Saturday, November 12, 2011

This Oil Stock Is a Screaming Buy

What Benjamin Graham said more than half a century ago still holds true. In the short term, the stock market behaves like a voting machine, but in the long term, it acts like a weighing machine. In short, the true value of a stock will be revealed in the long run.

The oil field services industry has collectively taken a hit since the markets tanked a couple of months back over fears of another recession. However, I'm going to show you one major player in this space whose stock has plunged a whopping 43% since July 25 this year compared to the S&P's 14% decline: Halliburton (NYSE: HAL  ) . To me, this stock looks nothing short of a mouth-watering buy.

Why Halliburton?
It's economics 101. Global demand for oil and natural gas is shooting up. Despite falling energy prices, production is hardly affected. Exploration and production companies need the help of oilfield services companies in a big way. With the advent of newer and hotter shale plays in North America, the potential for these specialized services is huge. This is where Halliburton's substantial expertise is required.

The services provided start right at the infant stage. From prospecting for new resources to providing operating implementations, Halliburton is a one-stop solution that upstream companies can't ignore. The company's software solutions to minimize risk and increase efficiency are just a small part of the deal.

Rig count in the United States along with horizontal drilling activity has increased substantially along with a shift to oil and increased drilling activity in liquids-rich shale basins. Technological advances in drilling have undoubtedly increased demand for oil field service companies, and this should only become stronger over the next few years.

Again, geopolitical disturbances in North Africa seem to be easing. With operations in Egypt recovering and drilling companies looking to restart operations in Libya, reven! ue prosp ects are fuller. Halliburton should see higher cash inflows here. ?

In terms of the stock, the company looks pretty attractive. Here's how it stacks up against its peers:


Forward P/E


Dividend Yield










Baker Hughes International





Weatherford International





National Oilwell Varco





Source: Capital IQ, a Standard & Poor's company and Yahoo! Finance.

Forward price-to-earnings is where things look attractive. Again, a relatively higher price-to-book of 2.6 doesn't really bother me. Halliburton has bought back shares worth $3.4 billion in the last five years. While the dividend yield isn't too impressive, it's wo! rth the deal.

The confidence management has in its business model, even in these times of recession, is commendable.

Here is a company that has reported a 36% growth in revenue in the last 12 months despite seeing disruptions in various locations around the world. Most notable has been the bad name it had received following the Gulf of Mexico oil spill last year. Halliburton was responsible for cementing BP's (NYSE: BP  ) Macondo well that involved Transocean's (NYSE: RIG  ) rig explosion. However, the moratorium that followed in the Gulf hardly seemed to have an effect.

International operations are where I'm betting high. Contracts awarded by Statoil and Chevron (NYSE: CVX  ) in Europe and Asia, respectively, are where things are only warming up. The emerging economies of China and India cannot be ruled out with regards to further investments. Investors should watch out.

Foolish bottom line
I'm having a hard time figuring out why investors are running away from this stock. But that's where savvy investors get greedy. If you're looking for other great stocks to profit off the energy boom, check out The Motley Fool's special report, "3 Stocks for $100 Oil." You can download it for free by clicking here.

Dow Gains 330 as Stocks Close Strong on Euro Plan

Stocks surged into the close Monday on signs that European banks would be protected from potential defaults on sovereign debt, closing more than 3% higher.

Tech strength helped the Nasdaq outperform the other indices. The index soared by 87 points, or 3.5%, to close at its session high of 2566. The broader rally was also led by energy, basic materials and financial stocks. Bank of America(BAC), JPMorgan Chase(JPM) and Caterpillar(CAT) dominated the top of the Dow Jones Industrial Average index throughout the session. The Dow, which climbed for the fourth of its last five sessions, finished 330 points, or 3% higher, at 11,433 -- its high for the session.

All 30 Dow components gained ground, with consumer staples showing the mildest gains. McDonald's(MCD), Coca-Cola(KO),Kraft Foods(KFT), Procter & Gamble(PG) and Johnson & Johnson(JNJ) were the Dow's biggest laggards on Monday.

The S&P 500 also closed at its intraday high of 1195, gaining 39 points, or 3.4%. Materials stocks surged by more than 4% according to the index's exchange traded fund Materials Select Sector SPDR(XLB).

Over the weekend, French and German leaders pledged to announce a "comprehensive package" in three weeks to recapitalize banks and to keep Greece in the eurozone. Investors speculated last week that officials were talking about ways to shore up the financial system, but comments from Germany's Angela Merkel and French President Nicolas Sarkozy gave further reassurance that such a plan might materialize. However, details of what officials have in the works have been sp! arse.

"Some of this rally is also a reversal of Friday's losses but the majority is driven by Europe," said Paul Nolte, managing director at Dearborn Partners. "The lighter volumes point to the fact that it's in part a short-covering rally."

Some 3.8 billion shares traded on the New York Stock Exchange and roughly 1.6 billion traded hands on the Nasdaq. Some investors questioned how long the rally would last given continued uncertainty surrounding Greece and doubts as to whether policymakers would hold true to their word.

Helping lift sentiment was news that Belgian and French lender Dexia agreed to sell its Belgian unit to the Belgian government for 4 billion euros ($5.4 billion). The nationalization of the bank sets a precedent for how other eurozone governments could act if their banks fell into trouble.

Hopes that Europe would avoid a debt crisis pushed down the yen and dollar and helped the euro rally. The dollar index, a measure of the dollar's value against a basket of currencies, was down 1.484%.

Losses in the greenback pushed up gold prices with gold for December delivery gaining $35, or 2.1% to settle at $1,670.80 an ounce. In other commodities, the November crude oil contract added $2.43, or 2.9%, to settle at $85.41 a barrel.

European stocks surged higher after U.S. markets opened. London's FTSE closed up 1.8% Germany's DAX finished up 3.02%. Japan's Nikkei Average rose 0.98%, and Hong Kong's Hang Seng closed up 0.02%.

Tuesday marks the start of third-quarter earnings season, kicking off with Alcoa(AA) reporting after tomorrow's close. The largest U.S. aluminum producer has been hit by a decline in aluminum prices and is expected to report downbeat earnings of 22 cents per share according to ThomsonOne Analytics. In a show of strong momentum ahead of its earnings release, Alcoa surged 3.9% to $10.09 on Monday.

"We want to hear what companies have to say about the global landscape," says Quincy Krosby, market strategist! at Prud ential Financial. "When there's an ongoing slowdown, expect to see some misses," she adds, noting that banks and industrials are expected to bear the brunt of the economic pressures this season.

Dan Greenhaus, market strategist at BTIG, wrote in a research note that clients appear "cautiously optimistic" about corporate earnings although the good news is that there has been a "dearth of negative preannouncements."

U.S. stock markets are open but bond markets are closed for the Columbus Day holiday.

As of last Friday, the benchmark 10-year Treasury was last at 23/32, pushing the yield to 2.068%.In corporate news, Superior Energy Services(SPN), the oilfield services company, agreed to buy peer Complete Production Services(CPX) in a cash-and-stock deal valued at $2.7 billion. Shares of Superior Energy fell 13.8% to $23.63 while Complete Production shares surged 39.5% to $28.42.

Jerry Yang, Yahoo's!(YHOO) co-founder and former CEO, is interested in a deal with private-equity firms that would take the Internet company private, Reuters reported, citing people familiar with the situation. Yahoo! shares rose 2.4% to $15.84.

Netflix(NFLX) abandoned its plans to split off the company and rename its DVD business "Qwikster." The company said it plans to keep its DVD-by mail and its streaming services under the Netflix umbrella. Shares erased gains during trading and declined 4.8% to $111.62.

Last week, the credit downgrade of Italy and Spain by Fitch Ratings sent U.S. equities lower by the close Friday, although all major averages still posted gains for the week. Disagreement between Belgium's federal government and regional groups as to whether the country should nationalize Dexia's Belgian unit had exacerbated fears that the eurozone debt crisis not w! as impro ving.

A better-than-expected September jobs report tempered sentiment, although economists were still disappointed that the recovery in the U.S. jobs market remained too anemic to bring down the unemployment rate. The choppy week of trading finished with blue-chips posting close to a 2% gain.


A three-day BlackBerry outage is just another stumble for RIM

It��s hard to believe that just a few years ago, shares of Research In Motion (NASDAQ:RIMM) were trading at $144. Now they are at a miserable $23.

It’s easy to point at the dominance of Apple��s (NASDAQ:AAPL) iPhone and iPad as reasons for the fall, but this is far from the whole story. The mobile industry as a whole is growing at hyperspeed, and numerous players are showing success, such as HTC, Samsung (PINK:SSNLF) and even Amazon (NASDAQ:AMZN), whose Kindle Fire is getting lots of traction.

In other words, RIM��s problems are mostly self-made. And especially lately, the company has become the Inspector Clouseau of the tech world.

The latest mega blunder was the worldwide outage of RIM’s BlackBerry service. Running a massive communications infrastructure is no easy feat, but considering RIM’s big value proposition is a claim to reliability, a three-day BlackBerry outage is unacceptable.

Unfortunately, this has been just one in a long line of serious drawbacks for the company. Here��s a look at some of the other problems that have plagued RIM:

Nothing Cool

A few years ago, RIM showed with BlackBerry that it could create standout smartphones. But the latest models have not only been duds — they’ve also experienced a variety of delays.

