Saturday, December 24, 2011

Question of the Week: Readers Eager for U.S. Economy Overhaul After Midterm Elections

A tense Congressional tug-of-war carried on before midterm elections this week as Republicans and Democrats fiercely campaigned for seats in the U.S. House of Representatives and Senate.

This Republican-Democrat contest was the hottest in years as voters debated over which candidates would be the most likely to lift the United States out of a morass marked by near-double-digit unemployment, sluggish economic growth and a terrifying $1.29 trillion budget deficit.

Although Republicans were poised to take control of Congress, a significant number of seats remained vulnerable until the very end.

"Let me tell you something," U.S. Vice President Joe Biden wrote last week. "I've been around campaigns for a long time and I have never seen a midterm election with this many races in play."

Experts described this campaign season as more volatile than most because of a possible major shift in power.

Experts predicted the GOP would easily nab some seats in industrial states, where the recessionary fallout has turned voters against Democratic incumbents.

"The political climate is dominated by the economy," Nathan Gonzales, who tracks state races for the Rothenberg Political Report, told Bloomberg. "That's where Democrats are getting hurt."

Republicans successfully attracted voters by criticizing the U.S. economic malaise, including:

  • An economic growth rate that's stumbled from 5% at the end of last year to a wheezing 1.7% in the second quarter.
  • U.S. President Barack Obama's continued spending, such as a $787 billion economic stimulus package and $940 billion in healthcare reform.
  • ?A 9.6% unemployment rate that won't budge.
Voters have also criticized financial bailouts that will end up hitting already struggling taxpayers.

Other ! concerns left for after the elections include the Bush tax cuts, a stagnant housing market and ongoing energy issues like offshore drilling.

(ICFI, CRWE, CA, NXTM) Stock to Watch by

ICF International Inc. (Nasdaq:ICFI) has been awarded a new contract by the U.S. Department of Health and Human Services, Centers for Disease Control and Prevention (CDC) to support the Community Transformation Grant (CTG) program. The contract has a value of $70 million and a term of one base year and six option years.

ICF International, Inc. provides management, technology, and policy consulting and implementation services to government, commercial, and international clients.

Crown Equity Holdings, Inc. (CRWE)

Crown Equity Holdings Inc’s selection of Core Link reflects recent diversification beyond CRWE’s original charter as a provider of services and knowledge to small business owners taking their own companies public. In addition to these services, Crown Equity Holdings Inc has transitioned into a multifaceted media organization that publishes clients’ news online; sells advertising adjacent with its digital network targeted at a high-income audience; designs, hosts and maintains websites; produces marketing videos from concept to final product; crafts press releases and articles for maximum SEO; develops email campaigns; and forges branding campaigns to bolster client company images.

Crown Equity Holdings, Inc. together with its digital network currently provides electronic media services specializing in online publishing, which brings together targeted audiences and advertisers. Crown Equity Holdings Inc. offers internet media-driven advertising services, which covers and connects a range of marketing specialties, as well as search engine optimization for clients interested in online media awareness.

Crown Equity Holdings Inc. (CRWE) is pleased to announce that it has entered into a joint venture to deploy VoIP (Voice over Internet Protocol) technology delivering voice, video and data services to residential and commercial customers. The joint venture company is Crown Tele Service! s Inc. w hich was a wholly-owned subsidiary of Crown Equity Holdings Inc. Crown Equity Holdings Inc. will own fifty percent (50%) interest in the joint venture.

Commenting on the joint venture, Kenneth Bosket, President of Crown Equity Holdings Inc., said: “We are excited to deliver VoIP communications solutions specifically designed to meet the business and residential market needs in this fast-growing global market.”

Voice over Internet Protocol (VOIP) is that type of communication system that has taken telephones to the next level and allowed for freedom within the business world. It has made for more efficient office functionality and offered validity to a telecommuting workforce. At its real meaning, business VoIP is the Internet telephone that has helped to change the face of international commerce.

For more information, visit

CA Technologies (Nasdaq:CA) announced CA ERwin?? Data Modeler for SQL Azure, a powerful new solution that helps customers manage and integrate their database infrastructure with the SQL Azure cloud database environment.

CA Technologies, together with its subsidiaries, designs, develops, markets, delivers, licenses, and supports information technology (IT) management software products that operate on a range of hardware platforms and operating systems.

Nxstage Medical, Inc (Nasdaq:NXTM) a leading manufacturer of innovative dialysis products, announced plans to release its financial results for the third quarter ended September 30, 2011 on Thursday, November 3, 2011 before the opening of the financial markets.

NxStage Medical, Inc., a medical device company, develops, manufactures, and markets products for the treatment of kidney failure, fluid overload, and related blood treatments and procedures.

Coca-Cola Board Elects Richard Daley a New Director – (KO, HNZ, RAI, CPB)

The Coca-Cola Company NYSE:KO, recently announced that its Board of Directors elected Richard Daley as a Director of the Company, effective immediately.

Mr. Daley currently serves as of counsel at the international law firm Katten Muchin Rosenman LLP and is the former mayor of Chicago. He is also the managing principal of Tur Partners LLC which is an investment and advisory firm.

Company��s share price increased 0.82% on Dec 16 EST and closed near $67.44. Company��s volume was 11.98 million shares which is above from its average volume of 8.11 million shares. Company��s current stock price is moving above its 52 week low by 12.41% and its below its 52 week high by 5.24%. For the current week company��s performance remained -0.19% with moth price volatility of 1.47%.

H.J. Heinz Company NYSE:HNZ, share price increased 0.02% on Dec 16 EST and closed near $ 52.97. Company��s volume was 2.76 million shares which is above from its average volume of 1.95 million shares. Company��s current stock price is moving below its 20 days moving average by 2.05% and it is below its 50 days moving average by 1.20%. For the current week company��s performance remained -0.06% with month price volatility of 1.28%.

Reynolds American, Inc. NYSE:RAI, share price decreased 1.00% on Dec 16 EST and closed near $40.66. Company��s volume was 2.64 million shares which is below its average volume of 3.63 million shares. Company��s current stock price is moving above its 52 week low by 36.47% and its below its 52 week high by 2.29%. For the current week company��s performance remained 0.30%.


Campbell Soup Company NYSE:CPB, share price increased 0.12% on Dec 16 EST and closed near $ 32.72. Company��s volume was 2.65 million shares which is above its average volume of 2.23 million shares. Company��s current stock price is moving above its 52 week low by 11.18% and its below its 52 week high by 6.63%. For the current week compa! ny��s pe rformance remained -0.37% with beta measure of 1.70.

Star Wars Killed Twilight, Harry Potter and Transformers 3 in What Category?

It seems that most consumers are stuck on a galaxy far, far away.

In the category of movie searches, you would think that the latest Twilight film, Breaking Dawn, would be a contender for the most-searched film of the year. And it was a contender �C but, despite the mountain of hype, the cornucopia of ticket sales, and the (reportedly record-breaking) midnight screenings, Breaking Dawn did not break any records for online searching. It, according to a Experian Hitwise (via TechCrunch), ranked third.

Well, if it isn't Twilight, it must be Harry Potter and the Deathly Hallows, right? After all, this was the second part of the final chapter in the Harry Potter franchise. It was an epic conclusion that drew massive crowds, sold out theaters, and inspired many to go back and re-watch (and re-read) the entire series.

But Harry Potter wasn't the biggest film either �C not in terms of Web searching. Harry Potter and the Deathly Hallows ranked fourth in that regard.

If it's not Twilight or Harry Potter, there is just one summer blockbuster left that could have taken the top spot: Transformers 3. This long-awaited sequel featured (almost) all of the stars of the original, along with a mammoth set of visuals inspired by some of the coolest toys around. But while Transformers 3 received a ton of pre-release hype (for being the third Transformers film), and a lot of post-release agony (for being atrociously boring), it ranked second in movie searches.

Rather than attempt to further extend your anticipation with another this-should-have-been-number-one-but-it's-not paragraph, I'm just going to come out and tell you that Fast Five is not the most searched film of the year.

No, we aren't surprised, and neither is anybody else. (However, I am surprised that it ranked fifth.)

Which brings us to the obvious number-one searched movie of the year: Star Wars. How, you might ask, can a movie about a galaxy far, far away �C which was made in the ��70s, by the way �C! overcom e the modern blockbusters of 2011?

First and foremost, Star Wars has a larger and more loyal legion of fans. The prequels may have been bashed to no end, but that didn't stop a million people from rushing out to buy both Star Wars trilogies on Blu-ray during the first week of release. I'm a Star Wars fan; I love the characters, the music, and even some of the collectibles. But with several versions of the film(s) already in my library (original trilogy on VHS, standard edition; original trilogy on VHS, special edition; original trilogy on DVD; plus all three prequels on DVD), I had no desire to buy them all over again. Though I do suspect I'll re-buy the films when they are released in 3D in 10 years (and plan to see The Phantom Menace 3D in theaters next February).

