I read that Dunkin’ Donuts is planning a $400 million initial public offering (IPO). With close to 10,000 locations worldwide, shouldn’t the company be worth more than that? Starbucks has a market cap of more than $25 billion. – M.R., Denver
When a company first issues shares to the public, it often sells off just a portion of itself, in order to raise money. If Dunkin’ Donuts were selling all of itself, that would indeed reflect a total value of $400 million. But if it’s selling just 10 percent, then the implied value is $4 billion. Once the shares debut and are trading in the market, their price will reflect how investors are valuing the company.
Which brokerages charge very low commissions to buy or sell stock? – N.C., Watertown, Wis.
Trading commissions are as low as $8 to $10 per trade at E*TRADE, Fidelity, Charles Schwab and TD Ameritrade. It’s $7 at Scottrade and Firstrade, and you can find even lower rates elsewhere.
Look at more than commissions, though. After all, if you buy or sell stocks only a few times a year, finding the lowest commission rate won’t save you all that much and other brokerage features might be more valuable to you. Meanwhile, some brokerages have been charging quarterly account fees just for having an account with them. These are often waived if your account is large enough.
When shopping for a brokerage, look at all the fees it charges and consider its conveniences (such as local branches, a wide variety of mutual funds or check-writing services) and how well it meets your needs.
For comparison data on brokerages, visit www.broker.Fool.com, or look up SmartMoney magazine’s annual brokerage review.
MY DUMBEST INVESTMENT
One of my worst investments has been in Qiao Xing Universal Resources. When I bought it a few years ago, it felt like a no-brainer. It was a Chinese company making mobile phones, but I soon learned that it was expanding into mining for metals. That seemed strange, adding a business line completely different from making cell phones. At the time of my purchase, China was the hot-stock nation, and I could see the popularity of mobile phones continuing to grow rapidly in the world. I was not able to see, though, how the phone market would become super competitive and that smartphones would become widespread. More research on my part might have made this clearer. – R.H., Arlington, Texas
The Fool responds: It’s never enough for a company to be in an exciting business such as something technology-related, or operating in an exciting region, such as population-rich China.
You always need to evaluate a company’s health, competitive advantages, growth prospects and price. Some companies with diverse business lines do well – look at GE – but you’re right to wonder about any shift in focus.
Born in Grand Rapids, Mich., in 1912, I’m the world leader in office furnishings. My first patent, in 1914, was for a steel wastebasket (then-standard straw ones were fire hazards). Next came fireproof desks for a skyscraper. Gen. Douglas MacArthur and Japanese officials signed surrender documents ending World War II on one of my tables on the USS Missouri. I introduced Movable Walls in 1971. Today I sport three main brands – Turnstone, Coalesse, and my namesake. One of my sub-brands, Nurture, focuses on space and health care environments. I rake in more than $2 billion annually. Who am I?
Last Week’s Trivia Answer: Founded in 1899 in Pennsylvania as a mitten and glove company, today I’m a $10 billion enterprise and the world’s largest apparel company. You may have heard of some of my brands: Wrangler, The North Face, Lee, Vans, Nautica, 7 For All Mankind, Eagle Creek, Eastpak, Ella Moss, JanSport, John Varvatos, Kipling, lucy, Majestic, Red Kap, Reef, Riders and Splendid. I’m growing rapidly abroad. My name, now abbreviated, used to evoke a famous work by Thackeray. My stock has gained an average of more than 14 percent annually over the past 20 years. Who am I? Answer: VF Corp.
THE MOTLEY FOOL TAKE
CVS Caremark (NYSE: CVS) has been on a roll lately, despite its controversial and thus far unsuccessful attempt to combine the pharmacy benefit management business of Caremark with its retail pharmacy business.
There are several catalysts that can turbocharge CVS’ stock in the coming years. For starters, pharmacy companies should see higher profit margins and increased profitability amid a wave of generic drug introductions between now and 2015. The patents on most of the top-selling drugs in 2010, such as Lipitor and Plavix, are scheduled to expire over the next several years.
Not only will the drugs that CVS retails in the coming years be more profitable, but it will also sell more of them to an aging U.S. population. According to the Census Bureau, the number of U.S. residents age 65 and older is expected to more than double by the middle of the next century, to 80 million.
CVS can use its expanding customer base and higher-margin products to generate outstanding shareholder returns over the next several years. While other companies will also benefit from these trends, CVS is cheaper than many on a number of metrics, such as P/E and price-to-book value ratios.
Furthermore, CVS’ earnings have been held back by the lackluster performance of its Caremark benefit management business. Any improvement there, or divestiture of the division, could propel CVS stock further.
The Motley Fool is written by Tom and David Gardner for Universal Press Syndicate. Reach the Gardners at fool@ fool.com, or by mail to Motley Fool, 1130 Walnut, Kansas City, MO 64106.
nuggets from omaha
Here are some words of wisdom from superinvestors Warren Buffett and Charlie Munger from the recent Berkshire Hathaway annual meeting, paraphrased:
On housing: Buffett expects the housing market to improve this year. (It’s an important factor for him, as Berkshire Hathaway owns companies that sell furniture, bricks, flooring and manufactured homes, and it owns a major real estate brokerage firm, as well.)
On bailouts: It’s one thing to bail out an institution that has social value, but another thing to bail out its shareholders and managers. Said Buffett: “I think that any institution that requires bailing out by society should see its CEO and its spouse left dead broke.”
On nuclear power: Buffet said: “I think nuclear power is an important part of the world’s equation in dealing with its problems. ... I think it’s safe, and I don’t think it’s going anyplace in the United States because of [Japan].”
On perspective: Don’t be looking to make a deal your best one ever. Market conditions and opportunity costs will be different at different times. Don’t compare past and recent deals. Just focus on making a satisfactory deal, one that’s the best that you can do at the time.
On what young people should study: Do anything you can do to improve your own skills – you never know when it’s going to pay off later on. The one diploma Buffett has hanging on his wall is from a Dale Carnegie course on public speaking. Communication skills are what he most recommends developing.
On anger and patience: You can always tell a man to go to hell tomorrow.
On great expectations: Buffett: “Charlie is big on lowering expectations.” Munger: “That’s how I got married.” Buffett: “And he lived up to them.”
Read Buffett’s letters to shareholders at www.berkshirehathaway.com, and Roger Lowenstein’s “Buffett: The Making of an American Capitalist” (Random House, $19).