Filed under: Columns, Money and Finance Today, Personal finance

This is the part of a new series of columns called “The Naked Truth,” by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he’ll answer as many as he can.

Question: What are your thoughts on deferred annuities?

Answer: I think they are great…for insurance salesman (big commission items) and insurance companies (little risk; massive reward).

For most investors they’re an costly and ill-suited product.

Let’s disassemble the sales pitch and see what lies underneath these products:

The much-hyped “death benefit” really isn’t much of a benefit. The guaranteed benefit is calculated as the value of your contributions, minus any withdrawals. You are funding your own “death benefit.” There is tiny possibility of the guarantee coming into play. How likely is it that the value of your account at the time of death will be less than what you originally invested?

The cost of this “benefit” is typically 1.25% for the life insurance portion. According to one leading study, this fee should be closer to 0.15%, making this expense 800% higher than it should be!

Tax deferral is the large selling point. Is this really a benefit?

If you’re buying the annuity within a 401(k) or a 403(b) plan, the appreciation on all investments is already tax deferred.

When you withdraw the money from the annuity, you’ll be taxed at ordinary income rates in effect at that time (and who knows what they will be?), instead of the historically more favorable rates applicable to long-term capital gains and qualified dividend income.

The bottom line is that the vast majority of investors would be far superior off investing in a properly allocated, globally diversified, portfolio of low cost index funds.

Dan Solin is the author of The Smartest Investment Book You’ll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You’ll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com

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Filed under: Before the bell, Earnings reports, Management, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Toyota Motor Corp. (TM), Employees, Sony Corp ADR (SNE), KB HOME (KBH), Intuit Inc (INTU)

Before the bell: Futures drift lower as oil sets another record high

Since Apple Inc (NASDAQ: AAPL) is no longer insisting on revenue sharing from mobile operators selling its iPhone, China Mobile Ltd (NYSE: CHL) said this cleared the biggest hurdle in bringing the iPhone to mainland China. They just have to resolve some practical issues now.

KB Home (NYSE: KBH) shares climbed over 5.8% in after-hours trading Thursday. The builder is to report results this morning, a quarterly loss is expected.

Sony Ericsson, the joint venture between Sony (NYSE: SNE) and Ericsson (NASDAQ: ERIC) warned Friday it might not see any profit growth in the second quarter, due to slowing demand for some of its higher-priced phones and a delay in shipping new models to the market and will also experience a gross margin squeeze. ERIC shares are down about 6% in premarket trading.

Intuit Inc. (NASDAQ: INTU) will cut about 575 jobs, or about 7% of its workforce, as the result of a reorganization to Internet-based service. The company anticipates the cuts to result in a 4 cents a share charge, in the fiscal fourth quarter. Intuit now sees an adjusted fourth-quarter loss of 7 cents to 9 cents a share, a more massive loss than analysts had estimated.

An era is about to end Friday as Bill Gates ends his full-time tenure as Microsoft (NASDAQ: MSFT) — the world’s largest software company — leader. The Microsoft founder and visionary leaves the company after a failed attempt to acquire Yahoo! Inc. (NASDAQ: AAPL) as it tries to gain market shares in world wide web search where Google Inc. (NASDAQ: GOOG) dominates. It will be interesting to see how the company continues on without his daily guidance, and if anything, perhaps something to watch as investor worry what will happen if Steve Jobs retired.

Toyota Motor Corp. (NYSE: TM) “may implement a broad price hike for vehicles and trucks sold in Japan to help offset surging prices for steel and other materials, according to a Japanese media report Friday.”

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Filed under: Forecasts, Deals, Consumer experience, Competitive strategy, Google (GOOG), Microsoft (MSFT), Entrepreneurs

This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that might eventually succeed them.

I remember way, way back to November 2006 when Wall Street was stunned that Google (NASDAQ:GOOG) was paying the ungodly sum of $1.65 billion for privately held YouTube. How were they to monetize this goofy, home video web site? Since November 2006, it appears that Google got a bargain when compared to other social networking web sites.

Facebook has over 80 million users including a new Facebook profile for Democratic presidential nominee Barack Obama. Facebook attained Wall Street relevancy last year when Microsoft (NASDAQ: MSFT) concurred to pay the unheard of $246 million for a 1.6% ownership stake. That October 24, 2007, Microsoft investment valued Facebook at almost $10 billion in the private equity world. As of yet, there’s no filed Facebook IPO, but investors bet the company will file an IPO before the end of 2009.

The new player capturing headlines in the social networking world is LinkedIn. The company is designed for the business and professional world. The more than 23 million registered users represent over 150 different industries. It’s a place to swap ideas, best practices and other opportunities.

