Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Mike, last week you mentioned Coca-Cola (KO), now you have some information on it.
Mike Ozanian, senior editor: Yeah, Coke (search), you know they’ve sort of come out. They’ve been rigging their marketing tests a little bit on some new soft drinks, some fountain drinks…
David Asman: Hold on. “Rigging just a little bit?” Isn’t there a criminal investigation involved?
Mike Ozanian: That’s true that there is. I, personally, don’t think there’s going to be a big write-off, or charge against earnings, because I don’t think there’s a large-scale accounting game going on here. However, I do think you should sell the stock, it’s at about $46, I think it’s going to go down to $35, and the reason is because there’s a long-term decline in the company’s profitability. And I think that’s why the company is pushing so hard.
Bill Baldwin, editor: Maybe, maybe not, but I wouldn’t put much stock in this so-called “whistle blower suit.” It could be pure extortion, you don’t know if there’s any factual basis to this thing about “they’ve got metal shavings in it.” I don’t buy it. I just don’t buy it at all.
David Asman: Bill, let’s stick with you. Microsoft (MSFT) announced that they are ending their stock option deals for employees. Other companies too, right?
Bill Baldwin: I don’t see a lot of other companies renouncing this, but I think with Microsoft ushering in a new era of integrity, and how people are compensated, it is trouble for option addicts. Cisco Systems (CSCO) is an obvious candidate, so is Apple Computer (AAPL) and would be Adobe Systems (ADBE).
Dennis Kneale, managing editor: I’ll tell you, just to take the opposite view, I think it’s a trouble sign at Microsoft. If you’re a company that is giving your employees options, it’s because you think your stock is going up in the future. Microsoft must have lost some faith.
Bill Baldwin: Maybe, and maybe not. Maybe they just believe, as Warren Buffett does, that the old option game, with the phony accounting, is not such a good idea.
David Asman: All right, Dennis let’s go to the mergers subject, they’re back?
Dennis Kneale: Let’s talk some mergers. This is a chemistry story. The takeover testosterone is back. Within the last few weeks, all kinds of takeovers announced. Look at the industries: auto parts, aluminum, long-haul trucking, data storage, software, medical equipment…
David Asman: So how do we play all this merger-mania?
Dennis Kneale: It’s too hard to play who you think is going to get bought. So play the bankers, who make money. Look at Goldman Sachs (GS), take a look at Merrill Lynch (MER), they’re trading at about what the market is trading at right now.
David Asman: So, whether the mergers work, or if they don’t work, you make money on the bank.
Dennis Kneale: In any gold rush, you ought to invest in the guy who’s selling pick-axes.
Mike Ozanian: He’s absolutely right, but the investment banker I actually like is Bear Stearns (BSC), because the stock’s about $70, which is right about at the book value. Very cheap.
David Asman: Is Bear Stearns one of them, Dennis?
Dennis Kneale: What he said. Oh, yeah.
Makers & Breakers