Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman, host: With us this week we have Senior Editor Mike Ozanian, Editor Bill Baldwin, Staff Writer Chana Schoenberger and Senior Reporter Victoria Murphy. Bill, you first. If you bet on Bush’s tax plan, if it’s passed, what stocks would you buy?
Bill Baldwin, editor: First of all, I’m not guaranteeing it’s going to pass the way he wants it to. But if he does get what he wants, forget that 8-cent dividend from Microsoft (MSFT). It’s not who has yield, it’s who pays taxes
David Asman: We should talk about that. Microsoft just announced it’s coming out with a dividend.
Bill Baldwin: Yeah, that was big news for Bill Gates to give away some money. What matters is what corporations pay taxes. If your corporation has lots of loopholes and doesn’t pay genuine federal income taxes, it has no tax sheltered revenue dividends to pay out.
David Asman: All right. That’s the theory. Give us some names.
Bill Baldwin: Philip Morris (MO). It has about $3 a share. In potential tax sheltered income, it can pass out.
David Asman: We see ChevronTexaco (CVX) and Jefferson-Pilot (JP) as well. What does Jefferson-Pilot do?
Bill Baldwin: They’re mostly an insurance company.
David Asman: Mike, what do you think?
Mike Ozanian, senior editor: Well, I think the big picture with this tax cut plan that could affect the economy is allocation of capital. We’re going away from individual stocks here. Microsoft is a perfect example of that. It used to earn 38 percent five years ago on shareholders capital. It’s down to about 18 percent. That’s very profitable, but now they should be returning money to shareholders and that’s why this is important.
David Asman: Victoria, are a lot of people in Silicon Valley are thinking maybe they will start issuing these dividends if they haven’t thought of doing that before. Do you know any companies getting ready to do that besides Microsoft?
Victoria Murphy, senior reporter: Yeah, I think some are. I’ve heard some announcements, including Yahoo! (YHOO). They are saying they are considering it. But you have to realize that you’re not buying growth here. These companies are using their funds to go towards the government, as opposed to future growth and that’s the only complaint I would make. It’s kind of a coupon clipping strategy in investing.
David Asman: Victoria, we’re going to get back to you in just a minute about Yahoo!. We’re going to go over to Mike. A lot of big changes are going on at AOL (AOL). Is that going to turn the company around?
Mike Ozanian: No it’s not. Parsons is the new chairman. It’s pretty much the same. Don’t buy this stock unless they announce they are going to break it up. Specifically, get rid of the Internet part, AOL. It’s sucking cash out of the company; about 20 percent reductions in cash flow because of the Internet business alone. If they do spin it off, the stock price will go up.
David Asman: Quickly, Chana?
Chana Schoenberger, staff writer: Think about it as a Jack Welch play. AOL Time Warner is in the top one or two places in a lot of the markets it competes in. So, maybe we better buy this stock.
David Asman: We want to go out to Victoria. Yahoo!, how’s it doing?
Victoria Murphy: Yahoo! had a great quarter. Revenues were up 51 percent. The Internet portal has been profitable for three quarters in a row. It’s amazing. Here’s the problem. Its stock price is like it’s 1999 again. It’s trading at 75 times earnings, which is really high, especially compared to the NASDAQ, which is closer to 48.
David Asman: So, Bill, we missed it on Yahoo!.