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JBL: Spring Cleaning & Crow Eating

It's time to give up on 'dead money' stocks and focus on opportunity in beaten-down names like Toll Brothers.

The only good thing about a flight to Australia or New Zealand is that you can get a lot of reading done. I read Jim Cramer's book,

Real Money: Sane Investing in an Insane Word

, on a recent trip to the land down under, and it is the best book I have read on stock picking. It reminded my of a few things I knew but haven't practiced often enough.

Stock picking has to be an emotionless practice. This is the only way to accurately put a value on something. I knew this, but last week after spending some time with some hedge fund friends of mine, it was put in plain and simple terms to me again.

I have owned and recommended









for some time. They have been dead money for me, yet I held on to them. One of my friends finally told me, accurately, that I was holding on to them against my better judgment. He was right; I wasn't being objective. I was holding on to losers because I didn't want to admit defeat.

Now on to some spring cleaning and some crow eating.

Vodafone is the number one cell phone company in the world with over 180 million subscribers. It received negative calls when it overpaid for 3G licenses, but I thought that it would be able to make those acquisitions profitable. The knock against the company did prove to be true, however, when it overpaid for Telsim, an unprofitable Turkish cell phone company.

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I think Vodafone will remain profitable, I just believe it is a slow growth company and it's not where I want my money to be. I sold the rest of my Vodafone shares last week, when it announced that revenue growth would slow to between 5% and 6.5%.

Vodafone also expects to record a $48 billion charge to write down the value of goodwill acquired in various acquisitions, as reported

here. The charge reflects new European accounting rules and "a lower view of growth prospects, particularly in the medium- to long-term, than those it had used previously," the company said.

GE is a conundrum. It has grown earnings every year, yet the stock has been dead money with a flat price. The rumors of former chairman Jack Welch being "creative" with accounting are without basis in my opinion. However, the stock has not moved with earnings growth, and I don't see a driver in the near future. I sold my shares of GE last week as well.

I am a big fan of Michael Dell and think he has a great company. However, the fact is that



is doing a great job and actually hurting profit growth at Dell. I thought it would be the other way around. Dell is being hurt by a low-margin PC business and the inability to make significant inroads in the printer business. I still like Michael Dell, but I sold my shares of his company's stock last week because it's not where I want my money to be.

Ask Not For Whom the Toll Bells

Housing stocks nearly hit all-time highs last summer. But since then it seems like the stock market believes the housing slowdown is a prelude to a crash. I don't buy into this thinking.

Higher interest rates are going to hurt the housing market, and will eliminate some of the creative financing that the


would like to see gone. I believe existing home sales will be hurt more than new home sales because people will sit on their price longer when they live in their home. I believe new home sales will slow but remain strong. This brings me to my pick of the week:

Toll Brothers


is down almost 50% off of its highs. Toll Brothers is trading at around a 6.5 price-to-earnings ratio and a 15% long-term growth rate.

Toll is the "McMansion" building leader, with an average new home selling for around $660,000. It averages $113,000 in upgrades and lot premiums, a 21% increase over base prices. This has given the builder the highest average net margin of all homebuilders for the last ten years.

Toll recently reported first-quarter earnings growth of 49%. It stated that 2006 earnings would come in at $4.77 to $5.26, and that return on equity on beginning capital would be more than 30%. Toll has a supply of 87,000 lots with a record 258 selling communities. The company ended its first quarter with a backlog of $5.95 billion.

When you consider that Toll's 2004 EPS was $2.52 and the coming year's estimates are around $5.00, this is a company that is hardly headed over a cliff. Yet the market is pricing it like it is. The housing market has cooled by every measure; however, its death is greatly exaggerated.

The object is to buy low and sell high: With any multiple expansion at all, Toll is a $50 stock over the next 12 months.


being poor is bad, staying that way is stupid.

A former All-American offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990s. A former WWE champion, JBL was a featured wrestler at WrestleMania 21 and can also be seen on

Friday Night SmackDown!

on UPN. Outside of the ring, JBL is a self-taught investor who was recruited to write a personal finance book,

Have More Money Now

, which was released in the summer of 2003. He has appeared on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits the Walter Reed Army Medical Center and the Bethesda naval hospital to meet with wounded troops.