Recap of Saturday, August 2:Microsoft and Weyerhaeuser

Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:

David Asman: Chana, what do you have for us on retailers? What’s a good one?

Chana Schoenberger, staff writer: Well, I like Target (TGT). I was actually interviewing a professor at Harvard Business School last week, a very well dressed, snappy woman, who could afford to shop anywhere. She said that Target is one of her favorite stores, and I thought, “This is very interesting.” A lot of the retailers have been having bad times recently. SARS and the war and, of course, the recession affected their results, and people are saying the second half is going to be better. So I think that Target is a good bet now.

David Asman: And Mike, if they’ve made money in this market, they can make money in any market, right?

Mike Ozanian, senior editor: The stock’s real cheap right now, it’s a great value. It sells at about one times sales. But I think if I was going to play the retail sector, I would go with Wal-Mart (WMT). It’s much more profitable because they turn over their inventory much faster.

David Asman: Chana, is Wal-Mart better?

Chana Schoenberger: Wal-Mart is the biggest retailer in the world, so it has an extremely efficient distribution system. However, Target is just snappier, and more chic, people like it.

David Asman: And, Mike, you’ve got another retailer.

Mike Ozanian: 99 Cent Stores (NDN). Everything they sell goes for that price (99 cents), and why I like them is because they’re shifting their strategy. Instead of renting more of their stores, leasing the property, they’re buying it, and they’re owning it. So when the property value goes up, they get to participate in the appreciation of the land as well. This was the strategy that made McDonald’s (MCD) very successful in its glory days.

Chana Schoenberger: You have to look at what’s happening to McDonald’s now. I don’t know if you want to buy a real estate play right now.

Mike Ozanian: We’re talking 10-15 years ago with McDonald’s.

David Asman: All right, Bill. Let’s talk about college savings. It’s a tough subject because we put a lot of money in it, where should we put the money?

Bill Baldwin, editor: Section 529 plans are the plans where you can --

David Asman: Section 529 refers to the tax code.

Bill Baldwin: Right. You put your money away for tax-free, compounding as long as you use the money for college tuition. Great. But there are 529 plans, and there are 529 plans. New York State has one of the best (http://www.nysaves.org). It’s run by a super-efficient, very well run company called TIAA-CREF. It’s going to be handed over, this is news, just happened two days ago, to another very efficient, well-run company.

David Asman: By the way, we have to emphasize that you don’t have to live in New York to take advantage of the New York plan, right?

Bill Baldwin: The New York plan gives you a tax deduction if you live in New York, but you can live anywhere and get great, low-cost investment returns.

David Asman: But, do you have to go to a New York college for this?

Bill Baldwin: No you don’t.

David Asman: So you don’t have to live in New York, you don’t have to go to a New York college to take advantage of a plan that can save you how much money?

Bill Baldwin: Well, let’s look at the other end of the spectrum. My booby prize goes to Wyoming. It has a fund that is available to people all across the country, with a really rotten deal. The expense ratio on it, that’s how much of your money gets skimmed off to run the plan, is 3-4 times what you would pay in New York. Imagine that.

David Asman: So, if you went to the New York plan, you could save thousands of dollars?

Bill Baldwin: Thousands and thousands of dollars. With compounding over time, we’re talking a huge difference.

Mike Ozanian: It seems like a no-brainer. Do you have to have to go to a state school, or can you go to a private school too?

Bill Baldwin: This particular kind of plan, go anywhere you want.

Makers & Breakers

Microsoft (MSFT)

Brett Gallagher, head of US Equities at Julius Baer: MAKER

I like it for a combination of two things: Fundamentals and opportunity. The opportunity is that when other tech stocks were off to the races, up in average of more than 30 percent this year, Microsoft has not done anything; it’s up less than 2 percent. Fundamentals: during this entire period, while other tech companies have talked about how far sales were down, Microsoft has continued to grow revenues, 11 percent compared to last year. And if you compare it to the peak, June 2000, they’re generating 40 percent more cash today then they were at that time.

Dennis Kneale, managing editor: MAKER

I think Brett’s right on Microsoft, and there are two other points. First there’s, what, $40-50 billion in cash the company’s got sitting there? And second, they are rapacious, unrepentant, monopolists. These guys are killers still.

Elizabeth MacDonald, senior editor: MAKER

I agree. I’m a maker on Microsoft. It’s been stuck in a flat trading zone, $21-28, over the past year. This stock is going to pop. Because of that $49 billion cash hoard, they are going to start buying back stock, and they’re possibly going to make more acquisitions.

Weyerhaeuser (WY)

Brett Gallagher: MAKER

Weyerhaeuser has got some great opportunities ahead of it as well. The biggest one coming from the fact that we think the US dollar is going to weaken dramatically over the course of the next couple of years. The US trade deficit, huge. There’s only one way to correct it, it’s the dollar. When the dollar weakens, you want to buy a company that is a commodity producer in that country.

Elizabeth MacDonald: BREAKER

If you were going to make a play on paper, yes you would go with Weyerhaeuser, but I am a breaker on this stock. A third of it’s wood products come from Canada, they’re in a big tariff dispute with Canada right now, and I just think this whole sector has been kind of soft for the past three years.

Dennis Kneale: BREAKER

I don’t like it. I think it’s a really expensive stock. It’s up 50 percent in a year. It’s working with a finite resource, trees, that will only take a couple hundred years to re-grow. It’s boosting earnings by selling off land.

Brett Gallagher: In terms of it being expensive, I disagree. Yes, on a price/earnings basis, but earnings are very depressed. If you look at it compared to sales, it is at one of the most attractive points it’s been in the last 10 years.