A lack of innovation can send a tech company along a downward spiral. If your phones aren’t connecting with consumers, it gets tougher to find developers to create new apps, and carriers are more likely to focus on other phones. And since 2009, RIM��s global market share of smartphones has plunged from 20% to 11%.


Tech companies don’t necessarily need to be pioneers. Google (NASDAQ:GOOG) wasn’t the first search engine, and Apple didn’t make the first smartphone or MP3 player. What tech companies need are good products — and timing.

In the PlayBook tablet, RIM had neither. The company’s tablet entry was widely panned, and in the latest quarter, only 200,000 units shipped. Research in Motion might have rushed its release — at the time of launch, the PlayBook had no native email system.

Weird Behavior

During an interview with the BBC earlier in the year, RIM��s co-CEO Mike Lazaridis abruptly left. He thought the questions weren’t fair. If management cannot take criticism from outsiders — let alone can’t keep from buckling during a strong line of questioning — do you think it listens to concerns from its own employees? Probably not. Which would make it difficult to change course.


Trading at four times earnings, RIMM shares are dirt cheap. But tech companies always can get cheaper. In the meanwhile, the competition is only surging ahead, while it could take RIM a year or so to get any traction with latest new smartphones and tablets.

What about a buyout? For now, the possibility probably is helping support the stock. But while RIM��s patent portfolio would be attractive, it likely is only worth a few billion dollars. Besides, the company��s founders own about 11% of the outstanding stock, so at these low levels, there probably will be little motivation to sell out.

Tom Taulli is the author of ��All About Short Selling�� and ��All About Commodities.�� You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

Finally A Breakout

Looks like a jailbreak–but there’s no need to call the police. The stock market finally broke out of the prison it had been in, i.e., a 10-week trading channel that saw multiple successful tests of support and resistance (for example, between SPY 112 and 122) and a few attempts at breakouts and breakdowns—each time failing to confirm the move with a follow-through. Well, this week we got the technical breakout, as I suggested last week we would. Materials, Financials, and Energy have led the charge.

As everyone knows, the wildcard continues to be Europe, as we have anxiously awaited a decision on a bailout package for the EU’s ailing financial system. Late word on Wednesday night as I write this is that a deal has been reached.

Every hint of progress in the negotiations emboldens the market bulls. The G20 meets on November 3-4, so European leaders have been meeting yet again in Brussels to hammer out something in advance to shore up the contagion that has moved from Greece to Ireland to Portugal…and now Spain and Italy (a.k.a., PIIGS). For those of you scoring at home, the Greece 1-year bond is now yielding 190% and the 10-year yields 25%.

Word on the street is that French President Sarkozy will call Chinese leader Hu Jintao to discuss China possibly throwing in some cash for a fund that would further expand the $600 billion European Financial Stability Facility (EFSF). The EFSF spokesman is calling this simply “a normal round of discussion with important buyers of EFSF bonds.” Okay, whatever you say.

The SPY closed Wednesday at 124.30. Friday gave bulls their low-awaiting breakout, and Monday provided strong confirmation. Some jitters about Europe on Tuesday and Wednesday caused the requisite pullback and a minor test of resistance-turned-support before pushing higher into the close. The 200-day simple moving average is just above at 128. RSI, MACD, and Slow Stochastic are a! ll hangi ng in there okay. My main concern from a technical standpoint is the possibility that Wednesday’s candlestick turns out to be a bearish “hanging man” formation. But overall, the breakout looks promising—it just needs support from our friends in Europe.

The VIX (CBOE Market Volatility Index – a.k.a. “fear gauge”) closed Wednesday at 29.86, which is back below the important 30 mark. However, the TED spread (indicator of credit risk in the general economy, measuring the difference between the 3-month T-bill and 3-month LIBOR interest rates) continues to remain elevated, as it closed Wednesday at 41.46, which is right around its 52-week high. Although not nearly so high as it was during the 2008 financial crisis, it nevertheless indicates elevated investor worry about bank liquidity and a preference for the safety of Treasuries bonds over corporate bonds.

Latest rankings: The table ranks each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score, which employs a forward-looking, fundamentals-based, quantitative algorithm to create a bottom-up composite profile of the constituent stocks within the ETF. In addition, the table also shows Sabrient’s proprietary Bull Score and Bear Score for each ETF.

High Bull score indicates that stocks within the ETF have tended recently toward relative outperformance during particularly strong market periods, while a high Bear score indicates that stocks within the ETF have tended to hold up relatively well during particularly weak market periods. Bull and Bear are backward-looking indicators of recent sentiment trend.

As a group, these three scores can be quite helpful for positioning a portfolio for a given set of anticipated market conditions.

Here are some observations about Sabrient’s latest SectorCast ETF scores.

1. Healthcare (IYH) and Technology (IYW! ) iShare s continue to dominate the rankings. IYH again takes the top spot with an Outlook score of 81. IYW dropped 12 points 70, but still holds second place because of the big gap down to third place. IYH is stronger in its support among analysts, with little net reduction in earnings projections, while stocks with IYW got hit relatively hard this past week with earnings downgrades.

2. Industrial (IYJ) makes nice 8 point jump to an Outlook score of 55 to take third place this week, after coming in sixth or lower for quite some time. This is a bullish sign. Materials (IYM) has fallen to fifth place, as Energy (IYE) takes fourth. IYM continues to get the bulk of the analyst downgrades, so the unusual situation continues in which IYM ranks next to last in net revisors (i.e., the most net earnings downgrades among the analysts) but highest in Projected P/E (i.e., the lowest—best—valuation). So, although the analysts have been reducing earnings projections, the fall in price among stocks within IYM seems to be out of proportion to the magnitude of the earnings revisions.

3. Consumer Services (IYC) moved out of the bottom two, as the Utilities (IDU) and Telecom (IYZ) sit at the bottom. Stocks within IDU and IYZ are saddled with high projected P/Es and low long-term growth projected growth rates.

4. Overall, I would say that the Outlook rankings have taken a bullish turn, in alignment with the technical charts. I say this because economically-sensitive iShares like IYW, IYJ, IYE, IYM, and IYF now rank higher than IYK and IDU. Only IYC continues to lack relative fundamental support, although it did move out of the bottom two this week.

5. Looking at the Bull scores, IYF has been the leader on strong market days, scoring 60, followed by IYM. IDU is by far the weakest with a 38.

6. As for the Bear scores, IDU is the clear investor favorite “safe haven” on weak market days with a rising score of 71. IY! K is a d istant second at 63, followed by IYH. IYM and IYF reflect the lowest Bear scores of 38 and 39, respectively, as they have led the market up on strong days and down on weak days.

Overall, IYH now displays the best combination of Outlook/Bull/Bear scores. Adding up the three scores gives a total score of 185. IYW and IDU display the best combination of Bull/Bear with a total score of 109.

Top ranked stocks in Healthcare and Technology include Triple-S Management (GTS), WellPoint (WLP), VMware (VMW), and Spreadtrum (SPRD).

Low ranked stocks in Utilities and Telecom include Clean Energy Fuels (CLNE), Calpine (CPN), Crown Castle International (CCI), and Sprint Nextel (S).

These scores represent the view that the Healthcare and Technology sectors may be relatively undervalued overall, while Utilities and Telecom sectors may be relatively overvalued, based on our 1-3 month forward look.

Disclosure: Author has no positions in stocks or ETFs mentioned.

U.S. and China: The End of Outsourcing?

After years of outsourcing and setting up factories in China, American companies have begun to reconsider the value of moving production abroad. It could be the start of a trend.

For most of the past five years, Americans No. 1 complaint about China has been the movement of U.S. jobs to that country. Lured by low wages, many U.S. firms have been outsourcing production to Chinese factories. Some have set up plants there to get a foothold in the Chinese market.

But the job drain from America may finally be peaking. Changing conditions are prompting some companies to rethink the economics of outsourcing to China. While some U.S. firms may move to other emerging-market countries, such as India or Vietnam, many are expected to expand their workforces in the U.S. instead.

Harald Malmgren, a former top U.S. trade official and a keen observer of developments in Asia, offers numerous reasons for the shift. Wages in Chinas coastal-area workforce are rising sharply. Inflation is accelerating. Higher fuel prices are pushing up shipping costs. Quality control still is erratic. Social unrest is on the rise.

China still is a difficult place to do business, especially if youre worried about local firms stealing your technology. And China soon will face a shrinking workforce as the consequences of the governments one-child policy begin to show.

At the same time, the nuclear mess in Japan is giving many business executives pause about the wisdom of relying on global supply chains, particularly when they involve a single country. The damage from the tsunami and the subsequent failure of the nuclear power plants in Fukushima have disrupted the production of components for hundreds of manufacturing companies worldwide.

Meanwhile, changes in the U.S. economy have made it increasingly attractive for American corporations to keep more production at home. Wages in the U.S. have been stagnant. The recession has made American workers more flexible, and more willing! to give up some costly work rules and benefits. Productivity here is rising. Manufacturing is rebounding. And the value of the dollar has declined, making outsourcing -- and paying for Chinese labor -- more expensive.

The Boston Consulting Group issued a report last week that underscores the trend. With recent economic developments in the U.S. and China, American firms are increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother, says Harold Sirkin, a BCG partner. And thats before taking into account the added expense, time, and complexity of logistics.

As Sirkin suggests, U.S. executives planning new factories in China should take a hard look at the total costs.

