Archive for Sunday, October 16, 2005

The Motley Fool

October 16, 2005


Name that company

Not long after the Wright brothers took flight in 1903, my founder turned a shipyard into an airplane factory. Business stalled after World War I, so for a while I made furniture and boats. You may have heard of my B-52s or my Stratoliners, or you may have flown on one of my 707s, 727s, 747s or even my Air Force One. I've also made subway cars and wind turbines, among other things. Since 1996, I've merged with or bought part of Rockwell International and Hughes Electronics and merged with McDonnell Douglas. I moved my headquarters from Seattle to Chicago in 2001. Who am I?

Last week's question and answer

I was founded in 1833, when two fellows began selling herbs, roots, leaves, bark and vegetable extracts. Today I'm the 16th-largest corporation in America, raking in more than $50 billion annually. I'm the leading provider of supply, information and care management products and services to the health-care industry, helping firms reduce costs and streamline processes. I provide pharmaceutical and medical-surgical supply management, such as health-care information technology for hospitals and physicians, and hospital and retail pharmacy automation. Based in San Francisco, I employ more than 24,000 people worldwide. Who am I? (Answer: McKesson)

529 Plans 101

Saving for a college education is a daunting task, especially with many schools already charging more than $20,000 per year. To maximize savings while minimizing taxes, many folks are using Coverdell IRAs (formerly known as Education IRAs) and custodial accounts. There's also a (relatively) new option you should consider: the 529 Plan.

A 529 Plan allows you to either prepay tuition for qualified colleges or save funds in a tax-free account to be used to pay higher education costs. You can do this for any child in your life - your kid, your grandkid or the kid next door who mows your lawn. (If you're going back to school, you can even set up a 529 Plan for yourself.) You don't necessarily have to live in the state of the plan that you choose, either.

A 529 Plan allows you to sock away huge sums of money - more than $200,000 in some states - vs. the maximum annual Coverdell IRA contribution of $2,000. Most 529 Plans have no age or income limitations, so higher-bracket taxpayers can participate. Another advantage is that the person who establishes the account decides when distributions may be taken.

Also, 529 Plan earnings aren't taxed, so you can build a big war chest much faster than if you had to pay taxes on the investment gains and income every year. When the money is used to pay for qualified college expenses, the earnings are federal tax-free. (This is true through 2010, at least.)

There are some drawbacks to 529 Plans, though. If the student doesn't go to college, there may be a 10 percent penalty on the earnings, depending on the circumstances.

Additionally, the funds in the 529 Plan account are managed by plan administrators, not by you (which is actually a plus for some folks). Finally, once the money is in the plan, it must stay there - or in another 529 Plan.

Still, 529 Plans are many people's best bets. Some are much better than others, though. Learn more at,, and "The Motley Fool's Guide to Paying for School" (Motley Fool, $12.50) by Robert Brokamp.

Healthy Amazon

Online retailer (Nasdaq: AMZN) took another step toward redemption recently when Standard & Poor's raised Amazon's rating from B-plus to BB-minus. This means that although Amazon's creditors aren't exactly staring at investment-grade paper, at least they're getting closer.

The timing of the upgrade is sweet, considering that U.S. retail sales dipped by 2.1 percent in August, the nation's worst showing in nearly three years. It's also a handy retort to cynics who figured that the company was a likely bankruptcy candidate a few years back, given its red ink at the time.

In fact, Amazon, a Motley Fool Stock Advisor ( recommendation, is in much finer shape these days. This past quarter, the company's free cash flow rose by 37 percent on a 26 percent spike in sales. And today's Amazon also is a global force, with 45 percent of its worldwide sales coming from outside the U.S.

The higher rating means creditors should offer lower borrowing rates, perceiving loans to Amazon as less risky. Then again, Amazon's been working on a better plan to achieve the same end: It's been paying off its debt. It now sports $1.5 billion in long-term debt, quite a bit less than the $2.3 billion on its balance sheet at the end of 2002. Sales have nearly doubled in that time, too. This is a healthy, growing company.

Golden tongue, bad advice

In the early '80s, I thought I'd get rich on options. I bought a "call" on Kerr-McGee on the sole recommendation of a golden-tongued snake at a brokerage firm. I should have done the opposite and bought a "put." The stock hit the floor and I lost my wad. Next, I left my investments with a highly touted stock adviser. Since 2000, my portfolio has been hemorrhaging. It boasts a very impressive list of large-cap stocks, but very few shares of each, with lots of trading done each month. I made the brokerage a lot of money! After losing about 60 grand, I think I can do better with The Motley Fool and some more studying. - Ken, Richmond, Utah

The Fool Responds: As you learned, options can be tricky, and many brokers and advisers are not looking out for your best interests. That's why we've long urged people to learn more and take control of their finances. No one has your best interests at heart more than you do. That said, there are some great advisers out there who can guide you. Learn how to find them at and


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