Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: It wasn't a great Christmas for retailers.
Nathan Vardi, senior reporter: Payless Shoe Source (PSS) is in an interesting position right now because it's the largest seller of shoes in America, by volume, and some smart investors are taking some interesting positions in it because they see a company that is trading for about eleven times trailing earnings but that can sell shoes efficiently for $15 a pair. That way they can keep the Wal-Marts of the world away and consumers coming into the store, no matter what happens to the economy.
Bruce Upbin, senior editor: On a very small volume decline they just announced their last quarter's earnings, and their numbers came down terribly, partially because of that west coast port lockout. With this company it's very hard to predict how they're going to do because they operate on such a fine margin.
Nathan Vardi: The key thing here is long-term trends and the long-term trends are that the discounters are winning, and if you’re looking at discounted shoes, you’re looking at Payless.
David Asman: Now Leigh Gallagher doesn't mess around with Payless, she goes for the big time. Tell us about Neiman Marcus (NMG).
Leigh Gallagher, staff writer: It's on the complete opposite end of the spectrum from Payless, but it's a great time to buy Neiman Marcus because at 12 times earnings the stock is underpriced right now. They cater to a demographic that is impervious to downturns, at least more impervious than the rest of us. They're spending, they had a great first quarter, profits up 23 percent, and I think it's time to get in.
Nathan Vardi: What happens if we go into a war and the consumers put away their wallets? I think that kind of investment is going to be iffy.
Leigh Gallagher: I think that's a risk with all retail stocks right now.
David Asman: Alright, Victoria Murphy, you have a blast from the past. What's the news with Cisco Systems (CSCO)?
Victoria Murphy, senior reporter: Cisco's stock traded up last week on news of a partnership with IBM, and IBM has agreed to sell their storage networking gear. But I think you have to look at a majority of where Lucent's revenues are coming from, which is enterprise networking. In that market, they're getting a lot of pricing pressure from Dell (DELL) and a Chinese telecom equipment maker, so I think that long-term they're in a harder position than just this one time partnership that gave them a boost.
Bruce Upbin: I don't know why she's so down on it. These guys are not going away. They have $20 billion in cash, and they make $200 million in cash every month. And the market's all going to be coming to them because they're going to be the ones left standing. And the stock's worth about $20.
David Asman: Well, let's keep it with you Bruce. Regulation is something that dogs a lot of companies. We've been hoping for lower regulation, but haven't seen much.
Bruce Upbin, senior editor: The top phone company regulators in Washington are talking about getting rid of these rules that force local bell companies to lease access to their equipment to competitors at below-market prices. The bells want to get rid of it, and it looks like in about two years time, maybe they will. If it happens, it will be a great thing for Lucent (LU) and Nortel (NT) and Alcatel (ALA), all those downtrodden equipment makers.
Victoria Murphy: I'm going to disagree with Bruce. You might see a one-time boost to revenues because of this announcement if it goes through, but long-term there are tons of these smaller telecom carriers that aren't going to have enough cash to continue spending. So I think the kind of growth that Wall Street looks for isn't there.
Bruce Upbin: The bells are going to end up having to spend too. The reason they're not spending now is because they have to rent this stuff out at low prices
Leigh Gallagher: Let's not forget that this is a big "if." I think this is an early bet. "If this passes" is a big "if." They're going to vote in February and it's not a guarantee. In fact, there are two voters on the commission that are against it and one swing voter who is probably going to vote against it too.
Makers & Breakers
FedEx (FDX)
Liz Miller, portfolio manager at Trevor, Stewart, Burton and Jacobsen: MAKER
They're very leveraged to the improving economy that we see. They're the overnight win. They make overnight deliveries, it's the bulk of their revenue, but they've made great strides in ground delivery. They're a clear number two to UPS but a good competitor. I think both companies will do very well shipping a lot more boxes in an improving economy, and FedEx is just a little bit cheaper.
Mike Ozanian, senior editor: BREAKER
The company only earns three and a half cents for every dollar of revenue. Half of what UPS pockets. Moreover there's a lot more competition coming in to the ground carrier business, so I'd stay away from it.
Jim Michaels, editorial vice president: MAKER
I can't argue with Mike's figures, but I think that's priced into the stock. The difference between their market capitalizations is like three and a half to one. I think the difference is more than priced in. I think this is a company that has a lock on a real growth market. I like the stock. However, I must add I wouldn't buy it at this price. I'd buy it cheaper.
David Asman: UPS is a lot bigger, so why didn't you choose UPS rather than FedEx?
Liz Miller: We really like to look at things as an industry, and I agree UPS is equally interesting. FedEx has a lot more leverage to an improving economy and just as one might see those margins as low, I see them as an opportunity.
Diebold (DBD)
Liz Miller: MAKER
We all know them as our cash machines at the bank. They service those ATMs as well, but over the last couple of years they've gotten much deeper into all kinds of self service machines, which is a growing trend. The big kicker is voting machines. They've just had a successful run in the state of Georgia in this election. I think it could be a good upside addition to their revenue in the 2004 election.
Jim Michaels: MAKER
You might add that they're also in this electronic kiosk business, which is going to explode too. I like the company. I think it's got some good markets. It's got some earnings growth built in. Again, I think it's pricey, but I like the company. I can't knock it.
Mike Ozanian: MAKER
The servicing on the ATM machines serves as annuity. The company generates a tremendous amount of cash. It has a long history of increasing its dividend. And it's moving into China, it just got a contract with two big banks there, which I think is going to accelerate it's earnings growth.
David Asman: It's at about a 52 week high, is now the time to buy?
Liz Miller: It is. I think you'll get another chance to buy, but if you look back to 1998 at it's previous high, the stock's been over 60, and I think it certainly can see 60 again.
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