That level of loyalty �C even from me, a Star Wars fan with apparent limits �C ensures that this franchise will continue to move mountains in the movie industry.

Further, now that the two trilogies are officially over, Star Wars has the benefit of being referred to simply as ��Star Wars.�� People are no longer searching for one particular film; they go right to the core name. This will one day happen for Twilight and Harry Potter, and if their franchises stand the test of time, their films could continue to maintain their spot near the top of movie searches. But in 2011, many Potter fans searched for ��Harry Potter and the Deathly Hallows,�� while most Twilight fans searched for ��Breaking Dawn.��

It would be interesting to know how these franchises compared if all of their related search terms were compiled. Ex: for Harry Potter, we could include all of the film titles, all of the characters, and any other relevant terms. Unfortunately, Experian Hitwise did not provide any such data.

If we were to look at all of the related search terms, I suspect that Twilight would have a significant advantage. The whole ��Team Jacob�� and ��Team Edward�� nonsense has been enormously popular with Twilight fans, and wo! uld like ly give the franchise an impressive boost in search numbers.

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The continued success of Star Wars is good news for:

  • 20th Century Fox, the News Corp. (NASDAQ: NWS) (NASDAQ: NWSA) film studio that will be distributing Star Wars Episode I: The Phantom Menace in 3D next year.
  • Hasbro (NASDAQ: HAS), which is planning to boost its bottom line with a new and rehashed line of Star Wars toys in 2012.
  • Electronic Arts (NASDAQ: EA), whose long-awaited video game based on the George Lucas property �C Star Wars: The Old Republic �C is finally available.

Is there anyone that could be hurt by Star Wars' continued success?:

  • Movie theater chains like! Regal E ntertainment Group (NYSE: RGC) and Cinemark (NYSE: CNK) could take a hit if they have too much faith in the 3D re-releases of Star Wars. Their success could go either way, which is where movie theaters tend to get into trouble.
  • If the next line of Star Wars toys flops, retailers like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) will be forced to clearance them out after months of slow sales. This would surely have a greater impact on Hasbro than the retailers, who can endure the minor loss. Hasbro cannot. (For immediate updates on Wal-Mart, Target, Hasbro and more, take advantage of the lightning-fast speed of Benzinga Pro.)
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Accenture Earnings Cheat Sheet: Fifth Consecutive Quarter of Double-Digit Growth

Accenture plc (NYSE:ACN) reported its results for the first quarter. Accenture is a global management consulting, technology services, and outsourcing company.

Accenture plc Earnings Cheat Sheet for the First Quarter

Results: Net income for the management services company rose to $712 million (96 cents per share) vs. $606 million (81 cents per share) in the same quarter a year earlier. This marks a rise of 18% from the year earlier quarter.

Revenue: Rose 17.1% to $7.1 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: ACN beat the mean analyst estimate of 94 cents per share. It beat the average revenue estimate of $6.85 billion.

Quoting Management: Pierre Nanterme, Accenture’s chief executive officer, said, “We are pleased with our strong performance in the first quarter. We generated our highest quarterly revenues ever, with double-digit local-currency growth in all five operating groups and all three geographic regions. We grew EPS by 19 percent, expanded operating margin, delivered strong bookings and continue to have a very strong balance sheet. Our excellent results in the first quarter give us confidence that we are executing a growth strategy that resonates with the needs of our clients in the current environment. We remain focused on delivering profitable growth through a relentless focus on industry and technology differentiation and on accelerated geographic expansion in our priority emerging markets.”

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 18.1%, with the biggest boost coming in the fourth quarter of the last fiscal year when revenue rose 23% from the year earlier quarter.

Last quarter marked the fifth straight quarter that the company saw shrinking gross margi! ns as gr oss margin fell 0.3 percentage point to 29.7% from the year earlier quarter. Over that time, margins have contracted on average 0.7 percentage point per quarter on a year-over-year basis.

The company has now seen net income rise in three straight quarters. In the fourth quarter of the last fiscal year, net income rose 37.4% and in the third quarter of the last fiscal year, the figure rose 28%.

The company has now topped analyst estimates for the last four quarters. It beat the mark by 2 cents in the fourth quarter of the last fiscal year, by 4 cents in the third quarter of the last fiscal year, and by 4 cents in the second quarter of the last fiscal year.

Looking Forward: Expectations for the company’s next quarter results are lower than they have been. Over the past sixty days, the average estimate for second quarter has fallen from 87 cents per share to 86 cents. For the fiscal year, the average estimate has moved up from $3.78 a share to $3.83 over the last ninety days.

Competitors to Watch: Intl. Business Machines Corp. (NYSE:IBM), Oracle Corporation (NASDAQ:ORCL), Genpact Limited (NYSE:G), Microsoft Corporation (NASDAQ:MSFT), Hewlett-Packard Company (NYSE:HPQ), Towers Watson & Co (NYSE:TW), Infosys Tech. Ltd. (NASDAQ:INFY), Wipro Limited (NYSE:WIT), Ariba, Inc. (NASDAQ:ARBA), and Accenture Plc (XET).

Stock Performance: Shares of ACN were up 0.2% from the previous close.

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

Friday, December 23, 2011

China Stocks Drop for Third Day on Cash Crunch, Ping An¡¯s Fundraising Plan

China��s stocks fell for a third dayas a cash crunch weighed on equities after banks hoarded cash tomeet year-end reserve-ratio requirements and Ping An Insurance(Group) Co. (601318) plunged on fundraising plans.

Ping An, China��s second-biggest insurer, slid 5.2 percenton a plan to sell as much as 26 billion yuan ($4.1 billion) ofbonds after business expansion brought down its capitaladequacy. China Vanke Co. led a decline for developers as citiesincluding Shanghai extended the period limiting home purchases.Chongqing Brewery Co. (600132) climbed for the first time in 10 daysafter its third-biggest shareholder sought to remove thecompany��s chairman as director.

��The economy and the capital markets are still facing acredit crunch as a result of two years of monetary tightening,��said Wang Zheng, Shanghai-based chief investment officer atJingxi Investment Management Co., which manages about $120million. ��The economy is experiencing a down cycle. Stocks arenot a place to put money until economic growth picks up again.��

The Shanghai Composite Index (SHCOMP) fell 1.1 percent to 2,191.15at the close. It rose as much as 1 percent after Premier Wen Jiabao pledged to help exporters and small companies. The CSI300 Index (SHSZ300) slid 1.6 percent to 2,339.11. The Bloomberg China-US55 Index, the measure of the most-traded U.S.-listed Chinesecompanies, jumped 3 percent at the close in New York yesterday.

Bucking Trend

China��s stock market was an outlier in the region today,with the MSCI Asia Pacific Index advancing 2.1 percent afterU.S. builders broke ground in November on the most houses inover a year and German business confidence unexpectedly rose fora second month in December. Housing starts grew 9.3 percent to a685,000 annual rate, exceeding the highest estimate ofeconomists surveyed by Bloomberg News and the highest levelsince April 2010, Commerce Department figures showed.

The Shanghai Composite has fallen 6.1 percent in Decemberas concern about an economic! slowdow n overshadowed the first cutin reserve requirement ratios in three years on Nov. 30.The index trades at an estimated price-earnings ratio of 10.5times, a record low, according to weekly data compiled byBloomberg that began to track the multiple since 2006. For theyear, the measure is down 22 percent after the central bankraised interest rates three times to curb inflation and exportsto Europe slowed because of the region��s debt crisis.

Ping An slumped 5.2 percent to 34.43 yuan. The proceedsfrom the sale of six-year convertible bonds will be used toboost working capital, Ping An said in a statement.

Repo Rate

The sale will erode liquidity in the capital markets andwill boost Ping An��s equity base by about 9 percent if the bondsare converted into stocks, Sun Ting, an analyst at Shenyin &Wanguo Securities Co., wrote in a report today.

The seven-day repurchase rate, a gauge of fundingavailability in the financial system, rose 36 basis points, or0.36 percentage point, to 3.60 percent as of 3:16 p.m. inShanghai, according to a weighted average compiled by theNational Interbank Funding Center.

��It��s the year-end effect,�� said Ju Wang, a Singapore-based senior strategist at Barclays Capital. ��Demand for cashwill increase as people prepare for the Chinese holidays andthis will tighten liquidity.��

China��s financial markets will be closed on Jan. 2-3 forpublic holidays. Chinese New Year starts on Jan. 23.