Several large U.S. companies already have brought some of their production back to the United States, including Caterpillar Inc., Ford Motor Co. and NCR Corp.

This assessment of China is not universal. Nicholas R. Lardy, a China specialist at the Peterson Institute for International Economics in Washington, points out that Chinas economy is growing by about 9 percent a year. Although inflation is rising sharply, its concentrated primarily in food prices, which are likely to level off as farmers there step up production. While wages in urban areas are soaring, theyre being offset partly by large productivity gains. And the gap between U.S. and Chinese wage levels still is large.

Lardy also dismisses the notion that Chinas aging population is likely to produce a serious worker shortage any time soon. And he points out that quality control in China has improved over the past few years, particularly for exports.

Even if the outsourcing movement is reversed, no one believes U.S.-Chinese relations will be trouble-free. Washington and Beijing are at loggerheads over a spate of serious issues, from Chinas aggressive efforts to reduce Americas military and political sway in Asia to continuing disputes over the treatmen! t of U.S . businesses in China.

But conditions are right for the Made in the U.S.A. label to grow.

Has Freeport-McMoRan Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Freeport-McMoRan Copper & Gold (NYSE: FCX  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at ! Freeport -McMoRan.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 31.7% Pass
? 1-Year Revenue Growth > 12% 24.1% Pass
Margins Gross Margin > 35% 56.9% Pass
? Net Margin > 15% 24.5% Pass
Balance Sheet Debt to Equity < 50% 19.6% Pass
? Current Ratio > 1.3 3.37 Pass
Opportunities Return on Equity > 15% 43.1% Pass
Valuation Normalized P/E < 20 5.63 Pass
Dividends Current Yield > 2% 2.6% Pass
? 5-Year Dividend Growth > 10% 8.7% Fail
? ? ? ?
? Total Score ? 9 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Freeport-McMoRan last year, the miner has inched closer to a perfect 10. A drop in shares combined with a dividend increase pushed the stock's yield up significantly, and even with recent fluctuations in copper prices, the company still seems to be firing on all cylinders.

As its full name suggests, Freeport has long benefited from the steady ris! e in gol d and copper prices in recent years. But between August and early October, copper prices fell from around $4.50 per pound to just above $3, sending shares of both Freeport and rivals Southern Copper (NYSE: SCCO  ) , Ivanhoe Mines (NYSE: IVN  ) , and Taseko Mines (AMEX: TGB  ) down sharply. Despite a rebound in the stock market, copper prices remain somewhat subdued.

The company faces other ongoing challenges as well. Along with Newmont Mining (NYSE: NEM  ) , Freeport has seen labor-related strife eat into production at its Grasberg facility in Indonesia, as workers seek huge increases in wages. Yet Southern Copper, which saw some production challenges as well, still managed to post good results, and long-term demand for copper seems healthy. That showed up in Freeport's earnings report as well, in which third-quarter earnings beat analyst expectations despite falling short of last year's levels.

To get that last elusive point, Freeport will need to continue its history of recent dividend growth. That in turn is dependent on metals prices. If copper, gold, and molybdenum demand remains high, then Freeport could reach perfection in the near future.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

Click here to add Freeport-McMoRan Copper & Gold to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Box Office Preview: Will Immortals Defeat Jack and Jill?

Relativity Media’s R-rated action epic Immortals — starring Henry Cavill of “The Tudors” — grossed $1.4 million in midnight showings as it opened on Friday in 900 theaters nationwide, narrowly besting 20th Century Fox’s (NASDAQ:NWSA) The Rise of the Planet of the Apes, which opened in August to $1.3 million in 1,024 midnight runs.

Tracking suggests Immortals will take in $25 million to $26 million in its opening weekend, though it could make a better showing. After all, Rise of the Planet of the Apes opened to $54.8 million. The race for number one could be tight this weekend, with Adam Sandler’s Thanksgiving family comedy Jack and Jill also opening nationwide this weekend, while DreamWorks (NASDAQ:DWA) and Paramount’s holdover Puss in Boots could give both new releases a run for their money.

This weekend’s third nationwide release is Clint Eastwood’s J. Edgar, starring Leonardo DiCaprio in the title role. The biopic about the legendary F.B.I. chief J. Edgar Hoover opened in five cities on Wednesday to gross $54,000, tacking on another $46,000 on Thursday.

Immortals will be counting on fanboys to buoy ticket sales for the rather violent fantasy/adventure flick, which should appeal to a similar audience as that of box office hit 300. The film has already scored high marks in test screenings, and opens today in a number of key territories, including China, Germany, Italy, the U.K., South Korea, Japan, and South Korea. The film, which cost $75 million to make, has to open to $25 million for the company to be on sound financial footing. Warner Bros. (NYSE:TWX) is projecting an opening of $10 million to $12 million for J. Edgar.

The Jekyll And Hyde Of The Specialty Insurance Sector

(By Jim Ryan)

While both the title and mortgage insurance industries are tied to decimated real estate markets, we think their prospects are as different as Dr. Jekyll and Mr. Hyde. Title insurers have remained profitable, a direct result of their ability to adjust to an ever-weakening market, while mortgage insurers continue to drop like flies. We think the major title insurers can continue to profit while waiting for a real estate recovery, but it's an entirely different story for the mortgage insurers.

First American?(FAF) and Fidelity National?(FNF), the two leaders in the title insurance industry, have kept a lid on costs, increased prices, and benefited from a shift to more-profitable lines of business. The combined ratios (title insurance expense divided by title insurance premiums) of the two firms have remained relatively stable, producing underwriting margins that have averaged about 96% since the beginning of 2009.

This has been accomplished despite a near collapse in existing home sales, which have been on the decline since reaching a peak in 2005, aided only by occasional government incentive programs that increased sales for a short period. After commercial real estate transactions, existing home sales are the most profitable segment, and the lack of recovery has weighed on margin expansion in the industry. In 2011, home resale activity has fallen in most months and is off significantly, as evidenced by purchase mortgage activity.

Commercial real estate activity has become a lifesaver for the title insurers. As the number-one and -two industry leaders, Fidelity and First American have an even greater share of all commercial real estate transactions, with a combined share that is probably greater than 80% (exact market share figures in this segment are not reported). The two insurers reported increased commercial real estate transactions beginning in the middle of 2010 and continuing to climb this year. For the?third quarter, Fidelity reported that closed commercia! l revenu e from its national commercial division rose 46% on a year-over-year basis. First American saw similar results in the second quarter, with an increase of 28% in the same time frame. Commercial revenue per order is about 5 times greater than home resale, and while the title work is a bit more complicated and time-consuming, the margins are still much higher.

We think First American and Fidelity are undervalued and capable of producing earnings per share much higher than what they've reported during the past two years.

We think First American could see annual earnings per share around $3 once the market normalizes, and we forecast Fidelity to average about $1.75. At the current market price, we think First American in particular is very attractively valued relative to its normalized earnings power, and it is one of our best ideas for the patient, long-term investor.

The mortgage insurance industry, on the other hand, is in deep trouble. In the past three months, two major U.S. mortgage insurance companies, PMI Group?(PMI) and the flagship subsidiary of Old Republic?(ORI), have entered runoff. In runoff, insurance companies cease writing new policies and attempt to settle the remaining policy obligations with existing reserves under the direction of regulators. The mortgage insurance industry is staggering from foreclosure claims brought by mortgage lenders it insured, and although the hits it has taken so far are substantial, it could be just the tip of the iceberg.

The two remaining mortgage insurers we cover, MGIC Investment Corporation?(MTG) and Radian Group?(RDN), are struggling to survive the onslaught of foreclosure claims. While the firms have been accumulating reserves during the past three years in anticipation of eventual payouts, we?don't know?whether the buildup is enough. The number of claims has continued to rise, which threatens the ability of the firms to continue paying them.

Without some sort of improvement in the housing sector, we think the mortgage insurance indu! stry wal ks a fine line between survival and collapse. In our view, an investment in this industry should be avoided until signs of a turnaround are confirmed.


Buying Apple On A Pull Back: An Option Strategy

A recent commentator discussed the short and medium term outlooks for the market, and referenced Apple (AAPL) and the S&P in particular. The basic thesis was that in the short term the market could go up, but within six months, a drop of around 20% or more was to be expected. The recommendation was for sitting on the sidelines until this happened so the investor could re-enter on the pull-back and get a better price.

The commentator pointed out that making 10% to even 30% in the short term wasn’t worth the risk of losing it and more, when an inevitable market pull-back arrived. After all, the pull-back could start as early as next week or as late as six months.

I don’t know if this will come to pass or not. The commentator had “studied the charts”, looked at macro issues, and concluded this as inevitable. I take no issue with the thesis, but certainly think the recommendation can be improved upon. To me, sitting out is never the right thing to do. It’s not eating food because you fear food poisoning. You may avoid food poisoning but you starve to death instead.

In my previous articles I have stressed that the first step in any option strategy is to develop a thesis about the market or a particular stock. Once the thesis is developed, pick an option strategy to capitalize on the thesis. Here lies a perfect example of a thesis that we can work with.

So, let’s assume we concur that the short term may show some gains for AAPL, but a better price lies in the offing, within six months. Do we sit out and wait for the pullback?

