Saturday, June 23, 2012

Keating Capital: Late Stage Pre-IPO Investing With Permanent Capital, Investor Liquidity

While Business Development Company (BDC) Closed-End Management Companies are the half sibling of their traditional closed-end fund (CEF) counterparts, we believe they, and as an example Keating Capital (KIPO)'s concept and potential diversification benefits, offer a nice balance to the more traditional income focused closed-end fund portfolio.

However, it is important to note that this interview does not constitute a recommendation to purchase or sell shares in Keating Capital, and investors should do their own due diligence before deciding to invest.

Portfolio Manager & Investment Advisor

Timothy J. Keating is the President of Keating Investments, LLC, an SEC registered investment adviser, founded in 1997. Mr. Keating is also the Chairman and CEO of Keating Capital, a publicly traded business development company.

Prior to founding Keating Investments, Mr. Keating was a proprietary arbitrage trader and head of the European Equity Trading Department at Bear Stearns Intl Ltd. (London) from 1994 to 1997.

Mr. Keating began his career at Kidder, Peabody & Co., Inc. where he was active in the Financial Futures Department in both New York and London. Mr. Keating is a 1985 cum laude graduate of Harvard College with an A.B. in economics.

Keating Investments is based in Denver and has 10 employees. At present, the exclusive focus of the firm is acting as the external investment adviser to Keating Capital, Inc.

Investment Objective

Keating Capital's investment objective is capital appreciation. They attempt to achieve this objective through investments in later stage, private, pre-initial public offering (IPO) companies with private enterprise values between $100 million and a $1 billion. They believe investors place a premium on liquidity or having the ability to sell stock quickly and efficiently through an established stock exchange. Their goal is to buy privately, sell publicly and capture the difference. Their primary investment criteria are:

  • Revenue: $10 million+ in trailing 12 months
  • IPO timing: within 18 months from date of investment
  • Potential return: expectation of 2x return once the company is publicly traded over an anticipated 3-year holding period

The Interview

John Cole Scott interviewed Tim Keating via telephone on January 18, 2012.

Scott: When did you first conceive Keating Capital as a BDC closed-end fund?

Keating: It goes all the way back to 1997 and my last job on Wall Street with Bear Stearns when I came across the concept of "a discount for lack of marketability" or the "private / public valuation differential." After we closed our first private fund in 2007, with a great deal of success, we validated the concept.

Scott: Can you explain for our readers the differences between a traditional closed-end fund and a business development company ("BDC") closed-end fund?

Keating: Traditional closed-end funds ("CEFs") are investment companies under the Investment Company Act of 1940 and typically invest in the common equity of already public companies. Although strategies vary for traditional CEFs, they generally target their investments in specialized industry sectors, geographic areas or a niche strategy.

Keating Capital is a closed-end fund that has elected to be regulated as a business development company under the 1940 Act. One primary distinguishing feature between BDCs and a traditional CEF is the types of investments that BDCs can make. Generally, at least 70% of a BDC's assets must consist of U.S.-based private companies or publicly listed companies with a market capitalization less than $250 million.

BDCs were a new corporate structure created by Congress to provide public investors access to private equity and debt returns, as well as addressing the private equity industry's reluctance to launch public funds.

Scott: Why did Congress create the new structure?

Keating: In 1980, banks were recovering from elevated commercial loan losses following the mid-1970s recession in addition to volatile interest rates and elevated inflation in the late 1970s. At that time, Congress believed there was a shortage of credit available to small and medium sized private businesses. The venture capital and private equity industries were much smaller and limited from raising capital from public shareholders because they would become subject to the 1940 Act if their securities were owned by over 100 shareholders.

To address these concerns, Congress created the BDC as a hybrid between a traditional 1940 Act investment company and a private investment fund. The amendments were part of The Small Business Investment Act of 1980.

In effect, Keating Capital is exactly what Congress intended to encourage, a publicly traded, later stage venture capital fund with over 4,000 individual stockholders.

Scott: What are the Fund's fees, and are fees generally different in a BDC CEF vs. a traditional CEF?

Keating: Keating Capital pays its investment adviser, Keating Investments, a base management fee of 2% of Keating Capital's gross assets annually.

Additionally, there is a 20% incentive fee payable at the end of each year. The incentive fee is calculated from Keating Capital's realized capital gains, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less any previously paid incentive fees.

Finally, Keating Capital also reimburses Keating Investments on a monthly basis for a portion of overhead and other expenses incurred by performing administrative obligations.

Scott: What is the breakdown of the fund's fee structure?

Keating: Excluding incentive fees, Keating Capital projects its operating expenses for 2012 to be in the range of $3.5 - $4.0 million consisting of:

  • Base management fees of about $1.5 million
  • Direct operating expenses of about $1.5 - 2.0 million.
  • Allocated administrative expenses of $0.5 million.

Traditional CEFs charge a management fee only. However, unlike BDCs, a traditional CEF is not allowed to receive an incentive fee. In creating BDCs, Congress allowed them to charge an incentive fee to generally mirror the traditional 20% carried interest charged by the managers of most private equity and venture capital firms.

Scott: Is an incentive fee normal for BDC funds?

Keating: There are two types of management arrangements with business development companies. Under one arrangement, the BDCs are internally managed. That means there is no incentive fee paid to the advisor. And equally, there's no base management fee. Instead of having an advisory agreement, the management team becomes employees of the Fund.

The other variety is externally managed, which is a conventional investment advisory agreement between fund and investment advisor. Of the 34 publicly traded BDCs, nine of those are internally managed and 25 are externally managed.

Scott: Do you ever find that shareholders who aren't familiar with BDC closed-end funds balk or spend too much time focusing on the incentive fee when evaluating the Fund?

Keating: There are always people who are deeply fee conscious, and rightfully and very understandably so. There are also people who are adverse to incentive fees in any way, shape or form. I can understand that perspective as well. I think the way we look at it is that we really think of the world as beta rather than alpha and that alpha is quite elusive requiring a very clearly identifiable and exploitable strategy.

In general, BDCs carry higher fee costs than closed-end funds because of the types of assets in which they invest. The purpose of a BDC is to invest in and provide managerial assistance to small companies. In our view, this specialized asset class requires a specialized set of investment professionals to manage.

Scott: When setting up KIPO, why did you select the CEF BDC fund structure vs. the alternatives?

Keating: Well, there are a couple of reasons. The first one is that the fundraising process in and of itself is arduous. So whether you're a private equity fund or a venture capital fund, every few years, it is a major undertaking to go out and raise capital. That is not necessarily off-putting if you're a larger organization, but if you're smaller, it can be quite distracting. We wanted to maintain our focus entirely on identifying these pre-IPO companies, analyze them, run the portfolio, and not worry about having to raise new capital every few years.

Because Keating Capital makes investments in private companies which we believe are committed to and capable of going public, there is effectively no liquidity in our underlying portfolio companies until they IPO. Even then, we typically have to wait 180 days for the expiration of an underwriter's lockup to become eligible to sell our stock. As a result, our typical holding period for a portfolio company position is about three years.

The BDC structure allowed us to raise permanent capital while focusing our time on identifying the companies and managing the portfolio. It allowed individual investors to have transparency through our SEC filings and to come and go as they please with the liquidity of an exchange listing.

Scott: What was the IPO process like for your fund? You IPOed at $10 and closed trading today at $7.35, was this anticipated?

Keating: Unlike a traditional initial public offering where there is a simultaneous capital raise and exchange listing, we purposely decoupled these two events. Keating Capital's initial public offering was an 18-month "continuous public offering" registered with the SEC that concluded on June 30, 2011, and raised $86.8 million. In a second, distinct step, we listed our shares December 12, 2011 on NASDAQ.

Keating Capital raised money in its offering at $10.00 per share. Based on our September 30 NAV of $8.27, we have incurred a reduction of $1.73 per share.

The breakdown of the $1.73 per share includes:

  • selling commissions ($1.05);
  • cumulative operating expenses since inception ($0.65);
  • distributions to stockholders ($0.05);
  • an adjustment based on fee-waived sales ($0.04); and offset by
  • unrealized appreciation (+$0.06).
  • For additional financial information on Keating Capital, please refer to our Forms 10-K and 10-Q which have been previously filed with the SEC.

    Scott: If you could go back, would you IPO your fund again in the same way?

    Keating: Yes.

    Scott: Would you change anything about the process?

    Keating: No.

    Scott: Who's the typical investor attracted to Keating Capital? Do you have a common investor personality?

    Keating: We actually do. Our demographic is older than you might expect at 60 years old. Typically, they are buying through an IRA and have a three to five-year time horizon. What's attractive about Keating Capital to this audiences is the appalling performance of the broad equity markets over the last 10 years, and the need for continued growth in their portfolio.

    They are very frustrated and feel if they're going to take the risk associated with equities, they may as well get into a strategy that affords them the potential for some alpha and not just market exposure.

    Scott: You surprised me there when you said 60 years old. I expected a younger shareholder base.

    How many US company IPOs are set for 2012?

    Keating: Around 200 companies have already filed registration statements to complete an IPO.

    Scott: How is this different than this time last year?

    Keating: First, the 200 companies that are private but have filed to go public are almost double from the 125 that completed IPOs last year. Making 200 a very high number. In fact, I believe it's the highest number that we've had on file to go public since 2000.

    Scott: In comparing the current IPO filings with 2007 (the highest year of completed IPOs in the last decade at 214), in January of that year did it look this strong?

    Keating: That's correct. There are two factors to consider. A large number of companies in registration is a sign of a healthy IPO market, because there are many companies eager to go public. On the flip side, a large number can also be a negative sign, because it means that companies are stuck and the IPO window is shut.

    The 200 number that you see today reflects a little bit of both. Specifically, during the August to October period of last year, there were a lot of companies that wanted to go public but simply were not able to get out because the IPO market was shut. The larger percentage includes companies eager to go public.

