“College kids don't need new cars! - FOXBusiness” plus 1 more

College kids don't need new cars! - FOXBusiness

Posted: 22 Nov 2010 10:42 AM PST

College kids don't need new cars!

Dear Dave,
I'm 24, and I'm finishing up college. I've been driving an old, used car for a while now, and I'm thinking about getting a new one. I've managed to save up about $30,000 from my jobs, but every time I go to a car dealer they want me to finance a new car instead of paying cash for one. What do you think I should do?
Devon

Dear Devon,
Who gives a crap what the car dealers want? This is your purchase, not theirs. Besides, the only reason they want you to finance is so they'll make a lot more money off the deal.

Dude, you're a 24-year-old college student who has been smart enough and industrious enough to scrape up $30,000 over the last few years. You don't need to throw a huge chunk of that into something that's going to go down in value like a rock. New cars lose 60 percent of their value in the first four years. A $28,000 car would be worth around $11,000 after that period of time. That's not what I call a smart investment.

You don't need a brand-new car, Devon. Once you've got a million dollars in the bank, then you can go out and buy a new car. For now, you need to stick with good, used, low-mileage vehicles that are about three or four years old.

If I were in your shoes and had your budget, I'd shop around and pay cash for a cool little $10,000 car. You can get a great automobile for that kind of money, plus you'll still have the majority of your savings sitting there!
—Dave

No, no, no!

Dear Dave,
Should I take $20,000 out of my thrift savings account to use as a down payment on an investment property? My payment would be $1,200 a month, and I could lease it for $1,500 a month. It will also give me a better return than if I left it in my savings account, even with all the penalties. What do you think?
Cecilia

Dear Cecilia,
So, you want to cash out retirement, and take a penalty, to buy an investment property. And on top of that you're going to take on debt, too? This is like combining two dumb things into one big mess. I don't think so!

I understand the allure of real estate. I love real estate. But it's pretty obvious you've never been a landlord. Bringing in $1,500 and paying out $1,200 sounds good to you, but there's also a lot of risk involved, and that's something you haven't figured into the equation. Sometimes you have places that just sit there empty. Other times you have renters who don't pay, things that need fixing, or people who just tear stuff up.

The idea that you're going to make a bunch of money off this situation is pure fantasy. Don't go there!
—Dave

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UGG-ly shoes. Pretty profits. - CNN Money

Posted: 22 Nov 2010 09:52 AM PST

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By Paul R. La Monica, assistant managing editorFirst Published: November 22, 2010: 12:54 PM ET

NEW YORK (CNNMoney.com) -- Merriam-Webster.com defines a fad as "a practice or interest followed for a time with exaggerated zeal." Some would say that the UGGs, those bizarre-looking Australian sheepskin boots, fit that description to a T.

But can something still be considered a fad if the time that the exaggerated zeal winds up lasting for a period of years?

Deckers Outdoor Corp. (DECK), the company that owns the UGG brand, has been a Wall Street darling for nearly two decades now. The stock is up a mind-blowing 2400% since the company announced its intention to buy UGG in June 1995. Shares have doubled this year alone.

So is now the time to bet against Deckers? After all, fashion is arguably the most fickle business out there and trends can change on a dime. That's exaggerated in the shoe business. Remember when Crocs (CROX) were all the rage?

Crocs has had an admirable comeback this year. Its stock is up almost 200%. But shares of the plastic shoe maker are still trading over 75% below the all-time high they hit in October 2007.

But if you look at the fundamentals for Deckers, it's easy to understand why investors are so excited. Earnings have increased at an average of 30% a year for the past five years. Analysts are forecasting that profits will rise another 24% annually, on average, over the next few years.

With that in mind, some analysts said that Deckers still looks like a good stock to buy now. Sam Poser, an analyst with Sterne, Agee & Leach in New York, said that investors should no longer dismiss Deckers and the UGG brand as mere footwear fashion fads.

"When people think of UGG, they tend to think of the iconic boot. But there is so much there now, including slippers for men and kids and water-proof shoes," Poser said.

He added that Deckers also owns the Teva brand of sandals. That business only accounts for about 5% of the company's total sales (UGG makes up a whopping 92%) but Teva has enjoyed a strong rebound lately. Teva sales rose 52% in the third quarter.

Another positive for Deckers is it looks like short sellers are slowly giving up the fight against the stock, a possible realization that Deckers is for real and is not just another bubble waiting to burst.

As of late-October, the percentage of available Deckers shares being held short was about 8%. That's way down from a level of 15% to 20% a few years ago, Poser said.

There's another good reason the shorts may be throwing in the towel on Deckers. The stock still only trades at about 17 times 2011 earnings estimates.

That isn't exactly a dirt-cheap Payless Shoe kind of valuation. But it's not a ridiculously sky-high Manolo Blahnik type price for the stock either -- especially given its strong growth potential.

Still, investors should always be somewhat wary of hot momentum stocks. And if you've owned Deckers for a long time, it may not hurt to take some money off the table -- or even completely cash in.

That's exactly what investment firm Al Frank Asset Management of Laguna Beach. Calif. just did. In the company's Prudent Speculator e-mail note to clients Friday, analysts said they "reluctantly said goodbye" to Deckers.

The Al Frank analysts wrote that the stock was one of the firm's "biggest winners ever." They indicated they first bought it in May 2001 at a price of $1.31 a share and sold their remaining stake at a price no lower than $66.83.

The analysts conceded that "the top and bottom lines at the UGG purveyor have for years defied the gravity that usually deflates most companies operating in the fickle fashion footwear biz" and that they expected the strong growth to continue. But they added that "the shares have become too richly priced to justify a continued hold."

You can hardly blame the firm for taking profits after a more than nine-year investment that generated gigantic returns.

But another analyst argues that the stock isn't even as pricey as estimates indicate when you consider that Deckers has had a history of issuing conservative guidance and subsequently blowing away analysts' projections.

As strange as it may sound, Deckers could very well be the Apple of the shoe business.

Taposh Bari, an analyst with Jefferies & Co., wrote in a research note last week that he thinks current revenue and earnings estimates for 2011 are too low. He also points out that the company has a pristine balance sheet, with $250 million in cash and no debt.

Bari estimates Deckers will finish next year with $350 million in net cash. When you factor that into the equation, he argues that the core Deckers business is trading at just 10 times 2011 estimates.

Sure, many still think the UGG is a fashion faux pas. One definition for UGG on the snarky Urban Dictionary website is that they are "hideously unattractive footwear named after the mind-possessing ugg gnomes living inside the thick material who convince girls that the boots actually look good with skirts."

But there is nothing hideously unattractive about shares of Deckers.

- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney.com, and Abbott Laboratories, La Monica does not own positions in any individual stocks.