San Francisco Business Times
• "Wal-Mart Stakes a Claim to Amazon's Turf " -- TheStreet.com
• "WalMart.com Bulks Up, Takes Aim at Amazon, eBay" -- All Things Digital

Given the challenges mentioned in these headlines, you might expect to see Amazon CEO Jeff Bezos quivering on the ground in a fetal position, his chattering teeth biting down on a first-generation Kindle.

Don't bet on it.

Let's analyze Wal-Mart's breakthrough announcement yesterday. The world's largest offline retailer is adding a million items to its site with the launch of "Walmart Marketplace."

It all sounds impressive, until you realize that Wal-Mart is simply listing the items of a few third-party retailers -- eBags, CSN Stores, and Dreams' (AMEX: DRJ) Pro Team -- to its own listings.

Orders will be placed through Walmart.com's checkout platform, but they then get routed to the individual retailers that are responsible for the fulfillment and support. So any shipping complaints, exchange requests, and general customer-service matters are out of Wal-Mart's hands. This is just a glorified drop shipment service.

Serving as a hub for third-party merchants isn't new, of course. Sellers can also set up shop on Yahoo!'s (Nasdaq: YHOO) hosted storefront solution or sell directly through eBay (Nasdaq: EBAY). Overstock.com (Nasdaq: OSTK) has a "Cars" tab on its site, but the page itself tells you that "Overstock.com does not operate this Web site or broker, sell, or lease motor vehicles." It is simply an information publisher powered by Zag.com.

Retailers can also reach out to customers on Amazon the Walmart Marketplace way, but the real convenience comes when third-party merchants truly hand Amazon the keys and let the leading online retailer warehouse their merchandise and handle all of the nitty-gritty stuff.

See, there are two things that Wal-Mart will have to do if it ever wants to compete with Amazon.com:

• It needs to roll up its sleeves and commit to fulfilling third-party orders.
• It needs to launch a clone of Amazon's Prime, with which shoppers pay $79 a year for free two-day shipping or deeply discounted overnight deliveries.

I don't think Wal-Mart has it in its DNA to compete. It may be a turnover tornado in the real world, but it's never made the commitment to truly compete in cyberspace. Walmart.com is popular, but mostly as an informational site for local shoppers.

Remember when Wal-Mart wanted to take on Netflix (Nasdaq: NFLX)? It didn't have the dedication to open the regional distribution centers necessary to take on Netflix, so it handed over its 100,000 subscribers.

That's what will happen here, too. Wal-Mart may add merchants, but doing so will prove to be confusing over time. A real-world shopper will wonder why he or she just can't place an eBags order and have it waiting at the local Wal-Mart for pickup an hour later. The tangled nature of the offerings will make it difficult to offer a consistent Prime knockoff.

As usual, Wal-Mart's heart is in the right place, but its feet are too timid to take the next logical step.

"Pushes deeper"? "Stakes a claim"? "Takes aim"?

Wake up, my headline-scribbling peers. If anything, Wal-Mart is further distancing itself from Amazon this week.

 

 

PetroChina Pumps Up Growth Plans

PetroChina (NYSE: PTR) may have been the reporting caboose among international oil companies, but it certainly wasn't bringing up the rear when it came to quarterly earnings.

For the first half of 2009, PetroChina's profits dropped 7.2% year over year, on a top line that plunged 25%. Yet the company actually increased second-quarter net income by more than 25%! At the same time, it disclosed ambitious plans for growth in refining and other areas, enabling the company to more effectively complete with international rivals such as ExxonMobil (NYSE: XOM), BP (NYSE: BP), and Chevron (NYSE: CVX).

For the first half of the year, PetroChina recorded a gain of $7.39 billion. It blamed the decline from last year, which was far less severe than those experienced by most other integrated companies, on collapsed oil prices and depressed domestic demand.

The company remains particularly successful on the natural gas front. During the six-month period, gas output increased by 10.6% to 1.2 trillion cubic feet. This double-digit growth in gas production is rapidly becoming a tradition at PetroChina.

In addition, the refining business generated a profit of CNY 17.19 billion, improving from an operating loss of CNY 59.02 billion last year. However, PetroChina's production of crude oil for the first half of 2009 declined to 417.7 million barrels, or 4.8% below the same period a year ago.

PetroChina has unveiled several plans to foster its growth, including acquiring a production sharing stake from its parent company, China National Petroleum Corp., in a Turkmenistan gas field. In addition, it plans to substantially increase its refining capacity by 2017, and it's seeking downstream acquisition opportunities internationally.

Chinese petroleum companies' results have been spotty during the most recent six-month reporting period. Refiner Sinopec (NYSE: SNP) unleashed record profits, while offshore operator CNOOC's (NYSE: CEO) results declined 55%. Nevertheless, if the government raises petroleum product prices (as expected), PetroChina could be looking at a very positive second half.

 

 

Blue Nile's Extreme Makeover

For its 10th birthday, what do you give the e-commerce site that has everything? If you're Blue Nile (Nasdaq: NILE), you indulge yourself with the first extreme makeover since your 1999 launch.

The upscale jeweler is beefing up its site, presumably in an effort to make it easier to use and more attractive to female shoppers. Among BlueNile.com's new features:

• Product images are now more than four times larger than they used to be, giving big-ticket buyers a healthier representation of what they're ordering.
• The "build your own ring" feature now sports a friendly user interface, more customizable features, and a visual representation of the ring as it is being built in the virtual shopping cart.
• Hovering the mouse over a product will generate a description bubble, keeping browsers on the same page instead of forcing users to click and go elsewhere for the detailed information.

This morning's Wall Street Journal claims that the changes aim to make the site more appealing to women. That's an odd goal. This isn't Lowe's (NYSE: LOW), which set itself apart from larger rival Home Depot (NYSE: HD) by toning down the sawdust and testosterone. Lowe's penchant for clean aisles, cheery associates, and well-lit stores eroded Home Depot's market share back when the going was good, before the housing bubble burst.

Does Blue Nile really have to play the gender card? Most fine-jewelry customers are men shopping for their wives, girlfriends, or, uh, people who are not wives or girlfriends. Does Blue Nile really need to impress the ladies with high-res snapshots?

Blue Nile seems to think so. It feels that a slicker site will enhance its brand. There may not be much of a difference between a diamond ring from Tiffany (NYSE: TIF) and one from a rival real-world jeweler, but there's prestige in that Tiffany box.

Blue Nile also needs to keep an eye on rival online discounters. It doesn't necessarily compete for business with auctioneer Bidz.com (Nasdaq: BIDZ) or most of Amazon.com's (Nasdaq: AMZN) offerings, but if a discounter comes up with an engaging tweak to the selling process, Blue Nile has to pay attention or seem behind the times.

Any makeover is risky, but Blue Nile is smart enough to mix things up during the seasonally sleepy part of the year. It's also shrewd timing to break out the makeover at a time when the jewelry market is in a funk. When the economy does bounce back -- and with it, shoppers' appetite for shiny new jewelry -- Blue Nile will be sitting on a spruced-up site that's already been broken in.

Blue Nile's giving itself a makeover that may not pay off right away. But for a 10-year-old, it's surprisingly patient.

 

 

Another Sign of Life in the Oil Sands

 

 

About a week ago, Imperial Oil signaled that all was not stalled in Canada's oil sands. Yesterday, a fresh face joined the fray.

PetroChina (NYSE: PTR) announced that it's taking a 60% interest in two projects controlled by privately held Athabasca Oil Sands. The price tag? A touch more than $1.7 billion.

This is hardly China's first brush with bitumen. Back in 2005, CNOOC (NYSE: CEO) bought a chunk of MEG Energy, and Sinopec (NYSE: SNP) more recently took a 50% stake in Total's (NYSE: TOT) Northern Lights project. PetroChina itself has tried to secure Canadian heavy crude supply, though it dropped its commitment to Enbridge's (NYSE: ENB) Northern Gateway pipeline project in 2007.

It will be interesting to see whether the Canadian government clears this deal. Like the Unocal flap here in the United States, in which CNOOC was rebuffed and Chevron (NYSE: CVX) kept key assets in domestic hands, Canada may play the protectionist card as well. One fund manager told me he suspects the merger between Suncor Energy (NYSE: SU) and Petro-Canada was motivated by fears of the former slipping into foreign hands.

With Mexican production looking perilous, Canada will likely become an increasingly important source of incremental crude supply for the United States. I wouldn't be surprised if Alberta receives some sharply worded phone calls from area code 202 (Washington).

As for the Chinese, this move follows a series of similar pushes into regions ranging from West Africa to the Middle East. The country is taking energy security matters very seriously and is systematically strengthening its import supply by the day.

This Is Why AIG Is Up? Really?

