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Recap of Saturday, Jan. 18:Coach; Leapfrog

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!.

Bill Baldwin: Well, I have another problem with Yahoo!. On my home computer, it’s kept on my hard drive and on my home page and I can’t get rid of it. It’s like a virus. I don’t like it.

David Asman: Victoria, do they get this? That folks don’t like all that junk?

Victoria Murphy: I think they do, but that junk is making them money. Their ads were up 40 percent this past quarter. Sorry Bill.

David Asman: Bill’s going to have to swallow that and live with it. Moving on. Chana, tell us about DuPont (DD).

Chana Schoenberger: DuPont is the company that brought you molecules like nylon, teflon and lycra and that’s how people know them, but DuPont’s making some big bets on other things besides chemicals. It’s betting a lot on a new fiber they call cerona, which is a corn-based fiber made out of this funky genetically modified bacteria.

David Asman: Wear the soup, and then eat it?

Chana Schoenberger: Well, no. It uses corn, instead of oil, so it’s sustainable. They’re also doing things like fuel cells and they’re working on new flat panel displays. It’s cool stuff. We like them.

David Asman: Fuel cells. That’s a new technology.

Bill Baldwin: I don’t think that’s going to be very commercial.

David Asman: Fuel cells won’t be commercial? People are buying those cars, right?

Bill Baldwin: Well, in 20 years they will.

David Asman: So, it’s a bet on the future, essentially. Ok, we have to leave it at that.

Makers & Breakers

David Asman: Our guest stock picker this week is Kevin Rex, senior financial counselor at Summit Financial Resources. Here are the stocks he’s brought along with him. Coach -- you might have heard of them, high-end handbags and accessories. And LeapFrog -- they make educational toys and tools. He owns both of them. But would these two own both of them? Editor Bill Baldwin and Senior Editor Elizabeth MacDonald. Kevin, good to see you here.

Coach (COH)

Kevin Rex, senior financial counselor: MAKER

I love their marketing plan. Coach is a very high-end, non-cyclical retailer.

David Asman: Used to be part of Sara Lee, right?

Kevin Rex: Yes. Very non-cyclical, though, with a loyal customer base. I love their marketing plan. They have very favorable demographics. Their target market is 25-40 year old females earning six figures. They’re branching out to 18-24 year old group with 61 percent of college students being female. I love the demographics.

David Asman: Let’s talk to the target audience. We’ve got one right here. Elizabeth MacDonald. What do you think of this stock?

Elizabeth MacDonald: MAKER

I love this stock. I am a maker on it. I see it going from 31 to 40. How can you go wrong with a company that can sell a $20 item for $350? I also like that they’re expanding into Japan. That’s a key market and the earnings stats are coming in strong. I like this stock.

Bill Baldwin: BREAKER

Sorry Kevin. Sorry Liz. No fashion company is worth 35 times earnings and especially no ladies handbag company is worth 35 times earnings.

David Asman: Well, What do you know about ladies handbags?

Elizabeth MacDonald: It’s also shoes and boots and a lot more merchandise.

David Asman: One for. One against. Let’s move on.

LeapFrog (LF)

Kevin Rex: MAKER

LeapFrog has created a sort of annuity for itself. They sell educational computers where you can buy special cartridges for their computers. The cartridges are ongoing lessons. They have now infiltrated the public school system. They have a deal with Texas and they just closed a big deal with Utah. I see no reason why LeapFrog couldn’t move through the various states.

David Asman: Bill, what do you think?

Bill Baldwin: MAKER

The thesis here is that if you buy these toys for your kids, they’ll get into medical school and if you buy other companies toys, your kids will grow up to be supermarket checkout workers.

David Asman: All right. Sounds good. I wonder if it works.

Elizabeth MacDonald: BREAKER

It’s trading at 65 times earnings and it’s double its IPO, plus its cash from operations are not coming in as great as I’d like it. I would wait until the stock was a little bit cheaper.

David Asman: Two split decisions. You didn’t do too badly today, Kevin.