LinkedIn was founded in 2002 specifically for the business community. LinkedIn just received a $53 million venture capital investment led by Sequoia Partners. The $53 million represents a 5% stake in the company, therefore valuing LinkedIn at $1.06 billion.

The easy business model of social networking web sites grants for an instant global presence, thus enhancing the underlying values of these companies. In the case of Google, the monetizing of YouTube will begin shortly as Google strategically places swift 15 second ads on the bottom of the requested video. Google will be watched closely by other industry insiders as no one wants to cheapen the freedom and ease of use of the social networks by cluttering them with countless ads.

With fresh growth capital, LinkedIn will expand its marketing efforts globally and grow its user list. The user list is the most valuable asset and Sequoia Partners valued each member at over $50.

The next couple of Google-type IPOs may come from this sector of the World wide web … stay tuned.

Georges Yared is the editor of YaredsGameChangers.com and the author of the new report “How to Spot the Next Google.”

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Filed under: Products and services, Industry, Consumer experience, Competitive strategy, Entrepreneurs

This post is part of our Massive Company, Small Town series, featuring huge companies and the small towns in which they’re headquartered.

Is there any piece of furniture more classically American than the La-Z-Boy recliner? It goes hand in hand with the image of Dad — any Dad, all Fathers, from the 1950s to today — enjoying the easy pleasure of sitting with his feet up and his head back, tempting sleep as he reads the paper. After a long day at work but before the wife puts a delicious roast on the table, there’s always time to relax a bit in the world’s most famous comfy chair.

La-Z-Boy (NYSE: LZB) invented the first version of that iconic chair in 1929. The company got its start a few years earlier when two cousins, Edward M. Knabusch and Edwin J. Shoemaker, founded the Kna-Shoe Manufacturing Co. in Monroe, Michigan. They made furniture and cabinets in the proverbial start-up garage, and they has some initial success, especially with new designs like the Gossiper, a bench with a phone stand built in. But competitors kept stealing their designs and their profits. So when someone recommended that they upholster their popular wooden recliner, they proceeded carefully, filing for patents and choosing a distinctive name. Sit-N-Snooze and Slack-Back were in the running, but La-Z-Boy was the name they finally selected for the world’s first reclining upholstered chair.

The La-Z-Boy was a large hit, even though it hadn’t yet achieved its truly classic form. That occurred in 1953, when the Otto-Matic model was introduced. The long-running problem of the ottoman, a separate piece of furniture needed to support the feet while relaxing in a comfy chair, had now been solved. From now on, the ottoman was rendered superfluous, since the La-Z-Boy could offer a built-in foot rest. Oh, sweet perfection!

But could even perfection be improved upon? Of course! Even though Dad could now rest with his feet supported as he leaned back and gazed blissfully at the ceiling, what if he wanted to rock? The folks in Monroe took care of that little problem in 1962 with the Reclina-Rocker, known internally at La-Z-Boy as “the miracle of chairs.” This chair was another big hit, and helped boost sales 50-fold during the 1960s.

Despite these wondrous developments, La-Z-Boy retains a certain simplicity, and you could even say homeliness. Although the chairs are certainly comfortable, they’re also famous for their unsightly fabrics (think brown and fuzzy) and sometimes over-the-top features (think built-in beer cooler). I suspect that this has a lot to do with the company’s Midwestern roots. A company based in a small town located between Toledo and Detroit probably isn’t going to generate the world’s most sophisticated designs.

At the same time, La-Z-Boy has long been a great example of the plain, Midwestern values of simplicity, honesty, and low-key innovation. When the founding cousins opened their first retail store in Monroe, on a former cornfield on Telegraph Road, they hired circus performers to entertain the kids of prospective customers. That down-home sensibility helped the company grow and eventually go public in 1972.

Like much of the industrial Midwest, though, La-Z-Boy and Monroe have faced tough times lately. Most chair production has been moved to low-wage locations in the American south and Mexico. But the iconic chair lives on, and now offers an even wider range of options. In addition to sitting, reclining, and rocking, Dad can now chill his beer and make phone calls all from his La-Z-Boy chair. Let’s all take a moment to salute American inventive genius at its most comfortable.

Be sure to check out more Huge Company, Small Town posts.

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Filed under: Industry, Stocks to Buy

Over the last few months, real estate investment trusts (REITs) have shown that they’re able to survive in tough conditions, at least compared with most other stocks. However, there have been signs of weakness for REITs lately and this is prone to continue.

With recession fears still looming, real estate operators are facing yet another difficult situation brought on by rising unemployment, which could result in lower office and retail space demand. And rising inflation will come with higher interest rates, leading to higher borrowing expenses for REITs. Considering these circumstances, the outlook for REITs is not all that promising.