 

By now, you've probably seen your fair share of articles on AIG's (NYSE: AIG) speculative run. Although no one is certain how effective AIG's underlying business remains, how much coming asset sales will net the company, or how much damage its remaining asset-backed securities will wreak, the stock continues to plow upward. The chief reasons cited for its recent run-up include:

• Confidence that former MetLife (NYSE: MET) CEO Robert Benmosche can use his expertise to turn the company around.
• Short-sellers being squeezed out of their positions as AIG continues its upward trend.
• A vague comment from Benmosche that the company will be able to pay back the government and that he "hope[s] we will be able to do something for our shareholders as well." At this point I should note that Benmosche has only been the CEO of AIG for mere weeks, and has been on vacation for most of that time. Not that I'm trying to take a cheap shot at him for the vacation (OK, maybe just a little), but it's pretty clear he has little knowledge of the complexities inherent in AIG repaying the government, or the status of its complicated balance sheet. Effectively, all this means his words should carry little to no value.

But here's the really absurd part
However, I don’t want to deconstruct the horrid financials underlying AIG's business -- I'll let resident financials expert Morgan Housel do that. What I am more upset about is another reason being tossed around for AIG's recent upward trend: a possible reconciliation with former CEO Hank Greenberg. 

Most reports on Greenberg will breezily introduce him as having built AIG into the indomitable insurance giant it was earlier in the decade. Yet, as much as Greenberg has worked PR channels to define himself as a steady force within the company during his tenure, a man who worked to keep risk exposure down, I don't buy it.

In a Washington Post series detailing the company's downfall, Greenberg said he kept its financial products division, which was the one writing the destructive credit default swaps, under tight control. In fact, he went so far as to say his research shows the company had only written $7 billion in swaps on subprime CDOs (collateralized debt obligations) during his tenure.

Balderdash
However, reality begs to differ with Hank Greenberg. According to statements from risk-monger Joe Cassano's lawyer, AIG exited the mortgage underwriting business in late 2005, mere months after Greenberg's departure. While Cassano's lawyer might not be the ideal source for reliable information on who's to blame for AIG's collapse, company spokesman Nicholas Ashooh endorsed his statement by saying, "About half [of the swaps on subprime CDOs] had been issued before Greenberg's ouster."

While Greenberg deserves some credit for building AIG over his long tenure, the facts speak for themselves, and his final legacy is one of failure: He enabled the division that sunk the company. As a central figure in its collapse, why is there any reason to cheer his coming back?

Final thoughts
As much as Fools debate the merits of run-ups in Bank of America (NYSE: BAC) and other financial stocks like Wells Fargo (NYSE: WFC) and Goldman Sachs (NYSE: GS), AIG is in a speculative league of its own. For example, while Bank of America took out $45 billion in government funds, it hasn't had to shed core businesses, or take in as much dilutive government funding as AIG. 

Ultimately, AIG has a lot in common with majority government-owned buddy Citigroup (NYSE: C). They're both practically impossible to value and face huge dilutive aspects. Yet, while both stocks have been trading manically in recent weeks, the events causing AIG's price bumps are too bizarre and insignificant to take seriously. Would Citigroup suddenly shoot up in price if its equally blameworthy former CEO, Chuck Prince, came back?

Could the stock still be a screaming buy? Well, I suppose stranger things have happened, but there have been almost zero material changes in the company to justify its recent surge. If investors are so hungry for any shred of good news from AIG that they'll wildly bid up shares on the return of a fallen CEO, then I fear for those jumping into this game of musical chairs. AIG's riding a wave of general optimism and risk-hungry investors looking to earn back losses in a hurry, but I fear for the investor left holding the bag when it becomes clear there’s nothing but hot air in this stock's sails.

 

Dell Wants to Be Cisco

The data center is confusing these days.

First, software vendor Oracle (Nasdaq: ORCL) decided to buy servers-and-software seller Sun Microsystems (Nasdaq: JAVA). Then, networking giant Cisco (Nasdaq: CSCO) announced a server platform of its own. And now server supplier Dell (Nasdaq: DELL) is reaching right back -- the company will sell Dell-branded networking gear for the enterprise data center.

The rebadged hardware comes from Brocade Communications Systems (Nasdaq: BRCD), and is designed to boost the performance of large clusters of virtual machines.

I've been out of corporate data centers since quitting my computer-support day job to become a full-time Fool three years ago. For a while, I could have gone back with hardly a hiccup -- but enterprise computing is changing so fast right now that the next computing hub I see might feel as alien as a breakfast on Saturn.

Virtual computing has taken off like a rocket, led by pioneer VMware (NYSE: VMW) and me-too wannabe Microsoft (Nasdaq: MSFT). In turn, that lift-off fuels the cloud computing revolution. A traditional server rack could house maybe a dozen production-class servers on a good day. With today's virtual machines and blade servers, the same rack could be home to hundreds of servers.

Both Cisco and Dell are attacking the new complexities of this ultra-dense environment, each starting from their own areas of expertise and co-opting the other's market. And it makes no sense to me. I'd rather see a tight-knit partnership between each industry's leaders, such as Dell and Cisco co-selling each other's solutions or even putting both names on a co-branded line of end-to-end equipment.

Even better, Cisco could take Sun's server division off Oracle's hands. That would give Cisco the larger data-center footprint it clearly craves while preserving whatever value may be left in Sun's once-dominant brand name. I'd be surprised to see this happen, of course -- but that deal would actually make sense. The only real winner in today's cross-sector deal would be Brocade, because it's always nice for a small hardware provider to win another distribution channel.

 

 

Will Baker Hughes Jump-Start Oil Patch Acquisitions?

 

On Monday morning, with Mr. Market feeling glum, even the announcement that oilfield services company Baker Hughes (NYSE: BHI) intended to buy its former spinoff BJ Services (NYSE: BJS) for $5.5 billion couldn't turn the mood around.

BJ's shareholders will receive about a 16% premium over what the company's shares closed at last Friday. Specifically, they will get 0.40035 shares of Houston-based Baker Hughes, along with $2.69 in cash for each share of BJ held. Once the acquisition is completed, BJ Services stockholders will hold about 27.5% of Baker Hughes shares. Baker Hughes has forecast $75 million in annual cost savings for 2010 and twice that amount in 2011. The combination is expected to add to Baker Hughes' earnings that same year.

I wouldn't be at all surprised if this first major services combination of 2009 weren't simply the initial shot out of the gun for other purchases in the oilfield services group.

But the key for now is the "fit" between Baker and BJ and the "why" of the merger. From my perspective, the key is the increased integration that BJ's pressure pumping operation affords to Baker Hughes, an area that it currently can't really offer, but the two largest oilfield service companies, Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), can. 

Indeed, last year pressure pumping represented a minuscule 1% of Baker Hughes' business. But after the companies merge, that relative weighting should increase to about 20%. Besides allowing Baker Hughes to compete for projects that require pressure pumping, one additional result should be an increase with which Baker is able to garner contracts from the operators that want to see one company handle a project from beginning to end.

In the meantime, I'm inclined to suggest that Fools watch Baker Hughes very carefully. I won't admit to the number of years I've followed the company, but it has typically been a top-notch organization. I only see that categorization improving with its new acquisition.

 

Boeing Crashes, CEO Burns

 

Boeing (NYSE: BA) just ousted the man who bungled the 787. I suppose I should be happy. I'm not.

As a Boeing shareholder myself, I've railed for months over the company's inexplicable (and indefensible) inability to come to a fair agreement with its workers. I've warned of the company's looming cash crisis. Criticized management's failure to execute. Blasted the firm for its failure to keep its promises. And now the man responsible for this mess -- Boeing Commercial Airplanes (BCA) CEO Scott Carson -- is getting the boot.

Good news, right? Well, maybe it is, in a sense. Over his 40-plus years at Boeing, Carson has had his share of successes and failures. He proved an incredible salesman, selling nearly 1000 Dreamliners to customers around the globe while heading up the sales force from 2004 to 2006.

But once charged with actually building the thing, Carson dropped the ball. Delta (NYSE: DAL), Continental (NYSE: CAL), AMR (NYSE: AMR) -- all these customers and more stepped up to the plate and offered to deliver Boeing a home run. Their reward has been two years of delays and excuses. Similarly, suppliers Honeywell (NYSE: HON), United Tech (NYSE: UTX), Spirit AeroSystems (NYSE: SPR) and others have been left twiddling their thumbs, waiting on Boeing, which failed to get its house in order.

And now Carson's gone. Allegedly, he left of his own accord (Boeing praised Carson for his "long record of accomplishment" and described the departure as a voluntary "retirement"). But as Fool member memoandstich quipped last night: "no one wants to retire before the most ambitious commercial project is completed ... unless you fear you'll never be able to retire."

I agree. Carson got the boot.

And we got  ...
... Boeing Integrated Defense Solutions boss Jim Albaugh, who will move over to run BCA in Carson's stead.

Now, you can argue that this is an improvement. Albaugh's defense unit has done a fine job navigating the new Pentagon world order in recent months. Faced with defense program cuts here at home, he's fought tooth and nail to shoehorn Boeing's F/A-18 Super Hornet into the Navy's budget, and helped open the Indian market to Boeing defense products as well.

Choose your babysitter wisely
But here at the Fool, our memories are longer than that. Albaugh headed Boeing IDS, and was allegedly involved (a charge he disputes) in Boeing's 2003 tanker-leasing scandal, which ended up costing the company millions in fines paid to the government -- and no leasing contract.