The nation will keep its export policies such as taxrebates ��basically stable�� next year and the government willmainly use fiscal spending to support ��structural tax cuts,��Premier Wen was cited as saying in a statement posted on thecentral government��s website yesterday. Slowing growth andelevated prices are adding to the difficulty in managing theeconomy, he said.

Property Curbs

A gauge of 34 property stocks in the Shanghai CompositeIndex dropped 1.9 percent, its first decline in four days.Vanke, the nation��s biggest listed prope! rty deve loper, fell 2.7percent to 7.30 yuan. Poly Real Estate Group Co., the secondbiggest, lost 1.7 percent to 9.91 yuan. China Merchants PropertyDevelopment Co. (000024) retreated 3.1 percent to 17.49 yuan.

Shanghai will continue to implement home purchase limitsnext year, the city government said yesterday, joining Qingdao,Guangzhou and Shenzhen in making similar moves.

Property sales may fall between 3 percent and 6 percentnext year and average prices are likely to fall between 1percent and 4 percent, Soufun Holdings Ltd., the country��sbiggest real estate website owner, said in a statement.

Pension Fund Buying

China��s national pension fund invested at least 10 billionyuan ($1.58 billion) in 20 stock funds last week, ShanghaiSecurities News reported today, without saying where it got theinformation. Dai Xianglong, chairman of the National Council forSocial Security Fund, suggested that local social security fundsbe allowed to buy equities, the newspaper said yesterday.

Chongqing Brewery gained 0.7 percent to 31.61 yuan. Thebeermaker and medicine company agreed to hold an extraordinarygeneral meeting on Feb. 7 to discuss a proposal by Dacheng FundManagement Co. to remove Chairman Huang Minggui as director, thecompany said in a statement.

The shares slumped by the daily limit of 10 percent in eachof the past nine days after the company released on Dec. 8 areport on a Hepatitis B vaccine it is researching. The vaccinemay be a ��high risk�� and ��capital intensive�� investment,Chongqing Brewery said in the report.

--Zhang Shidong. With assistance from Kyoungwha Kim in Beijing.Editors: Allen Wan, Richard Frost

KBR Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of KBR (NYSE: KBR  ) popped today, up by 11% at the high, after the company provided financial guidance and outlook for its fiscal 2012.

So what: For fiscal 2012, the company expects diluted earnings per share in the ballpark of $2.45 to $2.80, which is mostly in line with the market's expectation of $2.66. KBR sees revenue for the year between $300 million and $500 million for the LogCAP project, and an estimated 28% overall effective tax rate.

Now what: KBR also guided its general and administration expense between $240 million and $250 million, with capital expenditures expected to be $100 million. Included in the figures is roughly $20 million to $25 million of expense and $60 million to $65 million of capital for a new ERP system. KBR CEO Bill Utt expressed confidence in the outlook and said, "We are excited about the series of project opportunities in front of us and feel we have the flexibility within our company to manage around the timing uncertainties in the market today."

Interested in more info on KBR? Add it to your watchlist.

How much dam energy can we get?

( -- Having now sorted solar, wind, and tidal power into three “boxes,” let’s keep going and investigate another source of non-fossil energy and put it in a box. Today we’ll look at hydroelectricity. As one of the earliest renewable energy resources to be exploited, hydroelectricity is the low-hanging fruit of the renewable world. It’s steady, self-storing, highly efficient, cost-effective, low-carbon, low-tech, and offers a serious boon to water skiers. I’m sold! Let’s have more of that! How much might we expect to get from hydro, and how important will its role be compared to other renewable resources?

Last week, as soon as I put tidal power into a box labeled “waste of time,” I received some deserved howls of protest. I saw it coming, and had built in words to soften the “waste of time” label. But it was a poor choice from the start. A better set of labels is “abundant,” “potent,” and “niche.” The last could also be thought of as “boutique,” in that it is cute, perhaps decorative, may serve some function, but will never be a heavy lifter. The “potent” label—formerly “useful”— is meant to indicate a source that could supply a healthy fraction (say over a quarter) of our global demand if fully exploited. We will never fully exploit any resource, so the numbers at least need to support ¼-scale before we can believe that it may play a major role.

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  • I should also point out that all along, my approach is to pretend that our goal is to keep up our current energy standards in a post-fossil-fuel world. In the process, we will see just how hard that will be to do. It is by no means impossible, but it’s much more difficult and compromised than most people realize.

    In the end, it is not clear that we will maintain our current global rate of energy usage: the future is unwritten. On the plus side, some of the approaches I cast into the “niche” box may become “potent” in a scaled-down world. Firewood was once abundant, then moved to potent, and is now a niche. But a reversal of fortunes could change all that.

    I may be starting to sound like a broken record, covering the basic physics of hydroelectricity now in several posts. But we learn by repetition, right? So in the spirit of self-containment, here we go…

    Hydroelectric dams exploit storage of gravitational potential energy. A mass, m, raised a height, h against gravity, g = 10 m/s², is given a potential energy E = mgh. The result will be in Joules if the input is expressed in meters, kilograms, and seconds (MKS, or SI units). Water has a density of ?? = 1000 kg/m³, so if we know how many cubic meters of water flow through the dam each second (F), the power available to the dam will be P = ?��??Fgh. We have inserted ?�� to represent the efficiency of the dam—usually around 90% (?��a??0.90).

    The height of the water b! ehind th e dam is the relevant height for the potential energy calculation, even if a given parcel of water is collected at the bottom of the dam. This is because the pressure of the water above provides the motive force. In the absence of turbines or other restrictions, the water would emerge from the penstock at a velocity of v = sqrt(2gh) so that a flow, F, would require an area A = F/v. For example, Hoover Dam, at 222 m high (in the days when Lake Mead was full!) would eject water at a stunning 67 m/s (150 m.p.h.) if a big hole opened up in the bottom. At the nominal flow rate of 1000 m³/s, this corresponds to a hole about 4 m in diameter. I think we should do it.

    Now, it is the job of the turbine(s) to extract some of the kinetic energy this water would have if it were allowed to shoot out of the bottom of the dam. As a consequence, it comes out at a much more sedate pace. Some of the 10 percent inefficiency in hydroelectric dams is due to generator inefficiency, but some is because you can’t take all of the kinetic energy out of the water or it would stop flowing and stall the flow of the next batch. But nature is kind here, since kinetic energy goes as the square of the velocity. The velocity of the energy-sapped water is therefore sqrt(1 a?? ?��). So if we pull 96 percent of the energy out of the water, its flow velocity is 20 percent of the free-flow value (13 m/s in the foregoing example). Or we can grab 99 percent at a 10 percent exit speed (7 m/s, or 15 m.p.h.). This sounds much more reasonable—and seems like a good bargain. The area needed now expands accordingly, but that’s what large turbines/penstocks are for.

    The U.S. has 78 GW of hydroelectric capacity installed. In a year, these plants produce 272 TWh. Divide by 8766 hours in a year, and we find 0.031 TW (31 GW) of average p! ower. Th is implies a 40 percent capacity factor. I was surprised by this: I thought dams churned along at a steady rate all the live-long day. Seasonal variations are apparently much larger than I appreciated—snow-melt being one factor. The following table lists all hydroelectric facilities in the U.S. bigger than 1 GW—representing 30 percent of total installed capacity in just 11 dams. The table shows each dam’s nameplate (peak) capacity, height, implied flow at peak generation capacity (after which spillways must be activated; assumes 90 percent efficiency), and capacity factor.

    Eight of the eleven dams in the table are in the Pacific Northwest. Of possible interest is the fact that the power-capacity-weighted heights of these dams is 113 m, while for the entire U.S. fleet, it is 88 m (much higher than I thought).  For reference, the newly completed Three Gorges dam in China is rated at 20.3 GW, has a nominal head height of 81 m, an implied flow of 28,500 m³/s, and a capacity factor of 0.45.

    What fraction of our energy currently comes from hydroelectricity? Such a simple question deserves a simple answer. Yet numbers range all over. The hard answer is that 272 TWh of annually delivered electricity in the U.S. corresponds to 0.9 percent of the primary energy use, or 2.3 percent of primary energy associated with electricity. Of the delivered electricity, it’s 7.3 percent.

    Much of the variation is due to an apples-to-oranges comparison of efficient hydroelectricity to heat engines that convert only 35 percent of their primary energy into useful energy. For instance, the Department of Energy’s Annual Energy Review (whose numbers are well-depicted in the LLNL graphic) artificially inflates the contribution from hydro to put it on the same footing as the fossil fuel inputs. But however you want to slice it, hydro is on the small side.