Keeping this in mind, I’ll craft a strategy for AAPL that will make reasonable gains if there is no pullback, while allowing a true buy-in if it does pull-back. The first step in any option strategy is picking the expiration dates. Since the thesis is for a pull-back within six months, I’ll go with the July 2012 expiration.

The next step is to select the appropriate strategy.! AAPL i s currently trading right around $400. One at-the-money option contract controls 100 shares, and therefore $40,000 in AAPL value. Option contracts don’t trade in partial contracts, so this is the minimum “theoretical investment”. Since I want a dual goal of making gains if the pullback doesn't occur and only buying in if it does occur, I choose a hybrid of two strategies. I “marry” a Put Spread with a Ratio Spread. Here’s how it works:

Leg 1: SELL ONE July 2012 put at the $400 strike. This strike sells for $46.15 per contract and will credit $4,615.

Leg 2: BUY ONE July 2012 protective put at a strike of $355. This strike is picked by subtracting the previous leg option contract price from the strike price ($400 minus $46.15). The cost per contract is $27.60 for a total cost of $2,760.

Leg 3: SELL TWO July 2012 puts at a strike of $310. This strike is picked so that the credit from this leg offsets the cost of the protective put purchased in Leg 2. Each contract credits $14.50, so the total credit is $2,900.

Combining the three legs results in a net credit of $4,755 ($4,615 minus $2,760 plus $2,900). Now, what is the result of all this?

First, if AAPL doesn’t pull back below $400 by expiry the combined credit of $4,755 represents pure profit. This represents a 12% gain on the “theoretical investment”. Not bad if the thesis turns out wrong. Certainly better than “sitting out”.

Second, if AAPL falls below $400, the $4,755 potential profit is slowly given back. But, any initial loss is capped by the $355 protective put. I show no actual loss until the Leg 3 puts at $310 are reached. This corresponds to more than a 20% pull-back. However, at this point the loss is based upon TWO options and a “theoretical investment” of $62,000 (Two contracts at $310).

This chart details the total results:

Price! Points< /b>
















If the thesis is correct and a 20% pull back occurs, nothing is lost. If the pull-back never comes, the “theoretical investment” earns potentially as much as 12%. If the pull-back is greater than 20%, well, I’ve bought in at around $310.

In evaluating leg 3, $310 buy-in risk, I just ask myself if I’d be willing to buy in at that price, anyway? If the answer is yes, then my downside risk is zero! What if I wasn’t willing to buy at a 20% pull-back but was willing to buy at a greater pull-back? Well, I simply adjust the strikes of each leg down to meet this parameter. The offset is a smaller profit.

In conclusion, once a thesis is developed a strategy can be sought after that will capitalize on the thesis. In this example, I choose to illustrate a strategy for buying on a pull-back, yet allowing some gains if it never arrives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Friday, November 11, 2011 Inc. Third Quarter Earnings Sneak Peek Inc. (NASDAQ:NTES) will unveil its latest earnings on Wednesday, November 16, 2011. is a China-based Internet technology company, which is engaged in the development of applications, services, and other technologies for the Internet in China. Inc. Earnings Preview Cheat Sheet

Wall St. Earnings Expectations: The average estimate of analysts is for profit of 86 cents per share, a rise of 28.4% from the company’s actual earnings for the same quarter a year ago. During the past three months, the average estimate has moved up from 81 cents. Between one and three months ago, the average estimate moved up. It has been unchanged at 86 cents during the last month. For the year, analysts are projecting net income of $3.54 per share, a rise of 36.2% from last year.

Past Earnings Performance: Last quarter, the company beat estimates by 13 cents, coming in at profit of 91 cents a share versus the estimate of net income of 78 cents a share. It marked the fourth straight quarter of beating estimates.

Wall St. Revenue Expectations: Analysts are projecting a rise of 32.6% in revenue from the year-earlier quarter to $277.5 million.

Analyst Ratings: Analysts are bullish on this stock with 13 analysts rating it as a buy, none rating it as a sell and three rating it as a hold.

Revenue fell twofold to $0.0 from $193 million.

Key Stats:

Revenue fell in the second quarter after seeing a rise the quarter before. In the first quarter, revenue rose 34.3%.

The company’s gross margin shrank by 67.1 percentage points in the in the second quarter. Revenue fell 100% while cost of sales fell 100% to $0.0 from a year earlier.

Competitors to Watch: Inc. (NASDAQ:SOHU),, Inc. (NASDAQ:BIDU), SINA Corporation (NASDAQ:SINA), Giant Interactive Group Inc (NYSE:GA), Perfect World Co., Ltd. (NASDAQ:PWRD! ), Shand a Interactive Entertainment Ltd ADR (NASDAQ:SNDA), The9 Limited (NASDAQ:NCTY), Shanda Games Limited (NASDAQ:GAME), and China Telecom Corp. Ltd. (NYSE:CHA).

Stock Price Performance: During August 17, 2011 to November 10, 2011, the stock price had fallen $5.50 (-11.2%) from $49.30 to $43.80. The stock price saw one of its best stretches over the last year between March 16, 2011 and April 5, 2011 when shares rose for 15-straight days, rising 21% (+$9) over that span. It saw one of its worst periods between September 14, 2011 and September 22, 2011 when shares fell for seven-straight days, falling 16.1% (-$7.71) over that span. Shares are up $7.65 (+21.2%) year to date.

(Company fundamentals by Xignite Financials. Earnings estimates provided by Zacks)


Markets Soar As European Fears Dim

  • DJIA up 259.89 (+2.19%) to 12,153.68
  • S&P 500 up 24.16 (+1.95%) to 1,263.85
  • Nasdaq up 53.60 (+2.04%) to 2,678.75


  • Nikkei up 0.16%.
  • Hang Seng up 0.9%.
  • FTSE-100 up 1.8%.

Stocks soared in Friday's regular session, with the major U.S. averages adding about 2% each and the S&P 500 and Nasdaq returning to the black for 2011. Bulls were in clear command throughout the day as Italy's latest moves to approve austerity measures and new leadership in Greece cooled some of the eurozone debt worries while a gauge of U.S. consumer confidence came in better-than-expected.

Looking forward to next week, developments in Italy and Greece will remain a concern for U.S. traders as will a run of earnings from major retailers. On the earnings front, J.C. Penney (JCP) and Lowe's (LOW) report results on Monday, followed by Agilent (A), Dell (DELL), Home Depot (HD) and Wal-Mart (WMT) on Tuesday. Applied Materials (AMAT), NetApp (NTAP) and Target (TGT) post financials on Wednesday, with Marvel Technology (MRVL), (CRM) and GameStop (GME) releasing quarterly numbers on Thursday. Ann Inc. (ANN) and H.J. Heinz (HNZ) are slated to issue results on Friday.

On the economic front, PPI, retail sales, Empire manufacturing and business inventories data are due on Tuesday. On Wednesday, we'll see CPI data, industrial production/capacity utilization, the NAHB housing market index, and crude inventories. Initial claims, housing starts and the Philadelphia Fed will be released on Thursday, followed by leading indicators on Friday.

In today's U.S. economic data, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 64.2 in November compared with an October reading of 60.9. That increase is better than the 63 reading economists had expected.

That provided a lift to retailers, which are gearing up for ! the all -important holiday shopping season. Wal-Mart Stores, Target, Best Buy (BBY) and TJX Companies (TJX) were all higher on Friday.

Late Thursday, Walt Disney Co. (DIS) reported fourth quarter revenue of $10.42 billion, which topped analysts' average estimate of $10.36 billion as gauged by Thomson Reuters. Earnings per share were $0.58 compared to expectations of $0.54 per share. Disney shares spiked in the extended session and into Friday's session, with trades topping a 7% gain.

Overseas, the dramatic events that shaped the week in Europe appear to be settling down - at least for the short term. Italian lawmakers appeared set to approve 2012 budget measures over the weekend, potentially clearing the way for the formal resignation of Prime Minister Silvio Berlusconi and the naming of a new coalition government headed by economist and former European Commissioner Mario Monti, according to news reports. Monti is widely considered to be a technocrat who will go about the business of implementing budget action.

In company news:

Shares of Citigroup (C) were higher while the Financial Times reported that the bank will get $4.1 billion from its sale of recording house EMI after a deal agreed to by Universal and Sony.

Bristol-Myers Squibb (BMY) shares edged up after it announced a technology transfer agreement with the Brazilian Ministry of Health to expand access to its HIV treatment Reyataz in Brazil. The agreement is designed to build the capacity and skills required for the Brazilian government to produce a sustainable, high quality supply of atazanavir and will enable the government to become, over time, the sole source of atazanavir in Brazil.

Shares of Google (GOOG) were higher as the company is reportedly planning to unveil a television running Google software at the Consumer Electronics Show in Las Vegas, according to a Bloomberg report.

ConocoPhillips (COP) was up while The Wall Street Journal reported that China's State Oceani! c Admini stration said in a statement Friday that a ConocoPhillips unit violated development plans at its oil field in China's Bohai Bay.

Commodities finished higher as crude oil futures advanced along with the broader equities markets and gold was helped by a weaker U.S. dollar.

Light, sweet crude oil for December delivery finished up 1.2% to $98.99 a barrel. In other energy futures, heating oil was up 1.75% to $3.15 a gallon while natural gas was down 0.08% to $3.64 per million British thermal units.

Meanwhile, gold futures finished higher after slumping in the prior session as investors sought relative bargains in the metal.