In Round 2 of the tanker saga, he came within a whisker of handing the KC-X contract to its archrival last year. Albaugh's fumble landed the company in the middle of an expensive PR war with Northrop Grumman, costing the company additional millions, achieving nothing more than a stalemate and ... so far, again resulting in no contract win.

Now, maybe Carson didn't do the best job raising the 787 from infancy to adulthood, but he's spent five years living, eating, and breathing this project. There's no one who knows it better. Yet now, Boeing's decided to take away Carson's baby and give it to Albaugh.

I have to admit, Fools, that while I agree a change was in order, I'm not sure this is the right one. Putting Albaugh in charge of the 787 is like hiring Octomom to watch your kids.

A better choice
But assuming Carson has to go -- that he's lost control of the program (and he has), and that investors have lost faith in him (which we have), then who is the right man for the job?

The short answer is: "I don't know." I don't have access to Boeing's HR records. I don't know who's in the lineup. But I'll tell you this, if it were up to me, I'd suggest Boeing hire somebody like Tom Buffenbarger to run the 787 program. The president of Boeing's International Association of Machinists and Aerospace Workers (IAM) has made a lot of noise about how, if Boeing would only let the union do its job, everything would go swimmingly at the 787 program.

So give someone like Buffenbarger a chance to put up or shut up. Pick a genius from the management ranks to serve as his lieutenant, identify the problems, and handle the actual work of fixing them. But give the union a figurehead to rally around and get the 787 done right.

Simply put, if Boeing wants to get the 787 program back on track, hiring Octomom shouldn't even be on the table. It's time to change the game. Is this scenario horribly unlikely? Sure, but it's time to swing for the fences.

Is now the time to take a gamble and buy Boeing? On Fool.com, we report, but at Motley Fool CAPS you decide. Click on over and tell us what you think.

 

How Cheap Is Apple, Really?

 

 

Apple (Nasdaq: AAPL) is trading for 30 times trailing earnings. Some would argue that this makes the gadget guru an entirely unsuitable investment vehicle. Others like to point out the flaws of the P/E valuation metric, and blithely buy the stock anyway. Fellow Fool Tim Beyers argues that the company is cheaper than you think. Tim is a genius, but this time, I think he's wrong.

Let's have a closer look at Apple, and compare and contrast it to the competition:

Company	EV/FCF	LTM P/E	Forward P/E	PEG
Apple	12.4	29.6	25.1	1.7
International Business Machines (NYSE: IBM)	10.8	12.7	11.2	1.2
Microsoft (Nasdaq: MSFT)	12.3	15.2	12.9	1.5
Google (Nasdaq: GOOG)	18.6	32.5	19.1	1.2
Dell (Nasdaq: DELL)	10.1	14.6	12.1	1.6
Hewlett-Packard (NYSE: HPQ)	11.7	15.1	10.6	1.2
Garmin (Nasdaq: GRMN)	4.7	11.2	13.4	1.0

Data from Capital IQ (a division of Standard & Poor's) and Yahoo! Finance. Data current as of Aug. 26.

Price to earnings
All sorts of P/E ratios will make Apple look bad here. On a trailing basis, only Google looks more expensive -- but then again, who wants to base investment decisions on an accounting metric that is prone to manipulation and paints an incomplete picture? When you use forward estimates instead, in order to iron out some of the inconsistencies, Apple becomes the priciest stock of the whole bunch.

Of course, analysts have a tendency to underestimate Apple's growth -- the company has never missed an analyst consensus target since Thomson started tracking estimates for Apple. For that reason, I tend to knock a couple of points off whenever I'm thinking about Apple's forward P/E figures. But it'd take at least six bonus points to dive below Google's supposedly pricey valuation, and much more to reach the industry average. Yep, Apple looks expensive on a price-to-earnings basis, any way you wrangle the numbers. Let's move on.

The Fool Ratio
The same dynamics play into the price-to-earnings-to-growth ratio as well. Apple comes out looking expensive thanks to stingy forecasts and tricky earnings accounting. Google and IBM start to smell like roses, and Garmin might even be on sale at a discount.

As beloved as the PEG ratio has been in Fooldom -- heck we sometimes call it the Fool Ratio -- this metric has shortcomings of its own. Like the P/E, it's useful as a starting point before diving deeper, but it's not a silver bullet to cure valuation lunacy. Also, Apple's accounting for iPhone sales means that its revenue isn't fully realized in the quarter the phones are sold. Instead, the company recognizes revenue and cost of goods sold across each phone's estimated 24-month lifespan. So earnings simply don't tell the whole story here. Fair enough. Let's try a measure that backs out these accounting effects.

Break out the cash flows!
OK, now we're talking. If the proper value of a given company equals discounted future cash flows, it follows that any quick-and-dirty metric worth its salt should depend on the company's powers of cash generation. Also, we account for Apple's large cash hoard by using its enterprise value instead of its market cap.

From this angle, Apple is a superstar. Apple pulled in $10.3 billion of free cash flow over the last 12 months. That's about five times Dell's respectable cash bonanza, and nearly twice the cash mighty Google created. Heck, Apple even beats tech giant HP.

But Apple is also considerably more expensive than most of these high-tech peers. Looking over the cash flow metrics in the table above, Apple comes out looking fairly valued at best, and a bargain only if you put it next to Google. That's sort of like bringing an ugly friend along on a date, just to make yourself look better. In fact, if you're looking for an affordable gadget designer, Garmin might be your best bet. The company's lowly cash flow multiple likely results from poor growth projections as smartphones encroach upon its GPS-navigation turf.

It all boils down to growth
We've examined Apple from four different angles, and found its valuation relative to its peers lacking every time. Clearly, the market expects Apple's growth engine to remain far more revved-up than competitors'. So if you own this stock, you'd better have a firm conviction that the company will grow fast enough to leave analyst expectations eating dust for years to come.

Will the iPhone still be a hit in 2013? Can the Mac steal any more market share from Microsoft's PC hegemony? Is the iTunes-iPod symbiosis immune to new upstarts and counterattacks from a resurgent old-line music industry? For today's share price to make any sense, the answer to all of these questions must be a resounding "Heck yes!" I don't think it'd be good enough if one or two of those dream scenarios play out, and not even Babe Ruth expected a home run on every swing.

Could Apple succeed on every front? Sure. Will it? Highly doubtful. For one thing, Apple's absolutely crushing the high-end market for computers. NPD reports that it has more than a 90% market share on computers costing more than $1,000. To Apple's credit, this is an amazing statistic, but it also limits the growth of its computing business. 

In addition, we're starting to see the iPod sales slowing down as iPhones and other convergence devices with built-in MP3 players take their place. The rise of the iPhone has been impressive by all measures, but its ascent will most likely be paired with continued declines in iPod sales. Finally, Apple's forthcoming rumored tablet will probably be the hardest sell of its recent "game-changing" products. I wish Apple all the best in its efforts, but persuading consumers to buy what will probably amount to an eReader/oversized iPhone will be a much tougher job than storming the MP3 player market ever was.

If I owned any Apple stock, I'd sell today and lock in some profits -- because these prices can't last.

5 Reasons to Love Marvell

 

 

Some company names seem based on a true story. Case in point: Marvell Technology Group (Nasdaq: MRVL).

Marvell's second quarter was indeed a marvel. Sales jumped 23% from last quarter but fell 24% year over year for a total of $641 million. GAAP earnings landed at $0.09 per share -- down from $0.11 per share a year ago but way better than last quarter's $0.18 loss per share.

So far, so blah, right? But Marvell's cash flow and gross margin performances shine a whole new light on the situation: The GAAP gross margin widened from 51.8% last year to 55% this time. If Marvell can keep this pricing power while re-growing sales, the bottom line will multiply like an unsupervised rabbit colony. And I see no reason why Marvell would give up its grossly profitable new habit, now that the company has gotten a taste of it.

And Marvell's free cash flow increased 6% over last year's pre-crash period to $182.3 million. For those of you playing along at home, that's a 27.4% FCF margin, and represents an astonishing 26% sequential increase. The new level makes Marvell a more efficient cash machine than proven cash kings like Cisco Systems (Nasdaq: CSCO) and Microsoft (Nasdaq: MSFT), and within shouting distance of Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG). This achievement is particularly impressive when you consider that some of these cash-generating machines are software companies or Internet services, with low overhead and manufacturing costs.

And Marvell isn't done yet. The company has a finger in lots of tasty pies:

• Marvell is a leader in solid-state drive controllers and will benefit as that nascent market matures.
• The SheevaPlug AC-adapter-sized computer platform promises to open whole new markets in media servers, storage networks, and other new, cheap, exciting technologies for the modern home. Marvell management can't disclose any partners yet, but OEM developer interest is "expanding at a viral rate." That's a term normally reserved for YouTube videos of dancing cats.
• Wireless networking continues to explode, now in sectors like wireless printers and enterprise networks, and Marvell can sling an 802.11n networking chip just as well as Atheros (Nasdaq: ATHR) or Broadcom (Nasdaq: BRCM).