    Scott: What do you see changing in the IPO market as we get into 2012 versus what you experienced as an investor in 2011?

    Keating: The key takeaway from 2011 is that about two-thirds of the companies that went public last year were trading below their IPO prices at the end of the year. That is very bad. I think the biggest takeaway is going to be an adjustment in future IPO pricing. IPO underwriters have two masters to serve.

    On the one hand, they're representing the issuer of the new stock trying to obtain the highest price possible. On the other hand, it's important for investors to get a fair deal.

    I would say the pendulum went in favor of the issuers recently, and I believe the pendulum will need to swing back in favor of investors in order to give them enticement to want to buy new issues in the IPO market post 2011.

    Scott: When we talk about two-thirds of the 2011 IPOs ending the year below an IPO price was this a normal occurrence?

    Keating: Normally, I believe a quarter to a third, in a typical vintage year, will be trading below the offer price. In 2011 the number was double the normal level.

    2011 was really a tale of two halves. The first half was actually a very strong half. If you look at a graph of the number of IPOs, we hit rock bottom in 2008 and began a recovery in 2009.

    That recovery continued in 2010 and in the first half of 2011. Q1 of 2011 was higher than Q1 of 2010, which was higher that Q1 of 2009, which was higher than Q1 of 2008. Similarly, Q2 of 2011 was higher than each of the three preceding years. The first half was a continued recovery; the second half was a brick wall.

    Scott: Compared to last year this time, what type of footing do you feel you're on for potential investments? Did 2011 make you stronger?

    Keating: 2011 was a sobering year for everyone involved. If you look at the S&P 500, it was close to a 0% year on a price basis, +2% on a total return basis.

    The key issue for the IPO market is volatility. The big lesson learned is that in a highly volatile environment, the IPO window is going to shut, and shut tight. Volatility is the enemy of the IPO market. Looking back, I don't believe 2011 was as scary as 2008.

    In fact, I've been in the business for 26 years, including 1987, and nothing came close in my career to 2008-2009. 1987 was only a one day blip whereas 2008 felt like the world was coming to an end.

    During 2011, we had two major events, Europe and the U.S. debt situation, which we thankfully managed to survive. As we look out at 2012, what we see is the equity market at what appears to be an attractive valuation. If you look at the S&P 500, it historically trades at 15 times earnings, currently it is around 13 times earnings. We are big believers in reversion to the mean. We think valuation is favorable for the equity markets, but volatility remains lurking behind a corner.

    We dealt with the U.S. debt crisis temporarily. Europe is a weak situation, and, of course, we have an election coming up in November. If we had one or more of those issues resolved, we believe volatility would come down to a more normalized level.

    Combining compelling equity market valuations and lower volatility would be the catalyst to really unleash the IPO market in a meaningful way. So, we're cautiously optimistic.

    Scott: Thank you for your thoughts and insight on the current market and how it could potentially impact your fund.

    According to Stifel Nicolaus research, it looks like you have 33 peer business development closed-ended funds. Who are your closest peer BDC funds for comparison?

    Keating: GSV Capital Corp (GSVC) and Harris & Harris (TINY) are both BDCs that make equity investments in venture capital backed companies. However, to the best of our knowledge, Keating Capital is the first and only fund of its kind exclusively dedicated to pre-IPO investing in the U.S.

    Scott: Is there an index for BDC CEFs for investors to track?

    Keating: Yes. On February 24, 2011, Wells Fargo (WFC) announced the launch of the Wells Fargo Business Development Company Index, a rules-based index measuring the performance of certain NYSE and NASDAQ listed Business Development Companies.

    In addition, there are now two tradable instruments that track this index: BDCS and BDCL.

    Scott: In regard to IPO investing, besides GSVC and TINY, are there any similar or partial comparisons for investors that might compete with KIPO?

    Keating: I believe there is one mutual fund and two ETFs that focus purely on what I'm going to call IPO investing, buying companies after they've completed their IPOs. For pre-IPO investing, Keating Capital is the only fund that is exclusively dedicated to pre-IPO investing, by which I mean that last private round of financing before an anticipated IPO.

    The two BDC CEFs, the mutual fund and the two ETFs would be the closest animals to us.

    [Note: Based on peer BDC fund's of approximately 40 basis points of market cap relative to market cap, KIPO's liquidity could be expected to increase over time to around $280K a day.]

    Scott: According to Stifel Nicolaus research, the current median price to NAV discount is -17% for BDC funds under $250M in assets, compared to -10% for all BDC funds. Is it better to compare your fund among its size peers or against all BDC funds?

    Keating: Yes, I think the groupings are very relevant. Regarding the one month average daily volume vs. the market cap of the fund; larger BDCs (i.e., greater than $500 million market cap) have an average daily trading value of about 80 basis points of their market caps. For example, if you had a $1 billion fund, you'd expect to have $8 million in trading volume each day. For the midsized group, it's about 50 basis points and for the smaller BDCs, it's about 40 basis points.

    [Note: Keating Capital is considered a smaller BDC fund.]

    Historically, size and discount often go hand in hand. We do think that we are properly lumped in with the smaller group of BDC funds.

    Scott: What are your expectations for KIPO's 'normal' discount relationship knowing that you only report your net asset value (NAV) quarterly, like all BDC CEFs

    Keating: As of September 30, 2011, KIPO had a NAV of $8.27. Based on the January 18, 2012 closing price of $7.35, Keating Capital traded at a price equivalent to 88.9% of NAV or an -11.1% discount vs. the average -17% peer average discount you mentioned before. The market price of our fund will trade at a price equal to, above or below our NAV per share, and as a matter of firm policy, we do not comment on our stock price.

    Scott: How do you calculate, and when do you report your net asset value for the Fund?

    Keating: We value our investments in portfolio companies as of the end of each quarter. Our publicly listed equity investments for which market quotations are readily available are generally valued at the closing market prices as of quarter end. However, our publicly listed equity which are subject to lockup provisions restricting the resale of such investments for a specified period of time, are valued at a discount to the quarter end closing market prices.

    The fair values of our private equity investments for which market quotations are not readily available (including investments in convertible preferred stock) are determined, in good faith, by our Board of Directors, based on various factors, including:

    • The portfolio company's historical and projected financial results
    • Industry valuation bench-marks
    • Public market comparables
    • Private mergers and acquisitions.

    The fair values of these private portfolio company securities are generally discounted for lack of marketability since the securities are illiquid, there are restrictions on resale, or there is no established trading market.

    In the absence of a readily ascertainable market value, the estimated value of our equity securities may differ significantly from the value that would be placed on the portfolio if a ready market for the equity securities existed. Changes in valuation of these equity securities from one period to another may be volatile.

    Scott: Do you ever miss being in the hot IPO world, the Facebooks and the LinkedINs?

    Keating: Yes we do, however, that's a self-imposed discipline for us as we typically focus on private companies with enterprise values of between $100 million and $1 billion. We avoid the quasi-public companies like Facebook. I have nothing but praise for Facebook, the company for all I know might be the best company on the planet.

    The investment challenge is the following: at a $100 billion valuation is the differential between private and public valuation still there? Is there still an arbitrage opportunity?

    We would argue no, there isn't. What happens with certain high profile social media companies is that valuation reflects almost a public valuation rather than a private valuation without a discount for lack of marketability.

    Scott: I saw that GSVC has exposure to Facebook. It was mentioned in their recent N-2 filing.

    Keating: Yes. I think GSVC's got a couple positions in social media companies. Michael Moe, who runs GSV Capital is a very bright and experienced manager.

    He's written a great book called, Finding the Next Starbucks and is an extremely knowledgeable growth investor. I'm glad that our message and approach is resonating in the marketplace, and we're glad to have GSV join us in this space.

    Scott: When can investors expect to see updated NAV & Financials?

    Keating: Our Annual Report on Form 10-K is due on March 31, 2012, although we expect to file probably in mid-March.

    Scott: What is the most important potentially unexpected risk for shareholders in your fund?

    Keating: The biggest risk might be if the IPO window shuts down completely for a prolonged period of time.

    Remember, there is a strong inverse relationship between volatility and IPO activity. IPO market expansion has historically taken place in modest volatility environments (i.e., those where the CBOE Volatility Index (VIX) is at ranges between 10% and 20%). Reduced volatility levels create an improved market for IPOs.

    To the extent that the IPO window shuts for a quarter or two, we do not expect that there would be any impact in the long-term performance of Keating Capital because our success ultimately depends on our ability to capture the private/public valuation differential.

    With perfect hindsight, the three questions that are relevant and ultimately will need to be asked to evaluate the performance of the strategy are:

  • Did each portfolio company go public within 18 months of Keating Capital's investment?
  • Once public, did each portfolio company trade at a similar valuation multiple to its public peer group?
  • Was Keating Capital able to exit its investment at its targeted 2x return potential over the anticipated three-year holding period?
  • If we can answer these questions affirmatively, then the strategy will be successful because we will have captured the valuation differential that we believe exists between comparable private and public companies.

    Of course, a protracted period where the IPO window is shut (e.g., one lasting for four to eight quarters) would delay the time that it takes to generate our targeted return and would likely extend our anticipated three-year holding period.

    Scott: The average annualized yield on your 14 peer BDC CEFs, (less than $250M in net assets) is 8.3%, according to Stifel Nicolaus research. Do you see any regular dividend for shareholders in the future? If so, would it be a return of capital?

    Keating: We do not have a scheduled or planned distribution policy. Instead, net realized capital gains after reduction for any incentive fees, our annual operating expenses and any other retained amounts are expected to be distributed at least annually.

    In the event we retain some or all of our realized net capital gains, we will likely designate the retained amount as a deemed distribution to stockholders. In this case, we will pay corporate-level tax on the retained amount, each U.S. stockholder will be required to include its share of the deemed distribution in income as if it had been actually distributed and they will be entitled to claim a credit or refund equal to its allocable share of the corporate-level tax we pay on the retained realized net capital gain.