    Now the fun part. How much hydro power is theoretically achievable? Hydroelectrici! ty is ca shing in on residual potential energy provided by the rain cycle. A look at the Earth’s energy budget shows that a whopping 23 percent of the solar budget goes into evaporating water!  The water cycle is a big deal.

    Each gram of water takes 2250 J of energy to vaporize. It takes additional potential energy to lift the water into the atmosphere. Hoisting a gram of water 10,000 m high (to the top of the troposphere) takes a comparatively small 100 J. Since all water caught by the land and used for hydroelectricity had to first be evaporated, we can say that if all the water got lifted to 10 km (it doesn’t, but bear with me for easy math), then 1 percent of the solar budget goes into lifting water. I love it when numbers like 2250 J align so neatly with 23 percent of the solar budget!

    The lower atmosphere contains far more water than the upper atmosphere — largely because air gets cooler with altitude, and can hold less water. But clouds represent condensed water and can clearly contain significant amounts of water all the way up to 10 km. If water were evenly distributed in the troposphere, the average height of water within it would be about 5 km. Considering the non-uniform profile, I’ll use an average height of 2 km. Therefore, we adjust our hoist factor to 0.2 percent of the incident solar energy.

    Then it rains. And most of that stored energy is wasted as the drops fall irresponsibly through the sky—without a thought to our needs. When water hits the ground, the average height of the land is—I’m guessing—500 m. Since potential energy is linear with height, we can use a simple average in this way.  If we could capture all that remains of the potential energy as we return the water to the sea, we get 0.05 percent of the solar potential. But this only works on land, which is 28 percent of the Earth’s surface. Now we’re down to 0.014 percent.

    Don! ’t despair yet. The solar potential is huge. These percentages all relate to the incident energy at the top of the atmosphere: 1370 W/m² over ??R² square meters turns into 175,000 TW. So our 0.014 percent is 25 TW. Our global energy diet is about 13 TW, so we’re in the game.

    We can pursue an alternate approach to check that we’re on the right track. If annual rainfall averages 0.5 m (20 inches) on land globally, and typically falls on land 500 m above sea level, we can total up the potential energy and divide by the number of seconds in a year to get a power. I calculate 11 TW by this method, so yes—we’re making sense. My guess of 0.5 m of rain per year may be a little low, but perhaps this compensates a bit for the fact that low areas tend to get more rain than high areas.

    Now, nature provides a convenient water collection system, concentrating the water that falls on land into streams and rivers and lakes. This natural concentration is what makes such a diffuse power source usable at all, and is why hydroelectric was the vanguard of modern renewable energy (I’m skipping over firewood as non-modern).

    But as convenient as this collection system is, much of the energy is lost en-route to the rivers. Think about the journey a water drop that lands in your yard or on a mountain slope must make before finding a body of water large enough to profitably dam up. Obviously there is friction in the collection process, or water would be screaming along at 100 m/s (220 m.p.h.) at the bottom of a 500 m slope. In the end, we must accept heights of static water collected behind dams: no kinetic harvesting, practically speaking.

    I’ll make a rough guess and knock off a factor of two for the energy lost in the collection process leading up to the river/stream. My gut says that I’m probably being generous here. In any case, we’re dealing with something in the neighborhood! of 6&nd ash;12 TW of global potential. For the U.S., with 7 percent of the world’s land area, this turns into 0.4–0.8 TW.

    At present, the U.S. has 78 GW of installed hydro power (out of which we get 31 GW, averaged annually). The world has about 1 TW installed, likely realizing 400 GW on an annual average. The realized capacity therefore undershoots our crude estimate of global potential by a factor of 10 or more. Does this mean we could go nuts and expand hydro to amazing new levels? Should I ask for water skis for Christmas?

    I don’t want to discount the top-down approach we did here. After all, if anyone tried to tell me that hydro could deliver much more than 25 TW of power, I would know that the basic physics of the planet does not allow it. But at the same time, the upper limit we established does not account for a whole host of practical considerations, like actual rivers with known flow rates and geographic potential for damming. So I turn to a study that has put some more time into the question than I can afford personally, outside of my day job. Specifically, a report by the Eurelectric group assessed global hydro potential in four cascading steps:

    For the first step, they come away with 5.8 TW — not far at all from my estimate (I’m not cheating I swear: I did not look at any estimates prior to writing the above sections). Other assessments get 4.4 TW,4.6 TW, and 5.1 TW.

    For technical feasibility, these same sources estimate 1.6–2.3 TW globally. Economic feasibility (in today’s economic climate) drops this to 1.0–1.4 TW. Environmental restrictions (in today’s climate) reduce this number further. Thus, having developed 0.4 TW worldwide (using average annual output for proper comparison to studies), the world may be able to expand by a factor of 2–5.  This is a large range: a factor of two isn’t that much, while a factor of 5 is a! pretty big jump. Where is it, really?

    For the U.S., the Idaho National Laboratory estimates a gross potential of 0.3 TW, and a technical potential of 0.17 TW. The latter was determined after a study of 500,000 potential sites, out of which 130,000 made the cut. It is also estimated that existing dams with no hydroelectric capacity could add 0.013 TW (13 GW).

    So here in the U.S., we could expand by a factor of 5 according to this report—ignoring economic and environmental barriers. Such a boost would bring hydro up to 5 percent of our gross energy, or 12 percent if we correct for the heat-engine effect (40 percent of our electricity). I have seen other reports less optimistic about our expansion potential, coming in closer to a doubling of current capacity—likely factoring in economic and environmental considerations, and consistent with the lower end of the range estimated for global potential.

    At a global potential of approximately 10 percent of our current energy scale, my initial reaction is to throw hydro into the “niche” box with tidal, since my criterion is that a resource be theoretically able to meet a quarter of our demand to be labeled “potent” — which incidentally is in line with what oil, natural gas, and coal each deliver to us today: all are momentarily “potent” sources by this reckoning.

    If we consider that thermodynamic losses in conventional electricity production do not apply to hydro, we might be tempted to boost it into the “potent” category. But I didn’t need to do this for wind, and certainly not for solar. And even this boost does not put it over the top in the U.S. (at 12 percent), even if entertaining a 5× increase in hydro development. So I think I’ll leave it in the niche box. It’s a borderline call (and meaningless, really). Hydro beats the pants off of tidal, and is currently used to good effect the world over. But it’s a real stretch to! make it a big player in the energy game at today’s rates of usage.

    Almost all renewable resources are dilute, and face substantial environmental hurdles for being adopted. Dams are not without controversy. They radically change the landscape and natural ecosystem. They silt up and lose capacity over time. And they can cause long-term threats to settlements downstream in the case of failure (and all dams will someday fail—they really haven’t been around that long).

    When push comes to shove, we may be willing to ignore aesthetic and environmental concerns. I might rather hike through Glen Canyon than listen to jet skis on Lake Powell (in the fossil fuel crunch, maybe I won’t have to), but weighed against the hardship of energy decline, will we collectively make that choice?

    Lake Powell already offers one answer.  Of course dams require tremendous up-front (energy) investment, and therefore are susceptible to The Energy Trap. So in crunch time, I’m not sure I can predict what we’ll do, or if our choices will be at all rational.

    In hydroelectric power, we again face the problem that the impending fossil fuel shortage is not fundamentally an electricity shortage problem. So most of the “solutions” I’ve hit so far do not address the fundamental and most immediate crisis in liquid fuels. Overall, I’m a fan of hydro power, and I’m glad nature does most of the work for us. Nonetheless, my mind is not much eased by the joint facts that it falls far short of our current demand and that it’s yet another way to make electricity. It’s a gift from nature, but much like getting yet another tie for Christmas to add to the pile, I’m not getting excited about the prospect of more dams.

    Thomas Tu contributed research on hydroelectric installations for the table, and rounded up assessments of global hydro potential from a variety of sources.

    This post originally appeared on Tom ! Murphy&r squo;s blog, Do the Math: Using physics and estimation to assess energy, growth, options.

    Tom Murphy is an associate professor of physics at the University of California, San Diego. An amateur astronomer in high school, physics major at Georgia Tech, and Ph.D. student in physics at Caltech, Murphy has spent decades reveling in the study of astrophysics. He currently leads a project to test general relativity by bouncing laser pulses off the reflectors left on the moon by the Apollo astronauts, achieving one-millimeter-range precision. Murphy’s keen interest in energy topics began with his teaching a course on energy and the environment for nonscience majors at UCSD. Motivated by the unprecedented challenges we face, he has applied his instrumentation skills to exploring alternative energy and associated measurement schemes. Following his natural instincts to educate, Murphy is eager to get people thinking about the quantitatively convincing case that our pursuit of an ever-bigger scale of life faces gigantic challenges and carries significant risks.