If only one of these markets lives up to its promise, Marvell should do fine. And all three look ready to emerge.

Three markets and two stellar metrics make five good reasons to love Marvell. This is a respectable four-star CAPS stock, but I think it deserves a fifth star to match those opportunities. Send an "outperform" rating Marvell's way today, and justice will be done. Or give Marvell a thumbs-down rating if you think I'm wrong.

Dell Looks Like a Winner Again

 

Rumors of a dying Dell (Nasdaq: DELL) were greatly exaggerated.

The computer wrangler just shocked the Street with stronger second-quarter results than expected -- and an early release of the information. Earnings fell 23% to $0.24 and sales swooned 22%, or $12.8 billion, as compared to the year-ago quarter. But revenue, unit shipments, and earnings all improved from the previous quarter, and Dell saw $1.1 billion of operating cash flow.

Third-party reports that Dell's consumer division wasn't moving units turned out to be mistaken, that segment saw 17% higher unit volumes than last year and only 9% lower dollar sales, which beats market leader Hewlett-Packard's (NYSE: HPQ) performance. In fact, consumer systems turned out to be Dell's strongest division this time.

Corporate accounts, large and small, still seem to be holding back on their IT infrastructure buys. If they're just waiting for Microsoft (Nasdaq: MSFT) to release Windows 7, that pent-up demand should turn into torrential sales once each company puts the new platform through its testing procedures. But fiscal issues also play into that equation, of course. I don't expect Citigroup to build out its data centers anytime soon, for example, and small businesses that use a lot of Dell's systems have been pushed to the brink of extinction by this recession.

So the road to recovery for corporate accounts could very well be much longer than for the consumer business -- with or without Microsoft's help. Government sales are holding up much better than the business-to-business sales. That's how Dell sees the markets playing out this fall, and I concur.

Dell's stock jumped about 14% between 3:30 yesterday and today’s opening, including a 7% pop in the minutes between Dell sharing the information prematurely and yesterday's market close. However, the stock has since settled at around $16 a share, still a tidy gain. All told, Dell has just about doubled since bottoming out in March, keeping pace even with bitter rival and habitual growth champion Apple (Nasdaq: AAPL).

Dell will certainly survive, and is still an amazing cash machine -- but are these results enough to make you want to buy the stock today? Some winners just keep winning, you know. Share your thoughts in the comments box below.

 

Eye on Insiders: Yahoo!

 

Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.

Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Have a look at Yahoo! (Nasdaq: YHOO) over the past year.

Insider Rating	Bearish Many sales at prices below where the stock trades for presently. Buys at levels well below where the stock trades for today.
Business Description	An early pioneer in Web search, Yahoo! may have already seen its best days, at least in many investors' opinions.
Recent Price	$14.93
CAPS Stars (out of 5)	**
Percentage of Shares Owned by Insiders	9.34%
Net Buying (Selling)*	$66.9 million
Last Buyer (% Increase)	John Chapple, director 6,000 shares at $12.07 apiece on Feb. 18 (Purchase bolstered direct holdings by 42%)
Last Seller (% Decrease)	Michael John Callahan, EVP and general counsel 20,000 shares at $14.63 apiece on Aug. 7 (Sale represented 7% of remaining direct holdings)
Competitors	Google (Nasdaq: GOOG) Time Warner (NYSE: TWX)
CAPS Members Bullish on YHOO Also Bullish on	Apple (Nasdaq: AAPL)
CAPS Members Bearish on YHOO Also Bearish on	Microsoft (Nasdaq: MSFT)
Recent Foolish Coverage of YHOO	The Next Leap Forward in Search The Slap Heard 'Round the World Yahoo!'s Arabian Bet

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Aug. 28.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times, they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Bearish
CAPS investors have been skeptical of Yahoo! for a while now, granting the search laggard just two out of five stars over the past year. I've been a skeptic, too. When my editors asked which stock I'd name the most frightening for last year's Halloween special, I chose Yahoo!.

I'm not alone. Investors seem to think of Yahoo! as they do eBay (Nasdaq: EBAY) or Overstock.com (Nasdaq: OSTK): once-sexy dot com businesses that have long since lost their sizzle. This is especially true of Yahoo!, which may as well have gutted itself when it asked Microsoft and Bing to take over the heavy lifting in its search business.

Social search is still a possibility, sure, but few Fools seem confident. "If it wasn't for Yahoo! Finance I would have forgotten all about them," wrote CAPS investor sempire in a bearish pitch from earlier this month. "Sure, Yahoo! was great in the 90's, and Yahoo! mail was a great solution to Hotmail, but now is Yahoo! even relevant?"

No Yahoo! insider would ever say that about their business. Not on the record, at least. Nevertheless, the action looks very bearish to me. Carl Icahn was responsible for the vast majority of the buying, and at prices lower than we're seeing today. The sellers, meanwhile, have also sold at lower prices than we're seeing today, a combination that suggests lower prices are still ahead.

But that's also just my take. Do you agree? Disagree? Log into CAPS today and tell us how you would rate Yahoo!.

 

The Bell Tolls for the Housing Crisis

I can just hear housing optimists singing this rendition of Handel's "Messiah" after Toll Brothers (NYSE: TOL) CEO Bob Toll's remarks in recent weeks. Luxury homebuyers are purportedly easing back into the market. With more new deposits, fewer cancellations, and cutbacks on incentives and price reductions, is it possible we've already hit bottom? Mr. Toll certainly thinks we have.

Toll Brothers' fiscal third-quarter results weren't exactly pretty. Non-cash writedowns and big deferred tax asset valuation allowances did some damage, but the company should get some of it back in future years.

Toll Brothers lost $472.3 million, or $2.93 per share, in its third quarter, versus analyst estimates of a loss of $1.79. That compares with a loss of $29.3 million, or $0.18 per share, in the same period last year. Revenues were down 42% to $461.1 million, and home deliveries fell 36% to 792 units.

Finally
Still, the report supported Mr. Toll's preliminary reports two weeks ago of higher year-over-year order volume. The release gives a glimmer of hope for a market niche that has seen its share of suffering. If true, the allegations that home buying is on its way back could mean better results for builders like the ones mentioned below.

Company	Avg. Home Price (MRQ)	Profit Margin (TTM)
Toll Brothers	$535,000	(12.2%)
D.R. Horton  (NYSE: DHI)	$211,000	(25.2%)
KB Home  (NYSE: KBH)	$216,000	(25.7%)
Pulte Homes  (NYSE: PHM)	$261,000	(29.6%)
Lennar  (NYSE: LEN)	$251,000	(30.5%)

Sources: Individual company press releases, Yahoo! Finance. MRQ = most recent quarter. TTM = trailing 12 months.

But before you break out the choir robes and caviar, remember that the broader economy still has a few hurdles to jump.

Stormy waters
Toll Brothers' status as a luxury builder differentiates it from many of its competitors. Unfortunately, that luxury focus may work against Toll Brothers unless the recovery is particularly strong.

According to statistics from the New York Fed, credit conditions, especially with regard to mortgage delinquencies, foreclosures, and their impacts on communities, are still far from optimal throughout much of the nation. Even though Toll Brothers has available financing and a knack for exploiting distressed asset buying opportunities, its shares are already up 70% from their lows. Toll Brothers also presents a potentially expensive risk to investors if these signs of recovery turn out to be a false alarm.

As I see it, the real takeaway from Toll Brothers' quarter is that some key industry participants are seeing tangible signs of a turnaround. If those trends continue, it could mean that we've finally seen the worst of the recession. Yet even if housing does rebound, the boom that drove so much demand for luxury homes may not return anytime soon.

Is it really over? What's your strategy for taking advantage of the end of the housing crisis? Share your opinions in the comments section below.

 

 

Follow the Yellow Brick Gold to China

A new extension of the yellow brick road leads beyond the Emerald City, and tunnels clear through to China.

Although China staked its claim as the world's leading producer of gold in 2007, opportunities for global investors to participate in this industry remain few. With the consolidation announced this week, the field grows smaller still.

Vancouver-based Eldorado Gold (AMEX: EGO) launched a friendly all-stock acquisition of Australia's Sino Gold, creating a formidable intermediate gold producer with a combined market capitalization of about $5.9 billion and gold reserves of 12.7 million ounces.

The deal is a clear-cut feather in both miners' caps. Sino shareholders will receive a 21% premium to the pre-announcement valuation in the conversion of their shares to Eldorado, and will benefit from geographical diversification of assets beyond China through Eldorado's projects in Turkey, Greece, and Brazil. These include Eldorado's flagship Kisladag mine in Turkey, weighing in at 5.5 million ounces of gold reserves.

Eldorado also brings attractive iron ore assets to the table, with 9.3 million tonnes of iron ore at the Villa Nova project in Brazil. Located in the same province as Anglo American's Amapa joint venture with Cliffs Natural Resources (NYSE: CLF), Eldorado's iron ore mine joins a small subset of Brazilian production not controlled by Vale (NYSE: VALE). Commissioned just during the second quarter, Villa Nova has been placed on care and maintenance until iron ore demand recovers in earnest.

