Maytag Is Awash in Potential, but IDG Books Isn’t Making the Grade
Maytag (MYG)
*
Jim: Buy
Mike: Buy
*
Jim: This outfit, perhaps best known for its ads that featured the lonely repairman, is the familiar maker of washers, dryers, stoves and other big appliances.
Mike: Right, and besides the Maytag brand, the company makes appliances under the Jenn-Air, Magic Chef and Admiral names, to list a few. It also builds Hoover vacuum cleaners.
Jim: A decade ago, Maytag was fighting bloody price wars with General Electric and Whirlpool over their “me-too” products as each tried to grab market share from the others. And as Maytag pounded its head against that wall, its stock went nowhere.
Mike: Until a couple of years ago.
Jim: That’s when Maytag broke ranks with a brave strategy: It decided to design upscale appliances that carried rich price tags and that were innovative technologically. Despite the lofty prices, consumers loved them. That sent Maytag’s earnings and stock price soaring.
Mike: Until, shall we say, the thermostat blew out last summer? That’s when Maytag told Wall Street that, whoops, its fourth-quarter results were going to come up short--mainly because it’s still struggling in that low end of the market.
Jim: The one for cheaper machines that carry thinner profit margins.
Mike: And that news sent Maytag’s highflying stock into a 26% nose dive in a single day. This stock really took a haircut, and, unfortunately, it doesn’t make barber appliances.
Jim: Doesn’t matter. This stock is now a screaming buy.
Mike: I’m sorry to hear that.
Jim: Why?
Mike: Because I feel the same way, and I was hoping we’d have something to argue about.
Jim: Sorry. Look, the fact is that Maytag’s high-end, high-profit machines, such as the Neptune washer and Gemini oven, are still selling like hot cakes.
Mike: The Neptune, by the way, is one of those fancy front-loading machines that cost upward of $1,000 but are ostensibly much more efficient in terms of water and power use.
Jim: The problem is the ongoing guerrilla war in the market for cheaper appliances, and I see Maytag continuing to pull away from that mess. In addition, when its fourth-quarter results finally came out, they weren’t nearly as bad as Maytag had feared. Nonetheless, investors--feeling once bitten and twice shy--are for now refusing to bid Maytag much higher.
Mike: But that’s not going to last much longer, and here’s another reason why: Maytag has a new chief executive, Lloyd Ward, who comes with great reviews. He had major stints at Procter & Gamble and PepsiCo before joining Maytag in 1996.
Jim: And we should note that Maytag didn’t promote him in response to its woes last year; he was already in line to succeed retiring CEO Leonard Hadley.
Mike: Ward also is the one of the few black CEOs of a major American corporation, one other being Fannie Mae’s Franklin D. Raines. Ward also is a hard charger and a great businessman.
Jim: Here’s another reason I like the stock: It’s a great company selling for dirt cheap. At the high $30s, it’s trading for a paltry 10 times its estimated per-share earnings for this year. Talk about a buying opportunity!
Mike: It is appealing, but let me offer just a couple of cautions.
Jim: Go ahead.
Mike: Maytag’s price-to-earnings multiple is low compared with the overall market, but it’s about par with many of its rivals in the major appliance sector.
Jim: But to me, Maytag shouldn’t be viewed in that class, because it’s proved that its got the ability to grow its earnings quite strongly. So I say, look at Maytag with the likes of, say, GE, which sells for 39 times earnings. That’s what makes Maytag a steal right now.
Mike: The other thing to watch carefully is that Maytag depends on these expensive machines--what egghead economists call high-end durables.
Jim: Good point. Because if the economy does head south, will people keep ponying up $1,000 for a washer?
Mike: Exactly. Now, of course, you could trade down to a cheaper Maytag product. But it’s the expensive machines that have the profit margins that have propelled this company higher so far.
IDG Books Worldwide (IDGB)
*
Jim: Don’t buy
Mike: Don’t buy
*
Mike: This is the publisher that’s known for its how-to books aimed at “dummies”--you know, “Computers for Dummies” and the like.