Gold for December delivery finished up 1.6% to $1,788.10 an ounce. In other metal futures, silver was down 1.43% to $33.87 a troy ounce while copper was down 2.54% to $3.35.


(+) NVDA continues evening gain that followed earnings beat.

(+) DIS continues evening gain that followed earnings beat.

(+) CAT building new plant; confirms Asian expansion.


(-) KW prices shares.

(-) DHI issues mixed results.

(-) ANX selling stock.

(-) MCP continues evening drop that followed Q3 miss.

(-) ETFC company won't pursue sale

China's Unsustainable Investment Boom

(By Daniel Rohr, CFA) The Chinese fixed-asset investment boom of the past decade has been unprecedented. While all low-income countries have required outsize capital stock additions to make the leap to middle-income status, China's current boom is unmatched by anything on the record books. In fact, by some measures of physical capital, China already looks more like one of the world's leading developed economies, rather than the middle-income economy it is. We don't believe China can continue to rely on building more skyscrapers, highways, and manufacturing plants to sustain the kind of GDP numbers its citizens and global investors have grown accustomed to. In the next 10 years, the onus for growth will rest on Chinese households: their willingness and ability to consume. If consumption fails to grow at a rate well above historical norms, the economy may be able to muster only 5% growth at best, a far cry from the 10% average from 2001 to 2010.

In 2000, before the boom really kicked off, gross capital formation (or GCF, the GDP accounting term for investments in physical capital) accounted for 35% of Chinese economic output. While large by developed economy standards (the U.S. 10-year average is 19%, Japan 23%), it wasn't atypical for a high-growth emerging economy. Nor was it unusual for China: A decade prior, GCF also had a 35% share. The consistent share reflected the balanced growth China enjoyed in the 1990s. By 2000, the Chinese economy was 170% larger than it was in 1990, driven by a 173% increase in investment and a 156% increase in consumption.

Chinese GDP expanded at a similarly impressive rate in the 2000s. By 2010, the Chinese economy was 171% larger in 2010 than it was in 2000. But the sources of growth were anything but balanced. A massive share came from a surge in fixed-asset investment. By 2010, China was spending 273% more on physical capital than it was in 2000, with GCF accounting for a 49% share of output by decade's end. Yet Chinese households were "only" consuming 97% more t! han they were in 2000, depressing the share of household consumption of total GDP to 34% by 2010, a paltry share by any standard and the lowest level seen in China since the founding of the People's Republic.

The extreme imbalance between investment and consumption appears even more exceptional in the context of the three biggest investment-led success stories of the past 50 years: Japan, Korea, and Taiwan. By any measure of fixed-asset investment intensity--growth rates, share of cumulative GDP growth, or share of GDP--China has far surpassed the precedents set by Japan, Korea, and Taiwan. We estimate that, relative to the starting size of the economy, cumulative additions to Chinese capital stock in its boom decade have been 43% greater than Japan's, 33% greater than Korea's, and 49% greater than Taiwan's.

Just as striking is the relatively feeble contribution of consumption to Chinese growth rates. While GCF grew faster than consumption in the boom decades of Japan, Korea, and Taiwan, consumption still accounted for at least half of total economic expansion in each case, versus the paltry 26% share we see for China. While the investment share of Chinese GDP has exceeded the consumption share in every year since 2003, this was not achieved in any year by Japan, Korea, or Taiwan.

Various hard measures of GCF confirm the outsize role of fixed-asset investment in the Chinese growth story.

The Chinese economy is roughly 170% larger than it was a decade ago, but it now consumes 383% more aluminum and 393% more steel. Total expressway mileage is up 354% over the past decade, the number of tunnels is up 338%, and floor space under construction, a concrete measure of real estate activity, is up 337%.

One might argue that this rapid buildout of Chinese real estate and infrastructure makes sense to the extent it correctly anticipates a commensurately rapid increase in consumption. Even if a good deal of the new floor space goes unoccupied at the moment, continued urbanization and rising incomes wi! ll event ually fill it. And while some of the new expressways, bridges, and tunnels may see only a trickle of traffic today, rising automobile ownership rates will ultimately generate a steady stream of vehicles. From this perspective, today's investment is nothing more than a down payment on tomorrow's consumption.

Consumption Has a Lot of Catching Up to Do
But given the immense investments made in the past decade, consumption has a lot of catching up to do. Even if the massive capital additions have correctly anticipated the consumption growth we'll see in the decades to come, the economic rationale for further outsize capital outlays grows increasingly weak with each passing year. Any nation, even a rapidly growing one, needs only so many airports, highways, high-speed rail lines, and luxury apartments.

By some measures, China's physical capital base already looks like that of a major developed economy. Consider the installed capacity of China's steel industry. Now roughly 5 times the size of what it was a decade ago, capacity is nearly twice that of the United States, Japan, and the European Union combined. Notably, the latter collection of economies has nearly 1 billion people of its own and collective GDP of about $36.6 trillion, making it more than 6 times the size of China's economy.

China's expressway system, the national trunk highway system, also looks rather overbuilt. By year-end, the NTHS will have quintupled its 2000 length. Heading into the year, the total length of the NTHS (45,554 miles) was already on par with that of the interstate highway system (46,876 miles) in the U.S., a country of similar size but with 3 times as many cars on the road. While growing Chinese vehicle ownership rates are likely to trim some of the bloat in the next couple of decades, the rationale for additions comparable to what we've seen in the past 10 years is very limited.

The biggest contributor to China's fixed-asset investment boom, particularly in the past few years, h! as been residential real estate. Throughout the 2000s, China built housing at a blistering pace, adding a cumulative 120 square feet in residential floor space per person. This is understandable, given the significant additions China made to its urban population over the period. What is less understandable is the roughly 80% surge in the rate of floor space additions we've seen in the past few years, which has not been accompanied by a comparable surge in urbanization. On a per capita basis, China now has nearly 5 times the amount of residential floor space under construction as the U.S. in its peak housing boom. This is particularly remarkable since, despite enormous gains in wealth and income, Chinese remain on average much poorer than their American counterparts and tend to occupy residences that are much smaller.

Perhaps the biggest counterargument to the overbuilding thesis goes as follows: Despite its massive urbanization of the past couple of decades, China remains relatively rural by global standards and will continue to require large additions to its capital stock as it accommodates new urbanites.

According to Chinese government figures, even after an influx of 207 million new urban residents in the past decade, only 50% of the population resides in urban areas. An increase to 70% urban--a level typical of the high-middle-income status to which China aspires--would add 272 million to China's urban total. That's equivalent to adding 33 cities the size of New York.

While that notion is intuitively powerful, we'd strongly caution investors against taking the data underpinning the "stronger for longer" urbanization story at face value. Countries use very different definitions of what constitutes urban. As a result, relying on headline data alone can lead to ill-informed conclusions. China's self-reported urban share of 50% is equivalent to reported figures from Ghana (50.7%) and apparently well below that of North Korea (60.1%), which remains largely a subsistence agriculture economy.

As it! turns o ut, China's definition of urban is stricter than most, effectively portraying the country as more rural than it might otherwise appear and potentially overstating the remaining runway for further urbanization. China's statistics bureau generally requires a density of 1,500 persons per square kilometer for a population to be deemed urban. By this hurdle rate, 4 of the top 10 largest U.S. cities would fail to meet China's definition of urban, not to mention hundreds of suburbs. While the data necessary to reformulate China's urban/rural breakdown on a more apples-to-apples basis with that of the U.S. aren't made available, it seems fair to assume that such an undertaking might add at least 10 percentage points to China's stated urbanization level, significantly curtailing the urbanization upside promoted by China bulls.

All told, we expect to see significantly lower GCF growth in the coming decade than we did in the decade just past. As a result, for China to sustain robust economic growth in the coming decade, household consumption will need to grow at above-trend rates, rebalancing its economy toward a more normal composition of consumption and investment. Chinese policymakers are not blind to the need to increase consumption, as evidenced by the recently articulated objective of boosting consumption's share of GDP to 50% by the end of the decade.

Two Ways to Rebalance China's Economy
There are two ways to achieve this rebalancing: stronger growth in consumer spending or weaker growth in fixed-asset investment. History suggests the latter outcome is more likely. Consider the average GCF growth turned in by Japan, Korea, and Taiwan in the decade following each country's investment boom: 1.2%, 2.4%, and 5.9%, respectively. If China were to achieve the average of those three (about 3%) in its own post-boom decade and household consumption continued to expand at the rate it has in the past decade (7.0%), total GDP would grow at 4.8%, well below the 10.5% average of the 2000s! . Even i f consumption were to expand at 12.0% annually, a level it achieved not once in the past decade, GDP would grow at 7.5%--stellar by developed market standards, but somewhat below what Chinese citizens and global investors have come to expect.

In the case of Japan, Korea, and Taiwan, GCF growth post-boom was inversely related to the size of the boom. Japan and Korea had larger booms (GCF averaged a 37% share of GDP in the boom decade), leading to weaker GCF growth post-boom. Taiwan had a relatively smaller boom (31% share of GDP) and saw fairly robust GCF growth post-boom. With this in mind, it seems reasonable to believe that, since China's investment boom has been both longer and stronger than its antecedents, its post-boom decade will require more modest additions to the capital stock than the cases of Japan, Korea, or Taiwan. This suggests even 3.0% GCF growth would be a fairly rosy outcome by historical standards. Assuming instead 1.0% GCF growth and 7.0% consumption growth would put GDP growth at 3.8%--a potentially troubling outcome not only for China, but for the global economy as a whole.