The move is deeply transformational for Eldorado as well, building the company's gold portfolio in China from just one operating mine with 817,000 ounces of gold, to three working mines chasing approximately 5 million ounces of reserves.

Sino Gold's flagship is the prolific Jinfeng mine, and its White Mountain mine continues to ramp up toward full production. Construction at Sino Gold's Eastern Dragon project is slated to begin in September, and the company also brings a strategic exploration joint venture with major miner Gold Fields (NYSE: GFI) to the table. Prior to this deal, Eldorado acquired Gold Fields' 19.9% ownership stake in Sino Gold in return for Eldorado shares, keeping Gold Fields vested in the new corporation.

For exposure to a producing gold miner within the world's most prolific gold-producing nation, Eldorado Gold will now have no peer. In terms of gold reserves, Eldorado Gold continues to chase fellow low-cost, intermediate-scale producers like Agnico-Eagle Mines (NYSE: AEM) and Yamana Gold (NYSE: AUY), but like China's economy, Eldorado's star is certainly rising.

 

 

You Should Watch China's Offshore Star

And you thought earnings season had run its course. But yesterday, CNOOC (NYSE: CEO), China's largest offshore oil and gas company, showed up fashionably late to report a 55% decline in its income for the first half of 2009.

For the six months ended June 30, the company generated net profits of 1.82 billion U.S. dollars on a revenue decline of 42% for the period. The biggest culprit being crude prices averaging $52 a barrel, or 52% below last year's $109.

So it wasn't only the western likes of ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), and Shell (NYSE: RDS-A) that turned in earnings declines, versus a year ago, when commodities prices were running up. Indeed, CNOOC's earnings dip occurred in the face of a 15% increase in oil and gas production during its reporting period. That improvement put the company's output at 105.8 million barrels of oil equivalent. And if you look solely at crude oil production, the year-over-year improvement was about 20%, or far higher than any of the bigger western producers.

During a briefing following the release of his company's results, CNOOC's CEO Fu Chengyu tossed something of a curve ball when he stated that CNOOC does not plan to participate in a bid with China National Petroleum Corp. (CNPC) for YPF, Repsol's (NYSE: REP) Argentine unit. Such a combination had been widely discussed a couple of weeks ago. CNPC is the parent of PetroChina (NYSE: PTR).

Beyond that, he emphasized that his company really isn't eager to participate in any big acquisitions at this time. As he noted, "The economic recovery in the U.S. and Europe still needs to take some time. Under this macro environment, we will not do large-scale acquisitions." However, he wouldn't rule out the possibility of forming a joint venture with "any company in the world."

But don't get the idea that CNOOC is sitting along the China coast, forgoing international opportunities. What the company calls a "huge deep-water project" in which it is participating came online in Nigeria during the period. And an Indonesia liquefied natural gas project became productive in July.

From what I can see, Fools would be wise to keep their eyes on CNOOC. Personally, I'm betting that before too many more reporting periods have passed, the company will have spread its (water) wings into a variety of global locations.

 

 

Nokia and Linux Make a Good-Looking Couple

Pop quiz: What does the Linux operating system have in common with telecom giant Nokia (NYSE: NOK)?

1.     High technology.
2.     It's everywhere, and you don't know it.
3.     Finland.
4.     All of the above!

The correct answer is, of course, D: all of the above. Nokia and Linux are national treasures of Finland, sweeping the globe with high technology you never knew you needed. Thus, it's about time that Nokia got serious about making smartphones based on a mobile version of Linux.

Nokia has been selling "internet tablets" built on the Maemo Linux platform for years. Never seen one? Me neither. These gadgets fall one voice connection short of being a phone, so consumers who wanted an Internet-browsing doohickey in their pocket have chosen alternatives like the Apple (Nasdaq: AAPL) iPhone and high-end BlackBerry models from Research In Motion (Nasdaq: RIMM). It's kind of handy to be able to make a good old-fashioned voice call from time to time.

Now Reuters says that Nokia will move Maemo Linux into actual smartphones. "We have proven it really can be made," said Kai Oistamo, who heads up Nokia's phone division. "You can take desktop Linux and make it work on mobile." And I think it's a good idea, too.

The company's current top-of-the-line phones, like the N97 smartphone, all run Symbian, which is an entirely different animal wholly owned by Nokia, although even Symbian itself is slated to go open-source in the not-too-distant future. The Google (Nasdaq: GOOG) Android software platform is another Linux-based variant, but Maemo has been around for years, and Nokia never signed on with the Android steering community. So, Maemo it is.

Linux is a low-cost alternative to license-laden third-party solutions like Microsoft's (Nasdaq: MSFT) Windows Mobile. Cost savings isn't a good reason for Nokia to go with Linux, since it already has Symbian in-house. But with a global user and developer community behind it, any Linux-based product will have thousands of powerful applications available, including the Sun Microsystems (Nasdaq: JAVA) office suite OpenOffice and upstart Web browser Firefox. It's a fast-train ticket to Flexible City that promises to unleash the full power of the phone's hardware.

Nokia has seen Apple, RIM, and Google eating into its once-dominant smartphone market share, and the company now owns just 13% of the global smartphone revenue pot for phones costing more than $350. Two years ago, its market share stood at a robust 33% in this segment, according to estimates from Goldman Sachs. Maemo-based phones could be Nokia's best chance to get back in this lucrative race for top-of-the-line high-margin smartphones.

Nokia plus Linux is not just a matter of Finnish sisu. It's a perfectly sensible business decision. Maemo phones might not kill the iPhone, but they should be able to carve out a comfortable slice of market space, partly thanks to Nokia's worldwide name recognition. Would you buy a Linux-powered Nokia phone? Share your thoughts in the comments box below.

 

 

This IPO Won't Happen Soon

Forget it, Fool. Google (Nasdaq: GOOG) won't touch Twitter. Neither will Microsoft (Nasdaq: MSFT), nor Apple (Nasdaq: AAPL). David Naylor, a U.K.-based search marketing expert, on Tuesday showed how an enterprising hacker might distribute malicious code via tweets.

The trick, Naylor said in a blog post, is to change the reference links Twitter inserts into applications that access its API. Instead of a simple administrative command, a hacker could change the link to a site that downloads digital devilry. Yuck.

"If you change the link in the application settings, it affects all of the historical tweets generated by the application. So it's pretty quick and easy to experiment with different URLs and see what happens," Naylor wrote.

Translation: We're all one sneaky link away from losing control of our Twitter accounts.

This isn't the first time Twitter's had issues. A massive data breach exposed sensitive documents. Profile updates have been wiped clean without warning. And lately, downtime has occurred weekly, and sometimes daily.

All of which is unfortunate. Twitter would add heft to an IPO class whose best prospects seem to be OpenTable (Nasdaq: OPEN), Changyou (Nasdaq: CYOU), Rosetta Stone (NYSE: RST), and SolarWinds (NYSE: SWI). Good businesses all, but they're lightweights compared to social-networking superstars such as Facebook, LinkedIn, and yes, Twitter.

But you can forget a Twitter IPO. Forget an M&A deal, too. So long as miscreants have it this easy, Twitter will remain exactly as it is: private and under assault.

 

 

Why Apple Is Cheaper Than You Think

 

Today's Apple (Nasdaq: AAPL) is priced as if it were the next Microsoft (Nasdaq: MSFT). Not the Mr. Softy of the mid-90s, but the Microsoft of today, the one that just finished with what might be the worst quarter in its history.

Really?
Yes, really. My math shows that investors price the iEmpire as if it were on track to grow free cash flow by roughly 6% annually till 2014, and 3% thereafter. Here are all the numbers as I entered them into the DCF calculator we offer to Motley Fool Hidden Gems subscribers:

Metric	Value
Discount rate	12%
Free cash flow	$10.3 billion
Assumed FCF growth for next 5 years	6%
Assumed FCF growth for years 6-10	3%
Assumed FCF growth after 10 years	3%
Shares outstanding	896 million
Excess cash and equivalents	$24.2 billion
All debt	$0
Debt equivalent value of operating leases	$1.7 billion
Estimated value of outstanding stock options	$1.5 billion
FAIR VALUE OF APPLE SHARES	$171.65 per share

Source: Capital IQ, SEC filings, and author's estimates.

There are a lot of assumptions cooked into each of these data points. Let's tackle the most important ones.

Discount rate . Sometimes also known as the required rate of return to hold a stock, the discount rate is the rate at which future cash flows are discounted to their present value. The higher the rate, the riskier the stock.

To some, 12% might seem more appropriate for small caps such as TASER (Nasdaq: TASR) or Palm (Nasdaq: PALM) than a $150 billion company such as Apple. Fair point. There's little risk of bankruptcy. Plus, we've seen the iEmpire survive just fine for six months without its iconic and once-believed-to-be-indispensable CEO Steve Jobs. I've set it this high merely to be conservative, to reflect the company's relatively volatile stock price movements, and because Apple's board hasn't exactly proven to be trustworthy.