    Scott: What are your investor relations and shareholder communications plans for the Fund?

    Keating: Margie Blackwell is the full-time Investor Relations Director for Keating Capital. She has worked for Keating Investments for 11 years and is intimately familiar with all aspects of our business. Additionally, Keating Capital has engaged JCPR to assist with public relations. We connect to shareholders and potential investors in the following ways:

    • Send stockholders an email notification after each public filing
    • Publish a quarterly news-letter
    • Host conference calls for stockholders, representatives who sold shares in our public offering, analysts and other interested parties after each quarterly filing with the SEC
    • Host periodic webinars to provide perspective on topical matters.
    • Speak to the equity research analysts at investment banks who cover BDCs
    • Conduct non-deal road shows during the year
    • Actively give interviews to the national media, including such outlets as: The Wall Street Journal, Forbes, USA Today, Bloomberg, CNBC, The

    Scott: What's next for your firm, a secondary offering? A new fund?

    Keating: We expect that Keating Capital will be fully invested by the end of Q2 2012. Our long-term goal for Keating Capital is to grow the fund to approximately $250 million in assets. This would allow us to hold 25 positions of $10 million each. We believe this is the optimal size for our pre-IPO strategy. Raising additional capital in the future, through some form of shelf registered public offering.

    Scott: Why is $250 million and 25 investments the optimal size four your fund?

    Keating: We are constrained in two very distinct ways in this strategy. Number one, there are a finite number of IPO's each and every year. For example, in 2011 there were about 125 companies that went public. Because there is a fixed and finite number of companies going public, there is also a fixed and finite number of pre-IPO investment opportunities. It's not as if with an infinitely large pool of capital that the number of opportunities would increase.

    Second, and very importantly, the kind of companies that we invest in typically have existing venture backers. Those existing backers often are participating in the final round of pre-IPO financing. Usually there's some left over for new investors like us. As an example, if a company is raising $50 million in a final pre-IPO round and there are three main existing venture backers who each decide to put $10 million each into that round, it accounts for $30 million. Now there's a need for $20 million.

    With our current check size of $3 million to $5 million, we can be part of that $20 million. We believe based on our pipeline and the size of the deals we invest in, $10 million would be an optimal size, because it would make us a very important investor in these companies in these rounds, potentially accounting for up to half of the amount available to new money in a particular round, for example.

    Scott: Are there any pending regulations that concern you for the IPO market from The SEC or FINRA?

    Keating: Well actually quite the opposite, because what's happened now is widespread recognition in Congress that the public capital formation process is badly broken. There are a number of pending bills in Congress that are all designed to provide relief.

    I think the one that I'll mention here is something called the IPO Taskforce, which is a group of venture capitalists, lawyers, accountants, investment bankers, consultants and others who put forth a series of recommendations and actually, to my pleasant surprise, many of these recommendations are not only being studied seriously, but in certain cases, the House has begun taking actions on them.

    I think the wind is in the sails for providing relief for things like Sarbanes Oxley and a number of other items for smaller companies that complete an IPO, they call it a ramping process giving time for these new public companies to meet certain regulations while still affording investor protection. The regulatory pendulum is getting ready to swing back toward neutral from a position of being extremely adverse to public companies.

    Scott: Fascinating.

    Keating: That can only help. And it can't happen soon enough.

    Scott: Tim, we appreciate your time today in order to help our readers better understand your firm, fund and BDCs in general. Best wishes for a successful 2012.

    Disclosure: We own shares in KIPO, however we have no plans to purchase or sell shares in KIPO for 72 hours after the release of this interview on Seeking Alpha.

    This Biotech Stock Could Become "the Next Big Thing…"

    In the corporate world, getting added to a major stock exchange is like receiving the Good Housekeeping Seal of Approval -- the vetting process looks into all of the nooks and crannies. 

    If the exchange happens to be the granddaddy of all exchanges, the New York Stock Exchange, then it's similar to having a spotlight shined in the hidden corners. Although the company could still have issues, being listed on the NYSE makes it clear that the company passed a fairly substantial due diligence process. Many stocks could not ever even hope of being traded on the NYSE -- this is particularly true in the case of former OTC (over the counter) companies. 

    It is indeed a joyful day for a company -- not only does a NYSE listing lend credibility to a company, it provides gains in visibility and liquidity, which may reduce the cost of capital for the firm. In addition, studies have shown that after a move to the NYSE, merger and acquisition activity of a company increases. Generally, these are all positive factors for the stock price. 

    And if being added to the NYSE is like getting the Good Housekeeping Seal of Approval, then being added to an index is like winning the lottery. Even being added to a little-known index will increase the positive press coverage and  ramp up investor interest. In addition, funds that follow the index are forced to add the company to their holdings. 

    Combine the above two factors with the magic bullet of biotech success -- a hot product in the pipeline -- and it creates a compelling investment opportunity.

    A former OTC stock, ImmunoCellular Therapeutics (NYSE: IMUC) was added to the NYSE last month and now it has been identified as a possible addition to the Russell Global, Russell 3000 and Russell Microcap Indexes. Final membership lists will be posted on June 25th. We will have to wait and see about the final Russell index inclusions, but the positive press ImmunoCellular has gotten as a result has shined a spotlight on a company most individual investors have never heard of. 

    The California company's main focus is on cancer treatment and diagnosis. Remember I mentioned a hot product? ImmunoCellular's lead product candidate has biotech investors psyched. The drug ICT-107 is showing great promise in clinical studies, where it has been used to target glioblastoma, a cancer that manifests as malignant brain tumors. Today, glioblastoma has just a 5% survival rate over 5 years, but ICT-107 has proven effective in extending the lives of those afflicted by a significant factor. 

    I don't want to bore you with all the figures, so suffice it to say ImmunoCellular appears to be on the right track with this product. 

    Looking at corporate growth, the company is on an upward trajectory. Starting with a market cap of just $50 million in early 2012, it now boasts a market cap of $137 million -- and growing. Like most OTC stocks, there is a lot of float, and insider and institutional holdings are both minor (only 7% of the shares are held by insiders and 0.1% are held by institutions). After moving to the NYSE, and with a possible Russell inclusion in the future, these figures will likely increase. 

    Biotech investing is risky, no matter how interesting a company looks. Everything rides on U.S. Food and Drug Administration approvals and study results.

    Is Google Getting Back Into Gaming?

    By Leena Rao

    Google (GOOG) has tended to stay away from the gaming world for the most part. The search giant did have Lively, a browser-based virtual world that could be embedded into other websites, but that was deadpooled in 2008. According to this job posting, Google is hiring a product management leader for Games.

    The posting says that Google is looking to hire an employee to develop Google’s games commerce product strategy and help “build and manage the business with a cross-functional team.”

    Whether it be through hiring or acquisitions, there are a number of signs that point to Google moving into the gaming world. Google also recently hiredgaming exec Mark DeLoura as “Developer Advocate” for games. And Google just acquired LabPixies, an Israeli game developer.

    It makes sense for Google to get into gaming. Not only is it a huge revenue channel, but Google can publish its games easily to a variety of its platforms, including Android, TV and Chrome. This could also be a move to bolster their array of games on Android, which is a weak spot for the mobile platform.

    Original post

    Is It Really a Recovery if Households Are Still Suffering?

    I’m trying to make sense out of the economic recovery.

    According to a growing number of people, the Great Recession ended in July 2009 or, at least, somewhere in the third quarter. There continue to be “green shoots” that are popping up here and there.

    Still, I am uncomfortable. I’m usually a pretty optimistic guy and I don’t like being considered a “gloomy Gus.” But, some things in the economy continue to nag at me.

    Households, at least how we used to know them, are having a difficult time. The major issue remains employment…or unemployment. However, another issue that can’t be ignored and that will impact employment patterns over the next five to ten years is the restructuring of industry and commerce. Restructuring often requires changes in skill sets and changes in geographic location.

    In terms of employment we have just learned that companies in the United States cut an estimated 22,000 jobs in January, according to ADP Employer Services, the smallest decline in two years, and much lower than the recorded 61,000 decrease in December. The January result showed that 60,000 jobs were lost in the goods-producing area but in service industries 38,000 jobs were added to payrolls, the second consecutive increase. This was not a bad result, but employment is still declining.

    Most estimates for the unemployment rate in January remain in the 10% range, and very little improvement is expected in this measure in the first six months of this year. Furthermore, the projections of the unemployment rate used by the Obama administration in the budget proposals released this week are anything but encouraging.

    These figures do not include numbers on discouraged workers who have left the labor force or those individuals that are working part-time but would like full-time employment. The rate of underemployment in the United States is in the neighborhood of 17% and is expected to remain around this level for the foreseeable future.

    One of the reasons for underemployment to remain this high is the restructuring of industry and commerce that is going on in this country. As I have reported, capacity utilization in the manufacturing industries remains quite low and has not even come close to returning to 1960s levels in the past 40 years.

    The trend in United States manufacturing has been downward for a long time as industry has shifted from the heavy sectors to areas that produce higher tech products. Some industries, like the auto makers, have had to decline due to diminished demand in the United States. Other industries, like chemicals, are relocating labor-intensive operations to other countries.

    From December 2008 to December 2009 there have been large declines in capacity in the United States in areas such as textiles, printing, furniture, and plastics and rubber products. Industries where substantial increases in capacity have taken place are the producers of semiconductors, of communication equipment, and of computers. Shifts like these have major impacts on labor skills and the location of employees.

    It is important that these shifts take place. One of the problems with job stimulus packages sponsored by the federal government is that they tend to ‘force’ people back into the jobs that these unemployed have lost. This is not good because it reduces the incentives for industries to change even though it generates revenues for producers, like car manufacturers, and income for workers, like autoworkers. However, industries that need to change must change some time and postponing the change only exacerbates the magnitude and pain of adjustment. Need I mention the United States auto industry again?

