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Name That Company

I was founded in 1869 in Pennsylvania, and my first product was horseradish. I bucked existing styles and sold it in a glass jar to show off its high quality. In those days, many considered tomatoes an exotic Mexican fruit called “love apples.” I changed that, introducing ketchup in 1876 (followed by soups and baby food in 1931). Today I employ more than 45,000 people around the world and sell nearly 6,000 different products on six continents. My brands include Snausages, Ore-Ida, Smart Ones, Bagel Bites, San Marco, 9-Lives, Kibbles ‘n Bits, Bio Dieterba, StarKist, Greenseas, Classico and Wyler’s. Who am I? (Answer: Heinz)

Know the answer to this week’s question on page 1E? 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.


The fool take

Intel’s earnings at risk

Wall Street analysts have repeatedly reduced computer-chip giant Intel’s (Nasdaq: INTC) earnings estimates for 2002 and 2003. A Bear Stearns analyst noted: “Intel’s competitive position remains strong, but personal computer (PC) demand has remained sluggish. Intel is well-positioned to capitalize on a recovery in the PC market (but) that appears unlikely until sometime in 2003.”

But PC growth is stagnating, and this economy isn’t showing the potential for a strong rebound. Intel is not the economic engine it once was. Average annual sales growth over the past five years is 4.9 percent. The company’s return on invested capital has dwindled in each of the past five years as well, and now stands at only 8.8 percent for the past year.

Historically, Intel has made most of its money by selling leading-edge technology at a premium. But now we’re well into a period of lagging demand for the latest and greatest technology, and that’s hurting the company’s profit margins. Until there’s a catalyst to spur demand for the most advanced technology, Intel’s margins will likely remain under pressure.

Nevertheless, investors continue to price Intel stock as if current earnings estimates are a shoo-in. The current price, given current estimates, isn’t exactly cheap, and if the company’s near-term performance isn’t quite as rosy as expected, then the current price may actually be fairly rich.


Smart investment

Buying, buying, buying and holding

In 1981 I began working for 3M. Employees could buy 3M stock through a payroll deduction plan at a very good price. I really wanted to participate, but my husband wanted to put that money toward a new car. I was adamant about buying the stock and began investing $10 per month, having dividends reinvested in additional shares of stock. I worked there for 12 years and eventually invested a grand total of $2,700. Today that has become 648 shares worth more than $80,000. V.D.B., Santa Barbara, Calif.

The Fool Responds: What a great example of the power of gradual accumulation of stock. Also very powerful is the practice of reinvesting dividends.

A few dollars here and there really add up when they’re used to buy additional shares (or fractions of shares) of stock which then begin spitting out dividends of their own.

When you invest in a solid, growing company for a long time and have dividends reinvested, you may end up enjoying a festival of riches.


Ask the fool

What’s your opinion of reverse mortgages? E.J., via e-mail

With a reverse mortgage, you receive a lump sum or regular payments, based on the equity of your home, usually to help fund retirement. The proceeds are tax-free and don’t affect Social Security benefits, but reverse mortgages are not always a good deal.

The points and fees charged on reverse mortgages can be fairly high, and their interest rates tend to be considerably higher than those for regular mortgages. The cash flow you can expect from a reverse mortgage is determined by your home’s value, interest rates and your age. Those who are 62 years old or older and who have little or no debt stand to benefit the most from reverse mortgages. Loan programs vary widely in what they offer and how much you’ll get, so shop around. Retiring the debt usually involves selling the home often upon the death of the borrower.

This often isn’t the best way to finance a retirement. A home equity loan is another possibility, although it also carries risks. Alternatively, you might just sell your home, move to a less expensive dwelling, and invest and live off the difference.

There’s much more to know. Get more details at www.hud. gov/buying/rvrsmort.cfm, www.aarp.org/revmort, www.consumersunion.org/finance/revconwc899.htm and www.fool.com/homecenter. Or read “Mortgages for Dummies” by Eric Tyson and Ray Brown (Hungry Minds, $16.99).

What percent of stocks are held by mutual funds? C.R., Kenosha, Wis.

Per the Investment Company Institute at www.ici.org: “Mutual funds held about 22 percent of all publicly traded U.S. stocks at year-end 2000. The remaining 78 percent is held by households, private pension funds, state and local government retirement funds, insurance companies, private trusts, residents of foreign countries and other investors.”


The fool school

Fortify nest egg

Social Security is on shaky ground and Americans, as a whole, aren’t saving enough. In other words, many folks’ retirement prospects are looking pretty grim.

Perhaps that’s why, as part of last year’s new tax laws, Uncle Sam decided to increase the contribution limits to IRAs and employer-sponsored retirement plans. Starting this year, you can sock away more money in tax-advantaged accounts and maybe reduce your taxable income, too. Here are the details:

IRAs: The contribution limits have increased to $3,000 per year for traditional and Roth IRAs. The limits will increase to $4,000 in 2005, and $5,000 in 2008. Woo hoo!

401(k), 403(b) and 457 plans: The limits will increase to $11,000 for 2002 and will increase $1,000 each year until they reach $15,000 in 2006.

Catch-up contributions: If you’re 50 years old or older, you can make an additional $500 contribution to your IRA and an extra $1,000 contribution to your plan at work.

Is putting away an extra thousand or two such a big deal? It sure is. For example, using the previous Roth IRA limit of $2,000 a year (or $167 per month), you’d end up with $144,562 after 20 years (assuming the historical average annual return of 11 percent for stocks). However, if you increase your annual contribution to the new limit $3,000 a year, or $250 a month you’d have $216,410 in 20 years. That’s a $71,848 difference

Now is the time to adjust your retirement plans:

If you have money automatically transferred to a retirement account, increase the amount of your contributions.

If you need to open an IRA, do it don’t put it off.

If you aren’t sure your retirement plan is on track, find out.

If you’re not comfortable making financial decisions on your own, find an objective financial professional to advise you one who won’t try to sell you anything.

You’ll find a lot of guidance and help at www.fool.com/pf .htm, www.kiplinger.com and “Simple Money Solutions” by Nancy Lloyd (Times Books, $23).