With all these concerns and obstacles tied to the market and the industry, you may think it wise to stay away from real estate, at least until we see an improvement in consumer spending and the banking sector. Kiplinger advocates that we reconsider these thoughts, and actually suggests some names to invest in that could offer us the advantages we are all looking for.

Let’s take a look at some of the lesser-known real estate names Kiplinger’s Jeffrey R. Kosnett believes would be good options this year and the next year too:

• Entertainment Properties (NYSE: EPR), which owns multiplex cinemas, provides entertainment for customers who can’t afford to spend a lot of money going to beach resorts and theme parks. The company has impressive dividend growth; at the beginning of this year, its dividend was lifted by 10.5%.
• First Industrial (NYSE: FR) benefits from strong exports and a hefty dividend. In addition, its debt, though high, is at low fixed rates.
• Realty Income Corp. (NYSE: O) is another stock to take a look at, as the company has strong cash flows.
• Health care REITs Health Care REIT (NYSE: HCN) and HCP Inc. (NYSE: HCP) also make the list; both offer investors good dividends and some nice capital growth.

Eliza Popescu is a financial writer for the on the internet investment advisory service Investor’s Observer.

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Filed under: Earnings reports, ConAgra Foods (CAG), Lennar Corp’A’ (LEN), Housing

On Thursday, Omaha-based ConAgra Foods Inc. (NYSE: CAG) reported profit growth in the fourth quarter due in part to contributions from its commodity trading unit, which the company just sold. Also, homebuilder Lennar Corp. (NYSE: LEN) said its fiscal second-quarter loss narrowed, despite writedowns and a hefty drop in revenues.

ConAgra said earnings grew nearly 5% from the year-ago period to $201 million, or 41 cents per share, including 23 cents per share from discontinued operations. The company also stated revenue rose 15% to $3.08 billion.

Analysts surveyed by Thomson Financial had expected earnings for the quarter ended May 25 to be 34 cents per share on revenue of $3.4 billion.

ConAgra guided earnings to between 26 cents and 28 cents per share in the first quarter, and $1.56 and $1.59 per share for fiscal 2009. Analysts are predicting earnings per share of 33 cents per share in the first quarter, as well as $1.60 for the year.

ConAgra shares fell $1.23, or 5.6%, to $20.92 in trading Thursday. Shares have fallen 4.0% in the past three months.

As it continues to struggle through the housing market downturn, Miami-based Lennar posted a 61% drop in revenue to $1.1 billion. And for the three months ended May 31, Lennar reported a net loss of $120.9 million, or 76 cents per share, compared to its loss of $244.2 million, or $1.55 per share, in the same period of the previous a year.

Analysts surveyed by Thomson Financial had predicted a loss of 55 cents per share on revenue of $1.09 billion.

Lennar, one of the largest builders of residential homes in the U.S., said it delivered 3,830 homes in the most current quarter, down 60% from last year. New orders totaled 4,396 homes, a 45% drop. The company also warned of further deterioration in the housing market for the rest of the year.

Shares fell 8.4%, or $1.23, to $13.34 on Thursday. Shares have fallen 23.6% in the past three months.

Visit AOL Money & Finance for more earnings coverage.

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Filed under: Deals, The Blackstone Group, Apollo Management

For deals of $2 billion or less, private equity firms are showing interest. However, the problem is cheap valuations.

This is what the board at Chemtura (NYSE: CEM) found out the hard way. Late last year, the company retained Merrill Lynch (NYSE: MER) to explore “strategic alternatives.” While some private equity firms showed interest - like Blackstone Group LP (NYSE: BX) and Apollo Management LP — there wasn’t much appetite to pay a premium. So, Chemtura has ended the process. Instead, the company will focus on restructuring, such as divestitures.

Chemtura has an interesting mix of businesses, such as plastic additives, pool and spa products and the lubricant components. For 2007, the company generated $3.7 billion in revenues.

However, with the energy crisis, the environment has been particularly tough for Chemtura. Just look at rival Dow Chemical (NYSE: DOW), which has increased prices two times during the past month.

Of course, Wall Street was disappointed with the Thursday’s news on Chemtura’s potential buyout, as the stock price plunged 22% to $6.34.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar On the web Guide to Decoding Financial Statements. He also operates MergerBook.com.