Jim: I own a couple of those books, but you’re not calling me a dummy, are you?
Mike: Not yet, anyway. But this is an interesting company, in that IDG Books tells its customers it thinks they’re idiots, rather than just treating them like idiots the way, say, Microsoft does.
Jim: Yet IDG Books still makes money doing it.
Mike: Well--it makes some money doing it.
Jim: Good point, and we’ll get to that.
Mike: And, quite appropriately, IDG Books recently bought the publisher of the original books for dummies, Cliffs Notes.
Jim: Right, those paperbacks known to college and high school students everywhere as brief summaries of classic works by Shakespeare, Milton--you know, those dudes.
Mike: Now, I want to go on record here. We’ve made a lot of disclosures in this column, and I’ve been accused of bragging now and then.
Jim: Just now and then?
Mike: But I’ve never, ever in my life studied from Cliffs Notes. And I take a lot of pride in that, and I hope my kids are reading.
Jim: Well, goody for you, Mike. I actually am glad I did look at Cliffs Notes--otherwise there’s a lot of great literature I would have missed altogether in college.
Mike: Why didn’t you just go see the movies?
Jim: Anyway, IDG Books struck it rich by innovating with the dummies books, especially as personal computers came into more homes. And they’re good books: They explain things easily and with a touch of humor.
Mike: And the early ones especially were very effective. OK, I didn’t read Cliffs Notes, but I have read “dummies” books. I have one now, in fact, called “HTML for Dummies,” which is about the computer language in which Web pages are designed.
But here’s the problem: As anyone can see at the local bookstore, the shelves--the computer book shelves, I mean--are now chock-full of similar books. “Blank-blank Made Simple” and “The Idiot’s” guides and so on. Publishers are falling all over one another to call their readers morons. Makes you wonder when consumers are finally going to get insulted.
Jim: But even if they don’t, the problem here is obvious: IDG Books’ main market is mature. And that’s evident because IDG Books is now writing dummies books for all sorts of categories.
Mike: Right. You’ve got “Cats for Dummies” and “Golf for Dummies” and on and on.
Jim: All of which tells me that IDG Books is scrambling to leverage its name and reputation. But I have doubts about the success of that strategy.
Mike: I agree. The company’s expansion is looking a little desperate. That’s why I don’t see the stock as anything more than a market performer for the foreseeable future, and I’d pass. The fun has been had with this stock.
Jim: I’m with you, and Wall Street seems to agree. The stock is little changed for the last 12 months, and is now around $13 a share, or just 13 times its fiscal 2000 earnings per share. Then there’s the problem of its executive suite. Late last year, it lost its president/publisher and chief financial officer.
Jim: They weren’t shoved--both wanted to try new Internet ventures. But it doesn’t bode well for IDG Books going forward.
Mike: Plus keep in mind that this company is a spinoff of International Data Group, a successful privately held firm in Boston that remains IDG Books’ biggest stockholder. I can’t get away from the sneaking suspicion that International Data spun off IDG Books in mid-’98 just at the point when it knew it could get the maximum value for it.
Jim: Now, IDG Books’ revenue continues to grow at a fairly nice pace, partly because of its acquisitions. But the earnings are not growing as quickly, and that bothers me. Worse yet, the buzz around IDG Books is that somehow it’s going to use the Internet to help it grow. The emphasis seems to be on Dummies.com and CliffsNotes.com and so forth, but I see that whole strategy as a slow starter at this stage.
Mike: As all Internet strategies are. Moving to the Internet and putting a “.com” after your name, as IDG Books has, is everybody’s answer to everything. But it seldom does the trick if the underlying franchise isn’t strong.
Jim: But if we’re wrong, well, I guess our readers can call us dummies.
Mike: Or we can pick up IDG Books’ second edition of its popular “Job Searching Online for Dummies.”
Write or e-mail with a stock you would like to see discussed in this column. Peltz is at james.peltz@latimes.com, and Hiltzik is at michael.hiltzik@latimes.com. Either can also be reached at Business Section, Times Mirror Square, Los Angeles, CA 90053.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
IDG Books
Monday: $13.75
