Archive for Sunday, December 4, 2005

The Motley Fool

December 4, 2005


Name that company

Based in Milwaukee, I was founded in 1885 by the inventor of the first electric room thermostat. Today I'm a "global leader in interior experience, building efficiency and power solutions." I bought Delphi's automotive battery business this year, and made a $3.2 billion bid for York International, a heating, ventilating, air-conditioning and refrigeration giant. I provide automotive seating and interior systems, including overhead, door, instrument panel, and electronics products. I also offer energy optimization and security enhancement for nonresidential buildings. I rake in more than $25 billion per year and employ some 120,000 people. Who am I?

Last week's question

I'm the nation's largest turkey processor, founded in Minnesota in 1891. I debuted the world's first canned ham in 1926 and a year later had salesmen selling from "sausage trucks." The new Monty Python musical might remind you of the famous luncheon meat made of spiced ham that I introduced in 1937. My other brands include Dinty Moore, Homeland, Little Sizzlers, Old Smokehouse, Patak's, Rosa Grande and House of Tsang. In 1986, I bought Jennie-O, the premier turkey product maker. I rake in nearly $5 billion annually and recently paid my 309th consecutive quarterly dividend. Who am I? (Answer: Hormel Foods)

Tootsie Roll

Imagine getting top long-term returns by skipping the risk of high technology and instead investing in conservative growth engines. An example would be Tootsie Roll (NYSE: TR).

Its 16.11 percent compounded annual return from 1957 through 2003 would have turned $1,000 into more than a million smackers. In recent years, Tootsie Roll had no debt and accumulated a sizable cash pile. In 2004, it spent $212.5 million to buy a strong market position in bubble gum from Concord Confections, getting the Double Bubble brand, among others.

The diversification move didn't juice up Tootsie's recent third-quarter results very much. Revenue was up 11 percent, and net income rose an anemic 2.6 percent. Everything from borrowing costs for the acquisition to higher raw material costs hurt net income. Still, the company's after-tax profit margin was a strong 15.9 percent - a much better return than the company was earning on its cash in the bank.

Tootsie Roll is poised to repay the acquisition debt in 2006 and is using its excess cash to repurchase shares and pay a 0.9 percent dividend. It has the excess capital (and lots of borrowing power) to make other acquisitions if the opportunity arrives. With a price-to-earnings (P/E) ratio around 23, its stock isn't a screaming bargain. But its high margins, excellent cash production and shrinking share base offer long-term investors an excellent, conservative investment, with the chance to produce market-beating results.

Tax planning

A little last-minute tax planning can save you a bundle.

Approach your charitable giving with tax efficiency in mind. Contribute appreciated stock, not cash, to your favorite charities if possible. With shares held for more than a year, you'll avoid paying tax on the appreciation, and you'll still be able to deduct the full value of the stock. Call your favorite nonprofit, and the folks there will probably be able to help you with this. (If you're looking for some new favorite nonprofits, learn about the featured charities in our Foolanthropy drive at

Review your capital gains and losses. If you're looking at substantial capital gains on which you'll be taxed in the coming year, you might want to sell some stock for a loss to offset some of the gain.

If you believe that your tax bracket next year will be no higher than this year, you're itemizing your deductions and you won't be bothered by any alternative minimum tax issues, consider making your state and/or local tax payments before the end of this year. You're going to owe the money anyway, so if you pay now, you can take the federal tax deduction this year instead of next.

See whether your employer-sponsored retirement plan permits you to make "catch-up" contributions at the end of the year if your contribution level to date is less than the maximum allowed. (Learn more about 401(k) plans at and

Don't overlook valuable credits that might be available to you. If you pay someone to care for your child under age 13 so that you can work, you might be eligible for the Child and Dependent Care Credit. The Child Tax Credit can save you $1,000 per qualifying child under the age of 17. The Hope Credit offers savings of up to $1,500 per student for qualified tuition and fees paid by or for the student. The Lifetime Learning Credit offers up to $2,000. If you've recently adopted a child, you may be able to enjoy a credit of more than $10,000.

For much more tax information, head to, and

Funds vs. unit investment trusts

What's the difference between a mutual fund and a unit investment trust? - P.D., Tallahassee, Fla.

Mutual fund managers invest in assets according to stated sets of objectives. Shares are issued and redeemed on demand at a specific net asset value that is determined at the end of each trading day (based on the total market value of the fund's holdings). There's no fixed number of shares. If many people want to buy in, the fund company will issue more shares.

Meanwhile, a unit investment trust (UIT) invests in a relatively fixed portfolio of investments. These are held until the trust is liquidated at a predetermined date in the future. Investors who want to trade shares of a UIT before it matures often can do so on the secondary market. Unlike a mutual fund, UIT share prices in the secondary market may be priced above or below the net asset value of the trust's actual holdings. When you buy shares of UITs, you typically pay a sales fee, or load, of around 4 percent or 5 percent; many mutual funds carry no sales load at all.

Learn more about mutual funds at and

Do I need to get the certificate when I buy stock? - W.G., Jackson, Mich.

These days, most brokerages actually hold any stock you buy in "street name" (i.e., their own name) instead of putting the shares in your name and mailing you the certificates. This is routine, and the shares still belong to you. It's a good system for most people, as it means the shares can be sold more quickly. You don't have to find and mail back the certificates to the brokerage. Learn more about brokerages at


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