Last week’s answer

Inspired by Sir Joseph Lister, who identified airborne germs as a cause of infection in surgery, my founder created me in 1886 with his brothers in order to sell a ready-to-use, sterile surgical dressing. In 1921, one of my most well-known products was launched — adhesive bandages. Today I encompass 198 operating companies in 54 countries. I’m a major maker of health-care products, and serve the consumer, pharmaceutical, and medical device and diagnostic markets. My famous credo defines my responsibility to the medical profession, customers, suppliers, vendors, employees, communities and stockholders — in that order. Who am I? (Answer: Johnson & Johnson)

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.

Kinds of firms

In your reading, you’ll run across many terms used to describe different kinds of companies. Here are some of the most common ones:

• “Cyclical” companies are defined by how their businesses react to economic change. During recessions, people spend money more conservatively, putting off major purchases such as cars and refrigerators. Thus, manufacturers of large appliances are cyclical. Companies such as pharmaceutical firms that aren’t so affected are “defensive.” If you’re taking heart medication, you’re not going to stop because of an economic downturn.
• “Seasonal” companies experience significantly different levels of business at various times of the year. Department stores, for example, see sales surge during the Christmas season. Swimming pool companies operate mainly in the summer.
• “Blue chip” companies have been around a long time and are known for being solid, relatively safe investments. They’re steady growers, usually paying dividends. Examples: General Electric, ExxonMobil, Johnson & Johnson. At the other end of the spectrum are “speculative” stocks, typically tied to young, relatively unknown and risky companies. Many promise great things but have yet to prove themselves. Examples include gold mines or companies trying to develop cures for cancer.
• “Growth” stocks, favored by aggressive investors, grow faster than the market average. They often don’t pay any dividends, using their cash to continue growing. Their stock prices often go up — and down — quickly. Some examples: Amazon.com, eBay. (Railroad and telegraph businesses were growth companies once — fortunes change over time.)
• “Value” stocks are favored by investors looking to buy the proverbial dollar for 50 cents. They seek promising companies that are out of favor.
• “Income” stocks may not grow too quickly, but they pay fat dividends. In pre-deregulation days, utility companies reliably paid high dividends. Today many real estate companies do. Income stocks are often favored by those in or near retirement, who rely on the dividends to supplement pensions or savings.

Note that many companies will fit into several categories, and savvy investors will often seek firms with several characteristics, such as those that are both growing and valued attractively.

A $4,000 scam?

My husband is about to spend $4,000 for an investor workshop. Is it a scam? — B.Z., Morton Grove, Ill.

Not necessarily. If superinvestor Warren Buffett were offering a $4,000 investing seminar, it could be a bargain. But he prefers to share his thoughts for free. (Read his educational letters to shareholders at www.berkshirehathaway.com.) Anyone charging $4,000 for an investing workshop is as likely to be getting rich from the workshop fees as he is from the brilliant investing system being taught. Be cautious. You might look into the track record of the system and teachers, and make sure you can get your money back if you’re not satisfied. Better still, opt for a free or inexpensive education. Consider reading books by Peter Lynch, Benjamin Graham and even some Motley Fool books. Or click over to www.Fool.com, www.better-investing.org, www.quicken.com/planning/basics and www.morningstar.com.

Are there any courses that a local college might offer that would help me become a better investor? — P.A., West Palm Beach, Fla.

There sure are. One of the most useful subjects to understand as an investor is financial accounting. It’s not the most exciting topic to study, but it can make reading financial statements a lot more fruitful (and interesting!). With accounting concepts under your belt, you may be able to spot red flags in balance sheets, income statements and cash flow statements before most investors do.

You can learn a lot about accounting from books, too. Consider John Tracy’s “How To Read a Financial Report” (John Wiley & Sons, $20) or “Understanding Financial Statements” by Lyn M. Fraser and Aileen Ormiston (Prentice Hall, $46).

Three lessons

At the height of the initial public offering (IPO) mania in March 2000, I bought 100 shares of iPrint Technologies at $27 per share a week after the shares came public. It had been recommended in a financial magazine. However, I did not place a stop-loss order to limit losses should the stock fall in value. The next day I left for a five-week trip overseas, during which I was unable to check on the stock. When I returned, it had fallen to $6 per share. I sold it in September 2000 for $3.75 a share. Last time I checked, it was selling for pennies per share. Lessons: Don’t believe everything you read in magazines, and place a stop-loss order if you won’t be able to keep up with the stock. Then, get out when you see it going down for the count. — Jim Maddock, Nashua, N.H.

The Fool Responds: Stop-loss orders can help or hurt. They trigger an automatic sale when your holding falls to a specified level, which can get you out of a dog — or a temporarily faltering but fundamentally sound company.

Yum! Serves it up hot

Yum! Brands (NYSE: YUM), owner of KFC, Taco Bell, Pizza Hut, A&W Restaurants and Long John Silver’s, recently reported succulent financial results. Worldwide revenue heated up 12 percent in fiscal 2002, to $7.7 billion. Ongoing operating earnings rose a whopping 19 percent.

Acquisitions of A&W and Long John Silver’s added significant sizzle to domestic revenue, which grew 11 percent in 2002, but same-store sales at Taco Bell also rose a zesty 7 percent.

The company plans to convert more locations into multibranded combination restaurants, at times using its new acquisitions. These co-branded locations, a concept Yum! pioneered, have superior economics to stand-alones.

Driven by KFC and Pizza Hut, international revenue grew 11 percent last year, while operating profits jumped 17 percent.

Yum! opened 1,051 new international stores in 2002, a company record, with expansion greatest in China. Yum! is already the world’s largest restaurant company, with nearly 33,000 restaurants in more than 100 countries and territories.

Chairman and CEO David Novak said, “The best year any business can have is when you beat your financial plan and set the table for future growth. 2002 was that kind of year for Yum! Brands.”

Management projects “at least” 10 percent earnings growth in 2003 and beyond. With shares recently trading around $24 with a price-to-earnings ratio of 13, the stock could be an appetizing long-term addition to a portfolio.