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Archive for Sunday, October 20, 2002

The Motley Fool

October 20, 2002

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Name That Company

I was founded in 1920 in Pittsburgh. Today, I'm the largest publisher and distributor of children's books in the world. My brands include the following successful books and series: Harry Potter, The Baby-Sitters Club, Dear America, The Royal Diaries, Animorphs and Clifford the Big Red Dog. Through schools, stores and other distribution channels, I serve more than 30 million children, raking in more than $2 billion per year. I offer 35 school-based magazines, educational software, and family-oriented videos and television programming. My name is on very respected writing awards for high schoolers. Who am I? (Answer: Scholastic)

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.

Get children investing

Give your young ones a great edge in life by introducing them to investing. With time on their side, they're positioned to reap great benefits from the magic of compounded growth.

Begin by playing and experimenting together.

1. Build a mock portfolio. Have your children list companies that interest them. Point out the many possibilities: at home, in their classrooms, at the mall and on TV (e.g., Ford, Nike, Microsoft, Coca-Cola, Apple, Wal-Mart, McDonald's, Kellogg, Disney, Wrigley, etc.).

Have them list 10 to 20 companies on a sheet of paper, with ticker symbols, current stock prices and today's date. Every day or week, have them record the latest prices. Calculate the gains or losses regularly. Such short-term stock price movements aren't terribly meaningful, but they can help a child understand how the market works. (If you set up your portfolio online at sites such as AOL or http://finance.yahoo.com, tracking your holdings will be a snap.)

2. Follow the companies together. Scan newspapers and magazines for stories about the businesses and note how news affects stock prices. Watch the companies expand internationally, add more stores, announce new products or services, report sales and earnings each quarter, and discuss their strategies. Read through their Web sites and annual reports.

3. Eventually, help your child actually invest money. You can open a custodial brokerage account, with you acting as the overseer. Or informally "sell" some of your own shares to your child. If you own shares of PepsiCo, you can sell a few to your child at its current price. If you're about to buy 100 shares of ExxonMobil and your child wants to buy a share or two herself, you can buy 101 or 102 shares. Once your child turns 18, she can open her own brokerage account.

Help your children get started.

Your teens (and clever preteens) can learn more at www.teenanalyst.com and www.Fool.com/teens, or in our new book, "The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of," by David and Tom Gardner with Selena Maranjian (Fireside, $14).

Schering-ploughed under

The seemingly unending stream of bad news for Schering-Plough (NYSE: SGP) investors has continued, as the drug maker recently warned that its third-quarter and full-year earnings would be sharply lower than expected. Analysts were expecting a profit of $1.42 a share for 2003, but the company now says it will more likely be in the $1 to $1.15 range.

The main reason for the warning is the expected shortfall in sales of the allergy drug Claritin, which raked in $3.2 billion in revenue last year. With patent protection expiring in December, Schering is moving Claritin from prescription to over-the-counter status in order to compete with generic equivalents. Apparently, sales of its new allergy prescription drug Clarinex are not yet taking up the slack.

Schering's shares dropped about 4 percent on the news, hitting a five-year low. The company is still extremely profitable, with a solid balance sheet and an attractive dividend yield recently topping 3 percent. Its always-risky drug cycle is buffeted somewhat by sales of sunscreen, foot care and animal health products. (However, such products typically sport lower profit margins than those of prescription drugs.)

Still, would-be investors should exercise patience. Schering-Plough expects growth to return in 2004 to the tune of about 20 percent, and sees it "continuing to accelerate in 2005," but there may not be a whole lot of good news in the meantime.

McDonald's and the Old Farm

In 1960, my father sold our dairy farm and gave each of my five children $100. There wasn't much we could do with the money, so we gave it to a stockbroker friend. He put it all into McDonald's stock. Time passed. Ten years later, after returning home from a trip, the phone rang. It was the broker, calling to say hello and, "Would you like to know what your McDonald's stock is worth? $10,000!" What a great surprise. McDonald's continued to grow, and our stock surpassed $18,000 in value and kept growing. All of our children were able to go to college. Four have master's degrees and all are debt-free! Mary Brooke, Bradenton, Fla.

The Fool Responds: That's a terrific example of what happens when you remain invested for many years in a company that grows to dominate its industry. Many firms, such as McDonald's, Microsoft, Wal-Mart and Coca-Cola, have rewarded long-term shareholders enormously. The trick now is to find companies with a good chance of realizing strong growth from today through the decades ahead.

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