    This change is being reflected elsewhere and it has an influence on how political power is distributed in a country. The number of American workers that are in labor unions has been experiencing a downward trend that mirrors the decline in United States manufacturing. What is additionally interesting is the shift that has taken place within the overall union workforce. in 2009, public employees that are members of a union rose to more than 50% of total of all union workers. The decline in union membership connected to the manufacturing sector has been hidden because of the rapid growth in those connected with government employment. This is just another indication of the restructuring of the labor force.

    Added to this is the large shift that has taken place in home ownership in the United States. Home ownership peaked in the United States in 2004 when 69% of all Americans owned their own home. This peak was reached through the emphasis placed on home ownership in the United States, government programs to get people into their own homes, and low interest rates. However, this rate has fallen to 67% at the end of 2009 and is expected to continue to decline as people lose their homes through foreclosure or bankruptcy. The rate of home ownership could fall into a range of 62% to 64% that was the case in the early 1990s. This represents a massive shift in the asset holdings of United States households for homes are still, by far, the largest asset held by households in America.

    This continued decline does not seem unreasonable given the hard facts facing many homeowners in the United States. In the third quarter of 2009, 4.5 million homeowners had seen the value of their homes drop below 75% of their mortgage balance. This figure is projected to hit 5.1 million, or 10% of all homeowners, by June. Research has indicated that this 75% figure is the level at which people really consider walking away from their home.

    These numbers make me feel uneasy… and that is an understatement. The basic reason for feeling uneasy is that I don’t see a “normal” economic recovery reversing these trends. The United States is restructuring from the excesses of the past, of forcing industry to not modernize, of forcing people to become homeowners, and so forth and so on. It is always the case that restructuring takes place: sooner or later. Now, seems to be our time!

    The problem is that this restructuring has ramifications for other areas of the economy. Small- and medium-sized banks have lent money to these home owners and they are the ones that these households will walk away from if they leave. Commercial real estate developers will also walk away from the banks, maybe more easily, as we have seen, than the households themselves. Many businesses that are restructuring or downsizing will not be borrowing from the banks so business loan demand will stay low. And, one can think of many other areas in which repercussions may be felt.

    I like to be optimistic about things, but I can’t get these “less-than-happy” conditions out of my mind.

    Bill Forcing SEC to Parse Costs of Rulemaking Advances in House

    The House Financial Services Committee passed late Thursday the SEC Regulatory Accountability Act, H.R. 2308, which requires the Securities and Exchange Commission, in accordance with President Barack Obama’s executive order, to conduct robust cost-benefit analysis on each new rulemaking.

    Rep. Scott Garrett, R-N.J. (left), chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, introduced the bill in June with 15 original cosponsors. The bill now goes to the full House.

    The SEC Regulatory Accountability Act requires the SEC to conduct robust cost-benefit analysis on each new rulemaking to ensure that its benefits do not outweigh its costs, and would make certain that all new and existing regulations are accessible, consistent, written in plain language, and easy to understand.

    Rep. Barney Frank, D-Mass., ranking minority member on the financial services committee, said in a statement that the effect of the legislation "would be to cripple the ability of the SEC to carry out its regulatory functions, and make it difficult to protect investors even when the SEC has evidence of wrong-doing. The bill would also increase operating costs for the agency without increasing its budget, thereby forcing it to divert funds from other actions such as enforcement."

    The bill passed the full committee on a strictly party-line vote, with 30 Republicans voting in favor of the legislation and 26 Democrats opposing it, Frank noted.

    Under pressure from Congress, the SEC has pushed back release of its proposed rule putting brokers under a fiduciary mandate so that economists and staff at the agency can perform a more detailed cost benefit analysis on the rule. SEC Chairman Mary Schapiro says a proposed fiduciary rule will be released this year, and announced Jan. 13 that the SEC planned to ask the public to weigh in on the cost/benefits of a fiduciary rule.

    “Without question, the onslaught of regulations coming out of the Obama administration over the past few years has led to massive uncertainty in the economy and paralyzed our recovery,” said Garrett, in a statement. “If we expect American businesses to lead our recovery, we have to make it easier for them to grow and create jobs in the U.S. House Financial Services Republicans answered their call today by passing the SEC Regulatory Accountability Act.”

    Garrett said the bill “takes the first step in fighting back many of the onerous and unnecessary regulations by requiring the SEC to carry out a thorough cost-benefit analysis of both new and existing rules.” Furthermore, he said, “this bill would ensure that the complex rulemaking process is more transparent and easier to understand.”

    Predicting Oil Prices in August 2010

    A month ago we presented a forecast for oil price. It’s time to revisit the price. All our estimates are based on the existence of long-term sustainable trends in the differences between various subcategories of the producer price index (PPI). The concept and numerous forecasts is published in this paper. The dry residual is that the producer price indices evolve along straight lines, with all deviations from the trend cancelling themselves out over relatively short periods of several months.

    Figure 1 present the case of crude petroleum (domestic production) for the period between 2007 and 2012. We have predicted that the difference between the overall PPI and the index for oil has been on an upward trend since 2009. This means than the PPI will grow faster than the index of oil, the latter likely to fall into 2016 down to the level of ~75.

    In March and April 2010, the index of crude petroleum had a bigger deviation out of the trend in Figure 1. Therefore, the most likely next movement in the price will be the return to the trend. Moreover, the difference will likely break the trend line and go into the other side for several months. This would mean the price of oil falling in May 2010 and during the summer months, as shown in Figure 1 by red circles. Tentatively, we put the index at the level between 160 and 180 in August 2010. Relevant crude oil price will be between $62 and $70 per barrel.

    Figure 1. The difference between the overall PPI and the index for crude petroleum. The new predicted trend is shown by dashed line. In May and likely in the summer 2010, the index for oil will be decreasing. The difference will be growing as shown by red circles.

    Disclosure: No positions

    Zale Falls 6% As CEO Booted

    Beleaguered discount diamond dealer Zale (ZLC) is off 19 cents, or 6%, at $3.04 this morning after falling as much as 9% pre-market followingthe company’s announcement last night that CEO Neal Goldberg has left the company, effective immediately. Zale is looking for another CEO but put Theo Killion, Zale’s president, in his place temporarily.

    The statement by the company said the board will “do all in its power” to find someone to return the company to profitability. Zale’s net loss in the fourth quarter ended in October widened, year over year, to $57.6 million. Two of Godlberg’s senior team members have also been shown the door, Bill Acevedo, the “chief stores officer,” Mary Kwan, the “chief merchandising officer.”

    Playing With Fire: The Threat of a Default

    The most serious economic event that investors face in the next two weeks is the possibility that the US government may default on its Treasury bonds. If Congress does not approve an increase in the debt ceiling by August 2, the federal government may not be able to pay the interest and principal due on Treasury bonds.

    If this were to occur, US Treasuries would lose their AAA credit rating, and their reputation as the “safest investment” on the planet would no longer be. The impact would be higher interest rates, devaluation of the dollar, declines in bond and stock prices, and an immeasurable loss of confidence on the “full faith and credit” of the US government all over the world.

    It is probable that a deal will be reached in Washington in time to avoid a default, but with only 10 days remaining, both sides of the negotiating table still have not come to an agreement. The fact that lawmakers are even considering defaulting on behalf of the American public is tantamount to playing with fire—and surely someone will get burned. As a result, investors must quantify the risks and act accordingly.

    The greatest risk of permanent capital loss lies in bonds. If the US defaults, interest rates will go up and drive down the prices of bonds. Recovering from this devaluation in bond prices will be difficult since the future value of those bonds and their interest payments will lag those of new bonds issued after the default occurs. As a result, investors should allocate their assets accordingly to minimize this risk either with bond funds that do not own any Treasury securities or bonds that are issued in non-dollar denominations.

    Another asset class that will be directly affected is cash. Most people perceive cash instruments as a safe asset class. However, most money market mutual funds own US Treasuries and may have difficulty protecting the principal in the event of a default. For example, in September 2008 the Primary Reserve Fund, a money market mutual fund, “broke the buck” as a result of owning bonds of Lehman Brothers before it went bankrupt. The fund’s value lost 3% and its investors were repaid only $0.97 to the dollar. A hedge to this is the use of FDIC-insured cash, although this is limited to $250,000 per investor.

    Stocks will also experience a drop in value. This will not be permanent so long as a company’s fundamentals are strong enough to weather the short term disruption. In which case, investors should look to identify buying opportunities and take advantage of them as prices go down. Specifically, companies whose businesses are not dependent on borrowing money and whose cash holdings and sales are not solely held in US dollars.

    If a default does come to pass, then once the smoke has cleared, a new investment landscape will likely emerge in which the US dollar will no longer be the de facto currency of the global economy. This is already happening as we speak—slowly, but it certainly doesn’t have to be surely so long as our elected officials stop tempting fate (knock on wood).

    Friday, June 22, 2012

    Why Silicon Valley Tech Wunderkinds Overestimate Their Own Smarts And Abilities

    see photosCourtesy of eBay

    Click for full photo gallery: 30 Under 30: Technology

    In the field of social psychology, there�s a concept known as the �fundamental attribution error.� Believe it or not, it has a lot to do with Silicon Valley and tech companies.

    Basically, it says that all humans (including you and me) are born biased to over-value the importance of personal characteristics in driving others� outcomes, but under-value the situational factors in driving others� outcomes.

    Yet, when we explain our own achievements in life, we are biased to over-value our personal characteristics as explaining our successes while also over-valuing our situation factors in explaining our failures.

    From Wikipedia:

    As a simple example, if Alice saw Bob trip over a rock and fall, Alice might consider Bob to be clumsy or careless (dispositional). If Alice tripped over the same rock herself, she would be more likely to blame the placement of the rock (situational).

    In Silicon Valley, this type of thinking is so prevalent, you could say the �fundamental attribution error� has become �groupthink.� Everyone believes that the sun rises and sets on their pillow case.