Apps give viewers a whole new TV experience

How people watch television is changing, but it’s more than just a shift from cable to streaming services. People literally are doing more while they watch. A recent Nielsen study found that 70% of tablet owners and 68% of smartphone users use their devices while watching television. Why aren’t more companies looking to capitalize on the new second-screen experience? Many aren’t. But Yahoo (NASDAQ:YHOO) is, and its recent acquisition IntoNow is giving Yahoo a leg up in what could be a lucrative new stream of advertising revenue.

Here’s Yahoo’s plan for making money on second-screen viewing: The new IntoNow app for Apple‘s (NASDAQ:AAPL) iPad listens to what you’re watching on TV and automatically loads relevant content on the tablet. If you’re watching Monday Night Football, IntoNow brings up player stats and commentary. If you’re watching the news, IntoNow trawls Yahoo’s news database and other sources on the net to bring up other stories related to the current subject.

Providing parallel content to the audience is an effective sales tool — just look at Amazon‘s (NASDAQ:AMZN) success with its “Recommendations” back in the ’90s — and it’s common in television. Netflix (NASDAQ:NFLX) and many other services track users’ viewing habits and make automatic content suggestions based on that information.

IntoNow is something else entirely, though, creating a whole second stream of content for the audience that lures them in using the same principle as “recommendations.” The audience, then, can see multiple advertisements simultaneously. IntoNow is a dream product for a company whose $1.62 billion display advertising business is outpaced by Facebook.

The IntoNow app is an exciting product for Yahoo. It is arguably the first uniqu! e produc t the company has offered in a decade, and if it’s successful, that innovation could restore investor confidence in the company and give Yahoo new, much-needed direction. IntoNow already has strong partners looking to make unique content for the service. Pepsi (NYSE:PEP) built a campaign for the IntoNow iPhone app — a social networking app that lets users “check in” online to tell friends what they’re watching — in April, giving away a coupon when the app recognized the audio from a televised Pepsi commercial.

The app also fits into Yahoo’s larger push in television. Despite a rocky year, Yahoo scored key partnerships for its Yahoo TV Internet television service, namely Disney (NYSE:DIS). The Yahoo TV software also comes prepackaged in televisions made by Sony (NYSE:SNE), Vizio and Samsung (PINK:SSNLF). If the IntoNow iPad app gets unique content when paired with Yahoo TV-equipped televisions, Yahoo will find itself in an enviable position in the budding Internet television market, in addition to cornering the still-new second-screen market.

Of course, the risk for Yahoo is that the IntoNow app is an excellent idea that is easily imitated and thus will be quickly devalued. Apple is said to be preparing its own line of HD televisions for release in the next year, and given that company’s new emphasis on audio recognition technology and the popularity of its tablet and smartphone, its hard to imagine it won’t provide an alternative. The same can be said of Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT), whose Google TV and Xbox TV projects also are likely to interact with their respective mobile platforms, Android and Windows Phone 7.

But just because these other companies can adopt similar technology as IntoNow doesn’t necessarily mean that they will. Time will tell. But for now, Yahoo seems somewhat revitali! zed than ks to the forward-thinking IntoNow. Now, Yahoo has to figure out how to keep it unique and at its most profitable before its competitors catch up.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at?@ajohnagnello?and?become a fan of?InvestorPlace on Facebook.

Amgen Stock Rises on New Buyback Plan, But How About the Debt?

Biotech drug company Amgen (AMGN) is using a modified Dutch auction to buy back $5 billion worth of its shares over the next month, the company announced today. The move raised concerns among some some ratings agencies, but gave the stock a jolt. Shares are up 4.3% in midday trading.

The company said it will buy the shares back at prices between $54 and $60 per share from November 8 through December 7. Through the auction, shareholders can determine how many shares they are willing to sell back and at what price. Amgen will buy all of the shares at the same price, but will not pay a lower per-share price than the price at which the shareholder is willing to sell. That means each shareholder could presumably make more than the price they offered, but will be locked out of the auction if their per-share offer is too high.

“This tender offer reflects Amgen’s confidence in the future outlook of our business and the Company’s long-term value,” said Chairman and CEO Kevin W. Sharer. “Our strong balance sheet and cash flow enable us to complete this transaction in an attractive interest rate environment while also preserving the flexibility to further accelerate the growth of our business through focused, strategic acquisitions.”

The company said it will fund the buyback by issuing senior notes.

Moody’s and Fitch both lowered their ratings on the company’s debt, with Moody’s citing the company’s “more aggressive financial policies.”

Olympus, Republic Wireless: Hot Trends

Popular searches on the Internet Tuesday include Olympus after the Japanese company said three executives, including its former chairman, helped conceal decades of losses.

Olympus said former Chairman Tsuyoshi Kikukawa, Executive Vice President Hisashi Mori and auditor Hideo Yamada took part in the cover-up by paying inflated fees to takeover advisers in effort to hide the losses. This comes after weeks of accusations against the company regarding its purchase of Gyrus Group in 2008 and three other takeovers. The company had continuously denied any allegations of wrongdoing.

Now, regulators are investigating allegations that Olympus, the camera and medical equipment maker, siphoned more than $1 billion through offshore accounts. The Tokyo Stock Exchange said it is contemplating moving Olympus shares to a watch list for a possible delisting.

Another hot search Tuesday is Republic Wireless as the startup company has launched a limited beta version of its $19-a-month wireless service.

For now, the service will be available on the LG Optimus smartphone. Republic Wireless will take on Sprint Nextel(S) as its first cellular partner in the agreement, in which the smartphone and one month of service will go for $199, with unlimited voice, data and texting costing $19 a month afterward.

Republic Wireless is calling the service "the world's first $19-a-month hybrid calling plan," while leaving the window open for future price drops even further. The phone will connect with Wi-Fi first, but when Wi-Fi is unavailable the connection will switch over to the cellular network. The company said the price could drop below $19 a month if customers use Wi-Fi a great deal.

Customers won't have to sign a contract, and the company said there will be no overage fees.

Cholesterol drug also is trending as the patent on Pfizer's(PFE) Lipitor is about to expire.

The cash cow drug has reached $130 billion in sales since its creation in 1997. When its patent expires on Nov. 30, a slew of cheap generic forms of the drug are anticipated to hit the market. Without patent protection, any generic drug company will be able to create cheaper versions of Lipitor. Now, in a possible attempt to stay competitive, Pfizer itself is saying it could be one of companies to introduce a generic version of the cholesterol fighter.

The drug lowers levels of "bad" LDL cholesterol, cutting the risk of heart attack and stroke.

The chatter on Main Street (a.k.a. Google, Yahoo! and other search sites) is always of interest to investors on Wall Street. Thus, each day, TheStreet compiles the stories that are trending on the Web, and highlights the news that could make stocks move.


Pharmasset, Inhibitex drugs showing promise

Feasting their eyes on the multibillion-dollar market for treating hepatitis C, members of Big Pharma are closely watching developments at the American Association for the Study of Liver Disease annual meeting, which started Saturday. The large drugmakers might be thinking about following in the footsteps of Swiss giant Roche (PINK:RHHBY), which last month agreed to buy Anadys Pharmaceuticals (NASDAQ:ANDS), a developer of medicines for the treatment of hepatitis C, for $230 million in cash.

Potential targets abound. Two of the most prominent are hepatitis C drug developers Pharmasset (NASDAQ:VRUS) and Inhibitex (NASDAQ:INHX). Shares of both companies climbed Monday after they reported positive clinical trial data for their medicines.

The news from these companies dampened investor enthusiasm for Vertex (NASDAQ:VRTX), whose Incivek treatment has taken the market by storm since its approval in May. Incivek was supposed to be challenged by the Merck (NYSE:MRK) hepatitis C drug Victrelis, which was approved about the same time. But that battle has proved to be no contest, with the Vertex drug widely outselling Victrelis. In the third quarter alone, sales of Incivek totaled $420 million.

However, study results reported by Pharmasset and Inhibitex have raised some doubt among investors about the long-term viability of Vertex��s Incivek. That��s reflected in the nearly 17% decline in VRTX shares since its Friday close.

“Emerging competitive data suggest a potentially very limited role for Incivek in future regimens,” said RBC Capital Markets analyst Jason Kantor, according to an Associated Press article.

Kantor said Incivek is selling well, but newer drugs continue to look stronger as more data is reported. Eventually, he predicted, combinations of Pharmasset’s treatment and other! new dru gs will command the field. He downgraded shares of Vertex to “sector perform” from “outperform” and cut his price target for the stock to $48 from $59.

Although the recently approved drugs for the disease marked the first breakthroughs for hepatitis C treatments in approximately 20 years, a number of other companies are researching others that have better cure rates and reduced side effects.

The goal for the next round of drugs to treat hepatitis C is to produce a therapy that can be taken without the injected older treatment interferon, which has serious side effects. Incivek is approved for sale in the U.S. as a course of treatment to be taken with interferon.

Pharmasset is working toward the first all-oral treatment for hepatitis C, which most definitely would hurt Incivek��s sales if approved. Given the favorable data from its study, the company could ask the FDA to approve the drug as early as the second half of 2013.

The Pharmasset drug appears to be about a year-and-a-half ahead of the Inhibitex treatment, but the latter could become a player if its early safety and efficacy data holds up.