Free cash flow . I've opted for the classic formula here. Why not be more conservative and take a three-year average? I think doing so would understate the impact of the iPhone and the huge subsidies AT&T (NYSE: T) provides.

What's more, we're now in year three of iPhone sales and are still seeing growing sales, even as Research In Motion (Nasdaq: RIMM) and Palm introduce new handsets. I suspect Apple's days of producing $10 billion or more in FCF annually are just beginning.

Debt equivalent value of operating leases. This number is calculated by the good folks at Capital IQ and is current as of Dec. 31, so it may very well be low. I include it in this calculation because Apple is more than just a seller of hardware and software, it's also an upscale retailer that, like Tiffany & Co. (NYSE: TIF), leases a bounty of well-placed properties at fixed rates, much like interest on debt.

Estimated value of outstanding employee stock options. According to its latest 10-Q quarterly report, Apple had $1.5 billion in unrealized compensation expense related to stock options and restricted stock units. Exercises of these derivatives would have a dilutive impact on us as shareholders and, therefore, ought to be accounted for in the valuation equation.

Foolish final thoughts
The key drivers in this equation are free cash flow (FCF) and cash and equivalents. Reduce growth to zero -- that's right, zilch -- but preserve the FCF and cash numbers, and intrinsic value falls to $118.90 per share. The implication? Apple's existing FCF and cash assets account for over 70% of its market value at today's prices.

Welcome Back, Free Money

The recent derailing of our economy has obliterated jobs, tightened credit availability, and, for employees at many companies, dried up 401(k) matching funds. Even the AARP, an advocacy organization for the retired and pre-retired, suspended its 401(k) matches. That's the bad news -- but it may be getting better.

As traditional pensions fade away, 401(k)s have become critical parts of many people's retirements. A 50% match of contributions up to 6% of a $60,000 salary amounts to as much as $1,800 of free money for an employee each year. If you get that $1,800 year after year for 25 years, and invest it at 8%, you'll end up with more than $142,000.

But recently, many employers cut back on those matching contributions for some or all employees, including Ford (NYSE: F), United Parcel Service (NYSE: UPS), and FedEx (NYSE: FDX).

Return of the missing match
There's good news around the bend, though. Recessions end. Things improve. In a Watson Wyatt survey of HR execs at 175 companies, 64% planned to restore matches within 18 months, while 43% expected them to return between six and 12 months from now. 

This might surprise some cynics, who expected the companies to make the cuts permanent. Such a cost-saving measure makes some sense, but it's also true that companies rely on benefits such as 401(k) matches to attract and retain employees. Expect more matching funds to reappear (along with a thaw in frozen salaries).

The right response
Unfortunately, not all bad trends will reverse themselves. For instance, the majority of employers plan to continue asking workers to shoulder more of the burden of health-care costs.

The key is not to rely too much on your employer for your retirement. If you're the victim of a match cut, consider upping your contribution to make up for it. Even if you're not, consider contributing more to help your nest egg grow.

Among other steps you can take to strengthen your retirement:

Open and fund a Roth IRA
You won't get a tax break up front, but you'll be able to withdraw the money tax-free in retirement. If your investments grow at a good clip, like these stocks have historically, that could be an excellent trade-off:

Company	20-Year Average Annual Return
Best Buy (NYSE: BBY)	30%
Intel (Nasdaq: INTC)	17%
Johnson & Johnson (NYSE: JNJ)	14%
Automatic Data Processing (Nasdaq: ADP)	12%

Data: Yahoo! Finance.

Investing $10,000 in a Roth IRA for 20 years, at an average of 12% growth, would yield almost $100,000. In a Roth IRA, you'd keep that entire amount without forfeiting any of the gain to taxes. In a traditional IRA or 401(k), you'd face a big tax liability.

Increase your contribution if you're 50 or older
Beyond that age, you can contribute more to your IRAs and 401(k)s -- several thousand dollars more per year, with 401(k)s. These "catch-up contributions" can make a huge difference.

Investigate a Roth 401(k)
Your employer may also offer these plans, which combine features of Roth IRAs and 401(k)s. You can typically invest much more in them each year than in IRAs, and you can eventually make withdrawals from them tax-free, if you follow the rules.

Whether or not you're headed for a joyous reunion with your absent matching funds, these steps can help firm up the foundation of your financial future.

 

 

6 All-Star Stocks to Make Your Portfolio Shine

The market has roared by a hefty 52% since its March low. While rising prices wiped out some of the most appealing valuations seen in decades, this surge in stock prices doesn't mean you've missed the boat. And it shouldn't deter you from making a wish list of stocks you'd like to snag for your own portfolio.

If this truly is the beginning of a new bull market, then there's still more room to run from here. And if it's simply a fierce bear-market rally, then a pullback will correct prices. Despite a mixed bag of economic news, the market keeps treading higher, as investors who were sitting on the sidelines since financial Armageddon last fall use every pullback to get back in the market. That's a good sign, because it means the unprecedented amount of cash that was on the sidelines is now being put back to work.

Either way, if you research and build a list of stocks you'd want to own, you'll simply need to wait until each stock reaches your preferred price before you pounce. The volatility in this environment should provide you opportunities to do exactly that.

To start assembling my very own stock wish list, I used the Fool's CAPS screener to find premium companies such as Apple (Nasdaq: AAPL), which has outperformed the market by over a hefty annual 27 percentage points over the past 10 years.

To screen for some of the market's best stocks, I used the following criteria:

• Market caps greater than $10 billion, which suggests stability.
• A current ratio of at least 1, to ensure sufficient liquidity to meet current liabilities.
• Return on equity north of 15%, to demonstrate efficiency and profitability.
• Five-star ratings, our CAPS community's highest ranking.

You can review my results in full if you like, but here are some of the highlights:

Company	Market Cap (in Billions)	Current Ratio	Return on Equity (Trailing 12 Months)
Diamond Offshore Drilling (NYSE: DO)	$12.7	3.7	37.8
Johnson & Johnson (NYSE: JNJ)	$168.9	1.8	27.5
Philip Morris International (NYSE: PM)	$91.7	1.5	64.7
PepsiCo (NYSE: PEP)	$89.5	1.3	36.3
Petrobras (NYSE: PBR)	$158.7	1.1	30.5
Transocean (NYSE: RIG)	$25.1	2.0	23.9

Data from Motley Fool CAPS as of Aug. 25, 2009.

While the CAPS screen can suggest all kinds of promising companies, running a screen should be only the first step in your stock research. Investors should be mindful of the industry the company operates in, and whether that industry has growth prospects. From there you'll need to assess the company's products, positioning in the market, and market share, as well as its "financial vitals" -- what it has in terms of cash, revenue and earnings growth, free cash flow, and so on. Come and join our CAPS online investment community to delve further into these companies, and see whether they're right for your portfolio.

 

 

3 China Profit Plays

 

 

If you're like most U.S. investors I meet, you want to invest in China, but you don't know how. You also fret about the quality of corporate governance, a lack of internal controls, and loose enforcement of accounting standards.

So you've decided that despite the incredible long-term growth opportunity it offers, China is not worth the hassle. Either that or you settled for an exchange-traded fund that makes China a part of its portfolio ... like the Xinhua 25 Index (FXI).

Let's be frank: Neither of these solutions is a good one. But if you read to the end of this article, I guarantee that you'll be a little more comfortable with investing in China, and more importantly, you'll know three key niches where you should be looking to buy stocks.

But first, why you don't want FXI
The problem with the FXI is that it owns 25 enormous, mature, and generally state-owned Chinese companies such as PetroChina (NYSE: PTR). Thus, they're highly regulated, have little room to grow, and aren't run by executives who are known for their entrepreneurial spirit.

Buying these stocks in the hopes of profiting from China's development would be like buying Johnson & Johnson (NYSE: JNJ), Novartis (NYSE: NVS), and Teva (Nasdaq: TEVA) in the hopes of profiting from a breakthrough cancer or AIDS drug.

Sure, you could end up making a little money, but you'd be better off finding the specific biotechs that are focused on the project.

Further, fully one-third of FXI is exposed to Chinese banks. These banks, as directed by the government in order to stimulate the Chinese economy, loaned out more money in the first four months of 2009 than in all of 2008. It's difficult to see growth like that and not conclude that underwriting standards were compromised, which could lead to significant profit hits down the line.

Thus, FXI is the wrong choice when it comes to investing in China. But the good news for you is that I have three far more promising alternatives.

China profit play No. 1: rural China
The Chinese government, if nothing else, is focused on self-preservation. That means keeping most of their people content most of the time. And since most Chinese are still rural Chinese, recent government policies have focused on keeping them content amid the economic downturn. These have included raising the minimum purchasing prices for rice, wheat, and soybeans, as well as introducing a new national health-care plan to strengthen the social safety net.

Thus far, these measures are working. The government expects rural incomes in China to rise 6% this year. That optimism has been corroborated by recent results from fertilizer companies such as China Green Agriculture and Yongye International that have topped all expectations due in part to farmers' increasing purchasing power. At Motley Fool Global Gains, we expect these companies and others that sell directly into rural China to continue to post good results.

China profit play No. 2: tier 2 infrastructure
Quick! Name a city in China!

Chances are you said Beijing or Shanghai, and not Xian, Harbin, or Tianjin, despite the fact that all five have populations in the multimillions. That's because while the former are world-famous tier 1 cities in China, the latter are relatively unknown tier 2 cities. But in order to even out development in China, the government has made it a priority to build infrastructure in these tier 2 cities and make them attractive places to do business. For tier 2, this means more roads, power plants, subways, etc.

But rather than pick a company that builds subways or coal-fired power plants or roads or nuclear power plants, at Global Gains we like companies that work across these niches. That's something like General Steel (NYSE: GSI), which supplies the rebar for use in overpasses, subways, and buildings in Xi'an.

China profit play No. 3: SSE-led consolidation
The fact is that while China's economy has been growing at a near-10% annual rate for the past 25 years, growth is slowing and the low-hanging fruit when it comes to spurring growth has long since been plucked from the tree. Thus, the government is focused on ways to make the economy ever more efficient. One of the strategies they've hit on is the forced consolidation of small, inefficient state-owned enterprises (SOEs) under private companies that they can count on to do right by workers and wring inefficiency out of operations.

We discovered some of these "chosen few" in the health-care and steel sectors during our last research trip to China, and we dubbed them SSEs, or state-sponsored entrepreneurs. We're keen to invest alongside them because of their good relations with the government and their advantaged position when it comes to acquiring new assets, products, or distribution capacity.

Is Apple Making a Huge Mistake?

The kids are headed back to college, but with fewer Macs.

A recent survey from consumer electronics website Retrevo says that 49% of students plan to buy Windows laptops and 34% want netbooks. Only 17% said they would buy Macs.

What happened, Apple (Nasdaq: AAPL)? Last March, a Morgan Stanley study found that 40% of college students planned to buy a Mac. Sure, these are different surveys from different providers with different methodologies, but the gulf is enough to suggest there's been movement in market sentiment. What gives?

Retrevo's answer is, not surprisingly, the economy. Kids or their parents aren't willing to pay $1,000 for a new Mac when they can get a comparable PC from Dell (Nasdaq: DELL) or Hewlett-Packard (NYSE: HPQ) for much less. Or better still, a netbook for as little as $200.

There are plenty to choose from, thanks to increasing interest in this form factor among chip makers and hardware and software suppliers. Intel (Nasdaq: INTC) was an early adopter, but now NVIDIA (Nasdaq: NVDA), Nokia (NYSE: NOK), and Sony (NYSE: SNE) also want in on this market.

Apple is one of the few that doesn't, if the public statements of CEO Steve Jobs and COO Tim Cook are to be believed. I've backed that decision more than once. Apple doesn't do well playing follow-the-leader.

But there's also little doubt that high-function, lower-cost, small form factor machines are here to stay -- at least for a while. Apple needs an answer for this market; it needs to ship the iTablet. Soon.

 

 

Will P&G Ever Turn Around?

 

Amid sagging sales and falling volumes, consumer-staples giant Procter & Gamble (NYSE: PG) has done little lately to earn its reputation as one of the best-run companies in the world. Will the recently announced sale of its pharmaceutical business to specialty-drugs developer Warner Chilcott (Nasdaq: WCRX) mark a turning point?

Premium brands lose appeal
First, let's understand that the global recession has been tough on P&G. Price increases on items ranging from Tide and Era to home- and dish-care products have turned away budget-conscious consumers. Meanwhile, competitors such as Unilever (NYSE: UL) and Colgate-Palmolive (NYSE: CL) have been able to keep a tighter grip on volumes. That puts any move Procter & Gamble makes under the microscope.

The Warner Chilcott deal is expected to net P&G $1.4 billion after tax, or about $0.44 per share. In exchange, P&G will relinquish its prescription drug product pipeline, along with established treatments such as osteoporosis drug Actonel. The logic, according to CEO Bob McDonald, is that P&G will be able to focus on its consumer health care business, where brands include Crest, Tampax, and Prilosec OTC.

Growth ahead?
It's difficult to know what form such focus will take. Some investors would undoubtedly like to see the company innovate on higher-margin premium brands. However, the better strategy may be to broaden the product portfolio into the value-price segment -- even if lower prices mean slimmer margins -- thus winning over more cautious consumers. Should P&G decide to compete on a price and value platform, look for new products in the OTC pain relief, cold, and flu remedy categories, where consumers are most likely to trade down to store brands, versus greater brand loyalty in the areas of cosmetic and skin and hair care.

In the meantime, I'd caution against unwarranted optimism. Management's move to open Mr. Clean-branded car washes doesn't exactly smack of a laser-like focus on its core business. Speaking specifically of divestitures, in past years, the company sold food brands Folgers, Jif, and Crisco to J.M. Smucker (NYSE: SJM). Given Smucker's recent quarter, holding onto those brands might've boosted P&G's recession-era performance.

The market gets it right
A common argument for buying P&G shares is that they're undervalued. Sure, the stock's P/E is low compared to historical averages, not mention many competitors' shares. Still, respected consumer names such as Kimberly-Clark (NYSE: KMB) and ConAgra (NYSE: CAG) go for lower forward multiples. Given that P&G is, from a certain perspective, a turnaround story that's yet to turn, this pricing appears warranted to me.

But if you do decide to jump in with a wad of dough and yellow rubber gloves, keep a close eye on company developments. This isn't the blue-chip company that your mother told you to buy and forget for 10 years. At least, not anymore.

 

Medtronic Takes the Road Less Traveled

Medtronic (NYSE: MDT) just has to be special. It doesn't follow the typical fiscal year, which ends Dec. 31. It doesn't even end its fiscal year in June (or March or October). No, its fiscal year ends in April, making comparisons to other medical-device companies a little tricky.

This quarter -- that would be its first quarter ended July 31 -- even comparisons with the company's historical quarters are difficult, because the quarter had 14 weeks instead of the typical 13. So rather than taking a typical look at the year-over-year sales comparisons, let's join Medtronic in being different and take a more generalized look at the company.

Medtronic hit a rough patch in 2007 after problems with the leads on its implantable cardioverter-defibrillator (ICD) resulted in a recall, but the company thinks it has finally stabilized its market share against Boston Scientific (NYSE: BSX) and St. Jude Medical (NYSE: STJ). Even if Medtronic can't regain its lost market share, it may be able to increase sales: There should be increased demand for heart rhythm devices after a study by Boston Scientific showed that more expensive ones that include a cardiac resynchronization therapy function (CRT-Ds) can help patients in earlier stages of heart failure.

Spinal and cardiovascular products, Medtronic's second- and third-largest segments, are both looking good. The acquisition of Kyphon is helping the spinal division, and the launch of Medtronic's drug-eluting stent, Endeavor, in Japan is helping the cardiovascular division.

Taking a page from Johnson & Johnson's (NYSE: JNJ) playbook of trying to grow earnings faster than revenue by cutting costs, Medtronic has slimmed down (it announced in May that it was cutting its workforce by 1,500 to 1,800 employees). A charge for letting employees go and a settlement of a patent dispute with Abbott Labs (NYSE: ABT) hurt earnings this quarter, but excluding those charges and convertible debt expenses, the company earned $0.79 per share. It's well on its way to making its full-year guidance of $3.10 to $3.20 in earnings, excluding items.

With a forward P/E of about 12 and a quarter into its fiscal year, Medtronic isn't insanely cheap, but it's not overly expensive, either. Investors in for the long haul could buy now, but if you'd like to be different, a put strategy might be a good alternative.

 

 

Winn-Dixie Does an Earnings Two-Step

If we're smart, we'll learn to take reversals of fortune like the one Winn-Dixie (Nasdaq: WINN) experienced today with a grain of salt.

Between yesterday afternoon and this morning, shares of Winn-Dixie traded in a huge range, rising by more than 4% last night but losing those gains to drop as much as 9% within the first hour of trading today.

Shares hit new 52-week highs in after-hours trading yesterday after the company announced solid fiscal-fourth-quarter and fiscal-year results. Then, just as quickly, investors sent shares plummeting this morning after management's before-the-bell earnings conference call. The selling continued when markets opened, putting a damper on a would-be day of celebration for the company.

Cost-cutting in conjunction with Winn-Dixie's remodeling strategy helped the official supermarket of the Jacksonville Jaguars and New Orleans Saints beat analyst estimates by a penny to post a fourth-quarter profit of $9.4 million and $0.17 per share. Same-store sales grew by 1.6% and total revenue landed at $1.72 billion. Given that the company emerged from bankruptcy just two years ago, sustained profitability and sales growth are quite meaningful results for the grocer.

What happened?
The supermarket business is notoriously competitive, as Winn-Dixie faces competition on two fronts. Other grocery specialists, including Publix, Ingles (Nasdaq: IMKTA), and Kroger (NYSE: KR), constantly put pressure on margins. Meanwhile, superstores such as Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and even Costco (Nasdaq: COST) also lure away potential customers. In addition, while remodeling stores makes sense to try to retain and attract customers, a company has to draw the right balance to maintain profits. But nothing in the announcement changed what investors should already have known on those fronts.

The real answer?
What I think precipitated the move is a difference in tone between the earnings release and the conference call; 2009 has been a great success for the company, and in yesterday's press release, management reiterated 2010 guidance and pointed to positive signs during the first eight weeks of the new fiscal year.

Yet in this morning's conference call, Winn-Dixie's  president and CEO suggested that the new fiscal year is actually off to a somewhat rocky start. Its summer and weekend sales have been relatively soft, and during the earnings conference call, the president and CEO gently pointed investors toward the lower end of next year's guidance.

So as I see it, the market got ahead of itself last night when it saw that the grocer had topped earnings. Then, when management wasn't as glowing with its forward-looking statements, investors panicked. Yet even after the haircut, Winn-Dixie is weighing on the expensive side at more than 30 times trailing earnings. Investors should keep their eyes peeled for better bargains.

Disagree? Share your thoughts below in the comments section, and explain your take on investors' change of heart regarding Winn-Dixie's shares.

 

 

8 Winning Stock Ideas From Buffett's Disciples

Many investors hang on every word that Warren Buffett says. But if you're looking for interesting stock ideas based on Buffett's principles, you don't have to settle for just the stocks he owns. It's also worth taking a look at successful money managers who've invested substantial assets into Berkshire Hathaway (NYSE: BRK-A).

Following the Oracle
By now, everybody knows what moves Berkshire made during the second quarter. Sales of shares in oil company ConocoPhillips (NYSE: COP) gave Buffett enough cash to add to holdings of Johnson & Johnson (NYSE: JNJ). If you make moves based on Buffett's, then you're already way late to the game.

A number of mutual funds, however, hold substantial amounts of Berkshire stock. Here are just a few:

Fund	Assets in Berkshire Hathaway	1-Year Return	10-Year Average Annualized Return
Sequoia Fund (SEQUX)	23%	(12%)	3.6%
Clipper Fund (CFIMX)	12%	(16.8%)	1.7%
Oak Value (OAKVX)	7%	(11.4%)	1.1%
Weitz Partners Value (WPVLX)	10%	(5.6%)	2.1%

Source: Morningstar.

Since each of these four funds follows a distinctly different path in emulating the Oracle of Omaha, let's take a closer look to see what investing secrets they may hold.

Comparing the funds
Sequoia's ties with Buffett go way back, as longtime friend Bill Ruane managed the fund until his death in 2005. Ruane is reputedly the only money manager to whom Buffett ever referred his own former clients. After the fund started in 1970, Ruane did phenomenally, and the fund closed to new investors in 1982. The fund stayed closed for more than 25 years before reopening just last year. After outperforming the S&P by 10 percentage points in 2008, the fund has lagged a bit so far this year. But holding a wide variety of stocks like The TJX Companies and Whole Foods Market (Nasdaq: WFMI) certainly hasn't hurt Sequoia's performance lately.

Buffett has reportedly said that the Clipper Fund comes close to his own investing style. But unlike Sequoia, Clipper Fund's Chris Davis hasn't shied away from financial stocks lately. Alongside his share in Berkshire, you'll also find American Express (NYSE: AXP) and Goldman Sachs (NYSE: GS) among top-performing holdings this year. With a relatively concentrated portfolio, it's clear that Clipper is abandoning neither Buffett's philosophies nor its own value principles.

The Oak Value fund may not be as well-known as some of the other Buffett followers, but its managers still follow his teachings closely. The fund's managers first look for businesses with sustainable competitive advantages, and only then drill down to compare intrinsic value with current share prices. Currently, Oak Value is finding opportunities in consumer goods stocks, with big holdings in several high-end companies including Tiffany and Coach (NYSE: COH).

Finally, Weitz Partners Value, which is also based in Omaha, is managed by Wally Weitz. Like Buffett, Weitz got started by creating private investment partnerships. But rather than building his own corporate empire, Weitz opened several mutual funds to broaden his offerings to share his investment success. Investments in Cabela's and Liberty Media have vaulted the fund higher in 2009.

Similar, but not the same
The nice thing about all these funds is that while each one shares an interest in Berkshire Hathaway and the investment style of Warren Buffett, they also take unique approaches to the way they invest. That serves as an excellent reminder that while value investing may seem like a simple, easy-to-follow strategy, there are actually a huge number of different ways you can structure a value-based portfolio.

If you follow what Warren Buffett says and does -- and I think it's a good idea -- it's always nice to see how others are reacting to the same things you see and hear. By considering the alternative opinions of the fund managers who believe Buffett's philosophy strongly enough to invest substantial portions of their clients' assets in Berkshire stock, you'll get a gut-check on the strength of your own value investing convictions.

 

 

Cashing In on Obamacare

I know, I know. Obamacare is the worst idea since the Spice Girls reunion tour. It will stifle competition and kill capitalism. It will bankrupt the country and have us eating cat food in retirement. We'll all have to submit to the presidential death panel our DNA plus a 1,000-word essay on "What I Would Like to Do Next Summer" in order to decide who gets an insulin prescription and who gets a sympathy card. Hey, did I mention the entire country's going commie?

Oh, I'm sorry. My mistake. You're a fan of Obamacare? Then rest assured, I understand your enthusiasm for the subject. Wringing costs out of the health-care system is vital. Clearly, the only way to do that is a government-run reform program. Government being known for its efficiency and lean operations, a pillar of the reform must be a public insurance option. This is the only way to shake the existing health-care establishment out of its complacency. If that means a few less ivory backscratchers for those Wall Street fat cats (who, by the way, have more money than you do. I'm just sayin'), then so be it. Also, did I mention that those fat cats are rich?

Step away from the talk radio.
Sorry if that sounded flip, but frankly, I'm amazed at the vitriol that's been whipped up -- on both sides -- of this debate. And I'm tired of being amazed. I acknowledge that this is an important debate for our country, but I'm not spending anymore energy getting worked up about it. The misinformation spouted by health-care reform's detractors (i.e. "death panels!") and proponents (i.e. "record profits at insurance companies!") is too pervasive to amaze me any longer.

Besides, I think there's a better way for us investor types to spend our limited energy on Obamacare: We should be figuring out how to make a buck in health-care stocks.

The unloved sector
Some of you are no doubt thinking, "Make money in health care? This guy had better hope Obama includes major psychological benefits in his plan." But if so, you probably thought the same thing back in January when I recommended Autoliv to members of Motley Fool Hidden Gems. At the time, it was well known that no one would ever buy a car again, therefore all carmakers, along with car suppliers like Autoliv, were investments to be avoided like swine flu.

Of course, Autoliv returned more than 100% from that point because what everyone "knew," and feared, turned out to be worse than what actually happened. Ford (NYSE: F) and even the-company-formerly-known-as-GM have had to increase production to deal with an uptick in car buying. Sure, sales are still below the boom time's high-water mark, but companies like Autoliv were priced for death, and when they didn't flatline on the table (maybe they wrote a really good essay to the death panel), the stocks came charging back.

Same story, different sector
I was recently asked to talk Google (Nasdaq: GOOG) and tech stocks on CNBC's "Closing Bell," because tech stocks are currently hot, I guess. As one member of the parade of bland men in suits, I was hoping to distinguish myself -- at least somewhat -- from the crowd by refusing to play the hot-sector game. In fact, as I explained to "Money Honey" Maria Bartiromo, the concept of the hot sector makes me uneasy. By the time a sector has attracted attention, many of the stocks in it have risen, some nonsensically, and bargains are harder to find. Enthusiasm for what's already popular might get you face time on CNBC, but it's likely to put your portfolio on long-term life support.

As Buffett has put it, you pay a high price for a cheery consensus. Luckily, the opposite is also true. You get a bargain price for fear and loathing. That's why, to the extent that a "trees-not-forest" investor like me is interested in sectors at all, I'm much more interested in groups of companies that are feared or openly reviled. And right now, I'm having a hard time thinking of a sector that is as maligned as health care.

Health-care stocks, as a sector group, have not been as well treated as most other sectors during the market rebound of the past six months, as investors are uncertain how health-care reform could affect different companies.

Sector ETF	6-Month Return
Financials	79%
Materials	51%
Consumer Discretionary	44%
Industrials	39%
Technology	41%
Energy	27%
Consumer Staples	17%
Utilities	13%
Health Care	12%

Data from Yahoo! Finance. Dividends not included.

However, that bottom-of-the-heap index-ETF return looks positively excellent compared with the results from some of the losers in this space. A few big names like UnitedHealth Group (NYSE: UNH) and WellPoint (NYSE: WLP) have seen their shares rally along with the market, but health care can be a tough sector for many companies:

Company Name	6-Month Return
Amedisys (Nasdaq: AMED)	(58%)
Immucor	(28%)
Sun Healthcare Group	(27%)
Genzyme	(24%)
Hansen Medical (Nasdaq: HNSN)	(23%)
Gilead Sciences (Nasdaq: GILD)	(9%)

Data from Capital IQ, a division of Standard & Poor's.