    Entrepreneurs believe that they can recreate their successes again and again, start-up after start-up.

    In some ways, the Valley is set up to support this way of thinking. If you�re successful at one company and you were the entrepreneur, you deserve all the money from all the venture capitalists on Sand Hill Road to go start your next venture. After all, who are the VCs going to support? Some failed entrepreneurs instead?

    The Valley culture also supports the idea of �serial entrepreneurs� � those who do it again and again. It�s just a matter of time, if you keep at it, before you�ll strike oil. And, when you�re surrounded by so many other successful entrepreneurs in the Valley, success seems so close you can touch it.

    But there�s another side to all the start-ups: lots of failures. A few years ago, I was in the Valley meeting with a CEO of a photo-sharing start-up. I thought it was quite good. He was almost 40.  He had spent his entire career in the Valley.  He gave me a tour of the offices, we talked about all the prestigious VCs he�d signed up, and then we went back to his office and closed the door. About 45 minutes into the discussion, he shared something with me:

    �This is my 5th start-up. I hope it works but�. My wife says, �this is it.� We�re done after this one. I�ll have to go work for some big tech company if this doesn�t work out. We�ve chased this dream for a long time. It�s been real tough to be so close.�

    They didn�t make it. The company�s gone. I haven�t kept up with him but I assume his wife ensured he followed her advice. Start-ups are tough � no matter how romanticized the VCs and media make it out to be. The VCs and media don�t care who wins and loses because they�ll still have jobs watching from the sidelines. The CEO I met who lived and breathed it for 15 years of failure � he cared.

    Just last week, Facebook announced that its CTO, Bret Taylor, was leaving the social network to start his own company. Taylor said:

    I had always been upfront with Mark that I eventually wanted to do another start-up� And we felt now is the best time after the IPO and the launch of some recent things for me to do that�. Cross-pollination among companies is what drives so much of innovation, so I would not project a lot onto this event.

    When I heard of this departure, I thought of a throwaway comment I heard Mark Zuckerberg made to Michael Wolf in 2005, President of MTV at the time, on why he wouldn�t sell Facebook to Viacom:

    �You just saw my apartment,� Zuckerberg replied. �I don�t really need any money. And anyway, I don�t think I�m ever going to have an idea this good again.�

    That�s a very astute, honest, and unexpected comment � especially from a 21 year old. What 21 year old, or 30 year old, or 40 year old, doesn�t still think his or her best and brightest ideas are still ahead of them?

    Yet, the tech history records suggest that Zuckerberg�s prediction might be right. He might never have another (or at least equal) good idea to Facebook before he dies.  That�s it. He�s tapped out. He�s done. He might as well make Facebook as awesome as he can, because he knows he�ll never get an opportunity like this ever again.

    Gallery: 30 Tech Wunderkinds Under 30

    Research In Motion: A Buy on Weakness?

    Research In Motion (RIMM) has been hit pretty hard over the past few months compared to its competitors and the overall market. For those who do not know, RIMM is mainly a phone manufacturing company, with its major competitors being Apple (AAPL), Google (GOOG), and Palm (now owned by Hewlett-Packard) (HPQ). RIMM has been having some problems in Asia lately, accounting for its recent drop in share price. However, might this be a time to buy on weakness?

    RIMM is a zero debt company, with total assets increasing steadily quarter by quarter. You cannot say that RIMM is not a growing company, as their numbers clearly show they are. Below are RIMM's current quarterly asset balance sheet numbers. The company has zero debt, which is definitely not a bad thing.

    click to enlarge images

    You can also see that RIMM's revenue, net income, and profit margins are increasing quarter over quarter. Now, I am an investor/trader who likes to keep things simple, and by just looking at these numbers, I see that RIMM is a healthy, growing company that is currently having some product issues - something every company goes through. I also believe that Apple's iPhone will at some point lose its hype (as all products do, at some point), which would cut back on RIMM competitors. Here are RIMM's balance sheets:

    The bottom line is that Research In Motion could potentially be a good buy for the long run. The fundamental and competitor analysis both point to a potentially higher share price. Once again, keeping it simple is sometimes best, and right now the "simple" numbers are telling me to buy.

    Disclosure: No positions yet

    Under Armour: Growth You Better Believe In

    There are many reasons to invest in a company, all boiling down to purchasing something at a discount to its intrinsic value. In Value Investing: From Graham to Buffett and Beyond, author (Columbia Business School professor) Bruce Greenwald succinctly explains the possible components of intrinsic value, beginning with the value of the company’s assets, then layering in a no-growth earnings power valuation, and ultimately adding in franchise (and growth) value. As we move up through the layers, valuation becomes more nebulous and consequently more risky (i.e. it is easier to ascertain a discount to the company’s NCAV than it is to have confidence in potential future growth which may or may not materialize).

    Let’s look at the case of Under Armour, Inc. (NYSE: UA) the branded apparel company.

    First we’ll start with assets. The company derives value almost purely from its brand, in that it outsources virtually all of its manufacturing and sells through a retail network of 23,000 locations worldwide (just 54 of which it owns). (One scary consequence is that the company relies on just two retailers, Dick’s Sporting Goods (DKS) and The Sports Authority, for more than 1/4 of its sales.) As a result of this strategy, one might expect a relatively greater emphasis on working capital rather than PP&E and other long-lived tangible assets. Not to disappoint, UA reports just $90.7 million in PP&E versus total assets of $766.2 million. The bulk of the company’s assets are cash, accounts receivable and inventories. This is a good thing, as these assets are easier to value than something like “Intangible Assets” or “Goodwill.” Speaking of intangibles, it is nice to see that UA has developed its brands in-house rather than through acquisitions, as the company reports a paltry $3.45 million of intangibles, or less than a half a percent of total assets (compare to Nike (NYSE: NKE), which has 10x as high a proportion of total assets in the form of intangibles).

    Unfortunately, on an asset basis alone the company’s current valuation is difficult to justify. The company reports book value of equity at $538.5 million versus a market capitalization of $3.8 billion. As mentioned, the company appears to develop its brands in-house, so the full value of these brands is not accounted for in the current book value. However, if you assume for argument’s sake that ALL of the company’s SG&A for the last seven years went toward developing the brands, this would still only amount to an additional $1.567 billion, meaning that you would only be 55% of the way to the current market cap. Surely there has to be something more to justify the premium.

    A company can trade at many times its book value if it is able to generate earnings from its assets far in excess of what others can. Imagine the only cold water dispenser in the middle of the desert. You would expect shareholders of that asset to be enjoying returns far in excess of what the same asset would earn in say, a suburban Florida mall, thus a premium to book value would be justified (Combine returns and book value by completing a Residual Income Valuation).

    Let’s look at UA’s returns.

    Under Armour, Inc. - Returns, 2004 - 2Q 2011

    Top Stocks For 6/6/2012-14

    Company Reports Increased Revenues And Earnings

    MIAMI–(CRWENewswire)– EnviroStar, Inc. (NYSE Amex:EVI) today reported revenues and earnings for the nine and three month periods ended March 31, 2011.

    For the nine month period of fiscal 2011, revenues increased by 7.5% to $14,882,829 from $13,844,574 for the same period of fiscal 2010. Net income increased by 41.4% to $305,907 or $.04 per share compared to net income of $216,372 or $.03 per share for the same period of fiscal 2010.

    For the third quarter of fiscal 2011, revenues were $4,764,570, an increase of 16.4% from $4,094,643 in the comparable period of fiscal 2010. Net income for the current year period was $91,841 or $.01 per share, an increase of 38.8% from $66,179 or $.01 per share for the third quarter of fiscal 2010.

    Venerando J. Indelicato, Chief Financial Officer of EnviroStar Inc., stated, �We are pleased with the Company�s results for the nine and three month periods of fiscal 2011, despite a challenging economy. Incoming orders have been trending higher during fiscal 2011, increasing the Company�s backlog. We are especially pleased with boiler sales which improved by 138.9% and 76.5% for the nine and three month periods, respectively, of fiscal 2011 over the same periods of fiscal 2010.� He noted that the increase in boiler sales resulted from a new line of boilers introduced by the Company in late fiscal 2009.

    EnviroStar, Inc., through its subsidiaries is one of the nation�s leading distributors of industrial laundry, dry cleaning machines and steam boilers. Its subsidiary, DRYCLEAN USA License Corp, is one of the largest franchise and license operations in the dry cleaning industry in the United States, the Caribbean and Latin America.

    This press release contains certain information that is subject to a number of known and unknown risks and uncertainties that may cause actual results and trends to differ materially from those expressed or implied by the forward-looking statements. Information concerning those factors are discussed in Company reports filed with the Securities and Exchange Commission.

    EnviroStar, Inc. and Subsidiaries (NYSE Amex:EVI)

    Summary Unaudited Consolidated Statements of Income

    Nine months endedThree months ended
    March 31,March 31,
    Income before income taxes493,783349,920147,477106,740
    Provision for income taxes187,876133,54855,63640,561
    Net earnings$305,907$216,372$91,841$66,179
    Basic and diluted
    earnings per share$.04$.03$.01$.01
    Weighted average shares
    Basic and diluted7,033,7327,033,7327,033,7327,033,732


    EnviroStar, Inc.
    Michael Steiner, 305-754-4551
    Venerando Indelicato, 813-814-0722

    Source: EnviroStar, Inc.


    Fed minutes: More members open to stimulus measures

    WASHINGTON�Federal Reserve policymakers are open to further efforts to stimulate the U.S. economy if growth falters or threats escalate.

    Minutes of the central bank's April 24-25 meeting released Wednesday stated that "several members" thought additional Fed support could be needed if the recovery lost momentum or if the risks to the economy became great enough.

    The minutes did not spell out what circumstances would trigger further Fed efforts to lower interest rates to boost the economy. But they did note some threats to the U.S. economy. One is Europe's debt crisis. Another is the risk that spending cuts and tax increases that could take effect at year's end if Congress can't reach a budget agreement could slow growth more than expected.