    Image courtesy of Lingaraj, 123 Chroma Pictures, Kyle Monahan, Mano Ranjan, Yuya Tamai, grungepunk 2010.

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    Gold Prices Flounder as U.S. Dollar Dominates Trading

    Gold prices failed to claw their way higher, even as the dollar fell and inflation in the U.S. crept up to 3.9%.

    Gold for December delivery closed down $5.80 at $1,647 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,666.90 and as low as $1,642.50 an ounce during the session, while the spot gold price was down $10, according to Kitco's gold index.

    Silver prices were lost 8 cents at $31.74 an ounce while the U.S. dollar index was 0.24% lower at $76.96.

    Gold is still at the mercy of currency volatility. The euro was gaining steam against the dollar a day after the U.K.'s Guardian newspaper reported that France and Germany had agreed in principle to expand the bailout fund, EFSF, to 2 trillion euros. The fund would not expand in cash amount, leaving money printing off the table, but would use leverage, providing the first line of defense against any bond losses from struggling Eurozone countries.

    "Gold is trying to break away from that correlation [to the dollar]," says Will Rhind, head of U.S. operations for ETF Securities, "but is struggling ... We are looking for gold to try to reassert itself from a safe harbor perspective."

    The dollar lost some steam after data showed inflation in the U.S. rose to 3.9% in September, which means that real interest rates are almost a negative 4%. Gold typically does well when rates are negative -- the interest rate minus the inflation rate -- as the dollar loses value, making gold more attractive as a store of wealth. Overall, however, it seems like investors are using the dollar as the safe haven of choice and gold was unable hold on to earlier gains.

    "Minute-by-minute changes in headline news are causing see-sawing markets," says George Gero, senior vice president at RBC Capital Markets. That fate is unlikely to change anytime soon as Eurozone leaders prepare to meet October 23rd with a lot of pres! sure to "fix" Greece, banks and bondholders.

    "We are looking for a bit of a catalyst," says Rhind of ETF Securities, "People who are not in gold who are looking to get into the gold market right now are ... sitting on the side lines. But I think the investors that are in gold or that have been in gold aren't really fazed by it."

    ETF Securities has a slew of physically-backed products and Will says there has been no major shift in inflows or outflows in recent weeks. "The sentiment right now is people are waiting to see what happens and are repositioning themselves from a portfolio perspective ... [around] any other news over the next few weeks."

    Ross Norman, CEO of Sharps Pixley, on the other hand, is worried gold might see another leg down. September's selloff "spooked [investors] by the state and manner of the decline and they are slow coming back in again."

    With tensions high in Europe and the U.S., gold is acting in a very un-gold like way, its lost its safe haven appeal. "To some extent its making some investors sit on their hands ... the longer this goes on for the more you might see more long liquidation on the Comex."

    The Comex, where commodity futures are traded in the U.S., has its own set of problems. The Commodity Futures Trading Commission voted to limit positions to 25% of deliverable supply. Norman doesn't think this will do anything do the gold price but it will move business overseas to Asia. Asia is ready.

    The Shanghai Gold Exchange already exists but now investors can trade yuan denominated gold contracts at the Pan Asia Gold Exchange, or PAGE, which should be in full trading swing by the end of the year. Gold is being supported by physical buying but really needs investor demand to continue its uptrend. Norman thinks PAGE might be just the thing. "It could rejuvenate the gold price," he says, there is a big "speculative community in Asia."

    Gold mining stocks were getting hammered Wedne! sday. Barrick Gold(ABX) was losing 3.19% to $45.62 while Newmont Mining(NEM) was dropping 4.46% to $62.58. Other gold stocks, AngloGold Ashanti(AU) and Goldcorp(GG) were trading lower at $41.40 and $44.83, respectively.

    Agnico-Eagle(AEM)was getting particularly killed down more than 18% as the company was forced to shut down one of its mines, Goldex, in Quebec while it investigates and fixes water inflow and ground stability problems. Agnico will be forced to write off its investment in the mine of $260 million, amounting to $1 a share after tax.

    -- New York.

    >To contact the writer of this article, click here: Alix Steel.

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    Favorite Tech Picks For Jan-2012

    Technology companies have been hoarding cash for various reasons such as lack of investment opportunities, need to conserve cash to face the volatile times ahead, and a host of others.

    Investing legend Warren Buffet who shunned buying technology stocks and instead preferred to lend money to financials such as Goldman Sachs, and Bank of America is now looking to buy technology stocks. My guess is that he is buying the tech stocks for the ��cash hoards'.

    Those who have been following Buffet can easily recollect that he bought insurance companies for the ��float money' they offered. It is too early to say whether he will be able to influence the ��dividend payment' strategies of the tech companies he has been buying but we can definitely say that his tech buying spree will not stop with IBM,

    Intel and DirecTV. I am not going to predict which tech stocks he is likely to buy, but I am going to pick five tech stocks (not so popular) that could benefit from this trend.

    I will focus on those tech stocks whose, 1) cash per share is more than 50 percent of book value per share, and 2) book value per share is more than 50 percent of last traded price. Since my stock prediction is for the short term, I will give more ?emphasis to relative strength index (RSI) as well.

    Cash hoards

    Kyocera Corp. (KYO) has the highest cash per share of $36.26 while EPIQ Systems Inc. (EPIQ) has the lowest cash per share of $0.15. Incidentally, Kyocera's book value per share of $99.17 is the highest in its industry but the distinction of lowest book value per share goes to Dun & Bradstreet Corp (DNB).

    Favorite picks

    Motorola Solutions Inc. (ADR) (NYSE: MSI)

    On January 4, 2011, the separation of Motorola Mobility Holdings Inc. from Motorola Solutions was completed. In April 2011, th! e compan y completed the sale of its Networks business. MSI is estimated to hold the fourth largest market share in Wi-Fi equipment market.

    The company's Q3 EPS of $0.64 exceeded analysts' consensus estimate by $0.05. Consensus Q4 EPS is at $0.74.

    Cash per share, book value per share, and last traded price for the stock as of yesterday were $26.35, $32.37, and $46.16. Its 52-week range is $35.7�C$47.91.

    There are 14 companies in communications equipment industry that have a relative strength at or above 80.

    MSI's peak RSI is at 96.43 while its current RSI is at 59.65. RSI trend is upward so it can test levels at least 80 plus.

    I think that the stock could test $55 and establish $50 in January 2012.

    Siemens AG (ADR) (NYSE:SI)

    Siemens is an integrated technology company with activities in the fields of industry, energy and healthcare. Siemens operates in six segments: Industry, Energy, Healthcare, Equity Investments, Siemens IT Solutions and Services and Siemens Financial Services (SFS). Siemens' strong technological capabilities and highly diverse portfolio of leading global operations in mainly low-risk industries make it attractive.

    Siemens' financial risk profile as "modest" is founded on the company's strong balance sheet, exceptional liquidity, sound discretionary cash flow generation through the cycle, and robust financial flexibility. Siemens is appointing former U.S. Gen. Stanley McChrystal to chair a board overseeing a newly created unit designed to better challenge GE (GE) on its home turf and help the German conglomerate double its annual U.S. government orders to $2 billion by 2015.

    Cash per share, book value per share, and last traded price for the stock as of yesterday were $21.03, $47, and $91.9. Its 52-week range is $84.86�C$146.74.

    I think that the stock could test $115 and establish $110 in January 2! 012.

    Lexmark International Inc.? (NYSE:LXK)

    Lexmark has two segments: Imaging Solutions and Services (ISS) and Perceptive Software. The company develops and owns the technology for its laser and inkjet products, software related to managed print services, and ECM solutions.

    While Lexmark is a new entrant into the market, it has been extremely aggressive in acquiring companies that will increase its presence in the space. Lexmark is in the early stages of a strategic shift to higher usage printers and more profitable supplies sales.

    Cash per share, book value per share, and last traded price for the stock as of yesterday were $15.49, $17.74, and $32.04. Its 52-week range is $25.87�C$40.54.

    I think that the stock could test $45 and establish $41 in January 2012.

    Other favorite picks include - IAC/InterActiveCorp, Cisco Systems Inc, CA Inc, Patni Computer Systems Ltd. (ADR), and Applied Materials Inc.


    Align Technology Announces $150 Million Stock Repurchase Program



    SAN JOSE, Calif., Oct. 27, 2011 (CRWENEWSWIRE) — Align Technology, Inc. (Nasdaq:ALGN) announced that its board of directors has authorized a stock repurchase program of up to $150 million, effective immediately.