JMP Securities analyst Liisa Bayko sent a note to clients saying she expects more hepatitis drug developers to be acquired, according to Seeking Alpha. “We anticipate more deal making in the hepatitis C virus space in 2012 as companies accrue longer-term safety data on the earlier stage assets in the pipeline,” she wrote. Other hepatitis C acquisition targets to keep an eye on are Achillion (NASDAQ:ACHN) and Idenix (NASDAQ:IDIX).

As of this writing, Barry Cohen was long MRK.

Wall Street Poised To Open Higher After Economic Data; Hot Stocks: AMD, AZZ, NOK, XRTX

U.S. stock futures pointed to a higher open on Wall Street Thursday after plans to enhance Europe's bailout fund comfortably passed a key vote in Germany. Investors also weighed data on U.S. jobs and second quarter gross domestic product.

On the economic front, the U.S. Commerce Department said Thursday that US real gross domestic product for the second quarter was revised to an increase of 1.3 percent annualized from the earlier estimate of a 1.0 percent increase.

In another report, the U.S. Department of Labor said said that for the week ended September 24, 2011, new applications for unemployment benefits dropped by 37,000 to 391,000 claims. This marks the lowest level since April, 2011. The 4-week moving average was 417,000, a decrease of 5,250 from the previous week's revised average of 422,250.

Ahead of the opening bell, Dow industrial average futures were trading higher by 0.82 percent, or 90 points ,to 11,066. Nasdaq 100 futures were up 0.86 percent, or 19 points, to 2,238; Standard and Poor's 500 futures were trading higher by 0.83 percent, or 9.50 points, to 1,158.25, today.

Hot Stocks of the Day: AMD, AZZ, XRTX, NOK

Shares of Advanced Micro Devices Inc. (NYSE: AMD) were trading lower by 10.89 percent to $5.48 in pre-market trading on Thursday. The company cut its third-quarter sales forecast, citing manufacturing issues that limited the availability of supplies of its Llano chips. The company now expects sales to rise 4 percent to 6 percent from the second quarter, compared with a previous outlook that had called for an increase of 10 percent, plus or minus 2 percent.

AZZ Inc. (NYSE: AZZ) is scheduled to report second quarter FY 2012 financial results after the closing bell Thursday. Analysts expect AZZ to report earnings of $0.76 per share on revenue of $115.87 million. AZZ last traded at $38.82, down 6.28 percent, on Wednesday.

Xyratex Ltd. (Nasdaq: XRTX) a data st! orage te chnology services provider, is scheduled to report third quarter FY 2011 financial results on Thursday, after the closing bell. Analysts expect the company to report earnings of $0.18 per share on revenue of $351.16 million. XRTX last traded at $8.91, down 1 percent, on Wednesday.

Nokia Corp. (NYSE: NOK) said Thursday it will cut around 3,500 jobs in its manufacturing and location-services units as part of its ongoing plan to cut costs. The company said it will shutter its manufacturing plant in Cluj, Romania, by the end of 2011, affecting around 2,200 jobs. NOK is trading higher by 2.52 percent to $5.69 in pre-market trading Thursday.

Global Markets: FTSE, CAC40, DAX, Nikkei 225, Straits Times, Hang Seng, Shanghai Composite Index, BSE 30

Asian markets closed mostly higher today. Singapore's Straits Times closed higher by 0.26 percent, or 6.96 points, to close at 2,708.13; India's BSE 30 closed with gains of 1.53 percent, or 252.05 points, to 16,698.07; Japan's Nikkei 225 closed with gains of 0.99 percent, or 85.58 points, to 8,701.23; and China's Shanghai Composite closed down by 1.12 percent, or 26.72 points, to 2,365.34. Hong Kong's Hang Seng remained closes on Thursday.

The European indexes were trading mixed mid-day Thursday. Britain's FTSE 100 was trading lower by 0.66 percent, or 34.45 points, to 5,183.18; Germany's DAX was trading lower by 0.14 percent, or 8.02 points, to 5,570.40; and France's CAC40 was trading higher by 0.12 points, or 3.55 points, to 2,999.17.

Oil above $81 mark ahead of Europe debt fund vote

Ahead of the opening bell, crude oil was trading higher by 0.21 points, or 0.26 percent, to $81.42 per barrel. Gold stood at 1,610.00, down 6.10 points, or 0.38 percent on Thursday.

In the currency market, the euro was trading higher by 0.62 percent to 1.3611 against the U.S. dollar. The dollar was trading higher at ��76.6950, up 0.22 percent against the Japanese yen. The British pound is trading ! higher b y 0.45 percent to $1.5642 against the dollar on Thursday.On Wednesday, Wall Street closed lower. The Dow Jones industrial average closed with losses of 1.61 percent, or 179.79 points, to settle at 11,010.90. The Nasdaq ended down by 2.17 percent, or 55.25 points, to 2,491.58. Standard & Poor's 500 ended lower by 2.07 percent, or 24.32 points, to 1,151.06.


Top 10 Biggest Stock Percentage Movers Today

Wall St. Watchdog reveals information about 10 stocks showing big percentage moves on our trading screens:

Big gainers:

  1. EnerSys (NYSE:ENS): Up +18.45%. EnerSys manufactures, markets, and distributes industrial batteries. The Company also manufactures, markets, and distributes related products such as chargers, power equipment, and battery accessories. EnerSys provides related after-market and customer-support services for lead-acid industrial batteries. Get the most recent company news and stock data here >>
  2. RSC Holdings Inc. (NYSE:RRR): Up +8.65%. RSC Holdings, Inc. rents equipment. The Company operates equipment rental locations in the United States and Canada. Get the most recent company news and stock data here >>
  3. Cabot Oil & Gas Corporation (NYSE:COG): Up +7.95%. Cabot Oil & Gas Corporation is an independent oil and gas company that develops, exploits, and explores oil and gas properties located in North America. The Company holds interests Appalachian Basin, onshore Gulf Coast, including south and east Texas and north Louisiana, the Rocky Mountains and the Anadarko Basin as well as in the deep gas basin of Western Canada. Get the most recent company news and stock data here >>
  4. Viacom, Inc. (NYSE:VIA.B): Up +7.92%. Get the most recent company news and stock data here >>
  5. Fortinet, Inc. (NASDAQ:FTNT): Up +7.69%. Fortinet Inc. provides network security solutions. The Company offers network security appliances and related software, and subscription services. Fortinet systems integrate the industry’s broadest suite of security technologies, including firewall, VPN, antivirus, intrusion prevention (NYSE:IPS), Web filtering, antispam, and traffic shaping. Get the most recent company news and stock data here >>

Big losers:

  1. Green Mountain Coffee Roasters Inc. (NASDA Q:GMCR): Down -39.99%. Green Mountain Coffee Roasters, Inc. roasts Arabica coffees and offers various coffee selections. The Company’s products include single-origin, estate, certified organic, Fair Trade, signature blends, and flavored coffees sold under the Green Mountain Coffee Roasters brand. Green Mountain serves offices, supermarkets, and convenience stores, and operates a direct mail business. Get the most recent company news and stock data here >>
  2. Silver Standard Resources Inc. (NASDAQ:SSRI): Down -21.26%. Silver Standard Resources Inc. is a silver exploration company focused on acquiring and developing silver resources on a global basis. The Company has projects in Argentina, Peru, Mexico, Canada, Chile, the United States and Australia. Get the most recent company news and stock data here >>
  3. Pegasystems Inc. (NASDAQ:PEGA): Down -20.63%. Pegasystems Inc. develops customer relationship management software. The software automates customer interactions across transaction-intensive enterprises. The Company provides its products to customers in the banking, mutual funds and securities, mortgage services, card services, insurance, healthcare management, and telecommunications industries. Get the most recent company news and stock data here >>
  4. Melco Crown Entertainment Ltd (NASDAQ:MPEL): Down -13.21%. Melco Crown Entertainment. Ltd. develops, owns and operates casino gaming and entertainment resort facilities. Get the most recent company news and stock data here >>
  5. PriceSmart, Inc. (NASDAQ:PSMT): Down -10.35%. PriceSmart, Inc. owns and manages international merchandising businesses. The Company licenses and owns membership stores using the trade name PriceSmart and PriceCostco. PriceSmart’s international market consists of Latin America and Asia. The Company also operates domestic merchandising programs, including its Auto Referral Program and its Travel Program. Get th! e most r ecent company news and stock data here >>

The Italy Factor Gets Ugly

Is the euro Toast? Maybe not, but if you thought the currency was under pressure before, well, you ain't seen nothin' yet.

The immediate issue is that the Italian problem has forced the European Central Bank into a put-up or shut-up moment. Bloomberg explains:

Italy is forcing Europe to choose between increased bond buying by the European Central Bank or a possible breakup of the euro.

Italian 10-year yields have breached the 7 percent level that locked Greece, Portugal and Ireland out of the capital markets and forced them to seek aid. With debt of 1.9 trillion euros ($2.6 trillion), more than those three countries combined, Italy has to refinance about 200 billion euros of maturing bonds next year and more than 100 billion euros of bills.

With so much uncertainty amid higher stakes, it's no wonder that Italy's government bond yields are rising, jumping north of 7%. The cost of financing Italy's debt burden is soaring, and eventually those chickens will come home to roost. By comparison, the 10-year Treasury Note yields around 2%. That's a hell of a spread for one of the planet's largest economies.