    The comments stood in contrast to the previous minutes, which said that only "a couple" of members expressed support for further bond purchases. Since the financial crisis, the Fed has pursued two rounds of bond purchases to try to push down long-term interest rates, with a goal of encouraging borrowing and spending.

    Private economists said the change in wording to "several" from "a couple" raised the possibility of further Fed action. But analysts said they still think no further moves will occur unless Europe's crisis worsens or a budget impasse in Congress threatens the U.S. economy.

    "Nothing in the minutes changes our view on policy," said Sal Guatieri, senior economist at BMO Capital Markets.

    The Fed also announced Wednesday that for the rest of this year and next year all of its meetings will last for two days to allow more time for discussion. Until now, some policy meetings had lasted only one day.

    The Fed also altered the schedule for releasing a quarterly update of its economic forecasts. That release will occur when the Fed meets in the third month of each quarter: March, June, September and December. After those meetings, Bernanke will discuss the Fed's new outlook with reporters.

    Before the change, those forecasts and Bernanke's news conferences occurred in January, April, June and October. Bernanke started holding regular news conferences a year ago.

    The minutes released Wednesday cover the discussion that took place at the April meeting. In a statement after that meeting, Fed officials repeated their plan to keep a key short-term interest rate at a record low until at least late 2014. The action was approved on a 9-1 vote.

    Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, opposed retaining the late-2014 target date. The minutes said Lacker believed the Fed will have to start increasing interest rates by mid-2013 in order to keep inflation under control.

    At a news conference after April's meeting, Chairman Ben Bernanke left open the possibility of further Fed action to stimulate the economy. Private economists generally say another round of Fed bond buying isn't likely unless the economic outlook darkens considerably.

    Bernanke said at his news conference that more bond purchases, or other steps by the Fed, were still an option if the economy weakens. He declared that "those tools remain very much on the table."

    Critics have expressed concerns that the central bank was raising the risk of higher inflation with its long-running campaign to keep rates low. The minutes showed that Lacker thought the Fed would need to begin raising interest rates by mid-2013 to keep inflation under control.

    The Fed has kept its federal funds rate, the target for overnight bank lending, near zero since December 2008. That means consumer and business loans tied to that rate have also remained at super-low levels. The lower those loan rates, the more likely it is that consumers and companies will borrow and spend to invigorate the economy.

    Wednesday Apple Rumors: iPhone-Powered Earnings Boost AAPL Expectations

    Here are your Apple rumors and AAPL stock items for today.

    Wall Street Analyst Expectations Explode After Apple’s $46 Billion Quarter: Apple did well last Christmas. Very well. Where the company was expected to rake in around $39 billion in total revenue, it actually earned $46.3 billion over the holiday quarter. What pushed it over the top? The iPhone. Apple sold a total of 37 million iPhones during 2011′s final quarter. The Wall Street consensus was that it would sell 30 million. The company now has almost $100 billion in cash. With Apple’s earnings erupting, analysts across the board are raising share-price expectations for the company. Piper Jaffray analyst Gene Munster put a price target of $670 on Apple shares. Morgan Stanley expects Apple to hit $600, while UBS’s target price is now $550. ISI Group’s Brian Marshall expects shares to hit $525, with an EPS of $41.50.

    iPad Sales Stay on Target Despite New Competition: The iPhone isn’t the only device in Apple’s stable to beat sales expectations last quarter. Apple sold 15.4 million iPads, which, though not quite on par with the company’s crushing iPhone sales, handily beat Wall Street expectations of below 14 million. This figure is especially promising for the company as it faces off against low-cost tablet competitors like Amazon‘s (NASDAQ:AMZN) Kindle Fire. When asked about the tablet competition during Tuesday’s earnings call, CEO Tim Cook, digging at both the Kindle and Barnes & Noble‘s (NYSE:BKS) Nook, said that he doesn’t consider “limited function tablet and e-readers to be in the same category as the iPad,”

    Apple to Hold Town Hall Meetings for Employees: A Tuesday report from 9 to 5 Mac offers tantalizing hints that Apple is preparing its workforce for the announcement of a new product. An email from CEO Tim Cook was sent out to Apple employees following Tuesday’s earnings call, congratulating them on the company’s successful holiday quarter. The email also said that a Town Hall meeting would be held through the company’s corporate Web portal on Wednesday to discuss “exciting new things going on at Apple.” Steve Jobs typically held these meetings prior to major product announcements, such as those for the iPhone and iPad. Did Apple workers wake up to news about the Apple HDTV? The iPad 3 or iPhone 5? We’ll know soon enough.

    As of this writing, Anthony John Agnello did not hold a position in any of the aforementioned stocks. Follow him on Twitter at�@ajohnagnello�and�become a fan of�InvestorPlace on Facebook. For more from the company, check out our previous�Apple Rumors�stories.

    5 Low-Debt, Low-Beta Dividend Stocks

    When considering dividend stocks, company debt should always be part of your analysis. Because debtholders are always paid before shareholder dividends, debt represents a wedge between firm value and the firm’s value to shareholders.

    We ran a screen on dividend stocks with low beta (indicating lower volatility than the overall market) for those with low debt, measured by most recent quarter total debt to assets below 0.5.

    Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

    Your browser does not support iframes.

    We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

    [Click here to enlarge]

    Do you think these stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.

    List sorted by dividend yield.

    1. S&T Bancorp Inc. (STBA): Regional Banks Industry. Market cap of $477.58M. Beta at 0.49. Dividend yield at 3.53%, payout ratio at 31.54%. MRQ total debt to assets at 0.04. The stock is a short squeeze candidate, with a short float at 9.36% (equivalent to 24.82 days of average volume). The stock is currently stuck in a downtrend, trading 9.44% below its SMA20, 8.8% below its SMA50, and 19% below its SMA200. It's been a rough couple of days for the stock, losing 10.23% over the last week.

    2. WesBanco Inc. (WSBC): Regional Banks Industry. Market cap of $472.15M. Beta at 0.49. Dividend yield at 3.39%, payout ratio at 33.52%. MRQ total debt to assets at 0.06. The stock is currently stuck in a downtrend, trading 12.58% below its SMA20, 11.49% below its SMA50, and 10.35% below its SMA200. It's been a rough couple of days for the stock, losing 13.47% over the last week.

    3. Lakeland Financial Corp. (LKFN): Regional Banks Industry. Market cap of $339.55M. Beta at 0.32. Dividend yield at 2.97%, payout ratio at 31.31%. MRQ total debt to assets at 0.06. It's been a rough couple of days for the stock, losing 9.62% over the last week.

    4. Commerce Bancshares Inc. (CBSH): Regional Banks Industry. Market cap of $3.12B. Beta at 0.46. Dividend yield at 2.57%, payout ratio at 29.05%. MRQ total debt to assets at 0.07. The stock is currently stuck in a downtrend, trading 13.75% below its SMA20, 14.13% below its SMA50, and 11.04% below its SMA200. It's been a rough couple of days for the stock, losing 12.58% over the last week.

    5. RLI Corp. (RLI): Property & Casualty Insurance Industry. Market cap of $1.19B. Beta at 0.41. Dividend yield at 2.13%, payout ratio at 13.34%. MRQ total debt to assets at 0.04. The stock is a short squeeze candidate, with a short float at 9.37% (equivalent to 20.02 days of average volume). It's been a rough couple of days for the stock, losing 9.77% over the last week.

    *Dividend and total debt to assets data sourced from, all other data sourced from Finviz.

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

    JPMorgan suffers big loss

    NEW YORK (CNNMoney) -- JPMorgan Chase, in a surprise announcement, said Thursday that it has suffered trading losses of $2 billion since the start of April.

    The group that suffered the losses is part of the bank's so-called corporate unit, and had been making trades designed to hedge against risk.

    Net losses, after factoring in other securities gains, are expected to exceed $800 million by the end of the second quarter. And losses could increase depending on market conditions and the bank's actions moving forward, CEO Jamie Dimon said.

    The unit had been expected to post a net gain of $200 million.

    Shares of JPMorgan (JPM, Fortune 500) fell 9% in early trading Friday.

    Dimon, speaking to analysts and reporters on a conference call, said the losses were caused by "errors," "sloppiness" and "bad judgment."

    "This was a unique thing we did," Dimon said. "Obviously it had a lot of problems. It was a bad strategy. It became more complex, it was poorly managed."

    Last month, rumors swirled around a JPMorgan employee based in London who had, according to the Wall Street Journal, been taking large positions in credit default swaps, the insurance-like bets that blew up in the 2008 financial crisis. The employee was said to work in the bank's Chief Investment Office.

    Dimon was extremely agitated on the call Thursday with analysts. In response to repeated questioning, he said: "I don't know how many times I can say this."

    Banking analyst Mike Mayo at investment firm CLSA asked whether the losses were due merely to "terrible execution" or also broader market forces.

    "In hindsight, this was bad execution, bad strategy, but also the environment -- because this is mark to market," Dimon said. "But I just don't want to make excuses."

    Mayo pushed on whether market conditions were to blame, asking Dimon whether he thought other banks could be in the same situation.

    "I don't know," Dimon replied, sighing audibly. "Just because we're stupid doesn't mean everyone else was." Still, investors appeared on edge as shares of Wells Fargo (WFC, Fortune 500), Goldman Sachs (GS, Fortune 500), Bank of America (BAC, Fortune 500) and Morgan Stanley (MS, Fortune 500) were all down around 2% after hours.

    Finally, Mayo asked Dimon what he should have paid more attention to in hindsight.

    "Trading losses," Dimon said simply. "Newspapers."

    Another analyst asked about the "terrible" timing of the loss, given the debate over the Volcker Rule.

    That rule, a part of the Wall Street reform law passed in response to the financial crisis, aims to ban risky trading by banks for their own profit, a strategy sometimes referred to as proprietary trading.

    "It's very unfortunate ... it plays right into the hands of pundits out there, but that's life," Dimon said. Earlier in the call, he said: "It didn't violate the Volcker rule; it violated the Dimon principle."

    But Dimon was quick to defend JPMorgan's overall track record: "When you look at all the things we've done, we've been very careful. And we've been quite successful. This obviously wasn't."

    Still, the loss could weigh heavily on the bank's net profits, especially if losses in the CIO unit accelerate, something Dimon said is quite possible.

    Last quarter, the bank earned $5.4 billion and hauled in revenue of $27.4 billion. 

    You Could Double Your Money with this "Gutter Stock"

    When it comes to investing, I like playing in the gutter. My goal is to locate stocks that have fallen into disregard and are downright hated by most investors, yet retain enough value to create strong odds of a rebound. 

    This is value investing at its very core -- low price with high intrinsic value. When searching for these types of gems, you can throw technical analysis and other price-based methods out the window. Even my pullback system becomes irrelevant in a few of the deep-value opportunities available. But once located through fundamental research, technical analysis can come into play as a tool to time your purchase. Today I've found a big-name stock that has taken a beating, but still represents deep value.

      That company is Nokia (NYSE: NOK). This Finnish mobile phone handset maker went from being Wall Street's darling to wallowing in the gutter in a short period of time. Shares have plunged more than 60% in the past year, under the weight of a rash of analyst downgrades and negative news. 

    Today, this company trades for under $3 and has a market cap of $10.9 billion. In the past, it was the world's largest seller of mobile phones -- and it still represents 20% of the market today. In fact, it still sells twice as many mobile phones than Apple (Nasdaq: AAPL) does. 

    What on Earth happened to this once mighty, leading company? Basically, Nokia made severe missteps when consumers transitioned from regular mobile phones to smartphones. Phones incorporating the company's ill-fated Symbian operating system simply could not compete with Apple's iPhone or even approach the popularity of struggling Research in Motion (Nasdaq: RIMM) with its corporate-targeted BlackBerry. 

    The good news is, the company still has the distribution channels and everything else it needs to get back on top -- it just hasn't had the hot product. This may be changing with the recent launch of the Lumia smartphone line, which uses an operating system provided by Microsoft (Nasdaq: MSFT). 

    With the backing of Microsoft, Nokia has been upgrading all of its operating systems from Symbian to the Window's phone operating system. T-Mobile and AT&T (NYSE: T) distribute the company's Lumia line of smartphones in the United States, and have so far exceeded sales expectations. In fact, AT&T plans on spending $150 million on marketing the Lumia 900 -- a campaign that is expected to be the largest ever for a smartphone -- even larger than the marketing effort behind Apple's iPhone. Different models of the Lumia line have been launched around the world to generally very positive reviews. 

    Nokia also has an extensive patent portfolio that produces about $500 million a year in royalty income. Recent aggressive legal action by the company, in regard to enforcing its patent rights, makes it likely that the patent income will increase over time. 

    In fact, income from patent rights has already started to roll in. On April 21, in a joint press release from Nokia and Microsoft, the companies announced further details about their partnership. "In recognition of the unique nature of Nokia's agreement with Microsoft and the contributions that Nokia is providing, Nokia will receive payments measured in the billions of dollars... Nokia will also receive additional payments as part of an intellectual property exchange."

    And like any other smart company facing hard times, Nokia has given cost reduction a leading role in the turnaround. It's moving all its production facilities from Europe to Asia, which is expected to save the company about $930 million annually. 

    Risks To Consider: Despite the positive fundamentals and changes taking place within Nokia, the company is still losing money every quarter. It is in a significant decline and some analysts believe there is a real risk of bankruptcy in the near future. Investors need to weigh this risk with the odds of a turnaround prior to buying shares.

    > It is clear that Nokia is in a transitional period right now. I think the company contains enough value to create strong odds of a rebound. Not only is this company sitting on $12 billion of cash, but at the current price, this stock has a forward annual dividend yield of nearly 7% and trailing yield of over 10%.

    Thursday, June 21, 2012

    Stocks for the Long Run: Bristol-Myers Squibb vs. the S&P 500

    Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "[You'll] be buying into a wonderful industry, which in effect is all of American industry," he says.

    But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how members of the S&P 500 have performed compared with the index itself.

    Step on up, Bristol-Myers Squibb (NYSE: BMY  ) .

    Bristol-Myers Squibb shares have moderately outperformed the S&P 500 over the last three decades:

    Source: S&P Capital IQ.

    Since 1980, shares returned an average of 13% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Bristol-Myers Squibb, it'd be worth $50,000.

    Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up 72% of Bristol-Myers Squibb's total returns. For the S&P, dividends account for 41.5% of total returns.

    Now have a look at how Bristol-Myers Squibb's earnings compare with S&P 500 earnings:

    Source: S&P Capital IQ.

    Perhaps surprisingly, there's slight underperformance. Since 1995, Bristol-Myers Squibb's earnings per share have grown by an average of 5.6% a year, compared with 6% a year for the broader index.

    But that earnings-growth dynamic doesn't seem to have affected valuations. Bristol-Myers Squibb has traded for an average of 21.5 times earnings since 1980 -- the exact same average as the S&P 500.

    Through it all, the company has still been an above-average performer historically.

    Of course, the important question is whether that can continue. That's where you come in. Our CAPS community currently ranks Bristol-Myers Squibb with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Bristol-Myers Squibb to My Watchlist.

    MSFT: Street Enthused over ‘Surface,’ Though Confusion Possible

    Shares of Microsoft (MSFT) are up $1.14, or almost 4%, at $30.98 as the Street mulls the multitude of issues and prospects raised by the company’s introduction yesterday afternoon of the “Microsoft Surface” tablet computer, a 10.6-inch slate branded by Microsoft, destined to run the company’s Windows 8 operating system, distinguished by a detachable cover with a touch-sensitive keyboard.

    The first impressions appear to be quite favorable. Engadget’s Dana Wollman was on hand yesterday afternoon and filed this review. Wollman says it was hard to get a sense of the performance of the Intel (INTC) -processor based model, as little actual demo time was allowed. The keyboard was also not able to be tested. Forbes’s Eric Savitz was on hand and has this video commentary. And Bloomberg’s Cory Johnson filed this video report describing the battle between Surface and Apple‘s (AAPL) iPad.

    Today, everyone following Microsoft and everyone following Apple, and everyone following anything touched by them, is weighing in with a view on what it all means. There is substantial appreciation for what Microsoft has shown off, and also some skepticism about how Microsoft will manage competing to some degree with partners such as Hewlett-Packard (HPQ).

    Even the folks at credit rating agency Fitch Ratings weighed in on the announcement. There’s no impact on Microsoft’s sterling credit rating, obviously.

    But Fitch opines Microsoft won’t remain in the tablet hardware business, instead insisting that Microsoft partners will take over that responsibility:

    Microsoft’s decision to offer its own hardware platform could clearly rankle its OEM partners, such as Dell and HP, but likely reflects its level of nervousness over the initial cannibalization of PC demand by uptake of the iPad and Android tablets. Microsoft’s decision to limit distribution to its own stores and some undisclosed Web sites should placate its OEM partners. Fitch does not expect Microsoft to remain on the hardware side of tablets long term, assuming the OEMs can develop a successful product. While OEMs will be unlikely to move away from Windows, at least in the near term, we believe the addition of the Surface tablet could potentially spur greater product innovation by OEMs, a core competency that has been significantly underwhelming in recent years relative to new product introductions from Apple.

    Rick Sherlund, Goldman Sachs: Reiterates a Buy rating and a $37 price target on Microsoft. “The hardware appeared well engineered and elegantly designed, offering a thin, lightweight, tablet or Ultrabook-like form-factor, optimized for both content consumption and content production like the Ultrabook-touch devices we have written about over the past several quarters [...] At the event we spoke with Mr. Ballmer and Mr. Sinofsky. Microsoft will be selling its tablets initially through its own on-line and retail stores, permitting Microsoft to capture a greater portion of the retail sales price in its HW margins. Microsoft’s HW partners are no doubt unhappy about Microsoft’s entry into the Windows 8 touch HW business, as they will necessarily need to deliver competing solutions, and we think Microsoft has set a high-bar for comparisons.”

    Adam Holt, Morgan Stanley: Reiterates an Overweight rating on Microsoft shares. “While the production of hardware has not always been positive for MSFT (homeruns like Kinect offset by misses like Zune) and raises questions about gross margins, the Surface looks promising at first blush and should help MSFT gain share in the tablet and hybrid market�which is all largely incremental to the numbers, and possibly the multiple. While we need more details on apps, content and some areas of performance like battery life, Surface’s innovative Touch Cover keyboard, compatibility with Office, integrated USB ports and features optimized for Skype should help MSFT differentiate.”

    Raimo Lenschow, Barclays Capital: Reiterates a “Positive” rating on the shares, and a $36 price target. “Ultimately we expect the tablets to be priced to effectively compete with the iPad [�] The overall design of the Surface was compelling [�] Regardless of how the tablet performs, confusion surrounds the timing of Microsoft’s decision to get back into the hardware business in a meaningful way [�] So, the company has potentially damaged their relationships with the OEMs [�] while also creating confusion for consumers, as they are now given the choice of purchasing a tablet that is meant to harness the functionality of Windows 8 versus purchasing a traditional PC with Windows 8 that may not allow the user to realize all of the benefits of the new OS. The bottom line is that we still see a significant amount of confusion surrounding the Windows 8 release.”

    Peter Misek, Jefferies & Co.: Reiterates a Buy rating on Apple stock and an $800 price target. “We do not view these devices as competitive or as a threat to the iPad. Though pricing details are unclear, we believe Microsoft will need to significantly undercut the iPad to be competitive [�] We believe the most important factor in the success of a tablet is its ecosystem. Based on our discussions with developers, we find the lack of enthusiasm concerning and believe Windows 8 tablets will struggle to compete with the iPad, and to a lesser extent Android tablets such as the Galaxy Tab/Note. Also, we believe the two versions may cause some confusion for consumers.”

    Philip Winslow, Credit Suisse: Reiterates an Outperform rating and a $38 price target. “Monday’s announcement marks a major milestone for Microsoft, as the company enters the tablet market with a Microsoft-branded, vertically-integrated offering. We believe the Microsoft Surface tablets will help set the standard for Windows 8 tablets built by OEMs, which in turn could drive further adoption if the Windows 8 platform [...] We remain encouraged by the potential of upcoming product releases, particularly Windows 8. Based on a more tablet-friendly UI, improved power consumption, Instant-On, and other capabilities, we believe Windows 8 will have a more meaningful position in tablets than the market appreciates (particularly in the business user segment), which we expect to serve as a catalyst for the stock.”

    SM: The Best New Personal Finance Apps

    Your phone might be smart. But is it smart enough to replace your financial adviser?

    As consumers ditch checkbooks and spreadsheets for services that let them pay bills and monitor their net worth online, a growing number of companies are betting they will choose to receive financial advice not only on their computers but also, increasingly, on their mobile devices.

    Finovate, a conference series that showcases new financial applications, expects nearly 200 companies to present at its events this year -- nearly 10 times as many as in 2007. The company, which holds confabs in New York, San Francisco and Europe, will host its first-ever event in Asia in November.

    The New Money Apps

    View Interactive

    The new web and mobile apps all pull data from the "cloud," that grand repository of storage in the sky. Taken together, the apps hold the potential to disrupt the personal-finance industry by offering new ways to help consumers stick to budgets, stay on top of their portfolios and reduce investment-management fees.

    At the same time, critics warn, the apps also could pose security or privacy risks, and, by helping people automate their personal-finance decisions, could foster complacency.

    Nonetheless, venture capitalists are betting big. In the first quarter, they gave $150 million in venture-capital funding to companies that have presented at Finovate, more than twice as much as they gave in the first quarter last year.

    Their goal: to fund the next, which launched five years ago and now boasts more than 9 million users. Its free service, which allows users to aggregate bank and investment information in one place through its website and mobile app (on iPhone and Android) and provides advice on ways to save, took direct aim at desktop personal-finance software such as Intuit (INTU)'s Quicken and Microsoft Money. In 2009, Intuit bought Mint for $170 million. Microsoft (MSFT) discontinued Money that same year.

    Related Reading
    • Bill Payment Goes Mainstream

    The newer services aim to replace traditional financial advisers, or to expand on Mint and similar offerings by tapping into the latest research in behavioral finance to ensure you stick to your spending plans.

    For example, HelloWallet (apps for iPhone and Android), which debuted last year and now has 350,000 participants, compares a user's spending and savings habits to those of people of similar ages and income levels. The company claims its average participant has increased his or her monthly contribution to savings by 80%.

    The services don't always work as smoothly as advertised. Ginger Dean, 30 years old, of Washington, says many of the 10 personal-finance services she has used have experienced occasional glitches that prevent her from immediately updating her account information. When it comes to bill payments, she says, "I feel a lot safer with my bank."

    What's more, most of the apps require you to divulge account user names and passwords to function. The services say they have bank-like security measures to protect the info, but that isn't completely reassuring to some users. A company called Rudder, once a competitor to Mint, in 2009 accidentally sent financial information on more than 700 of its customers to other users. It closed down in 2010.

    The new tools also present the "potential for people to make speedy, misguided decisions, especially when you give them speedy devices," warns Mark Schwanhausser, senior analyst at Javelin Strategy & Research in Pleasanton, Calif., who nonetheless thinks many apps can help consumers. To make sure that its users remain engaged in the budgeting process, for example, HelloWallet requires them to categorize some of their expenditures manually, such as those they pay for by check.

    "Automation is incredibly powerful because it reduces the amount of work users have to do to track their finances," says Chief Executive and founder Matthew Fellowes. "But it also takes away the control from people. We don't automate everything in order to keep them engaged at a basic level."

    Still, the march toward technology is inevitable. With that in mind, here are some new services that are pushing online budgeting and investing capabilities in new directions:


    Several companies, including Mint, Pageonce (apps for iPhone, Android, BlackBerry and Windows Phone 7), and Yodlee's MoneyCenter (iPhone and Android), automatically import data from users' credit cards, loans and bank, brokerage and 401(k) accounts.

    Thanks to the widespread use of credit and debit cards, which currently finance about 60% of consumers' transactions, according to Javelin, these services are able to break down spending into categories, such as utilities and groceries. Some even track how much a user spends at specific stores or on specific items.

    But the next generation of services also incorporates techniques designed to prod users to change their savings and investing habits.

    HelloWallet asks users to flag purchases they regret. Using GPS technology, it tracks the locations of people using its applications on mobile phones and tablets. When a user enters, say, Brooks Brothers or Ann Taylor, the software can automatically retrieve his or her budget and past spending on clothes.

    When someone is close to a spending limit or has expressed a desire to cut expenditures, "we will send a message that says, 'If you save that money instead of spending it, here's how much it can grow to by the time your daughter is ready for college,"' says Mr. Fellowes, the CEO.

    For Adam Zuckerman, 32, simply seeing the $40 to 50 a week he spent on coffee was enough to prompt a change. "I completely cut myself off for a whole month," says the Washington resident. The attorney now allows himself three or four cups of store-bought coffee each week. Otherwise, he says, "I try to drink the free stuff at work."

    When someone saves more than anticipated, the service calculates whether it is optimal to use the money to pay down debt or raise contributions to a 401(k) or other savings account. A downside: the service costs $8.95 a month.

    Other services use different methods to motivate users to save., which is now web-only but expects to release an app by year-end, uses more aggressive motivational techniques to help people stick with their goals. Some 30% of the site's more than 150,000 users elect to pay a financial penalty -- often, in the form of a donation to a friend or even to an organization whose views they oppose -- in the event they fall short of their goals. Users also can invite others to track their progress.

    Susannah Blumenstock, 35, signed up a month ago with the goal of paying down half of her $10,000 in credit-card debt. Ever since, the Berkeley, Calif., restaurant manager has exceeded her goal of paying off $180 of debt per week between now and year-end. In any week in which she falls short, will levy a penalty she selected -- a $20 transfer from her bank account to that of a friend.

    "It's an extra incentive for me to do what I know I need to do," she says.

    Financial Planning

    Like Mint or MoneyCenter, San Francisco-based SigFig collects your investing account information into one place. But SigFig, which will release apps for Android and the iPhone later this month, takes it further, analyzing the data to show your asset allocation and whether you could save on fees by switching to different mutual funds.

    After connecting your investment accounts, SigFig will tell you if there are similar mutual funds with lower expense ratios -- a major driver of overall performance. If you use a full-service broker, it also will tell you how reasonable your broker's fees are when compared with competitors.

    It also can analyze your holdings to show a complete asset allocation and other portfolio characteristics, like its geographic breakdown and volatility, that otherwise would require a financial planner or visits to multiple brokerage accounts to calculate.

    A drawback: SigFig can't always analyze the unique funds that appear in some 401(k)s.

    Personal Capital (app for iPhone), of Redwood City, Calif., tries to combine the automated approach with a human touch. In addition to the free account aggregation and automated analysis, the company will connect you with one of its on-staff financial advisers. The advisers charge an annual fee of 0.95% for the first $250,000 in assets, which includes trading costs and fund expenses, and slightly less for assets above that.

    That is a bit less than what traditional financial advisers charge. The National Association of Personal Financial Advisors estimates that fee-only planners charge about 1% for assets under $1 million and 0.75% on assets above that, on top of the other fees.

    Personal Capital's planners can't perform all of the functions of full-service planners, like estate planning, and the company's plan to combine technology with human service could make the process less personal.

    The downside: If one of the firm's staff financial advisers were to leave, says Chief Executive Bill Harris, a customer might have to choose between working with someone new at Personal Capital or jumping to a new firm.

    Wealthfront, which launched last year, is purely electronic. The company says it uses modern portfolio theory to build an optimized allocation across six asset classes.

    Users can get the recommended allocation free after filling out a short questionnaire that attempts to calculate both their emotional and goal-based risk tolerance on Wealthfront's website (there isn't a mobile app yet). For a 50-year old with average risk tolerance, it recommended a portfolio of about 40% bonds, 47% stocks and the rest in commodities and real estate -- fairly standard advice for such an investor.

    The costs come in if you decide to let the service do the work of investing and rebalancing for you. The company manages the first $25,000 of a portfolio at no charge, not including the cost of trades, but charges 0.25% of assets annually above that threshold on top of trading costs and the fees of the underlying exchange-traded funds.

    Wealthfront has a more established competitor in New York-based Betterment (app for iPhone), which launched in 2010 and now manages about $50 million, according to CEO Jon Stein.

    After signing up and funding an account, you establish various goals, such as saving for retirement. Then its automated system recommends a simple stock/government bond portfolio allocation. If you think your risk tolerance is higher or lower than the recommendation, you simply move the "risk dial" and adjust the allocation accordingly.

    Betterment uses low-cost exchange-traded funds from iShares and Vanguard Group, and takes a management fee of 0.15% to 0.35% on top of underlying fund fees. That makes it more expensive than if you managed the index funds yourself, but cheaper than most financial advisers.

    Of course, it remains to be seen whether computer software can take the place of the emotional coaching that makes up a major component of financial advisers' jobs.

    Some investors are wading in gently. Aldo Sunaryo, 28, a software developer in Austin, Texas, opened a Betterment account early this year, which he is using to save for a wedding. Mr. Sunaryo says he likes the simplicity of setting his asset allocation, but for now is keeping most of his savings in his brokerage account, which he says lets him better customize his stocks and mutual funds.

    "I like to have more control over what stocks or mutual funds I buy for my big savings," he says. "But this fits my needs for other savings well."