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.