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Filed under: Microsoft (MSFT), Yahoo! (YHOO), Ford Motor (F), General Motors (GM)

So much for “geopolitical risk” not being a factor in the markets, and for that matter so much for the bulls. Today was a psychological blow for traders as the DJIA crossed under the 12,000 level today. Israel’s conducting of a training exercise to bomb Iranian nuclear facilities was the excuse needed for the bears to assume full control. Oil prices rose over $2.00 per barrel to $134.77 this day, even ahead of the weekend meeting to explore ways to boost Middle East refinery production. Throw in the excuse of a Quadruple Witching Day on top of it and that’s all she wrote. These are the unofficial closing levels for major US index levels:

DJIA 11,842.69 (-1.8%)
S&P500 1,317.93 (-1.9%)
NASDAQ 2,406.09 (-2.3%)
10 YR T-Note 4.137% (-0.06%)
52-WEEK LOWS
TOP 10 ANALYST CALLS

Here’s a partial earnings calendar for next week’s massive technology earnings on deck.

Cincinnati Financial Corp. (NASDAQ: CINF) managed to buck much of the downward trend today despite the company’s poor guidance comments after losing money on investments and its insurance exposure to the big Midwest Flooding. Shares were up 0.6% at $28.78 in the final minutes of trading today.

Ford Motor Co. (NYSE: F) and General Motors Corporation (NYSE: GM) were both hit hard this day after S&P placed the Large 3 Auto Makers’ credit ratings on review under a “negative credit watch” list. To show how sensitive the market is still treating credit risk, Ford shares were down over 8% at $5.80 and GM shares were down 6.6% at $13.81 in the final minutes this day.

Despite word out of Microsoft Corporation (NASDAQ: MSFT) saying they weren’t going to go on a web buying spree to eliminate additional dilution fears, shares of the software beast were down 2.5% at $28.19 in the final minutes of the day.

The Mosaic Company (NYSE: MOS) performed better than the market today, but shares saw a muted reaction after the company put its nitrogen fertilizer business up for sale. Shares were up 0.6% at $152.16 in the final minutes of trading.

Yahoo! Inc. (NASDAQ: YHOO) saw a drop after reports came out that the company is sending away 3 executives and is considering a reorganization. Shares were down 2.7% at $22.11 in the final minutes of the day.

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Massive company, small town: Kohler Co., Kohler, Wisconsin

Filed under: Industry, Competitive strategy, Employees, Housing

This post is part of our Large Company, Small Town series, featuring large companies and the small towns in which they are headquartered.

“It is a place where easy things, done well, will never be out of style.” Those are the words of Walter Kohler, Sr., as he envisioned the creation of one of the first planned communities to be built in this country. In 1913, Kohler Company initiated its plan to move its manufacturing operations from Sheboygan, Wisconsin, onto a tract of countryside farmland it bought for its new industrial complex.

The village of Kohler slowly took shape around the company’s industrial complex. It featured all the necessities for fulfilling community life. Single and two family homes were constructed, utilizing lumber from the Paine Lumber Company in Oshkosh. The village included a proper school, a village hall and dormitory housing for unmarried workers. During this time, Kohler Company established itself as a world leading supplier of plumbing products.

When Walter Kohler, Sr., was shaping the vision for his company town, he visited garden cities across the globe and incorporated the desire for natural beauty into his plans. Working with the Olmsted Brothers, designers of New York’s Central Park, Kohler made a 50-year plan to provide gardens and green spaces within the new company village. Kohler’s second 50-year plan for green space was then established under the guidance of The Frank Lloyd Wright Foundation. The result of this careful oversight has been the creation of a village with deep respect for its natural surroundings and which is laced with gardens of beauty.

With median household income almost double the national average, Kohler, Wisconsin, stands as testament to the great importance of paying close attention to quality of life and the necessity of successful manufacturing. Kohler should serve as model for those small communities that wish to better the lives of their inhabitants, and the first rule to learn is this: If you don’t have manufacturing, then you have nothing at all.

Be sure to check out more Big Company, Small Town posts.

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Filed under: Bad news, Industry, Ford Motor (F), General Motors (GM), Options, Technical Analysis, Garmin Ltd (GRMN)

Ford (NYSE: F) shares are falling today after Goldman Sachs cut his price target on the stock to $5 from $8. The broker maintained a “neutral” rating on Ford, but moved General Motors (NYSE: GM) to a sell. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on Ford.

After hitting a one-year high of $9.70 last June, the stock hit a one-year low of $4.95 in March. This morning, F opened at $5.07. So far today the stock has hit a low of $4.94 and a high of $5.16. As of 12:30, F is trading at $5.03, down $0.22 (-4.2%). The chart for F looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would think about a September bear-call credit spread above the $6 range. A bear-call credit spread is an options position that combines the buy and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we’ll make a 9.9% return in three months as long as F is below $6 at September expiration. Ford would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.

F was above $6 as recently as early June, but has dropped sharply and shown resistance around $5.20 recently. This trade could be risky if the company’s earnings (due out in late July) are a positive surprise, but even if that happens, this position could be protected by fewer people buying pricey cars and trucks that don’t get great mileage.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in F.

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