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Archive for Sunday, December 29, 2002

The Motley Fool

December 29, 2002

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Name That Company

I'm an agricultural cooperative founded in 1930 and owned by more than 900 growers in the United States and Canada. Most of my products are based on a fruit grown primarily in Wisconsin and Massachusetts that's commonly harvested in large beds of water. In 1995, I introduced dried Craisins. I'm the No. 1 brand of canned and bottled juice drinks in America and my offerings are sold in nearly 50 countries around the world. I'm popular around the holidays. My annual sales top $1 billion, and my competitors include Northland, Tropicana and the National Grape Cooperative. Who am I? (Answer: Ocean Spray)

Know the answer? Send it to us with Foolish Trivia on the top and you'll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

Multiple matters

What are these stock "multiples" I often read about? -- B.C., Gainesville, Fla.

"Multiple" is often just a fancy term for the price-to-earnings ratio (or P/E). In general, a multiple is simply the result of dividing a stock's price by something, such as earnings (via the P/E ratio) or revenues (via a price-to-sales ratio). Imagine Parenting Tutorials Inc. (ticker: JACKO), a company trading at $50 per share. It's expected to earn $2 per share this year, so its P/E on this year's earnings is 25 (50 divided by 2 equals 25). You might refer to it as trading at an earnings multiple of 25.

If you read analyses of various companies, you'll see references to price-to-sales multiples, book-value multiples, cash-flow multiples and more. It's instructive to compare a company's various multiples with those of its peers, to see whether its stock appears to be undervalued or overvalued.

What's a zero coupon bond? -- S.G., East Providence, R.I.

Bonds are essentially loans, usually made to companies or governments. With a traditional 5 percent $10,000 bond, you lend $10,000 to the borrower. You receive interest payments of 5 percent per year. (In the past, people had to send in coupons in order to receive these payments.) When the bond matures, you get your $10,000, the principal, back. With a zero coupon bond, there are no interest payments, but the amount you lend is less than the amount you'll receive at maturity. Thus, a zero coupon bond could pay you the equivalent of 5 percent per year by having you lend $6,139 today in order to receive $10,000 in 10 years.

AO-Hell

About two years ago, when working at America Online, I learned that many employees had done very well through the employee stock purchase plan. So I blindly signed up for the plan.

To maximize my gain, I dedicated 15 percent of my paycheck to stock purchases. AOL was selling at or around $40 a share then, and I bought in at a reduced price of $38. Since then, the stock has slipped to the teens. If I'd done the correct research, I probably would have sensed that AOL was on a downhill slide. -- Steve Sisk, via e-mail

The Fool Responds: If it's any consolation, you aren't alone. Never put too many of your eggs in one basket. Employee stock purchase plans are often great ways to build long-term wealth -- as long as you plan to hang on for the long haul. But even seemingly solid companies can fall on hard times, so your nest egg should be spread over at least a handful of different investments.

Levitt speaks

Former Securities and Exchange Commission Chairman Arthur Levitt recently spoke with The Fool. Here are some highlights:

  • "I think that we have had an almost two-decadelong erosion of ethical values on the part of American business. It is understandable if you place it in the context of a runaway bull market where investors suspended disbelief, where analysts saw everything they recommended go up, where brokers saw every recommendation work out."
  • "It is well and fine to talk about the wrongdoers at WorldCom and at Enron and all the gatekeepers, every one of them: the boards, the lawyers, the accountants, the standards setting agencies, the regulators. All of them were asleep at the switch. But the real issue is where were the investors? Why didn't they ask questions about a company they couldn't possibly understand? They have to pay out a portion of the blame as well."
  • "Well, it was hard to tell at the time, but the battle on the accountants was a political battle involving the House and the Senate. I think the magnitude of it is captured in the appendix of my book when I reprinted the letter from an executive who said: 'Arthur Andersen is vital to our success. Please don't do anything to disturb the relationship they have between their auditors and their accountants; they help us so much.' That letter was signed by Kenneth Lay."
  • "It was symptomatic of the fact that Congress was totally under the control of their corporate sponsors, the fund-raisers and the lobbyists. Every day as we speak, the lawyers and the accountants of the stock exchanges have lobbyists on the Hill fighting for things that are not in investor interest, and investors have nobody up there.

That is why I say over and over again that investors should, through organizations such as The Motley Fool and AARP, develop a lobbying source to counter enormous amounts of money spent by corporate America against the interests of investors."

Learn more in Levitt's new book, "Take On the Street: What Wall Street and Corporate American Don't Want You to Know" (Pantheon, $25) and at .

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