    “Our strong balance sheet and healthy cash flow enable the company to return excess cash to our shareholders through a share repurchase program while continuing to invest in our strategic growth initiatives. It will also help offset dilution from our employee equity plans,” said Ken Arola, vice president and chief financial officer of Align Technology. “The Board of Directors believes that our stock represents an attractive investment for Align and its investors and the repurchase program demonstrates the company’s ongoing commitment to increasing shareholder value.”

    Any purchases under Align’s stock repurchase program may be made, from time-to-time, in the open market, through block trades or otherwise. The program does not obligate Align to acquire any particular amount of common stock and depending on market conditions and other factors, these purchases may be commenced or suspended at any time, or from time-to-time without prior notice. As of October 26, Align had approximately 78.5 million shares outstanding and approximately $215 million in cash, cash equivalents, and marketable securities on hand.

    In a separate announcement today, Align also announced financial results for its third fiscal quarter of 2011. For more information, please see Align’s press release titled, “Align Technology Announces Third Quarter Fiscal 2011 Results.”

    About Align Technology, Inc.

    Align Technology designs, manufactures and markets Invisalign, a proprietary method for treating malocclusion, or the misalignment of teeth. Invi! salign c orrects malocclusion using a series of clear, nearly invisible, removable appliances that gently move teeth to a desired final position. Because it does not rely on the use of metal or ceramic brackets and wires, Invisalign significantly reduces the aesthetic and other limitations associated with braces. Invisalign is appropriate for treating adults and teens. Align Technology was founded in March 1997 and received FDA clearance to market Invisalign in 1998.The Invisalign product family includes Invisalign, Invisalign Teen, Invisalign Assist, Invisalign Express 10, and Vivera Retainers. To learn more about Invisalign or to find an Invisalign trained doctor in your area, please visit

    Cadent Holdings, Inc. is a subsidiary of Align Technology and is a leading provider of 3D digital scanning solutions for orthodontics and dentistry. The Cadent family of products includes iTero and iOC scanning systems, OrthoCAD iCast, OrthoCAD iQ and OrthoCAD iRecord. For additional information, please visit

    Forward-Looking Statement

    This news release contains forward-looking statements, including statements made by Mr. Arola on Align’s continuing intention to invest in its strategic growth initiatives and other statements about Align’s common stock repurchase program, including the maximum amounts that may be purchased under the program. Forward-looking statements contained in this news release relating to expectations about future events or results are based upon information available to Align as of the date hereof. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. As a result, actual results may differ materially and adversely from those expressed in any forward-looking statement. Factors that might cause such a difference include, but are not limited to, difficulties predicting customer and consumer purc! hasing b ehavior, the willingness and ability of our customers to maintain and/or increase utilization in sufficient numbers, the possibility that the development and release of new products does not proceed in accordance with the anticipated timeline, the possibility that the market for the sale of these new products may not develop as expected, the risks relating to Align’s ability to sustain or increase profitability or revenue growth in future periods while controlling expenses, growth related risks, including capacity constraints and pressure on our internal systems and personnel, our ability to successfully achieve the anticipated benefits from the acquisition of Cadent, continued customer demand for our existing and new products, changes in consumer spending habits as a result of, among other things, prevailing economic conditions, levels of employment, salaries and wages and consumer confidence, the timing of case submissions from our doctors within a quarter, acceptance of our products by consumers and dental professionals, foreign operational, political and other risks relating to Align’s international manufacturing operations, Align’s ability to protect its intellectual property rights, continued compliance with regulatory requirements, competition from existing and new competitors, Align’s ability to develop and successfully introduce new products and product enhancements, and the loss of key personnel. These and other risks are detailed from time to time in Align’s periodic reports filed with the Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which was filed with the Securities and Exchange Commission on February 26, 2011. Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason.


    Investor Relations Contact
    Shirley Stacy
    Align Technology, Inc.
    (408) 470-1150
    Press! Contact
    Shannon Mangum Henderson
    Ethos Communication, Inc.
    (678) 261-7803




    Thursday, December 22, 2011

    Outlook 2012: Value Investing ¡ª A Glimmer in the Gloom

    Warren Buffett, the Oracle of Omaha, speaks. (Photo: AP) Warren Buffett, the Oracle of Omaha, speaks. (Photo: AP)

    Advisors are urging clients to shed their fear of equities and jump into the market next year because stock valuations are currently at their lowest point since the early 1990s. Value investing, they say, is the name of the game.

    True, market volatility is also at historic levels thanks to the U.S. budget war in Washington, the European debt crisis and the vagaries of automated trading. In 2011, the average daily change in the S&P 500 since the start of August has been 1.7%, up or down, which is more than twice its daily average over the last 20 years, according to J.P. Morgan Funds Chief Market Strategist David Kelly.

    “But at the other extreme are valuations, with U.S. and developed country stocks trading at some of the lowest earnings multiples seen in the last two decades and real 10-year Treasury yields in negative territory relative to core inflation for the first time in over three decades,” Kelly wrote in a Dec. 5 analyst note.

    But value investors—an optimistic group with a natural inclination toward seeing light at the end of just about any tunnel—look at today’s lousy global economy and feel good about slow but steady growth, low inflation and all the unspent cash that companies are now sitting on. They look at undervalued stocks and see a buying opportunity.

    Apple and Asia: A Good Match

    “While the U.S. economy is easily below trend growth, corporate earnings as measured by S&P 500 companies are doing fantastic,” said David Rolfe, chief investment officer of St. Louis-based Wedgewood Partners and portfolio manager of the RiverPark/Wedgewood Fund (RWGIX). “They get a tremendous percentage of their earnings from overseas. So many of these companies are multinational. When you have Apple Corp. growing at triple digits in Asia, that’s the offset.”

    Rolfe, a self-identified value investor who this year won Investment Advisor magazine’s large cap growth award, asserted that not only is Apple (AAPL) underpriced, but so is value investment guru Warren Buffett’s company, Berkshire Hathaway (BRK.B).

    Apple and Berkshire, undervalued. Really?

    “Dramatically so,” said Rolfe, who includes both companies among his top holdings. “When we bought Apple in late 2005 it was about

    $60 a share. Now the stock is almost $400. The stock has been a dandy performer, but it hasn’t even come close to keeping pace with earnings growth. We believe that consensus expectations for Apple for the next 12 months are approximately $35 a share, and we think that’s far too pessimistic and the number will be closer to $40 or $45.”

    As for Berkshire Hathaway, Rolfe noted that CEO Buffett bought his own stock back in September because he knew how cheap it was. “The master himself is basically pounding the table that Berkshire is cheap,” Rolfe said.

    Stock-Picking the Buffett and Graham Way

    Value investing is not a set of hard-and-fast rules, according to Christopher Browne, a managing director at Tweedy, Browne Co. and author of “The Little Book of Value Investing” (2007, John Wiley & Sons). “It provides guidelines that can point you in the direction of good stocks, and just as importantly, steer you away from bad stocks.”

    Browne lays out in his book the favorite stock-picking methods of Buffett as well as his mentor, Benjamin Graham, the man who invented value investing and believed that investment is most intelligent when it is most businesslike. That said, their favored method is to buy stocks that sell at a low multiple of earnings. Earnings-to-stock price is measured by comparing the price-to-earnings (P/E) ratio to other companies and broader indexes, with P/E determined by dividing a company’s stock price by its earnings per share. The lower the P/E, the higher the earnings yield.

    “The concept of earnings yield is helpful when comparing investment opportunities,” Browne writes. “Graham did this. For example, a stock selling at 10 times earnings has an earnings yield of 10%. Compare this with a 10-year Treasury note yielding 5%, and you get twice the return.”

    Today, value investors such as Craig Callahan, founder of the $2 billion ICON Funds and portfolio manager of Icon’s Core Equity Fund (ICNIX) use Graham’s central value formula to take the emotion out of their stock picks.

    “We count on investors over-reacting, and we try to exploit it by buying at a discount or by selling overpriced stock,” Callahan said.

    He acknowledged that the last couple of years have been tricky for value investors because of the U.S. recession and Europe’s troubles. Yet, even the European debt problem, which Callahan refuses to call a crisis, is in his eyes nothing more than an interruption in the markets’ forward march.

    Callahan’s current undervalued favorites are GE, Nike, Caterpillar and—like Rolfe—Apple. “I tell people who are worried about the economy to go into an Apple store on a Saturday,” he said.

    Growth Guys Not So Keen on Value

    Not all stock pickers are value investors, though.

    Jim Oberweis, who manages the Oberweis Emerging Growth Fund (OBEGX), notes that he got his investing chops during the boom times of the 1990s, when growth stocks were a better buy than value stocks. Today, he believes that value is overvalued and poised to take a tumble.

    “The pendulum swings,” Oberweis observed. “The problem for value stocks is that everybody is trying to buy them right now.”

    Aggressive funds such as his tend to face headwinds when value stocks outperform growth stocks, which was the case from 2000 through 2008, Oberweis said. (In fact, during that period, value stocks outperformed growth stocks by historic margins.) But now, he sees opportunities in small, nimble companies that are profiting from stagnant growth in the U.S. For example, Oberweis is a buyer of HMS (HMSY), a Medicaid audit recovery contractor.

    Admittedly, the six funds managed by Oberweis Funds are all growth funds, according to Oberweis. Nevertheless, he believes that hot growth stocks are well positioned to overtake value stocks, which is why he’s seeking small companies with positive cash flow and revenues and earnings that are likely to increase at a faster rate than the average company.

    ‘Excellent’ Balance Sheets Augur Well for Buybacks, Dividend Increases, M&A

    Either way, whether a person is positioned for value or growth, 2012 looks to be a surprisingly good year for stock investors.

    “Very worrisome macro issues have created an atmosphere of pervasive pessimism,” said Kent Croft, CIO and portfolio manager of the Croft Value Fund (CLVFX), in a written comment. “Bottom-up fundamentals of companies tend to be drowned out in times like these, creating an attractive entry point for investors heading into 2012.

    Companies continue to maintain excellent balance sheets which augur well for continued buybacks, dividend increases, and mergers and acquisitions, Croft added, noting that 2011 share repurchases are at their highest levels since 2007. “Dividend payouts will come close to their 2008 peak,” he said, “and companies are generating excellent free cash flow, which will add to their record $2 trillion-plus hoard of liquid assets.”

    Read AdvisorOne's complete lineup of Outlook 2012 stories.

    Read Investment Picks and Pans From 7 Portfolio Managers at

    3 Winning Investment Strategies Used by Fund Managers

    Just as some European countries combine capitalism and socialism -- called the third way -- investors would do well to find a new strategy that combines long-term and short-term trading strategies.

    This year has been marked by big stock-market moves -- in both directions, sometimes on a daily basis. Last week alone, the Dow Jones Industrial Average moved almost 200 points each day in both directions. Watching the ups and downs has been an emotional roller-coaster ride for investors. Unfortunately, the craziness isn't going to end any time soon, with the European credit crisis far from being over, a sputtering U.S. economy, and emerging markets that are slowing.

    It's a challenging time to invest when company fundamentals are ignored. If the standard buy-and-hold strategy isn't working, and the shorter-term risk-on/risk-off far too risky, what type of strategy would?

    The answer is one that addresses long-term needs by managing short-term unpredictability. Like most rewarding things in life, it's not an easy strategy. It involves actively managing your portfolio and keeping on a steady course even when there's bad news all around.

    Most, not all, money managers TheStreet spoke with are cautiously optimistic about 2012. Even though the U.S. economy is grinding along, it isn't getting worse. Still, professional investors are being selective on bets in the market.

    The UBS Investment Research team says "the greatest opportunities are between groups of stocks that have been mispriced by recent gyrations. Companies with high foreign sales and more volatile names appear undervalued."

    Among attractive companies are those at historically low values hurt by events such as worries over Europe but with consistent avenues of growth. Cisco Systems(CSCO) is a good example, trading at only 11 times its earnings estimates. Shares of the company, whic! h report s quarterly earnings this week, are down 10% this year, even as revenue has risen for the past four quarters.

    Along the same line, money managers prefer to invest in stocks with what is known as an accidental yield. That occurs when the stock price declines enough to produce a higher-than-normal dividend yield (annual dividend divided by the stock price). A decent dividend yield is considered to be 3% to 5%, a much better return than what you get investing in U.S. Treasuries. Household-cleaning-products company Clorox(CLX), which has a stable business model, currently has about a 3.5% dividend yield.

    Over the past three years, dividend-paying stocks have outperformed the S&P 500 by 15 percentage points.

    For most of this year, defensive stocks have led the market. But over the past month, cyclical names took charge. UBS expects the outperformance by this group to continue, saying: "The energy and material sectors are most sensitive to shifts in the economy and markets. Additionally, we continue to see opportunities in tech, industrials and financials."

    So far this earnings season, the materials sector has reported the largest revenue surprise. On top of that, it's also the cheapest sector. Industrials have also reported solid third-quarter earnings, with strong sales to agriculture, mining and car companies. Additionally, many companies, such as Ford(F) and DuPont(DD), are reporting accelerating growth in U.S. sales as international sales slow. Those cyclical sectors will be among the first to emerge from a global recession, representing a great investment opportunity.

    All told, corporate fundamentals are starting to show signs of improvement, with around 70% of the S&P 500 beating third-quarter earnings estimates. Employing some of the strategies listed above may mean better-t! han-aver age returns when the world economy rebounds. Nevertheless, stock investing is still far better than leaving your cash in a savings account.

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    Is Nxstage Medical Heading for a Slowdown?

    Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

    Basic guidelines
    In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized.

    Is the current inventory situation at Nxstage Medical (Nasdaq: NXTM  ) out of line? To figure that out, start by comparing the company's figures to those from peers and competitors:


    TTM Revenue Growth

    TTM Inventory Growth

    Nxstage Medical 23.6% 11.3%
    Fresenius Medical Care (NYSE: FMS  ) 6.0% 9.4%
    Baxter International (NYSE: BAX  ) 7.7% 4.8%
    Vascular Solutions (Nasdaq: VASC  ) 17.1% 15.7%

    Source: S&P Capital IQ. Data is current as of latest fully reported quarter. TTM = trailing 12 months.

    H! ow is Nx stage Medical doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue increased 23.6%, and inventory increased 11.3%. Over the sequential quarterly period, the trend looks healthy. Revenue grew 4%, and inventory dropped 9.3%.

    Advanced inventory
    I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

    A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

    On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

    What's going on with the inventory at Nxstage Medical? I chart the details below for both quarterly and 12-month periods.


    Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.


    Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

    Let's dig i! nto the inventory specifics. On a trailing-12-month basis, work-in-progress inventory was the fastest-growing segment, up 379.2%. On a sequential-quarter basis, each segment of inventory decreased. With inventory segments moving opposite directions for the periods we're considering, this one is a toss-up.

    Foolish bottom line
    When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

    I run these quick inventory checks every quarter. To stay on top of the inventory story at your favorite companies, just use the handy links below to add companies to your free watchlist, and we'll deliver our latest coverage right to your inbox.

    • Add Nxstage Medical to My Watchlist.
    • Add Fresenius Medical Care to My Watchlist.
    • Add Baxter International to My Watchlist.
    • Add Vascular Solutions to My Watchlist.

    ECB Panics; Begins Buying Assault on Portuguese, Irish and Greek Debt

    –Countdown to Second Collapse Begins

    By Dominique de Kevelioc, de Bailleul
    Beacon Contributing Writer

    At 6:26 a.m. (EST) Wednesday, Reuters flashed an update on the Euro zone debt crisis, reporting that five European central banks have begun buying troubled sovereign bonds along all maturities. In a desperate measure to support a collapsing Euro, the ECB pulled out the ultimate "quantitative easing" weapon that ECB President Jean-Claude Trichet said he wouldn’t use: monetizing debt.

    Euro at par with the Dollar cannot be that far off.

    Doing a 180-degree turnaround from previously scoffed notions of buying troubled Euro zone debt, Trichet now admits ECB monetary policy is "hampered" and some markets remain "dysfunctional,"he said at a press conference in Basel. Monday’s rally in the Euro briefly reached the 1.31 level against the Dollar, but the 16-nation Euro quickly fizzled, trading down to1.2663 as of 7:02 a.m. EST Wednesday.

    Trichet’s punch of the panic button isn’t going over well with the Bundesbank, however, where Germany’s tightfisted Axel Weber believes Trichet’s purchase of government bonds now "poses significant stability risks." Weber chided Trichet for the change in ECB policy "even in this extraordinary situation."

    Money printing now crosses the Atlantic, doubling the fiat-currency frenzied orgy of currency debasement in an effort to stave off the inevitable, defaults on sovereign debt among, at least, the PIIGS.

    “On Monday and yesterday they (central banks) were a bit unordered, perhaps also to see the market reaction. Today they are a lot more active,” one bond dealer told Reuters.

    As part of the $950 billion TARP-like bailout package agreed to over the weekend, European central banks now will intervene in various debt markets to shore up prices and lower rates. Reuters said a second dealer it interviewed said the central banks of Italy, France, Germa! ny, Spai n and Finland have come in strongly with buy orders along the yield curve in "amounts of 25 million or 50 million euros at a time." Presently, Portuguese, Irish and Greek government debt are the focus of the five central banks.

    There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
    �CLudwig Von Mises

    The second stage of the credit crisis, which began with the first stage, the collapse of Bear Stearns in 2008, now officially begins.

    About is committed to producing the highest-quality insight and analysis of small cap stocks, emerging technology stocks,hot penny stocks and helping investors make informed decisions. Our focus is primarily on the underserved OTC stocks market, or "penny stock" market, which has traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

    Wednesday, December 21, 2011

    Netlist Inc. (NLST) Closes 22.64% Higher

    Netlist Inc. (NLST) Closes 22.64% Higher

    Shares of Netlist, Inc. (NASDAQ: NLST) jumped more than 25% in today's trading. The small cap stock closed 22.64% higher at $3.25. Volume was up from daily average of 592,000 to 3.86 million. Irvine, California-based Netlist is a designer, manufacturer and seller of memory subsystems for the server, high performance computing and communications markets.

    Netlist yesterday announced its first-quarter results, reporting a 265% increase in revenue in the quarter. On a sequential basis, revenue increased 17.8%. The company reported a loss of $0.14 per share in the first quarter, down from a loss of $0.19 per share reported for the same period last year.

    C.K. Hong, Netlist's CEO, said that the company continues to make important strides toward commercialization of its two emerging proprietary memory platforms, HyperCloud? and NetVault?. Hong also said that the company received its first commercial order for NetVault in the quarter. He believes that the company is in strong position to continue its progress through the rest of this year. In the first quarter, the company also sold 4.6 million shares of common stock. The shares were sold at a price of $3.85 per share, slightly higher than today's closing price.

    On May 6, the company reported that it has shipped more than 1 million units of its NetVault-Battery-Backed (BB) module since inception. In its latest 10K, the company mentions that as of January 2, 2010, it had 14 patents issued and 16 patent applications pending. So any news of approval for any of its pending patent applications can have a positive impact on the stock. The company also highlights a number of factors that may cause its operating results to fluctuate. Some of these factors include inability to develop new or enhanced p! roducts that achieve customer acceptance, loss-of, or significant reduction in sales to a key customer, and ability to effectively operate its manufacturing facility in China. Since its inception in 2000, the company has reported a profit in only one fiscal year. The biggest operating risk the company faces is that it generates bulk of its revenue from a limited number of customers. In order to lower this risk and also to turn profitable, the company will have to expand its customer base.

    With a 52-week range of $0.29-$7.98, the small cap stock has been extremely volatile. It has an extremely high beta of 6.54. This implies much volatility and risk involved with the stock. Currently, it is trading below its 50-day and above its 200-day moving averages.

    About is committed to producing the highest-quality insight and analysis of small cap stocks, emerging technology stocks, hot penny stocks and helping investors make informed decisions. Our focus is primarily on the underserved OTC stocks market, or "penny stock" market, which has traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

    Fed's Easing Spurs Treasury Purchases as Banks Shun Lending?

    Despite the U.S. Federal Reserve's efforts to spur lending by keeping interest rates low and pumping up liquidity with quantitative easing, banks continue to borrow from the government at low rates and reinvest the funds into higher-yielding Treasury bonds.

    U.S. commercial banks are buying the most Treasury and agency debt since the Fed began tracking the data in 1950, adding $186.2 billion to their inventories through Oct. 20 bringing the total to $1.62 trillion. At the same time, commercial and industrial loans outstanding have fallen by about $68.5 billion this year to $1.23 trillion, according to central bank data compiled by Bloomberg News.

    By tying up their capital in government securities, banks make it more difficult for small businesses to get loans and create jobs, which discourages consumer spending.

    The banks increased their appetite for government debt even as yields on two- and five-year Treasuries fell to record lows last week, when the Fed said it would concentrate the $600 billion of purchases in that maturity range.

    Additionally, the Basel III regulations set by the Bank for International Settlements in Basel, Switzerland, could stifle global economic growth and spark an additional $400 billion in Treasury purchases by U.S. commercial banks by 2015, according to the Treasury Borrowing Advisory Committee, a committee of bond dealers and investors that advises Treasury Secretary Timothy Geithner.

    Under the Basel III rules, lenders will have to comply with tougher tier 1 capital ratios within five years and will have until Jan. 1, 2019 to meet more stringent capital buffer requirements.

    "The Fed may find that banks remain unwilling to move out of government-backed securities as readily as it might be hoped," Jeffrey Caughron, an associate partner at Baker Group LP, which advises community b! anks on investing $25 billion of assets told Bloomberg. "Banks are in the unenviable position of having to wait until the animal spirits creep back into the economy."

    Large investors want the banks to implement the rules prior to the official deadlines, which "will probably result in banks holding more Treasury and agency securities in their portfolios and fewer loans," the Treasury Borrowing Advisory Committee said in its Nov. 2 report.

    At the same time, "extension of liquidity, credit, and capital are being curtailed at a time of slow economic growth," the committee said.

    "Financial institutions are less willing to take risk ahead of these new regulations than they might be otherwise," Ira Jersey, an interest-rate strategist at Credit Suisse Group AG (NYSE ADR: CS) in New York told Bloomberg. "One of the reasons to do quantitative easing is to make it less appealing to hold Treasuries. You'd expect this to be an environment where they might actually want to take on a little more risk but so far they're not."

    Many analysts are pessimistic about increased lending after the previous round of quantitative easing failed to spur an increase in loans.

    During the last round of quantitative easing, which ended in March, the Fed purchased $1.7 trillion of mortgage-related and Treasury debt.? Meanwhile, the banks purchased $226 billion of government securities, while commercial and industrial loans outstanding fell by $367.4 billion.

    Banks say loan demand remains low after companies in the Standard & Poor's 500 Index boosted cash and equivalents to a record $2.3 trillion at the end of 2009, according to data compiled by Bloomberg.

    Before companies borrow to expand, they will likely tap into their cash, Art Steinmetz, the chief investment officer in New York at Oppenheimer Funds Inc., which manages about $165 billion, told B loomberg.

    "A credit crunch caused the recession; it is not accurate to run the logic in reverse and say an extension of credit will get us out of recession," Steinmetz said. "The banks will lend to good credit, but good credit is not interested in borrowing."

    Indeed, large banks had $4.4 trillion in unused credit lines outstanding in 2009, as consumers and businesses shunned borrowing to pay down debt. A 32% increase in U.S. bankruptcy filings last year suggests that plenty of borrowers simply aren't creditworthy.

    "Lenders aren't saying we don't want to lend. Lenders are saying we'd like to lend, but loan requests are down," James Ballentine, the senior vice president of government relations for the American Bankers Association told McClatchy. "Also the bank regulatory agencies are scrutinizing loans at a much higher level than they have been in the past. There are so many new laws and regulations that some of the smaller banks are just shutting their doors and walking away."

    News & Related Story Links:

    • Bloomberg: Record Bond Buying by Banks Frustrate Bernanke Easing for Loans
    • Treasury Borrowing Advisory Committee: Minutes of Nov. 2 meeting
    • McClatchy:
      Small firms would hire you, if only they could get loans
    • Money Morning: As QE2 Looms, Is the Fed Focusing on the Wrong Things?
    • Money Morning: QE2: How New Quantitative Easing Will Launch Emerging-Market Stocks

    Don't Get Too Worked Up Over WESCO International's Earnings

    Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

    Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

    Calling all cash flows
    When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on WESCO International (NYSE: WCC  ) , whose recent revenue and earnings are plotted below.


    Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

    Over the past 12 months, WESCO International generated $94.6 million cash while it booked net income of $176.2 million. That means it turned 1.6% of its revenue into FCF. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite. Since a single-company snapshot doesn't offer much context, it always pays to compare that figure to sector and industry peers and competitors, to see how your business stacks up.

    ! Co mpany

    TTM Revenue


    TTM FCF Margin

    WESCO International $5,868 $95 1.6%
    W.W. Grainger (NYSE: GWW  ) $7,828 $485 6.2%
    Interline Brands (NYSE: IBI  ) $1,241 $72 5.8%
    Anixter International (NYSE: AXE  ) $6,232 $37 0.6%

    Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. TTM = trailing 12 months.

    All cash is not equal
    Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

    For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordi! nary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

    So how does the cash flow at WESCO International look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.


    Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

    When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

    With 40.5% of WESCO International's operating cash flow coming from questionable sources, investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 31.7% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which represented 100% of cash from operations.

    A Foolish final thought
    Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to! spot po tential trouble early. Better yet, you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

    We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

    • Add WESCO International to My Watchlist.
    • Add W.W. Grainger to My Watchlist.
    • Add Interline Brands to My Watchlist.
    • Add Anixter International to My Watchlist.