From Gross to Net at Alliance Data Systems

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Margins matter. The more Alliance Data Systems (NYSE: ADS) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Alliance Data Systems' competitive position could be.

Here's the current margin snapshot for Alliance Data Systems and some of its sector and industry peers and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Alliance Data Systems

31.9%

22.1%

7.6%

 Western Union (NYSE: WU)

42.8%

24.6%

16.2%

 Total System Services (NYSE: TSS)

49.0%

20.1%

12.6%

 Fidelity National Information Services (NYSE: FIS)

27.8%

14.4%

4.2%

Source: Capital IQ, a division of Standard & Poor's. TTM

Is Synaptics a Cash Machine?

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Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That brings us to Synaptics (Nasdaq: SYNA), whose recent revenue and earnings are plotted below.

You've Got to Be Kidding, Boeing

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Another day, another Boeing (NYSE: BA) delay. Just hours after Bloomberg warned that the Chicago planemaker was mulling another delay in production of its revamped 747 superjumbo jet yesterday, Boeing woke up bright and early this morning and confirmed it.

Seems the company needs to redesign a wobbly "inboard aileron actuator" on the new 747-8, realign the plane's main wheel well, and make literally "dozens" more minor fixes to the plane. Boeing's also testing software to help fix a vibration problem encountered in some early test flights. Together, the fixes and upgrades will postpone delivery on the plane by six months, pushing the monster plane well past the two-years-overdue mark and keeping customers grounded well into mid-2011.

Sitting alongside 'em on the tarmac will be key 747-8 parts suppliers General Electric (NYSE: GE), Spirit AeroSystems (NYSE: SPR) -- which could really use the 747 work, seeing as how GE's "Technology Instrstructure" segment is seeing annual sales declines and Spirit's last quarter was roughly flat year-over year -- and Honeywell (NYSE: HON), less hard up but still struggling with single-digit growth.

Better luck next time
Well, at least it's not the 787 this time. That one's already more than two years overdue. But while we're thanking heaven for small blessings, let's not let Boeing off the hook for announcing yet another delay to a program only slightly lower-profile than its flagship Nightmare-liner.

I mean, I know that building planes is no easy task. Archrival Airbus has certainly had its share of difficulties getting both the A380 airliner and A400M military transport off the ground. Embraer (NYSE: ERJ) encountered turbulence putting its Embraer 190 and Embraer 195 lines in motion. China, Japan, and Russia are all bound to face manifold trials and tribulations as they attempt bring their own planes to market over the next few years. Obviously, Boeing was bound to encounter problems of its own in its effort to bring these groundbreaking new planes to market.

What I cannot for the life of me fathom, is why Boeing continues to persist in promising to deliver these planes on dates certain, and dates certainly overoptimistic -- disappointing its shareholders at every turn.

Remember, Boeing: The idea is to under-promise and over-deliver. Not the other way around.

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EMBRAER is a Motley Fool Stock Advisor recommendation and Spirit AeroSystems Holdings is a Motley Fool Hidden Gems pick, but Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

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How Garmin Stacks Up

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I believe in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should, too. But even I have to admit that some growth stories are bogus -- hence this regular series.

Next up: Garmin (Nasdaq: GRMN). Is the leading maker of global positioning systems (GPS) the real thing? Let's get to the numbers.

Foolish facts

Metric

Garmin

CAPS stars (out of 5)

Will Linear Technology Disappoint Analysts Next Quarter?

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There's no foolproof way to know the future for Linear Technology (Nasdaq: LLTC) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result. Rest assured: Even if you're not monitoring these metrics, short-sellers are.

A cloudy crystal ball
I often use accounts receivable (AR) and days sales outstanding (DSO) to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- days worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

AR that grows more quickly than revenue, or ballooning DSO, can suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Linear Technology do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Linear Technology sending any warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Apple's AirPlay Could Be a Big Hit

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Apple's (Nasdaq: AAPL) Airplay audio streaming system is a technology with the potential to become a Top 10 consumer electronics product, market research firm iSuppli said on Thursday.

AirPlay is a system that streams audio, either wirelessly or over Ethernet, to third-party speaker docks, A/V receivers, speakers and more. Far from just being a way to transmit video from the iPad to the AppleTV, as Apple CEO Steve Jobs demonstrated at its special event on September 1, AirPlay spans the entire audio industry, iSuppli said.

"AirPlay represents another effort by Apple to stake a leadership position in the burgeoning connected home market," said Jordan Selburn, principal analyst, consumer electronics, for iSuppli. "The technology leverages Apple's dominant position in the MP3/PMP player market. With AirPlay, the iPad, iPod and iPhone can be the servers for a home filled with music -- and music distribution via iTunes."

As evidenced by developments at the IFA consumer electronics show in Berlin this month, networked audio is gaining momentum, whether in complete systems like Sonos or in general-purpose equipment such as audio-video receivers supporting open standards such as DLNA. In addition to home music libraries, Internet Radio is also driving an increasing demand for audio that can be accessed seamlessly around the home.

Chief Justice Roberts Sold Pfizer. Should You?

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We run a series here at the Fool pointing out that a famous investor bought or sold a stock and then wondering whether you should follow suit, but the title of this one is rhetorical. I hope.

The fact that the head of the U.S. Supreme Court, Chief Justice John Roberts, sold his shares in Pfizer (NYSE: PFE) is getting a lot of press, but it isn't really relevant to investors -- unless you need to remove a conflict of interest to hear a court case, of course.

I do wonder if people blindly follow the gurus though. How many people try to mimic Warren Buffett's moves at Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) without any regard for how Berkshire Hathaway's needs are completely different than their own? Buffett has even admitted the stupidity of the idea, pointing out that investors can make money buying small cap stocks that he can't touch because he has too much money to invest.

The answer to whether you should buy or sell Pfizer depends on the needs for your portfolio and your view of Pfizer's chances to succeed.

The best thing going for Pfizer right now is its solid 4.1% dividend yield. But that level or better is available from other pharmaceutical companies: Eli Lilly (NYSE: LLY) and Bristol-Myers Squibb (NYSE: BMY) sport higher dividends, while Merck (NYSE: MRK) is on par with Pfizer. You really need a reason for owning Pfizer over other drugmakers.

The integration of Wyeth is going well, and the added revenue will make the loss of Lipitor next year sting a little less. But the company needs to find a way to replace those lost sales and then some to grow. Replacing $12 billion is a difficult challenge.

So should you sell Pfizer? I can see how Pfizer could fit into some conservative portfolios, but many people would be better off with a midsized drugmaker that's growing -- think Gilead Sciences (Nasdaq: GILD) -- or larger pharmaceutical company that has a well-stocked pipeline -- consider Bristol-Myers. Whatever you do, don't sell Pfizer solely because Roberts did.

If you need more alternatives to Pfizer, consider the biotechs that this billionaire likes.

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Berkshire Hathaway and Pfizer are Motley Fool Inside Value recommendations. Berkshire Hathaway is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.

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