Mohawk profits taking a trim

Management at flooring maker Mohawk Industries (NYSE: MHK) would probably rather sweep its first-quarter results under the rug. As the housing crunch continues and consumers cut back on discretionary spending in favor of buying food and fuel, purchases such as flooring are cast aside or delayed. And sure enough, earnings per share dipped 28 percent below last year’s numbers.

It hasn’t been all bad, though. The commercial business, for example, has remained positive. But Mohawk expects that situation to change soon as the credit markets tighten. Rising costs have also pushed manufacturers to raise prices to help fight off margin erosion. And Mohawk says more price increases may be on the way.

On the bright side, Mohawk has been gaining market share. It’s continued to pay down its debt, modernize facilities and reduce expenses. So although the stock has dropped by roughly a third over the past nine months, it’s priced around 12 times next year’s earnings and may offer a good value for investors looking to play a recovery in housing.

Timely acquisitions, such as the purchase of its Unilin laminate-flooring segment, have given Mohawk a firm footing in the industry. To clean up, Mohawk will need to focus on value carpeting, which would give cost-conscious shoppers a reason to purchase carpets. If it works, investors could be floored at the results.

My dumbest investment

I bought a lot of Oracle stock at an excellent time. It was beaten down by a couple of bad quarters and revenue problems. Over the next year, it went up 400 percent – I quintupled my money! I was nervous about the stock’s future prospects, but I held off on selling until the one-year anniversary of my purchase, so that my taxable gains would be long term. I didn’t know you have to hold for a year plus one day to qualify for long-term rates. That was a very expensive instance of ignorance and impatience. I haven’t looked back to see how Oracle has done since then. It was probably another dumb move to sell at all. – J.D.S., online

The Fool Responds: Ouch. You’re right: To qualify for the long-term capital gains tax rate (which is usually 15 percent and sometimes 5 percent), you need to have held the security for at least a year and a day. Otherwise, the gain will be short-term, taxed at your income rate, which can be as high as 35 percent.