The next phase of the euro crisis is underway as Italy, Europe's third-largest economy, struggles to pull itself out of a political/fiscal crisis. The euro will almost certainly survive, but it's not going to be the same currency in the future.

Perhaps there'll be fewer members. Surely the rules for membership will change. Figuring out what it means to be a euro member is headed for a dramatic attitude adjustment. Meantime, it's a sign of the times when economists are offering detailed tips for exiting the euro. Stergios Skaperdas, an economics professor at University of California, Irvine, outlines a roadmap for Greece's departure, assuming it comes to that, which is no longer beyond the pale:

To minimize the number of days banks would need to be closed! , the de cision to move to the new drachma should be made on a Friday. Bank deposits and domestic debt would be immediately converted to new drachmas at the initial exchange rate. It would fall to the Greek courts to determine whether pre-2010 public debt would follow suit, but there is no reason to think they would treat it any differently from domestic debt.

But Greece is peanuts compared with Italy, and Kelly Evans recommends that we put the threat into perspective. "The risk of a serious hit to the global financial system from a European default is suddenly a clear and present danger, due to Italy," she reminds in today's Wall Street Journal. That country is the third-largest government debt market in the world, with about $2.1 trillion of securities outstanding as of March, according to the Bank for International Settlements."

The first question with the elevated euro mess is deciding if there's a blowback effect that will push America into a new recession? It's hard to model uncertainty, and the euro crisis comes with a lot of unknowns. But you don't have to be an economics wizard to recognize that there's a sizable risk here, perhaps the biggest yet since the Continent's troubles began several years back. Simply put, Italy's woes, given the country's size, represent a much larger threat vs. Greece. The danger of an outright implosion may be slight, but there's no getting around the fact that the best case scenario isn't all that appetizing either. Of course, it's a mistake to look at Italy in isolation. The main problem (still) is debt. A trio of IMF economists summarize the challenge for Italy, Europe and the rest of the developed world:

The global financial crisis has caused government debt to soar in the advanced economies. Public concern is rising and debates rage on how to fix the problem.

* In advanced economies, the average debt-to-GDP ratio is approaching 100% – higher than at any time si! nce Worl d War II, and set to increase further.

* The required fiscal adjustment is historically unprecedented.

It will take many years of chipping away at public debt to bring it back to more prudent levels.

We already knew that, but it seems that a fresher course via Italy is on the table. "If governments like Greece can’t reduce their debt through inflation, then a default where bondholders take a sizeable haircut on their debt becomes a more likely option, with all of the attendant costs in terms of lost output and higher unemployment," NYU economists David Backus and Thomas Cooley advise.

There's no easy way out. The only mystery is how the crowd reacts in the weeks and months ahead. It seems that we're on yet another precarious macro perch. Recent U.S. economic data hasn't been great, but it looked sufficiently buoyant to keep us from tipping over into a new recession, if only just barely. But even that modest bit of optimism is open for debate (again). The economic numbers of September and October are ancient history. Job One is looking for signs that the euro mess is infecting the slight revival in the U.S. macro trend. The margin for digesting trouble was already razor thin. Can it get even thinner without pushing us over the cliff?

The answer dribbles forth one economic number at a time. The next clue arrives later this morning with the update on initial jobless claims. Stay tuned…

Green Mountain: It's About the Inventories

Green Mountain Coffee Roasters(GMCR) has seen its shares more than halved since short-seller David Einhorn posed the question of whether past sales were achieved by stuffing warehouses full of coffee. Wednesday's earnings miss didn't help matters.

Shares of Green Mountain, previously a darling of Wall Street after its stock rose the most of any company in 2009 and was up 250% at points in 2011, plunged over 39% in early trading Thursday to $41.12. That downward move came despite sales growth over 90% on a year-over-year basis, which the company announced in its earnings release Wednesday, which fell short of Wall Street expectations.

But Green Mountain CEO Lawrence J. Blanford said the miss was "a result of a number of factors, including changes in wholesale customer ordering patterns in our grocery and club channels," in an earnings statement.

As analyst views diverge and the company pushes back against Einhorn's thesis, look at inventories for a read on the health of the K-Cup seller.

Green Mountain fell short of Wall Street's consensus view. The stock's precipitous fall is beginning to make a presentation by Greenlight Capital's founder Einhorn of a short thesis at the Value Investing Congress on Oct. 17 quite prescient. Einhorn's presentation came close to accusing the company of accounting fraud as a result of recognizing sales aggressively and hiding inventory in past quarters, which corresponded with insider stock-selling.

No charges or allegations of accounting fraud have been issued by any law enforcement or regulatory agency related to Green Mountain.

In an analyst call after earnings were announced and subsequent research notes, it's the company's rising levels of inventory and capital spending that are the focus of analysis and a growing divergence on the company's outlook.

On one hand, Waterbury, Vt.-based Green Mountain's revenue total of $! 711.9 mi llion for the quarter was over 5% below the average $760.5 million revenue estimate of analysts polled by Thomson Reuters and its earnings per share of 47 cents also slightly missed projections. The company however reaffirmed 2012 earnings per diluted share expectations of up to $2.65 and overall saw a near doubling in revenue and tripling in profits in 2011.

Thursday, November 10, 2011

Dividends provide a guaranteed payday, but that doesn't mean your strategy is profitable

Dividend stocks have lots of appealing factors, and it��s easy to find reasons to buy. Some stocks have a great dividend yield. Others have a decades-long history of raising dividends once a year. Then there are picks with a modest dividend but great upside potential for shares.

If you��re looking for a reason to buy dividend stocks, there are plenty. But a trickier scenario is knowing when to get out.

So when do you sell a dividend stock? Some dividend investors have a holding period of forever, thinking that all stocks suffer slides or even dividend cuts, so it all works out in the wash when your priority is on the quarterly payout. If that describes you, then the answer to the question of when to sell is simply ��never.��

Other dividend investors find quarterly payouts nice, but really secondary to share values. Investors with this mind-set typically set stop-losses or set sell targets because it��s the stock price that matters most. If that describes you, then obviously you��re not asking when to sell a dividend stock — you��re wondering when the best time to buy and sell is based on the best share price.

For those who fall in between, pulling the trigger on a dividend stock is a balancing act. They grant some leeway to stocks with a hefty and reliable payout when shares slip, or they��ll stick with a stock that has slashed its dividend because it has upside potential for shares in the long term. But where do you draw the line?

There are five conditions that are helpful in sounding the sell signal for any dividend stock investor.

The company cuts or altogether eliminates its dividend. This one is fairly obvious. You can sometimes stomach a company that keeps dividends flat for a few years, but if a company is slashing dividends it means that the balance sheet has gotten so bad that it needs to literally take money out of shareholders�� pockets. The most likely scenario in this situation is that investors will be ! stung tw ice — once with the cancellation of dividends and again as share prices suffer. Take General Electric (NYSE:GE) in February 2009, for example. When it cut its dividend, GM saw shares drop 10% the next day.

The dividend stock sees its annual dividend yield drop below 1%. There are plenty of stocks out there that offer a nominal dividend — even small-cap companies with lower volume and a comparatively small pool of profits to share. However, if a company��s dividend is below 1%, chances are it��s not a dividend stock. It��s just a stock that happens to offer a dividend. If a stock is truly in your portfolio because of its quarterly payout, you must demand more than a payout of just a few pennies per share. Besides, if dividends are an afterthought for companies, there��s no guarantee that they will make an effort to maintain or boost their payouts.

Your ��yield on cost�� for the specific stock is below 2%. Let��s say you bought shares of Home Depot (NYSE:HD) in 2000 at their peak of around $60 a share. The current annualized dividend for HD is $1 per share — meaning your yield based on the cost you paid is just 1.6%. Yes, Home Depot might be offering investors a dividend yield of 2.7% based on current valuations �� but if you bought in at twice that, then your personal ��yield on cost�� is dramatically different. Just as profits are relative depending when you bought in to a stock, so are dividend yields.

The dividend stock is bought out. Frequently, such deals are made with a lot of cash — meaning there��s less to pay out in dividends. So don’t wait around three months anticipating a payday that won’t be all that impressive in most cases. Other times you might find that a company with a great yield and good potential for shares has been bought by a less favorable competitor, so it��s better to move out of the position instead of accepting the resulting shares from the ! buyout. Lastly, obviously if the company goes private, there will no longer be shareholders to share in the profits.

Your position in the dividend stock is down 50%. Though small fluctuations in share price are not necessarily a problem for dividend investors, watching a position get hacked in half should set off warning bells. A dividend stock with a yield of about 2% will take 50 years to ��double your money�� via dividends — or pay for itself, depending on how you view your investment. Waiting five decades (if not reinvested) just to get back to square one doesn��t make any sense no matter how healthy the dividend payout is. You��ll be better served by simply taking the haircut and finding a stronger dividend stock that will deliver reliable returns. Though it’s tempting to believe a dividend stock will fight back, it��s often quicker to make up for a loss in a good stock that��s on the rise than a bad stock that��s getting a dead-cat bounce. Think of it this way: If you find a stock with a similar yield that provides the exact same performance, all you’re out is your broker fee. When you��re down more than 50%, even the most conservative buy-and-hold investor should consider rolling the dice.

Jeff Reeves is editor of As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter at