Saturday, September 1, 2012

Recession alters boomer migration

Forget Naples, Fla. or Scottsdale, Ariz. for your next satellite office. Lubbock, Texas might be a better fit. A recent Wall Street Journal story finds the recession has had a profound effect on migration patterns in the U.S., reversing the flow of people to former housing-boom states such as Florida and Nevada, the latest data from the Census Bureau show.

According to the Journal, in the year ending July 1, 2009, Florida -- once the top draw for Americans in search of work and warmer climes -- lost more than 31,000 residents to other states, the Census Bureau reported. Nevada lost nearly 4,000. The numbers are small compared with the states' populations, but they reflect a significant change in direction: In the year ending July 2006, Florida and Nevada attracted net inflows 141,448 and 41,640 people, respectively.

"The recession coupled with the mortgage meltdown stopped the dominant migration story of the last decade in its tracks," William Frey, a demographer at the Brookings Institution, told the paper. "The real question is when the Sunbelt states are going to be able to come back. These new numbers suggest no end in sight."

The census data provide the starkest illustration yet of a shift that began after the peak of the housing boom in 2006. The paper reports it found that each year, the movement of people from states in the Northeast and Midwest such as New York, New Jersey and Michigan to job-producing states in the Sunbelt and West has lost momentum as house prices have fallen and jobs have disappeared.

The exception amid the Sunbelt states is Texas, which has managed to avoid much of the housing malaise and unemployment that have plagued other states, the Journal found. In the year ending July 2009, Texas gained 143,423 more residents from other states than it lost, making it the nation's biggest draw for the fourth year in a row.

"With no income tax and relatively inexpensive housing, Texas has attracted both entrepreneurs and large corporations. The bank Comerica Inc. moved its headquarters from Detroit to Dallas in late 2007, and BlackBerry-maker Research in Motion opened its U.S. headquarters in Texas soon thereafter. Surging energy prices in early 2008 helped the state's oil industry, and the state's large medical centers have provided stable employment."

5 Right Way For Investing In Penny Stocks

Making an investment in penny stocks provides traders with the chance to seriously increase their profits nevertheless, it also provides an equal chance to lose your trading capital fast. These 5 tips may help you lower the chance of one of the chanciest investment automobiles.

1. Penny Stocks are a penny for a reason. While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit? While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows the easy way to turn a profit, the company can use that cash to grow their business, which increases investor value. You’ve got to do a little research to find these firms, but when you do, you lower the chance of a loss of your capital, and increase the likelihood of a way higher return.

4. Have an exit and entry plan – and stick to it. Penny stocks are volitile. They may quickly move up, and move down just as fast. Remember, if you purchase a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A two cent decline leaves you with a twenty percent loss. Many stocks trade in this range on a regular basis. If your investment funds is $10 000, a twenty p.c. loss is a $2000 loss. Do this five times and you are out of cash. Keep your stops close. If you get stopped out, move on to the subsequent opportunity. The market is letting you know something, and whether you need to fess up or not, its customarily best to listen.

If your intention was to sell at $0.12 and it jumps to $0.13, either take the 30 percent gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you learn about the stock? Most folks find out about penny stocks thru a mail list. There are numerous glorious penny stock newsletters nonetheless, there are as many that are pumping and jettisoning. They, with insiders, will load up on shares, then start to pump the company to credulous newsletter customers. These customers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the business for the last eight years, I’ve seen my share of underhand corporations and promoters. Some are paid in shares, infrequently in restricted shares ( a deal whereby the shares can’t be sold for a destined time period ), others in readies.

The easy way to spot the good firms from the bad? Simply subscribe, and track the investments. Was there a valid opportunity to earn income? Have they got a previous record of providing customers with wonderful opportunities? You may begin to notice quickly if you have subscribed to a good newsletter or not.

One other tip I might offer to you isn’t to invest more than twenty percent of your total portfolio in penny stocks. You are investing to earn income and preserve capital to battle another battle. If you put far too much of your capital in jeopardy, you increase the likelihood of losing your capital. If that twenty percent grows, you could have more than needed money to make a good rate of return. Penny stocks are dangerous to start with, why put your cash more in peril?

Learn more about stocks to buy now. Stop by Author Name”s site where you can find out all about real time stock charts and what it can do for you.

Office Property Market Recovering Faster in CBDs

In the past it has been more common for office property markets to recover faster in suburban submarkets than in central business districts (CBDs), but the opposite has been true in the most recent recession. Experts say the reason for this is because this time around businesses in suburban areas tend to be comprised of young businesses hungry for new talent and are therefore driving the labor market, whereas businesses in CBDs are more established. That means more office-sector real estate growth in suburban submarkets, although large firms are not that far behind. For more on this continue reading the following article from National Real Estate Investor.

Why are office buildings in CBDs continuing to recover faster than suburban properties? One fundamental driver is the difference in post-recession hiring patterns between large and small firms.

Typically, when the office market begins to recover suburban submarkets recover sooner than their CBD counterparts. However, during the recent phase of economic recovery, the reverse has been true—CBD submarkets began recovering sooner with suburban submarkets following suit. This is a trend we identified back in late 2010, when the office market had yet to show consistent signs of a recovery.

One key factor in understanding this reversal is the link between the labor market and office submarkets. Generally, a company’s location decision is a function of size.

Smaller firms (500 employees or less) tend to locate in suburban office submarkets. These firms tend to be more entrepreneurial, often younger, and less established. Therefore, they focus on having a viable business and seek the cheapest office space that suits their needs, usually located in the suburbs.

Larger firms (greater than 500 employees) tend to be more established and locate in the CBD submarkets. The already have a viable business and they desire an address that conveys an image of success. Moreover, these firms tend to co-locate with other firms in their industry to capitalize on economies of scale by sharing input providers, a labor pool, and information.

During economic recoveries, small firms are born out of the “creative destruction” of recessions. They are created by people who lost their jobs, people who cannot find employment, or people that have an idea for how to do something better. They capitalize on the lower costs of doing business during weaker economic periods like rents and wages. These firms tend to lead the labor market in hiring during recovery periods.

Small firms have a concurrent need for employees to run their business and hire accordingly. Larger firms typically adapt to poor economic conditions by squeezing productivity out of their workers. They hire but only when the need arises. Therefore, during the first couple of years of labor market recovery, more jobs are created by smaller firms. Thereafter, as the recovery becomes entrenched, large firms have increased confidence and opportunities and they hire in greater numbers than smaller firms that have already built up their organization. The impact of these tendencies is that suburban office submarkets tend to recover sooner than CBD office submarkets.

During the economic recovery of the early 1990s we can see that during the first two years of the labor market recovery in 1992 and 1993, hiring by small companies outpaced hiring of large companies—small firms created roughly 1.95 million jobs while large firms created 1.52 million jobs. Consequently, the changes in suburban and CBD vacancy rates reflect this—during this time suburban vacancy fell by 355 basis points while CBD vacancy fell by 6 basis points.

Over the next seven calendar years before the economy entered another recession, the trends reversed. Large companies generated more jobs than small companies in each of those seven calendar years. From 1994 through 2000, large firms created 11.23 million jobs while small firms created 7.36 million jobs. Correspondingly, the CBD vacancy rate during that period declined by 1140 basis points. In contrast, the suburban vacancy rate declined by 797 basis points.

During the economic recovery of the early 2000s, similar trends appear. During 2003 and 2004 as the labor market began to recover, hiring by small firms of 1.44 million jobs outpaced hiring by large firms of 592,000 jobs. During this period suburban vacancy fell by 35 basis points while CBD vacancy rose by 130 basis points. Over the next three calendar years before the economy went into recession in 2008, the trend reversed.

Once again, large companies generated more jobs than small companies in each of those three calendar years as large firms created 3.09 million jobs while small firms created 1.89 million jobs. As a result, the CBD vacancy rate declined by 476 basis points while the suburban vacancy rate declined by 363 basis points.

CBD versus Suburban Vacancy & Employment Patterns

However, in the current recovery, this typical trend has not occurred.

Small firms have been lagging their larger brethren in hiring for a number of reasons, one of the most prominent being the lack of funds necessary to start and run a small business. In the wake of the credit crisis, liquidity remains tight and the traditional sources of financing for small firms, such as credit cards and home equity loans, were either closed or infeasible.

Consequently, better-funded large companies have been leading the charge. Although quarterly data is only available through the first quarter of 2011, since the advent of the labor market recovery in the first quarter of 2010, large companies have created 1.06 million jobs while small companies have created 823,000 jobs. Over this internal, CBD vacancy is virtually unchanged, rising by just one basis point while suburban vacancy has increased 89 basis points.

During 2011 net absorption in suburban submarkets began to outpace net absorption in CBD submarkets. This intimates stronger hiring by smaller firms during that period.

However, it should be noted that net absorption in the suburban submarkets is being driven by a small number of industries in specific metro areas. For example, energy and technology firms, which have been performed well over the last few years, have driven net absorption in a handful of markets—roughly one-third of the positive net absorption (excluding metro areas with negative net absorption) is occurring in energy—and technology-oriented metro areas.

While it is true that some successful small firms experience sufficient growth and become big firms, leaving one category and joining another, this does not occur in sufficient enough quantities to skew the results. This office market recovery is different because the composition of job creation in this recovery has thus far been different than in previous cycles.

Victor Calanog is head of research and economics, and Ryan Severino is senior economist, for New York-based research firm Reis.

U.S. Stocks Will Reward Optimistic Investors in 2010

I have been surprised to see the air thick with pessimism in recent weeks. Not so much the stock market, where the sentiment indexes show the bulls dominating the bears by slightly more than 52%. But among the general public.

An NBC/Wall Street Journal poll last week found that 55% of all Americans feel the nation is heading the wrong direction. This is the highest level since January of this year - when the financial crisis was red hot and U.S. President Barack Obama was just entering the White House! That's amazing.

A recent CNBC "Wealth in America" report found more negativity. Negative sentiments were expressed about the economy, stocks, home values, and wage growth. Faith in institutions like the U.S. Federal Reserve, the U.S. Treasury, and the financial sector were very low. President Obama's approval rating has fallen below 50% for the first time.

However, Merrill Lynch & Co. Inc. researchers picked up on this theme, and said in a recent note to clients that 2010 would be the year we exit the "pessimism bubble."

And I couldn't agree more. In fact, there might not be a better time to buy stocks.

Trust me, I was there back in 1999 when optimism reigned. Investors were incredibly excited about the coming decade, and bid shares of Qualcomm Inc. (Nasdaq: QCOM) up to $1,000 in anticipation of the awesome prospects for wireless. Online portfolios I provided to readers were up over 1,000% that year, and even the proverbial shoeshine boy was day trading and giving stock tips.

In the ten years that followed, we suffered two recessions, two bear markets, two wars, and an acrimonious political climate. Faith in U.S. stocks as superior long-term investment was shaken as every other major asset class beat equities and delivered positive returns over the last decade.

This shouldn't be any great surprise. It is the way of Wall Street. High expectations lead to disappointment. And now what? Well, we've moved from abundant optimism in 1999 to rampant pessimism in 2009. But from this environment of low expectations, great things can happen.

Historically, periods of widespread pessimism have coincided with excellent times to buy stocks for the long haul. Just look at the chart below, which comes from Gallup and displays the percentage of Americans that feel satisfied with the way things are going. You can see that the current reading of 24% matches levels reached in 1983, 1992 and 1996 - all of which marked the beginning of very exciting and profitable bull cycles. We appear to be on the verge of another one. In fact, there is evidence that investor pessimism has reached levels not seen since the mid-1970s.

The bottom line is that the worst-case 2010 scenarios that bears are promoting are unlikely to come about. The economy continues to make progress towards a robust recovery, though of course there will be missteps. The financial system has been nursed back to health with many bailout recipients already paying back taxpayer money. Net job creation and payroll expansions are just over the horizon.

With pessimism high, interest rates low, more fiscal stimulus poised to pour into the nation's financial arteries, and corporate earnings on track to surprise with upside, my expectation is for a 10% to 20% advance over the next year, from start to finish. Strong early-cycle sectors like industrials and tech will do better than that.

The tricky part of next year is going to come when we see evidence that the major indexes are on track to consolidate into their 12-month averages. This kind of consolidation is hard to play because the indexes will decline for several days or weeks in a row, then correct higher in a flash before breaking down again. It will be frustrating and aggravating. The key thing to recognize is that it is normal and not likely to lead to a massive 2008-style breakdown.

If it plays out like major consolidations in the past, the total move from high to low would be around -5% to -12% before buyers return in a big way to take the market higher again into the next leg of the bull cycle. In the past, consolidations in similar situations have started in late January and persisted into August-October.

2009 Set to Go Out with a Bang Technically, the Standard & Poor's Equal Weight Index continues its upward climb after last week breaking out of multi-month resistance. The fact that more closely followed indices such as the Dow Jones Industrial Average and the regular Standard & Poor's 500 Index continue to languish near the bottom of recent trading ranges may suggest that Wall Street insiders are accumulating positions in smaller stocks while shunning big-caps like CVS/Caremark Corp. (NYSE: CVS) and General Electric Co. (NYSE: GE).

Allow me to explain. For its benchmark S&P 500 Index, Standard & Poor's assigns portfolio weights based on a company's market capitalization. So a behemoth like Exxon Mobil Corp. (NYSE: XOM) is assigned a 3.5% share while video game retailer GameStop Corp. (NYSE: GME) gets a 0.04% weighting.

When this chapter of market history is written, it may turn out that Wall Street insiders were buying small and mid-sized stocks abundantly while pessimism reigned on Main Street. This would be typical of the manipulations that I witnessed in my research into the stock market of the 1860s through the 1920s. Crafty bulls were always putting one over on the bears, whipping up fear before jerking the market higher and creating a speculative frenzy among the public.

Journalist and author Edwin Lefevre wrote frequently on the topic. Lefevre used to roam the streets of lower Manhattan in the early 1900s, ducking in and out of the offices of Wall Street movers and shakers. He compared the practice I'm describing to advertising stocks to "coax and cajole outsiders to come into the market" in an article in Munsey's Magazine in 1901.

Once convinced, Lefevre said, outside investors would create a "dizzying upward whirl of security values" that would allow the professionals to cash out at top dollar. Despite the Dow's 18% gain this year, we've yet to see this happen yet - not even close. But that may be set to change.

Old practitioners of this dark art, men like James R. Keene who helped J.P. Morgan float U.S. Steel Corp. (NYSE: X) back in 1901, are long gone. But their tactics live on and are utilized by the likes of Goldman Sachs Group Inc. (NYSE: GS) and big hedge funds like D.E. Shaw.

And right now, all signs point to a significant market rally heading into the end of the year and continuing into at least the first two weeks of 2010.

Why? Over the last few months, we've spent a lot of time looking at currencies, interest rates, economic indicators, and market internal data. While this all forms a compelling investment rationale, it isn't as potent or as easily understood as evidence that Wall Street pros are scooping up shares. And that appears to be what's happening now, especially among smaller riskier stocks in cyclical sectors like energy, materials, and industrials.

It's no secret that the average investor has largely ignored the recent stock rally. At first, cash holdings grew. Then, we saw a flood of money pour into bonds. More recently we've seen defensive, dividend-paying stocks in the utility, health care, and consumer staples sector attract attention. Soon, once the Wall Street insiders are ready, we'll see big movements in the likes of GE and Exxon force the average investors back into stocks. Once this happens, the S&P 500 will close the gap with its Equal Weight cousin as it trades over the 1,200-level.

Indeed, on Friday the Investment Company Institute (ICI) provided more evidence this shift by average investors towards risky assets is gaining momentum: Some $51 billion was pulled out of money-market funds for the week, continuing a string of cash outflows as investors seek higher returns. For now, this cash is mainly finding its way into bonds and "safe" stocks. Soon, we should see a shift back into equity mutual funds and exchange-traded funds (ETFs).The folks at Lowry Research Corp. note that their proprietary measure of investor demand, or buying power, has moved to its highest level since Oct. 16. In contrast, their measure of selling pressure is making new lows. That is great news as it's the opposite of the data you would see at a top. I know there are a lot of bears saying that investor sentiment today is as high as it was at the October 2007 peak, but they are using fuzzy "how do you feel" surveys rather than the raw volume data compiled by Lowry's. Watch what people do, not what they say.

Bottom line: Make no mistake, stocks are under accumulation. Since stock prices are merely a reflection of the balance of supply and demand, the evidence continues to suggest higher prices are on the way. Expanding measures of market breadth, such as the increasing number of stocks in the Nasdaq Composite Index, corroborate this idea.

At the sector level, materials and energy stocks led the day with technology and consumer discretionary names bringing up the rear. The Materials SPDR (NYSE: XLB) ETF has gained thanks to impressive moves by mining stocks. Gold miners in particular benefited from the rise in gold futures on dollar weakness. Similarly, the Energy Select Sector SPDR (NYSE: XLE) has been helped by rise in crude oil.

Within the materials sector one particular stock has caught my eye: The Dow Chemical Co. (NYSE: DOW). This is the type of mega-cap stock that isn't just a toy of hot-shot hedge fund prop desk traders. This is a tough, center-of-the-economy, bare-chested-with-tattoos kind of stock. It's not very volatile. It's not easily pushed around. But once it gets going, it puts together long strings of consecutive up closes. Right now, it's going higher.

[Editor's Note: With the U.S. economy picking up steam, there has seldom been a better time to invest. Valuations are low and the potential for profit is extraordinarily high. And Jon Markman, a veteran portfolio manager, commentator and author, is offering investors a unique opportunity to capitalize on the current bull market by subscribing to his Strategic Advantage newsletter. For more articles like the one you just read or more information about Jon Markman's Strategic Advantage, please click here.]

News and Related Story Links:

  • Money Morning: The Recovery is Picking Up Speed, Setting the Stage for Big Gains in the Next Year
  • Money Morning: Markman on the Markets: Historic Bull Run in Bonds Points to Higher Prices for U.S. Stocks
  • Money Morning: How Simple Investing Strategies Can Generate Maximum Profits

Stocks Owned by U.S. Lawmakers

Ever wonder what our all-knowing elected congressional leaders own in their personal portfolios? Once a year, every congressman, congresswoman, and senator is supposed to disclose their personal financial holdings. Although it should be pretty cut and dry, as with most things emanating from Congress, it is a bit murky.

In this high-tech digital age, most congressional financial disclosures are filed on paper. This makes compellation and analysis a bit more tedious. The filings include assets and liabilities, total personal income (minus government salary) and its sources, and income producing property, but not necessarily their personal residences. Spouse’s sources of income are listed, but not dollar amounts. Statements for year ending December need to be filed by May 15 of the following year, and then it takes a while to figure out who own what. offers a breakdown of congressional investment holdings by dollar value range of specific financial categories and by the number of legislators that own a specific stock. The most recent numbers are for yearend 2009, with yearend 2010 due to be filed by May of this year. 2010 analysis numbers should be available in the fall.

Legislators are only required to give a predetermined range for the value of a specific investment, such as from $3,000 to $5,000. If three legislators declare holdings in this range, lists the minimum value as $9,000 and the maximum value as $15,000.

As a refresher, there are 535 congressmen, congresswomen, and senators combined. The numbers listed are from the congressional delegation prior to the 2010 election and change in power.

The top 25 categories for 2009 congressional personal investments:



Minimum Value

Maximum Value


Real Estate




Recreation/Live Entertainment




Securities & Investment




Misc Finance




Electronics Mfg & Services




Oil & Gas




Crop Production & Basic Processing








Health Services/HMOs








Commercial Banks




Misc Manufacturing & Distributing




Pharmaceuticals/Health Products








Retail Sales




Food & Beverage








Food Processing & Sales




Air Transport




Business Services
















Forestry & Forest Products








The top 30 most widely held stocks by number of congressional holdings at year end 2009:







General Electric (GE)





Procter & Gamble (PG)





Cisco Systems (CSCO)





Bank of America (BAC)





Microsoft Corp (MSFT)





AT&T Inc (T)





Pfizer Inc (PFE)





Intel Corp (INTC)





Johnson & Johnson (JNJ)





Coca-Cola Co (KO)





Exxon Mobil (XOM)





JPMorgan Chase & Co (JPM)





IBM Corp (IBM)





Verizon Communications (VZ)





Wells Fargo (WFC)





PepsiCo Inc (PEP)





Apple Inc (APPL)





Hewlett-Packard (HPQ)





Home Depot (HD)





Walt Disney Co (DIS)





McDonald's Corp (MCD)





Merck & Co (MRK)





Berkshire Hathaway (BRK.A) (BRK.B)





Abbott Laboratories (ABT)





Bristol-Myers Squibb (BMY)





CVS/Caremark Corp (CVS)





Wal-Mart Stores (WMT)





Citigroup Inc (C)





Monsanto Co (MON)










While not advocating that congressional leaders are the best investment advisors, it sure is interesting to learn where our lawmakers have their money invested.

As always, investors should conduct their own due diligence, should develop their own understanding of these potential opportunities, and should determine how it may fit their current financial situation.

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

Top Stocks For 2012-1-18-19 Stock Report!

Tuesday August 25, 2009

EA Mobile(TM), a division of Electronic Arts Inc. (NASDAQ:ERTS), today announced four new titles available on the App StoreSM: CLUE, THE GAME OF LIFE, SNOOD(R), and the epic sci-fi fantasy Mass Effect Galaxy(TM). EA Mobile continues to create a variety of high-quality titles giving players the option to choose from a wide array of games that can be enjoyed on the iPhone(TM) and iPod(R) touch.

IBM (NYSE: IBM) today announced that Nomura Services India Private Limited - a subsidiary of the leading financial services group, Nomura - will implement IBM’s end-to-end business continuity and resiliency services to bolster its business continuity, disaster and system failure response strategies.

Aetna (NYSE:AET) is strengthening its efforts to promote patient safety with easy-to-find online information for members. New policies also require health care facilities, physicians and other health care professionals to take action to prevent medical errors and changes the way they are paid when medical errors do occur.

El Paso (NYSE: EP) was the focus of some brisk options trading on Monday, as more than 51,300 contracts crossed the tape, according to data from This surge in volume was more than nine times the stock’s average daily trading volume of 5,483 contracts. Furthermore, traders showed a preference for calls, as more than 89% of the volume changed hands on the call side.

Noble Corporation (NYSE: NE) today announced that David W. Williams, Chairman, President and Chief Executive, Noble Corporation, will be presenting at the Simmons & Company International 2009 European Energy Conference held in Scotland. Mr. Williams is scheduled to participate in the Offshore Drilling Panel on Wednesday, September 2, beginning at 11:25 a.m. - WEST (Western European Summer Time).

After hearing about a letter from eighth-grader Ty’Sheoma Bethea to her congressman pleading for the basic school necessities she and her classmates needed, Walmart (NYSE: WMT) began to wonder: how many other pleas are going unheard? Inspired by the courageous effort of one 14-year-old girl, Walmart launched the “Write to Change the Classroom” program, asking teachers, parents and students to write about their school-supply needs. And they did. After receiving hundreds of heartfelt requests, the retailer is awarding $8,000 in school supplies to each of the 20 selected schools.

Friday, August 31, 2012

SodaStream Is About to Overflow

Since its IPO in late 2010, SodaStream International (Nasdaq: SODA  ) has met its share of skeptics. Despite a blowout earnings report a month ago that sent shares up more than 25% a single day, the stock has given back many of those gains and now trades around $33. The shorts have piled on, and even after its tumble from as high as $48.13 earlier this year, 73% of shares are still sold short. How much lower do they think this stock can go?

Say, what's the big idea?
SodaStream shareholders have surely done plenty of head-scratching over the stock's numerous false starts. The maker of at-home soda machines and syrup and CO2 consumables has beaten earnings solidly in each of its past four quarters. In fact, profits have come 33% ahead of analyst expectations on average. That's no small feat. Even Apple, widely known for thrashing the Street's expectations nearly every quarter, has beaten estimates by an average of 22% over the last four quarters, still impressive but not as good as SodaStream.

So it's clear that SodaStream's bugaboo is not its financial performance, as the company continues to put up strong growth by expanding into new markets in the Americas and Asia. Two main factors seem to have turned the bubbly stock flat.

Fool me once ...
Investors seemed to once recognize the potential of this rule-breaking company, as its value more than tripled in its first nine months of trading. The stock fell off a cliff, however, last August, after management bungled earnings guidance in an otherwise impressive quarterly report. Despite beating EPS estimates by $0.11 cents per share, with bottom-line growth at 41% and revenues jumping 38%, management maintained guidance for the year -- a sign that spooked investors and caused the stock to plummet 41% in intraday trading. Growth stocks generally get one chance to prove they're for real. Once they fall off track, it's hard for them to regain the market's confidence.

Still, the market's reaction was bizarre. As fellow Fool Chris Baines argues, if earnings had simply met expectations, the market wouldn't have batted an eye at management's decision to maintain guidance. Notably, the company beat earnings estimates by 64% in its next quarter, confirming suspicions that the guidance was conservative. How did the market receive that blowout quarter? Investors shrugged it off with a mild golf clap, sending shares up a mere 5%.

It's a fad?
Perhaps the crux of the SodaStream bear argument is that the product is simply a fad. While it may seem fun and exciting to make your own soda, the bears say, eventually laziness will take over and these consumers will return to buying bottles and cans from traditional providers at the supermarket. They see it as another do-it-yourself kitchen contraption that will join the pasta maker and popcorn machine in the corner of the attic collecting dust.

But if DIY soda's a fad, someone forgot to tell SodaStream's customers. The company has been in business in one way or another since 1903. Revenues have grown consistently for several years and more than doubled between 2009 and 2011. Of course, not every buyer of the base soda machine will become a convert, especially those who receive the soda maker as a gift, but the company bakes a certain attrition rate into its projections.

In spite of those consumers who do condemn their soda maker to the back of the cupboard, consumables are still growing at a strong pace. Based on unit sales in the last quarter, flavor syrups grew by 52%, while CO2 refills were up 29%, both ahead of growth in starter kits, which clocked in at 15%. For the three-month period, consumables revenue jumped 61%, and the higher-margin category now makes up 60% of sales, helping to boost overall margins.

The critics seem to be confusing a fad with a niche product here. SodaStream's growth isn't driven from any sudden promotion or fashionable trend. Users like the product, the ability to customize their own sodas, its flexibility for bartending, or just their ability to make seltzer. Regular buyers who have been purchasing consumables for years now aren't going away; they are multiplying. And the skeptics seem to overlook the fact that the beverage market SodaStream competes in is enormous. If the company achieved just 1% of Coca-Cola's (NYSE: KO  ) market value, shares would gain 150%.

The company does face headwinds thanks to Green Mountain's (Nasdaq: GMCR  ) immolation over the past year, but that was largely because of a looming patent cliff and accounting shenanigans that hobbled the Keurig maker, neither of which applied to SodaStream. Investors simply seem to be wary of another beverage company with a razor/blade model.

No backwash
Analyst estimates for SodaStream shot up after its latest report, and Wall Street is now eyeing earnings per share of $2.17 for 2012 and $2.71 for 2013. That puts the soda-maker's forward P/E (for 2013) under 12, bordering on value territory, and significantly lower than beverage heavyweights like Coca-Cola (16.5), PepsiCo (NYSE: PEP  ) (15.2), and Dr Pepper Snapple (NYSE: DPS  ) (12.8). And you can bet SodaStream offers more growth than the big boys. Wall Street believes the DIY brand will grow its top line by 18.2%. Second place in that category? That would be Coke, with just 5.1% growth in 2013. And don't forget that the experts have consistently underestimated SodaStream in the past, so shares could be even cheaper than they look.

Throw in SodaStream's recent entry into 2,900 Wal-Mart stores, just-granted approval to sell in Brazil, and its deal with Kraft earlier this year to push Country Time Lemonade and Crystal Light, which could foreshadow similar co-branding deals, and it's even harder to understand how this stock is nearly as cheap as it's ever been. I already bought shares last year, but at these prices it's tempting to add more. This stock won't stay this low for long.

Free refills
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Leaders Emerging as the U.S. Economy Shakes Off Its Stupor

The past five days added more color to the emerging picture of U.S. economic growth that is slow and unsteady -- but still in gear. Investors decided that was good enough, and bid up risky assets. The Standard & Poor's 500 Index rose 1.4%, emerging markets rose 1.8%, gold rose 2.2% and bonds fell.

Underlying breadth modestly weakened, as the market is primarily being propelled now by a withdrawal of sellers -- not an increase in buyers. News late in the week typified the entire span, as it mostly favored bulls.

Indeed, the U.S. economy faces an uphill climb but some companies are emerging as market leaders.

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Buy Time Warner Cable, Hold Comcast, News Corp., BTIG Says

BTIG analyst Richard Greenfield earlier today formally launched coverage of Time Warner Cable (TWC) with a Buy rating, while starting Comcast (CMCSA) and News Corp. (NWS) at Hold ratings.

A few details:

  • Time Warner Cable: Greenfield has a $70 price target on the stock, which yesterday closed at $55.11. “Time Warner Cable�s free cash flow has positively surprised us over the past year, more than compensating for weaker RGU growth,” he writes. The analyst notes that video ARPY growth is accelerating, and strong commercial growth is becoming more relevant to overall results. He expects earnings and cash to beat consensus estimate for the coming year.
  • Comcast: Greenfield thinks the cable giant’s shares are cheap, but says the NBC Universal acquisition will add complexity and greater regulatory risk. “ Comcast is essentially recreating Time Warner (TWX),” which just got rid of both AOL and its cable arm. He cautious that NBC will be a lot of work for Comcast management, and will distract management their focus on the core cable business.
  • News Corp.: The analyst says the stock remains cheap, at just 5x calendarized 2011 EV/EBITDA, and 13.5x 2011 free cash flow. But he says the stock is unlikely to move much in the near-to-intermediate term. Greenfield thinks the company will likely pursue the acquisition of the the 61% of BSkyB that it doesn’t already own, but cautions that investors could be disappointed in such a move, even if a deal is meaningfully accretive to earnings.

In today’s trading:

  • TWC is off 34 cents, or 0.6%, to $54.77.
  • CMCSA is off 31 cents, or 1.7% to $18.02.
  • NWS is off 34 cents, or 2.2%, to $15.23.

Friday FX View: Currency Markets Degenerate into a Sloppy Mess

The dollar retreated on Friday as investors responded to President Obama’s proposal to limit banks’ risk taking. One could argue the direction of the dollar either way. A safer and less risky world would likely result in weaker but steadier earnings but promote currencies other than the dollar. The crimp on banking income seems to be the view in ascendancy so far today. On the other hand by taking away the banks’ ability to generate returns from promoting risks, one could argue that growth will slow and as such risk aversion will rise leading to a classic case of seeking the dollar as a safe haven.

U.S. dollar – The immediate response, however, was to sell the dollar on worries over a profit squeeze. After a rather strong week for the dollar this latest political episode is not deemed as a catalyst for further dollar strength at this time. Indeed the Obama plan brings the number of market negative stories for this week to a grand total of three, following the impact on the euro from concerns over Greece earlier this week coupled with China’s actions to curb bank lending. Having rallied sharply during the week investors have decided that despite all of the hubbub and the descent of swirling fears on global markets, none of these events together or in isolation is set to derail what really matters – the global economic recovery.

However, the dollar is still likely to trade inversely to the S&P 500 index and with a disappointing earnings result from General Electric setting in motion a reversal from black to red in pre-market trading it’s too early to conclude that the recent bout of dollar strength can be brushed off.

British pound –The pound rallied sharply overnight only to face the tough hurdle of what turned out to be the weakest retail sales report for the month of December since 2007. Analysts expecting a rise of 1.1% over the previous month were flawed by a mere 0.3% gain. The report confirms that growth is anemic in the British economy and mirrors the message from weak bank lending data also released this week. It’s also a comfort to note that the earlier inflation data is precisely what the Bank of England voiced after the report when governor King blamed the spike in prices on temporary factors. The price spike does not come from heated demand. The pound recoiled from an overnight peak of $1.6284 and is back down on the day at $1.6155. The pound also gave up ground to the euro and trades currently at 87.50 pence.

Japanese yen –An overnight 2.6% plunge in stocks was met with a rally in the value of the yen, which reached ¥89.79 against the dollar overnight, but has since eased to ¥90.15. At its weakest point overnight the yen retreated to ¥90.56. Investors may ultimately question the move into the yen if they conclude that the U.S. plan to curb banks’ risk taking is likely to prove less onerous on financial markets or that it lacks teeth given it still requires congressional approval.

Euro – The euro is coming back from the dead after reaching $4.4029 on Thursday and stands more than a penny higher at $1.4133 on Friday. New industrial orders for November rebounded to a 1.6% monthly gain and surprised the market only seeking a gain of 0.5%, which provided a dose of support to the single European currency.

Aussie dollar – An overnight rebound took the Aussie dollar to as high as 90.92 U.S cents before sliding back to its current 90.26 cents although it is still higher on the session. Investors unwound some leveraged trades buying yen to sell Aussie dollars, which helped keep a lid on a nevertheless positive performance. In the aftermath of the Obama plan to regulate banks further, an Australian report suggested that the government might seek to tax mining companies that have made bumper profits from sales of iron ore and coal in the bullish environment for commodities.

Canadian dollar – After a weak turn out for inflation earlier in the week, retail sales also disappointed – just as they did in the U.K. today. The Canadian dollar finds itself in a sticky situation as a result this morning with pervasive weakness in crude oil and metals prices not helping weaker economic data. As a result the local dollar slumped to stand at 94.73 for a near half-penny loss today.

Still Bullish On High-Powered REIT MFA Financial

MFA Financial, Inc. (MFA) is a real estate investment trust (REIT) that invests in mortgage-backed securities. MFA utilizes leverage to acquire its portfolio of Agency and non-Agency residential mortgage-backed securities. MFA utilizes repurchase agreements (repo), which are low short-term rates, to finance the acquisition of its mortgage-backed securities. MFA generates net income by maintaining a spread between the interest it earns on its investments and the cost of financing such investments.

Agency REITs carry limited credit risk as securities are guaranteed by government sponsored entities. Agency REITs are subject to interest rate and refinance risk. As opposed to agency REITs, hybrid REITs invest in both agency and non-agency securities. Hybrid REIT managers have the flexibility to move between agency and non-agency securities to find the best risk/reward for shareholders.

What Makes MFA Interesting?

As opposed to peers such as Annaly Capital and American Capital Agency, MFA management has the flexibility to invest in both agency and non-agency securities. Purchased at the appropriate price, non-agency securities can offer REIT investors attractive risk-adjusted returns and lower the volatility in a REIT portfolio. Non-agency mortgages trade more like equity than credit as when the economy heals, recoveries increase. As the economy heals the market drives interest rates up, which hurt agency securities.

(click to enlarge)

Prepayment Risk

A key risk for mortgage REITs is prepayment risk. As rates decline, borrowers refinance loans into lower rates, which impact mortgage REIT earnings. After the credit collapse, hybrid mortgage REITs including MFA purchased non-agency mortgages at discounts to par. In the most recent reporting period MFA owned over $4 billion of non-agency MBS at an average cost of $0.73. As refinancing on these securities increases, MFA realizes more than its average cost. The table outlines the increase in yield when speeds increase. MFA management believes the company can generate 6% - 7% loss adjusted annual unlevered yields on non-agency securities.

Conversely, agency mortgage REITs, including Annaly and American Capital Agency, which have an average cost of over $1.00, can experience loss on securities as refinancing increase. If an investor pays $1.04 for a face value security of $1.00 and the security is refinanced the investor will lose $0.04.

(click to enlarge)

My other favorite mortgage REITs include:

Annaly Capital Management, Inc. (NLY) - Fixed Rate Agency Focused REIT

Price to Book Value: 1.0x

Dividend Yield: 14.0%

Market Capitalization: $15.2 billion

Leverage: 5.2x

American Capital Agency (AGNC) - Fixed Rate Agency Focused REIT

Price to Book Value: 1.1x

Dividend Yield: 16.7%

Market Capitalization: $9.0 billion

Leverage: 7.7x

Two Harbors (TWO) - Hybrid REIT (Agency and Non-Agency)

Price to Book Value: 1.1x

Dividend Yield: 15.9%

Market Capitalization: $2.1 billion

Leverage: 4.5x

Hatteras Financial (HTS) - Floating Rate Agency Focused REIT

Price to Book Value: 1.0x

Dividend Yield: 12.7%

Market Capitalization: $2.7 billion

Leverage: 6.7x

Disclosure: I am long MFA, NLY, TWO.

Why Tech Might Be the Best Place to Put Your Money Now

By Ryan Cole

For a brief moment Tuesday, Apple (AAPL) was the largest company in the world. Exxon (XOM) erased earlier losses and retook the lead, but this gives us a chance to ask the question: Is the tech sector in a bubble, or is it coming into its own as the most important industry around? Let’s take a look at the numbers – we’ll compare them to the energy sector, one of the most dominant on Wall Street.

Tech Industry Capitalization

Using the judgment of the market, the tech industry is every bit as important as energy. Apple and Exxon are nearly identical in size – but it doesn’t stop there.

  • Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM) are both bigger than Royal Dutch Shell (NTSE: RDS.A)
  • Google (GOOG) is the same size as Chevron (NYSE: CVX) , and larger than BP (NYSE: BP) and Petrobras (NYSE: PBR).
  • Even Oracle (NASDAQ: ORCL) – tiny by tech standards – is larger than BP.

This is partially because the drop in oil prices hit energy stocks hard, while tech stocks stayed surprisingly strong during the downturn in terms of share price and sales.

Still, there’s little doubt – the market sees tech as every bit the equal of oil, at least in terms of profitability.

Energy Giants Are Second Tier to Tech Earnings

The energy giants have great earnings – BP brings in $6.33 earnings per share (EPS). Petrobras is strong, with $3.94 EPS, but it’s easily overshadowed by Shell ($8.96), Exxon ($7.61) and Chevron (an astounding $11.45).

As envious as most companies would be of such strong earnings, the energy giants would be second tier to tech.

Oracle ($1.66) and Microsoft ($2.70) are the laggards. But IBM would beat every oil company around by EPS, pulling in $12.28. And Google and Apple, which pull in $27.73 and $25.26, more than double it.

Part of that’s because Google and Apple have been loath to issue new stock or split, and thus are some of the most expensive companies in the market on a per-share basis. Nonetheless, such earnings are astounding.

And it’s not just a mirage. Apple had nearly $12 billion in gross profits last quarter – off $28.5 billion in sales. That’s a 125% increase from a year ago.

Google pulled in a “measly” $9 billion in sales, with $5.5 billion in gross profit. Those numbers pale in comparison to the oil giants – Chevron had $21 billion in gross profit last quarter, and Exxon made over $33 billion – but the energy companies would be envious of tech’s growth.

Meanwhile, oil giants tend to have low P/E ratios – the highest amongst companies mentioned is Exxon, with a P/E of 9.41. Tech companies tend to have high P/Es – Google is over 20, while Oracle is nearly 17. But Apple is 14.81, IBM is 13.90 and Microsoft is 9.47 – nearly identical to Exxon. In other words – even though tech P/Es are traditionally high – they aren’t really all that crazy today.

That could be because tech is maturing as a sector, and the record-breaking growth seen earlier is a thing of the past. Microsoft – one of the more venerable tech companies, and arguably the most mature – has been behaving more like a blue chip, and less like a tech start-up, for years.

Google and Apple, meanwhile, have continued growing fast enough that investors are willing to pay a premium for them.

Tech Giants Best Value on Wall Street

When talking about the big players, there’s no doubt: The tech sector is the real thing. Valuations are justified – there’s no sign of a bubble. Indeed, it’s easy to make the case that the tech giants are some of the best values on Wall Street today.

Newer companies – like LinkedIn (LNKD) with its astronomical IPO – are another matter. We’ll deal with them later.

But for now, know this: You can feel entirely comfortable putting your money to work with the tech giants. In fact, with the business proving so recession-proof, with reasonable P/Es and with huge piggy banks (Apple could buy Bank of America (BAC) outright today, and have cash left over) the tech industry might be the best place to put your money.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.

Abercrombie: The “Worst Appears Over,” Says Analyst

Abercrombie & Fitch (ANF) has struggled so far in 2012, rising about 1.6% before today, versus a 19% jump for the S&P Retailing Index. The company’s fourth quarter results were disappointing and the company appeared to be carrying too much inventory.

But Brean Murray Carret analyst Eric Beder thinks Abercrombie has turned a corner, leaving its problems in the past.

“We believe strong February and March results have allowed Abercrombie to materially improve their inventory positions. One of our major fears was that the company would continue to underperform under the weight of an over 40% increase in inventory per square at the end of 4QFY12. With record warm weather in March, we are seeing the return of out of stocks on key seasonal items such as denim, and material progress on clearing out left over winter goods.”

A turnaround in sales could have an outsize ? on the stock, because it has been so beaten-down. It is “by far” the cheapest among its peers, trading at 9.6 times.

“Frankly, this situation makes no sense to us and reflects what we view as exaggerated belief in an unproven turnaround (and new management) at American Eagle (AEO) and the Street �penalty� on Abercrombie & Fitch for missing 4QFY12 and being too aggressive in their FY13 initial guidance.”

Beder raised his rating to Buy and upped his price target to $65.

Abercrombie shares rose 5% to $52.10 in afternoon trading.

A Bird In The Hand: Time To Take Profits On 7 Stocks

In this article, we will discuss the following stocks: Netflix, Inc. (NFLX), PulteGroup, Inc. (PHM), CF Industries Holdings, Inc. (CF), Capital One Financial Corporation (COF), Marriott International (MAR), Freeport-McMoRan Copper & Gold, (FCX) and Monsanto Company (MON).

These stocks are some of 2012's S&P 500 mid cap or better highest fliers. I believe the stocks covered have major upside potential once the geopolitical and macroeconomic issues of the Eurozone, U.S. and the world fade from the forefront of investors' minds and a renewed focus on fundamentals and company specific catalysts emerges. What's more, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades, positive analyst comments and some pay dividends. Nevertheless, they have run up quickly in the New Year. With the recent downgrades of European sovereigns and the lackluster report from JPMorgan (JPM), I have taken profits and I'm going to the sidelines for now. A bird in the hand is worth two in the bush.

I wrote a couple articles at the end of last year stating several of these stocks have significant upside and it looks like a majority of them are already well on their way. The seven stocks are up an average of 17% 13 days into 2012. This significant move in such a short time leads me to believe they may be setting up for a sell off.

2012 Performance Chart (Click to enlarge)

Table provided by

Topping the list is Netflix, with a 36% gain since the start of the year, followed by Putle Homes at 20%. Both stocks were down significantly in 2011. Marriott and Freeport-McMoRan were down in 2011 meaningfully as well, and are already up 14% for 2012. This may be due to a phenomenon known as the January effect. The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive, sell stocks for tax reasons at year-end (such as to claim a capital loss) and reinvest after the first of the year. Another cause is the payment of year-end bonuses in January. Some of this bonus money is used to purchase stocks, driving up prices. CF Industries, Capital One and Monsanto were up in 2011 with gains from 5 to 22% and have continued their run into 2012 with gains of 19, 15 and 14% respectively.

The market seems to have taken the European downgrades in stride, but this was a similar reaction to the downgrade of the U.S. by the S&P. Rumors were swirling on Friday an imminent downgrade was coming but it was Monday when the markets took a huge tumble following the European severally negative reaction. What's more, the Euro is sure to start selling off and dropping lower, driving the dollar higher which is a huge negative for U.S. multinationals, acting as a tax on profits. On top of all this, here comes Greece again. Recent reports are stating Greece may not agree to the most recent austerity package and may have a hard default after all. The prospects of a debacle of this nature have not been priced in. The Greece issue was supposedly wrapped up.


I am not sure what will transpire but I do believe the Eurozone crisis will maintain its number one spot as the biggest risk for these stocks 2012. The European Financial Stability Facility (EFSF) will start incurring additional interest expenses once the downgrades are implemented. If Greece does not get a deal done by next week the EU will be out seven billion euros more than the seven they already negotiated away. This will cause the European markets to sell off steeply in the near term.

The recent downgrades may provide an opportunity to buy back in on the dip. We have already seen several examples this year where the U.S, market's reaction to Eurozone issue headlines has been somewhat mooted, underpinning the thesis that the U.S. market is decoupling from European markets. Nevertheless, the world markets are comparable to ships sailing on the same sea and a storm of sufficient magnitude will sink all vessels. It is time to take a defensive stance for the short term. At the very least place a tight stop loss order.

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

Thursday, August 30, 2012

These Companies Will Make Big Moves This Friday

With trillions of dollars invested in index funds, decisions about changes to the most popular benchmarks mean a flurry of activity for stocks. Most of the time, big index changes are relatively few and far between. But this week, you'll see a huge shift in some of the most-followed indexes -- and the big question is how the individual stocks that are making big moves will fare in their new homes.

Standard & Poor's announced last week that it would make several changes to its large-cap S&P 500 index, as well as its MidCap 400 and SmallCap 600 benchmarks. Although a few of the changes have already taken effect, most of the moves are effective as of Friday's close.

Why the big changes?
To understand why S&P is making these moves, you first need to look at the respective investment objectives of the three indexes. According to McGraw-Hill, the S&P 500 is the world's most-followed stock market index, tracking the biggest companies in the U.S. stock market. The mid-cap and small-cap indexes aren't quite as popular, but they serve the equally important purpose of helping broaden the reach of investors' portfolios by providing company-size diversification. In total, about $1.25 trillion tracks S&P indexes.

Over time, though, stocks change. Often, young stocks begin as small caps and grow steadily into mid caps and then large-cap stocks -- and along the way, they often get assigned to S&P's small-cap index, only later to be reassigned to the mid-cap index and then eventually to the S&P 500.

Conversely, some stocks go the opposite direction. Once-dominant large caps can fall out of favor, steadily losing value until their market caps are more similar to those of up-and-coming small caps than those of their former industry-leading peers. In those cases -- and in order to make room for the up-and-comers, index providers like S&P have to downgrade out-of-favor stocks to indexes for smaller market caps.

Winners and losers
This time around, S&P is making a relatively large number of market-cap-related shifts. Some of the changes are extreme. Here's a list:

  • AK Steel (NYSE: AKS  ) will drop all the way from the S&P 500 to the SmallCap 600. The double-drop is necessary to reflect the steelmaker's market cap, which has declined precipitously since the company replaced Countrywide in the S&P 500 in mid-2008.
  • Auto-parts maker BorgWarner, pharma stock Perrigo (Nasdaq: PRGO  ) , and discounter Dollar Tree are all moving up to the S&P 500, while chip-equipment maker MEMC Electronic Materials (NYSE: WFR  ) and Monster Worldwide (NYSE: MWW  ) move down to the MidCap 400.
  • Moving up from small-cap to mid-cap status are Regeneron Pharmaceuticals (Nasdaq: REGN  ) , which got its macular degeneration drug approved last month. World Fuel Services (NYSE: INT  ) and HMS Holdings are also making the move up.
  • Finally, homebuilder Ryland Group will move down from mid-cap to small-cap status, following the general trend of the housing industry. Going with it are for-profit educator Career Education (Nasdaq: CECO  ) and REIT Cousins Properties.

How can I make money off this?
You can bet that on Friday, many institutional investors will try to take advantage of the index funds that have to frantically sell shares of the dropped companies and buy shares of the newly added stocks. Near the close, you can expect huge volumes of shares as those institutions finalize their index-related moves.

But as far as profiting from the moves, it's definitely not a sure thing. For instance, earlier this year, the Russell 2000 did its annual rebalancing, with plenty of hot small caps getting added to the index while other falling stars found themselves booted out. Yet it definitely wasn't the case that shares of the new additions universally got bid up while deleted stocks fell -- plenty of stocks involved barely moved at all, while others went in the opposite direction from what many would have expected.

Stay tuned
For the most part, index changes are just a curiosity for regular investors. If you own the right stocks, it doesn't really matter what index they're part of.

But that only raises the bigger question: Do you own the right stocks? You'll find one great prospect in our newest special report, "The Motley Fool's Top Stock for 2012." This report is absolutely free, but you won't want to wait long to find out about it. Click here and don't miss out.

9 Mining Stocks to Keep Buried

Add the possibility of deflation to renewed European debt jitters, and you�ve got yourself a case for a decline in basic materials and precious metals. But don�t just take the latest news as an example. The majority of stocks that rely on the mining of basic materials have been on a downward tear ever since the August lows.

I watch more than 5,000 publicly traded companies with my Portfolio Grader tool, ranking companies by a number of fundamental and quantitative measures. And this week, I’ve got nine mining stocks to keep buried.

Here they are, in alphabetical order. Each one of these stocks gets a �D� or �F� according to my research, meaning it is a �sell� or �strong sell.�

Alcoa (NYSE:AA) is engaged with the mining, refining, smelting, fabricating and recycling of aluminum products. A drop of 42% for AA stock in the past 12 months has shareholders questioning what they initially saw in the stock. AA gets an �F� for earnings momentum, an �F� for the company�s ability to exceed consensus earnings estimates on Wall Street and an �F� for the magnitude in which earnings projections have increased over the past months in my Portfolio grader tool. For more information, view my complete analysis of AA stock.

ArcelorMittal (NYSE:MT) shipped more than 85 million tons of steel in 2010. Despite such high volume, MT stock is down a discouraging 56% year-to-date. MT stock gets a �D� for operating margin growth, an �F� for the company�s ability to exceed consensus earnings estimates on Wall Street, an �F� for the magnitude in which earnings projections have increased over the past month, a �D� for cash flow and a �D� for return on equity in my Portfolio Grader tool. For more information, view my complete analysis of MT stock.

Freeport-McMoRan Copper & Gold (NYSE:FCX) is known for copper, gold and molybdenum mining. Since the start of 2011, FCX stock is down 38%, compared to a gain of 2% for the Dow Jones in the same period. FCX gets a �D� for sales growth, a �D� for earnings growth, a �D� for earnings momentum and an �F� for the magnitude in which earnings projections have increased during the past month in my Portfolio Grader tool. For more information, view my complete analysis of FCX stock.

Gerdau (NYSE:GGB) is a producer of long-rolled steel that has watched its stock value decrease nearly 48% since the start of 2011. GGB gets a �D� for operating margin growth, a �D� for earnings growth, a �D� for the magnitude in which earnings projections have increased over the past month and a �D� for return on equity in my Portfolio Grader tool. For more information, view my complete analysis of GGB stock.

Kinross Gold (NYSE:KGC) explores for, acquires, develops and operates gold-bearing properties across the world. KGC makes the list with a 39% drop since Jan. 1. KGC stock gets a �D� for operating margin growth, a “D” for earnings growth, a “D” for the magnitude in which earnings projections have increased over the past month and a �D� for return on equity in my Portfolio Grader tool. For more information, view my complete analysis of KGC stock.

NovaGold Resources (NYSE:NG) explores and develops mineral properties in Alaska and British Columbia. NG stock has dropped almost 38% year-to-date. NG gets an �F� for sales growth and an �F� for return on equity in my Portfolio Grader tool. For more information, view my complete analysis of NG stock.

Mechel OAO (NYSE:MTL) is an integrated mining and steel company in Russia. MTL stock is one of the biggest losers on this list, down 69% year-to-date. MTL gets an �F� for the company�s ability to exceed consensus earnings estimates on Wall Street and an �F� for the magnitude in which earnings projections have increased during the past month in my Portfolio Grader tool. For more information, view my complete analysis of MTL stock.

U.S. Steel (NYSE:X) is a producer of integrated steel, flat-rolled and tubular products in the United States and Europe. A 56% drop year-to-date has ensured a place on this list for U.S. Steel. X gets an �F� for the magnitude in which earnings projections have increased over the past month, an �F� for cash flow and an �F� for return on equity in my Portfolio Grader tool. For more information, view my complete analysis of X stock.

Vale (NYSE:VALE) is a metal and mining company based on Brazil with a wide portfolio of products. VALE stock has dipped 34% year-to-date. VALE stock gets a �D� for the magnitude in which earnings projections have increased during the past month, and a �D� for cash flow in my Portfolio Grader tool. For more information, view my complete analysis of VALE stock.

Get more analysis of these picks and other publicly traded stocks with Louis Navellier�s Portfolio Grader tool, a 100% free stock-rating tool that measures both quantitative buying pressure and eight fundamental factors.

LPL Financial to Acquire Alternative Investment Firm Fortigent

LPL's Robert Moore (left) and CEO Mark Casady in Times Square after their IPO in 2010.

Broker-dealer behemoth LPL Financial announced Tuesday that it would acquire Fortigent LLC, an alternative investment and reporting firm.

According to the companies, Fortigent will continue to operate autonomously from its Rockville, Md., headquarters and its existing management team will remain in place. Andrew Putterman will continue to lead Fortigent, reporting directly to Robert Moore, chief financial officer of LPL Financial. Financial terms of the deal were not disclosed. The transaction is expected to close in the first quarter of 2012.

“For us, if you look at some of the acquisitions we’re recently made with Concord Capital Partners and National Retirement Partners, we have the organic growth, but we also now have the scale to offer a wide swath of products and solutions to our advisor partners,” Moore (right) told AdvisorOne in a telephone interview that included Putterman. “The cultural fit between the two companies is excellent. We’re both committed to customer success and delivering the capabilities they need.”

“We are the leader in delivering solutions to advisors in the high-net-worth space,” Putterman added. “But what excites us is the high level of innovation that can now occur at an accelerated pace. LPL Financial has the scale, intellectual capital and presence in the space to take us to that next level. We’ll be able to widen our client base and deepen those relationships. We couldn’t do this without a partner that has that scale and experience.”

Putterman (left) also emphasized the importance of the cultural fit between the two firms, noting both are committed to the independent space and doing right by their clients.

“We’re not debating the opportunity,” he said. “With LPL Financial, we’re executing on the opportunity, which is very refreshing.”

“LPL's acquisition of Fortigent provides several strategic benefits to the company,” said David DeVoe, managing partner with DeVoe & Co.  “It will help strengthen the company's position in the large advisor market space, as well as enable LPL to better support advisors who are focused on the ultra-high net worth. Both of these are core client segments for Fortigent. Fortigent's best-in-class research and reporting capabilities also have the potential to be modified to support LPL's broader client base, enhancing LPL's product set.”

Devoe also noted the importance of culture to the success of the transaction, and claims there are several indications that it will be a good fit.

“Both organizations take an especially analytical and strategic approach to planning, and both are very client-centric,” he explained.  “Culturally, the potential challenge they face is the lens that each sees the world through: LPL's strength is providing scaled solutions to thousands of advisors; Fortigent is more accustomed to tailoring their services to the individual needs of few clients.”  

Other factors made the deal attractive. “The crux of this is an effort by LPL to expand its channel distribution strategy further into the RIA market,” added Chip Roame, managing partner with Tiburon Strategic Advisors. "LPL has done a terrific job over the past five to seven years of moving from being a one-dimensional firm serving about 2,000 IBD reps, to one serving about 12,000 of those same IBD reps, plus RIAs, retirement plan advisors, banks, clearing clients, and other channels. This spreads LPL's bets across many business models, which is a solid strategy for a public company."

Roame noted Fortigent is one of three or four vendors that has earned a strong reputation in the upscale RIA market. 

“Andy Putterman, Scott Welch and other Fortigent executives have been in their roles for many years and know the market,” he said. "Fortigent got its start as the back office of what is now Convergent Wealth Advisors (then called CMS Cos. and later Lydian Wealth Advisors). This was the basis of its strengths in portfolio consulting, research, alternative investments and performance reporting.”

Putterman counted 90 clients with $50 billion of assets running through Fortigent’s platform. The company currently has 150 employees.

See AdvisorOne's video interview with Scott Welch, senior managing director at Fortigent.

Soft U.S. retail sales, manufacturing seen


Summer doldrums for the U.S. economy are likely to remain evident this week with a mediocre increase in retail spending and further signs of softening in the manufacturing sector. See full story.

Slowdown in luxury spending may hit Saks

A slowdown in U.S. high-end spending that has hurt retailers from Tiffany & Co. to Macy�s Inc. could be hitting luxury retailer Saks Inc. in the second half as well, an analyst said on Friday. See full story.

Consumer sentiment lowest since December

Consumer sentiment is the lowest since December, with job concerns hitting results, according to data released Friday by the University of Michigan and Thomson Reuters. See full story.

How 2012�s top money ideas have fared so far

As 2012 began, investors were encouraged to stick with defensive, dividend-paying U.S. stocks. Those strategies are paying off so far this year. See full story.

Perils of a corporate profit slowdown

The 2013 fiscal cliff should be a wake-up call. It does not benefit America�s economy to have the highest corporate tax rate in the world, writes Diana Furchtgott-Roth. See full story.


Why has the New York Times failed to find a successor to the previous CEO in seven months? asks media columnist Jon Friedman See full story.


It�s a situation that seems to defy supply-and-demand logic: If there�s more demand in the housing market, wouldn�t the cost of borrowing funds to buy a home be significantly on the rise? See full story.

Opinion: The 1.5% Presidency

President Obama didn't comment on Friday's report of declining growth in the second quarter, and that's no surprise. The economic story of his Presidency is by now familiar: a plodding recovery that has taken its third dip in three years and is barely raising incomes for most Americans.

"We're still in a position where we are pulling ourselves out of the very deep hole caused by the Great Recession, and there is still—of course—a great deal of anxiety in the country about the economy,'' said White House press secretary Jay Carney. He's right about the anxiety, but if only we were "pulling ourselves out."

The reality is that the Great Recession ended three long years ago. In this Less Than Great Recovery, the economy shows promise for one good quarter then slows back down. As the nearby chart shows, this is the third straight year of sputtering recovery. Growth of 4.1% in the fourth quarter declined to 2% in the first and now 1.5% in the second. The stock market rose as investors bet that the lousy growth will inspire more Federal Reserve easing.

SM: Where the Stock and Bond Bargains Are...

If Wall Street is a struggle between fear and greed, both sides seemed plenty crowded this past week.

The fearful, eyeing political turmoil and deep fiscal woes in Greece, snapped up 10-year Treasury notes with yields as low as 1.70%, near their all-time low. Never mind that the latest reading on inflation was 2.3% for the year through April, suggesting those Treasury payments will fall behind the cost of living, sapping wealth rather than adding to it.

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The greedy crammed into Facebook (FB) in its stock-market debut. The price, even without a big first-day jump, will require some growing into. At Friday's close, shares fetched more than 100 times the company's profit last year, versus less than 14 times 2011 operating profits for the Standard & Poor's 500-stock index.

Between extremes like these, there remain some sweet spots in the markets. Here is where to find them.

Stocks. Big dividend payers like utilities and telecoms have gotten expensive, says John DeClue, chief investment officer at U.S. Bank. Better to favor companies with strong "free cash flow" -- surplus funds that can be spent in coming years on dividend increases, stock buybacks or growth.

Look for such companies in two industries in particular: technology, for growth-minded investors, and health care, for cautious ones. A screen of these sectors for high "free cash yield," which measures free cash flow over the past year as a percentage of market value, turned up Microsoft (MSFT) at 8.6%, Cisco Systems (CSCO) at 9.7%, Amgen (AMGN) at 7.1% and Medtronic (MDT) at 6.7%.

Among S&P 500 companies that generated free cash over the past year, the median did so at a yield of 5.1%, suggesting these four are less expensive than the market relative to their free cash.

Watch out for companies that pay generous dividends but also raise cash by repeatedly issuing new shares, says Jonathan Golub, chief U.S. equity strategist at UBS (UBS) . Issuing shares dilutes the value of existing ones, while buying them back can make remaining shares more valuable. Investors should avoid companies that consistently do more of the former than the latter.

The utilities sector, for example, has a meaty 4.1% dividend yield, almost double that of the S&P 500. But utilities have lately issued more shares than they have repurchased, so the sector's total payout yield (dividend payments plus buybacks, minus issuance) is 3.5%, less generous than the 5.4% total payout yield for the S&P 500, Mr. Golub says.

The consumer-discretionary sector has a dividend yield of just 1.6% but is a voracious buyer of its shares, resulting in a total payout yield of 7%.

Mr. Golub's team supplied a list of stocks with high total payout yields and "buy" recommendations from UBS analysts. It includes BlackRock (BLK), with a total payout yield of 11.8%; Time Warner Cable (TWC) at 10.9%; Travelers (TRV) Cos. at 10.5%; and Coca-Cola Enterprises (CCE) at 10.2%.

Kate Moore, global equity strategist at Bank of America Merrill Lynch, recommends another approach: looking for companies whose dividend yields exceed their bond yields. They likely are good values, but at the same time, their low bond yields suggest they are financially strong. Examples include Johnson & Johnson (JNJ), with 2018 bonds that yield 1.5% to maturity and shares that yield 3.8%, and McDonald's (MCD), whose 2020 bonds yield 2.4% and whose stock yields 3.1%.

Bonds. Falling Treasury yields have dragged down yields on other high-quality bonds. Among these are municipal bonds, which are issued by states, local governments and their agencies, and whose income is often tax-free.

"You must have us mistaken for another market," wrote Matt Fabian, managing director of research firm Municipal Market Advisors, in response to a request for good muni-bond deals.

Individual bond buyers can look for small blocks of high-yield bonds, but high commissions on such trades sometimes can offset the extra yield, Mr. Fabian says. Mr. DeClue agrees that high-yield munis are relatively inexpensive for investors who don't mind the risk, and recommends investing in them through mutual funds for diversification and lower fees.

"There's a perception that high-yield munis are like 'junk' bonds, but in reality municipal defaults are much rarer than corporate ones," he says.

The T. Rowe Price Tax-Free High Yield fund invests the bulk of its money in A and triple-B munis, as well as unrated munis -- ones whose credit-worthiness buyers must judge on their own. It has no upfront sales charge and ranks among the top 20% of peers for 10-year performance, according to Morningstar (MORN) . The fund yields 4.4%.

As for corporate bonds, yields are low for top-quality companies and even at the higher-quality end of the junk-bond market, to which investors have recently flocked, says Robert Levine, retired chief executive of Nomura Corporate Research and Asset Management and author of "How to Make Money With Junk Bonds".

The best junk values, Mr. Levine says, fall in a part of the market where most investors don't belong: triple-C-rated issues. A J.P. Morgan index of such issues yields about 12%, but triple-C-rated bonds are only a couple of notches above bonds that are in default.

There are far safer ways for bond investors to get better returns than Treasurys offer. Jurrien Timmer, who manages the Fidelity Global Strategies fund, recommends two. Emerging-market bonds, from countries like Turkey, Brazil and the Philippines, have sold off in recent days, but in general are benefiting from credit upgrades as these economies improve. One exchange-traded fund composed of such bonds, iShares JP Morgan USD Emerging Markets Bond (EMB), yields 4.7%.

Mr. Timmer also likes floating-rate bank debt, or business loans that have been sold by banks and trade as securities. These loans, like corporate bonds, come with the risk that companies will fall into financial difficulty and won't be able to pay, but they often are secured by collateral that can be sold off in such an event. Unlike bonds, the income they pay rises if interest rates broadly rise. Fidelity Floating Rate High Income, a fund composed of such loans, yields 3.3%.

—Jack Hough is a columnist at Email: