Saturday, September 15, 2012

This Biotech Stock Could be a Big Winner in 2012

When a new drug backed by impressive clinical data hits the market, investors quickly size up its market potential. And when this drug receives a thumbs-up from Medicare and other insurance-reimbursement firms, projections of billion-dollar sales start to percolate. But in many instances, the new wonder drug can barely stand up to such high expectations, so those lofty sales targets slowly vanish from analysts' models. And investors, some of whom end up losing lots of money as a result, hope to never hear about the stock again. This sums up the sudden rise and fall of Dendreon (Nasdaq: DNDN), which has developed an effective treatment for prostate cancer. Aggressive spending on new manufacturing facilities have begun to pummel the company's financial statements and, to make matters worse, doctors have been slow to prescribe the once-and-future promising drug, Provenge. Needless to say, the stock was badly hit, as you can see in the chart below: Judging by second-quarter sales data, Provenge looked like it would be an absolute dud. Dendreon reported just $50 million in sales of the drug, noting that doctors were slow to prescribe it. For many physicians, the need to lay out money in advance and then wait reimbursement for this expensive drug was simply too much hassle (Total cost for a full course of treatment with Provenge, (three doses) is roughly $93,000). Things improved only slightly in the third quarter, when sales reached $64 million. Earlier in the year, analysts had been assuming quarterly sales would exceed $100 million by now. Equally damming, continuing quarterly losses exceeding $100 million have proved too much for many investors to bear, and even Dendreon's most ardent bulls realized this company may just turn out to be another cash-starved biotech.

Shares hit an all-time low of $6.46 on Nov. 4 and have barely budged since. That's a far cry from the $55 high hit back in May 2010, and further below the lofty $100 price targets many once anticipated for Dendreon. Well, those days are gone. Dendreon may never even revisit the more recent high of $40 seen this past summer. But with much lowered expectations in place, shares -- now under $8 -- may find fresh appeal, so a move up to $15 or $20 isn't out of the question. As it turns out, Provenge still has tangible growth prospects. Despite a lousy launch, sales will likely exceed $200 million this year and could hit $300 to $400 million in 2012. Analysts' forecasts are all over the map, highlighting the hard-to-read ramp for this new drug. Here's why... Even at $400 million in revenue, Dendreon would still lose money. This is the downside of a strategy that has yielded way too much manufacturing capacity. The key to reaching break-even -- and eventually profitability -- is international sales that augment the rising U.S. sales base. But this is not likely to happen before 2013, when Provenge completes the European regulatory approval process. From there, sales are expected to rise quickly. Think Equity's Marko Kozul sees U.S. sales of $440 million and European sales of $250 million for 2013. Layer in 20% more growth in 2014 and 2015, and he thinks total sales could hit $1 billion. At these sales levels, Kozul expects operating income to hit $250 million. If Kozul is right, then Dendreon's current $1.3 billion market value starts to look like a bargain. That's why he sees shares rebounding to $21, placing him at the high end of Wall Street's forecasted price targets (and 180% above the stock's current price). Will Dendreon's balance sheet hold out until then? To rebuild cash levels, the company announced plans in early December to sell royalty interests in another drug, Victrelis, for $125 million. This leaves Dendreon with a projected $600 million cash balance for the quarter that ends in a few weeks. Yet it's the income statement that will be in focus. An ample amount of manufacturing capacity has left Dendreon with too much unamortized overhead, which translated to paltry 14.5% gross margins in the most recent quarter. When annual sales reach $500 million, a run rate that may be met by the end of next year, gross margins should reach 50%, according to analysts. So at some point in 2013, assuming European regulatory approval, Dendreon should finally have the quarterly sales volume to finally start generating cash. It may go down to the wire, but Dendreon should have enough money to last until profits arrive. Even if Dendreon is able to post real sales traction for Provenge and generate the eventual cash flow that the most bullish analysts expect, we may still be a few quarters away from a change in sentiment. Many doctors are planning on using Provenge with just a few patients so they can see the drug's efficacy for themselves before exposing it to more patients. "While we continue to see Provenge as having the potential to be a $1 billion plus drug, we do not see an inflection point for sales acceleration until mid-2012 at the earliest," Goldman Sachs' analysts say. Here's the tricky part: if investors wait until then to see more positive sales trends, then they may miss a quick early move in the stock. Goldman Sachs suggests that shares only have upside to $11 until this potential inflection point. Still, that's nearly 50% upside (with perhaps another 100% upside after that if Think Equity's Kozul is correct). Risks to Consider:  Weak fourth-quarter sales results would lead shares down to fresh lows as projected cash burn rates accelerate. Yet sales should at least meet forecasts as management guidance implied a sequential flattening in fourth-quarter sales, even though prior data show a steady ramp as more physicians get up to speed.  Other prostate-cancer treatments, including Johnson & Johnson's (NYSE: JNJ) Zytiga, are also being studied by doctors and could win "mindshare" over Provenge. Tips>> In the biotech community, this is a well-known and well-understood stock. So the company doesn't need to spend an extended period getting on investors' radars, unlike many other anonymous biotechs.

RenaissanceRe Nabs Two Analyst Endorsements

RenaissanceRe(RNR) shares have rallied 15% over the past three months. Two analysts said Friday that the reinsurer's run may continue.

Citigroup analyst Keith Walsh added RenaissanceRe to the investment bank's Top Picks Live list, saying the company is the best-positioned insurer to take advantage of firming rates. In addition, Walsh says RenaissanceRe is primed for strong growth and that Wall Street analysts will likely revise profit forecasts for the company higher in the near term.

See if (RNR) is in our portfolio

Walsh notes that there were approximately 820 natural catastrophe events in 2011 with total insured losses of about $105 billion, making last year the second most costly since 1980. "While these losses were not sufficient to create a hard market, RNR is seeing solid price increases, which we would also define as adequate from an ROE perspective and sustainable in 2012 owing to increased demand for reinsurance," Walsh writes.Additionally, Walsh said he expects RenaissanceRe to resume share buybacks. "Management has indicated share buy backs could resume beginning in 4Q11, making them one of a handful of underwriters that can write more business and return capital to shareholders," Walsh writes.In addition to increasing his 2012 and 2013 profit estimates, Walsh reiterated his "buy" rating on RenaissanceRe and raised his price target to $85 from $80. In adding the stock to Citi's Top Picks Live! List, Walsh removed rival insurer XL Group(XL), although Citi still retains a "buy" rating on the stock. Shares of RenaissanceRe closed Thursday at $72.97.Meanwhile, Wells Fargo analyst John Hall upgraded RenaissanceRe to "outperform" from "market perform," arguing the company has set conservative guidance for 10% growth in its managed cat premiums in 2012. "Additionally RNR has proven that it can utilize multiple capital resources to take advantage of market opportunities," Hall adds.Hall also upgraded Travelers(TRV) to "outperform," saying the Dow component is "positioned to capitalize on the improving rates in the primary insurance market." Meanwhile, Hall downgraded Axis Capital(AXS) to "market perform," arguing that a reversion to the mean for the company's share price may be extended due to the transition of CEO John Charman to the chairman position in May.Hall raised his valuation range for RenaissanceRe to a range of $82 to $86 from the previous range of $72 to $76. He also increased his valuation range for Travelers to $67 to $72 from the prior valuation range of $60 to $65. Axis Capital's valuation range was cut to $32 to $35 from the previous range of $36 to $39..>To follow Robert Holmes on Twitter, go to>To submit a news tip, send an email to:

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Insider Sales: Underperforming The Market By 4 Percentage Points

Our past studies have shown that insider purchases beat the market on the average. On the other hand, insider sales have not outperformed the market. The reason is simple. Most insider sales are motivated by diversification or liquidity needs. However, there is new evidence that stocks sold under the 10b5-1 plans had large negative abnormal returns and we wrote an article a year ago about the stocks that insiders are selling like crazy under 10b5-1 plans. In this article, we are going to check out how these stocks performed since we published that article.

Returns of these 10 stocks since December 19, 2010 are as follows:

Company Name






Keynote Systems Inc



MetroPCS Communications Inc



Nanometrics Inc



The E. W. Scripps Company



Citrix Systems Inc



Sempra Energy



Martha Stewart Living Omnimedia Inc



Varian Medical Systems








On average, these 10 stocks returned 6.33% since December 19, 2010, while SPY was up 10.24% in the same period. Six of the stocks - NFLX, PCS, SSP, CTXS, MSO and VAR - underperformed the market since the day we published the article. The other four stocks significantly outperformed the market.

Netflix is the worst performing stock among these 10 stocks. It lost 28.99% since December 19, 2010, underperforming the market by nearly 40 percentage points. We still do not like NFLX. It was continuously sold by insiders over the past year. CEO Reed Hastings sold 5,000 shares at $119.7 on October 6, 2011. Hastings also sold 20,000 shares in September. The company's DVD subscription business is facing the risk of obsolescence.

Also, (AMZN), Netflix's main competitor, recently entered into the streaming business, which is likely to negatively influence Netflix's growth in the long term. Netflix still has some positive aspects. The company's fourth quarter 2011 results were much better than expected and its first-quarter 2012 guidance was solid. Over the third quarter, 13 hedge funds sold out their NFLX stakes, including George Soros' Soros Fund Management, Stephen Mandel's Lone Pine Capital, Chase Coleman's Tiger Global Management LLC, and Louis Bacon's Moore Global Investments.

MetroPCS Communications Inc also lost more than 20% since December 19, 2010. It was down 25.90% during that period, underperforming the market by 36 percentage points. We recommend investors should "hold" this stock right now. The company is facing significant competition in the wireless market. PCS has a focus on the prepaid market, which is becoming increasingly competitive. Additionally, the pricing pressure caused by the competition may also lead to the deterioration of profit margins.

On the other hand, PCS also has certain strengths. For instance, its early entry into 4G with LTE gives the company some advantages as an early adopter. It is also relatively cheap with an unlevered FCF of about 10, compared with 12 for Verizon Communications Inc (VZ) and Leap Wireless International Inc (LEAP). At the end of the third quarter, there were 18 hedge funds with PCS positions in their 13F portfolios. For example, Jim Simons' Renaissance Technologies initiated a brand new $13 million position in PCS over the third quarter. George Soros, Cliff Asness and Paul Tudor Jones were also bullish about PCS.

Though a few stocks listed above, such as NANO and KEYN, performed quite well by beating the market by over 20% since we published the article, these 10 stocks on average performed worse than the market. Therefore, although insider sales are not as informative as insider purchases, investors should still be cautious about stocks that insiders are selling like crazy, especially those that are sold under 10b5-1 plans.

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

Commodity ETFs: Understanding Contango

Commodities have been slumping lately as a slowdown in China’s growth and the looming debt crisis in Europe have investors worried. ETFs and ETNs have made commodity investing easier than ever. So, is this the time to invest before a possible turnaround?

Before you put money down, you should consider some of the risks inherent in commodity ETFs and ETNs. One main risk factor is in contango – when the front month futures contract is cheaper than second month futures contract, reports Kevin Grewal of Daily Markets.

Contago creates what is known as negative roll yield, which can potentially eat away at returns and cause tracking errors in ETFs and ETNs. Further, greater price spreads (contango) will increase the risk of underperformance.

A few popular ETFs that are affected by contango are the U.S. Oil Fund (NYSEArca: USO), the U.S. Natural Gas Fund (NYSEArca: )UNG and the iPath S&P GSCI Crude Oil Ttl Ret Idx ETN (NYSEArca: OIL).

Grewal advises that one way to mitigate the risk of contango is to utilize an exit strategy that identifies price points to sell at. Another way to mitigate the effect is, when available, use ETFs that invest across the futures spectrum and not just the front month. That would include funds like U.S. 12-Month Oil (NYSEArca: USL) and U.S. 12-Month Natural Gas (NYSEArca: UNL).

Sumin Kim contributed to this article.

Mettler-Toledo International Beats Analyst Estimates on EPS

Mettler-Toledo International (NYSE: MTD  ) reported earnings on Feb. 8. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Mettler-Toledo International beat slightly on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded and GAAP earnings per share grew significantly.

Gross margins were steady, operating margins dropped, net margins expanded.

Revenue details
Mettler-Toledo International notched revenue of $648.4 million. The 11 analysts polled by S&P Capital IQ expected to see net sales of $640.0 million on the same basis. GAAP reported sales were 9.4% higher than the prior-year quarter's $592.8 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at $2.88. The 11 earnings estimates compiled by S&P Capital IQ predicted $2.79 per share on the same basis. GAAP EPS of $2.91 for Q4 were 21% higher than the prior-year quarter's $2.40 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 53.4%, about the same as the prior-year quarter. Operating margin was 19.5%, 90 basis points worse than the prior-year quarter. Net margin was 14.5%, 90 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $526.2 million. On the bottom line, the average EPS estimate is $1.62.

Next year's average estimate for revenue is $2.42 billion. The average EPS estimate is $9.41.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 143 members out of 152 rating the stock outperform, and nine members rating it underperform. Among 56 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 55 give Mettler-Toledo International a green thumbs-up, and one give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Mettler-Toledo International is outperform, with an average price target of $171.91.

  • Add Mettler-Toledo International to My Watchlist.

Top Stocks For 2012-2-2-4

EastGroup Properties Inc (NYSE:EGP) announced two acquisitions in separate transactions in Charlotte, North Carolina. Lakeview Business Center ($7,000,000) is a 127,000 square foot business distribution building located in Charlotte’s north submarket. Built in 1996, this state-of-the-art facility is 100% leased to three customers and is projected to generate a first year cash yield of 7.2%.

EastGroup Properties, Inc., a real estate investment trust (REIT), focuses on the development, acquisition, and operation of industrial properties in the United States.

Cleantech Transit, Inc. (CLNO)

Cleantech Transit Inc. was founded to capitalize on technology advances and manufacturing opportunities in the growing clean energy public transportation sector. The Company has expanded its focus to invest directly in specific green projects. Recognizing the many economic and operational advances of converting wood waste into renewable sources of energy, Cleantech has selected to invest in Phoenix Energy ( This project could benefit the Company’s manufacturing clients worldwide.

Cleantech Transit, Inc. (CLNO) is pleased to announce it has met its funding requirement to secure the Company’s ability to earn in 25% of the 500KW Merced Project.

The Company is in the final stages of closing its initial interest in the Merced Project and is currently working on completing the necessary documentation and expects closing the transaction soon. As previously announced Cleantech has the option to earn up to 40% of the Merced Project and the Company plans to continue to work towards increasing its interest in the Merced Project as they move ahead.

Biomass could supply a large part of the world’s energy, through effective forest management, advance harvesting techniques and more efficient stoves and biolers. Biomass is a versatile energy source. Organic matter that is used as a source of biomass energy includes trees, timber waste, wood chips, corn, rice hulls, peanut shells, sugar cane, grass cuttings, leaves, manure, sewage, and municipal solid waste. All around the world people have used and are using woodstoves to heat their buildings and for cooking, making biomass one of the most common forms of energy. Biomass absorbs carbon dioxide during growth, and emits it during combustion; therefore, it recycles atmospheric carbon and does not add to the greenhouse effect. It also does not contribute much to acid rain as it produces only low levels of sulfur and ash.

For more information about Cleantech Transit, Inc. visit its website

Tidewater Inc. (NYSE:TDW) will present at the Barclays Capital 2011 CEO Energy-Power Conference in New York, New York, on Wednesday, September 7, 2011, at approximately 8:25 a.m. Eastern time. The presentation will be available via real-time webcast at Playback will be available on September 8, 2011, at approximately 8:25 a.m. Eastern time.

Tidewater Inc., through its subsidiaries, provides offshore service vessels and marine support services to the offshore energy industry through the operation of a fleet of marine service vessels.

Ashland Inc (NYSE:ASH) completed its acquisition of privately owned International Specialty Products Inc. (ISP), a global specialty chemical manufacturer of innovative functional ingredients and technologies. The purchase was an all-cash transaction for $3.2 billion, subject to post-closing adjustments for changes in net working capital and certain other items.

Ashland Inc. operates as a specialty chemicals company in the United States and internationally. Its Ashland Aqualon Functional Ingredients segment produces cellulose ethers; and specialty additives and functional ingredients.

Friday, September 14, 2012

Why Now is the Ideal Time to Buy Apple

Apple (NASDAQ:AAPL) � This great American success story saw its stock put under pressure following the death of founder Steve Jobs. But the new management team was handpicked by Jobs and is expected to perform well.

Analysts are estimating sales growth of 30% in FY 2012 (ending in September) versus a projected 67% rise in FY 2011. At just 9.6 times FY 2012 earnings estimates the stock looks undervalued.

The Trade of the Day recommended AAPL on Oct. 10 after it bounced from its 200-day moving average. The stock is in a powerful bull trend, and any time it dips to its bullish support line and 200-day moving average it should be bought.�

A recent report from Credit Suisse analysts targets AAPL at $500 within 12 months. Technically a quick trade could take the stock to its 50-day moving average at $395 and much higher longer term.

Groupon: Bad Accounting, Rising Losses

Groupon (GRPN) is the worldwide leader in so-called 'daily deals'. The company offers consumers the opportunity to purchase daily coupons that entitle them to discounts at participating merchants. Groupon collects money from customers for the coupons, keeps around half of the total, and disperses the rest to the merchant. Specifically, Groupon's "revenue is the purchase price paid by the customer for the Groupon less an agreed upon percentage of the purchase price paid to the featured merchant".

The company went public on November 4, placing 35 million shares at $20 each, well above the target range of $16-18 per share. On the first day it was available to the public, the stock traded up better than 50% intraday before closing up 31% to $26.11. Since then, the stock has cooled off a bit and now trades around $24 per share.

In a previous article, I recommended buying Groupon's shares as close to the IPO price as possible and selling immediately into the rally. If you were lucky enough to get in early and you haven't sold your shares yet, it might be time to start unloading them. While many investors were skeptical of Groupon's business model early-on, reasons for not liking the company (as an investment that is) just keep piling up.

Before going into some of the reasons why you should not buy Groupon's stock, it is worth mentioning that the 'demand' for Groupon's shares on the first day was artificial. Groupon's 5.5% share float is the second smallest of any IPO in the past ten years. This is a clear example of creating demand for something by artificially constraining supply.

Having said that, it should be noted that despite the company's awe-inspiring growth record, Groupon has never actually made a dime of profit. The company has lost $633 million this year as of September 30. In its prospectus, the company says the following: "...we have incurred net losses since inception and we expect our operating expenses to increase significantly into the near future." In other words, "our business model is clearly not conducive to profit generation and we expect rising costs to make it even more difficult for us to climb out of the hole."

Make no mistake, the company is burning through cash in an effort to recruit new customers. Groupon has spent $466 million this year on marketing in an attempt to lure in new subscribers. In a rather alarming passage from the prospectus, the company notes that it "cannot assure [investors] that the revenue from subscribers we acquire will ultimately exceed the cost of acquiring new subscribers". This means the company is slowly drowning. This is especially scary given that only about 25% of Groupon's subscribers have actually purchased a coupon from the site.

In its prospectus, the company also notes that "if we fail to retain existing merchants or add new merchants, our revenue and business will be harmed". This statement could be written-off as simply a cautionary reminder to prospective investors were it not for the fact that Groupon is already losing business due to the company's reluctance (or inability) to pay participating merchants their part of the deal price.

As it turns out, Groupon pays merchants in three installments over 60 days. Compare this to the payment policies of the company's competitors and it is difficult to imagine why any merchant would choose Groupon. Amazon Local (AMZN) and Living Social pay merchants 100% of what they are owed within two weeks while Google Offers (GOOG) pays participating businesses 80% within four days and the remaining 20% within three months.

A recent Wall Street Journal article entitled "Groupon Holds Cash Tight" provides numerous first hand accounts from merchants who are dissatisfied with the way Groupon disperses payments. As the article notes, keeping cash on its books instead of turning it over immediately to merchants makes Groupon's cash position look better than it actually is. Apparently, this is typical behavior for the company. Groupon is notorious for reporting the full amount of coupons purchased by subscribers as 'revenue' as though it did not have to turn over a percentage of the profit to merchants at all. Even more disturbing is the fact that the percentage of each deal that Groupon does get to keep is falling fast.

Additionally, it should be noted that Groupon owes merchants more than it has in cash - that is, if asked to pay merchants what it owes them in one lump payment, the company could not do so. The whole thing looks eerily similar to a ponzi scheme. Red flags also abound regarding the company's accounting practices, most notably:

Groupon significantly changed the definition of key expense metrics such as marketing expenses, cost of revenue and selling, and general and administrative costs...just two weeks before its IPO...[without restating] the numbers for the previous two quarters.

The good news for traders is that Groupon options began trading on Monday. Apparently, more investors are betting on Groupon to fall than rise as 7,000 puts traded hands against only 5,500 calls. I believe Groupon's stock will eventually fall below $5 per share. The company will likely lose in excess of $700 million (ironically the total it raised in its IPO) this year and it does not even have enough cash on its books to pay merchants their half of the deals it sells.

All this at a company where the CEO is now worth $1.2 billion - there's something wrong with that. Now is the time to either short these shares or buy some put options on the stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GRPN over the next 72 hours.

A Smarter Way to Invest in Emerging Markets: Dividends

When I made my New Year's resolution, it was simple: I wouldn't be investing in Chinese small-caps. But in reality, if you don't have any exposure to emerging markets, you're missing out on enormous growth potential.

In order to make sure your cold, hard cash is going into real businesses providing real cash flows, I went looking for other opportunities in the BRIC countries of Brazil, Russia, India, and China. Specifically, I went sniffing about for mid- to large-cap companies that paid dividends.

Even if the dividends are small, they provide a sense of legitimacy to an otherwise unreliable sector, and because these economies are growing rapidly, dividend stocks still hold enormous potential for share-price appreciation.

Below, I offer up one company from each BRIC country that I believe could be a solid investment over the next three to five years. I'm backing up my words by entering all the picks into my All-Star profile as well. And at the end, I'll offer access to a report detailing an oft-overlooked way to get safe access to emerging markets.

Over the next four years, the world's light will shine brightly on this South American country and its economy. Brazil will be hosting the World Cup in 2014, and two years later, the 2016 Summer Olympics.

Viewers should notice a country undergoing massive changes. It's estimated that between 2003 and 2014, 55 million Brazilians will have joined the growing middle class. For a country with a population of just under 200 million, consider what that means: In the span of just over a decade, more than 25% of the populace will have moved from near-poverty levels to steady, sustainable, and substantial incomes.

With such a change, a lot is likely to change -- none more so than the demand for electricity. That's why I think CPFL Energia (NYSE: CPL  ) , a major Brazilian provider of electricity, is a solid stock to own.

Revenue and gross profit have both grown by over 70% from 2008 to 2010, and the company offers a solid 5.5% dividend. But the really attractive prospect is this: The company is currently using up a substantial amount of cash flow to build out its infrastructure. Once that infrastructure is built out, it may signal an end to revenue growth, but it will also signal a beginning to dividend growth, as free cash flow should balloon.

There aren't a whole lot of pure-plays in Russia, but I believe your best bet would be an investment in Mobile TeleSystems (NYSE: MBT  ) . This telecom provider serves not only Russia, but the former Soviet-bloc countries of Ukraine, Uzbekistan, Turkmenistan, Armenia, and Belarus.

While corruption is always something to worry about within this system, I think the numbers speak for themselves and provide a margin of legitimacy. Revenue grew at a healthy 14% pace between 2009 and 2010, while net income was up a more impressive 36% over the same time frame. More importantly, the company offers a 6.1% dividend yield, and last year, the company only needed to spend 57% of free cash flow to pay out dividends.

I'm going to admit it -- as far as dividend payments go, this one isn't the greatest. My pick for India is Dr. Reddy's Laboratories (NYSE: RDY  ) . The company only offers a puny 0.7% dividend yield, but don't let that number fool you into thinking that there isn't a world of potential here.

Dr. Reddy's specializes in manufacturing generic drugs as soon as the patents on brand-names expire. Though its located in India, its customer base has wide geographic diversity. While 19% of sales come from India, North America accounts for 31%, Europe for 21%, and Russia and other former Soviet bloc countries come in at 15%. The company also has a 51% stake in a joint venture -- Reddy Kunshan -- within China as well.

Most intriguing, though, is a 10-year partnership with GlaxoSmithKline. According to details of the partnership, Reddy's is only responsible for manufacturing and shipment of drugs, and Glaxo will be able to use their considerable market position to provide sales and distribution.

I've already stated publicly that one of my favorite investments in China -- which I already own -- is Baidu (Nasdaq: BIDU  ) . The company has shown there's nothing wrong with imitating Google, especially when Google isn't really competing in China.

For the purposes of this article, though, Baidu doesn't qualify -- it doesn't offer a dividend. Instead, I offer up to you Guangshen Railway (NYSE: GSH  ) . This regional train line operates both freight and passenger trains in Guangdong, China's most populous province -- clocking in with 100 million people. The rail not only offers passengers access from Hong Kong to mainland China, but also helps move tons of freight from one of China's most bustling manufacturing hubs.

It doesn't hurt that the company also offers investors a 3.2% dividend yield, and that last year, the company only needed to use a miniscule 26% of free-cash flow to pay out the dividend. There's clearly room for growth here.

A different approach
Hopefully, you'll consider all four of these companies. But if investing directly in emerging markets isn't for you, there's another strategy: Invest in American companies that are expanding abroad. In our special free report -- 3 American Companies Set To Dominate The World -- our analyst give you the names of three American brands that are getting an increasing amount of revenue from emerging markets. To find out which companies they picked, get your copy of the report today, absolutely free!

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Wednesday March 31, 2010 Stock Report!

The Directors of Parafin Corporation (Pinksheets:PFNO) reported that Parafin Corporation and a Private Equity Firm have both signed a Term Sheet whereby the Private Equity Firm, based out of Wilmington, DE, will commit to purchase up to $6M USD of shares of common stock of Parafin. The investor is a private equity firm that invests capital into companies in the emerging markets. They have invested in over 100 public and private companies in various sectors including oil and gas, communication, arts and entertainment, services and medical sectors. Once the final Agreements have been executed, Parafin plans to immediately begin the 3-D re-processing of all existing seismic data. The Directors of ParaFin Corporation have approved a development program for the approximately 6.6 million acre hydrocarbon Farmout Concession in the Republic of Paraguay based on the geophysical report of Byron Ayme, consulting geophysicist, dated January 1, 2010. The geophysical report indicates the Alto Parana Region�s Reserves have a very high probability of approximately 2,000,000,000 (Two Billion) Barrels of Crude. ParaFin has concluded that the region also has potential for substantial gas reserves.

Energy-efficient, intelligent building controls from Home Touch Limited (OTCBB:HMTO) will be exclusively featured in the first of four houses within Hong Kong�s premier Headland Road Project, on the island�s southern coast overlooking Repulse Bay. The homes are offered by Henderson Land Development Company. The 11,000 sq. ft. luxury Show House is near completion and will be priced at around $64 million USD ($500 million Hong Kong Dollars). Completion of all four homes is highly anticipated by the luxury real estate market. Home Touch�s green, intelligent design system efficiently controls multiple home functions � everything from lighting and temperature control, to security and entertainment systems � all integrated under the Home Touch Green and Intelligent Building System. Additional intelligent design features include European Industry Bus system, video door phone and intercom, multiple Wi-Fi networks + home control and remote site access. The Home Touch contract for system design and installation, valued at around $100,000 USD ($800,000 HKD), is due for completion in May, 2010.

View Systems, Inc. (OTC Bulletin Board:VSYM), a security and teledata solutions provider, announced today that the company�s leading authorized international dealer and business partner, Belcom, is in negotiations with Dr. Naseeb Qirbi to launch a marketing initiative that would call for the delivery of approximately 100 plus ViewScan systems by the 2010 year end. The government of Yemen is seeking to secure the premises of each of their embassies around the world. Upon finalization of the agreement, Belcom will place an order to View to fulfill the requisition for 100 or more ViewScan units that would then be placed in each of the Yemenite embassies, and in some high-traffic office buildings.

Brightpoint, Inc. (Nasdaq:CELL) (Brightpoint) and Research In Motion (RIM) (Nasdaq:RIMM) (TSX:RIM) today announced plans to expand the distribution of BlackBerry(r) smartphones in Indonesia. Brightpoint will provide logistics and supply chain expertise, assisting RIM to expand the national distribution of BlackBerry smartphones through Brighpoint’s relationships with local distributors. Supported models include the BlackBerry(r) Bold(tm) 9700, BlackBerry(r) Bold(tm) 9000, BlackBerry(r) Curve(tm) 8900 and BlackBerry(r) Curve(tm) 8520.

Gilat Satellite Networks Ltd. (Nasdaq:GILT) today announced that it has received a multi-million dollar contract to deliver a turnkey broadband communications solution for a major defense agency in Latin America. The new network will be used for border control applications.

Hudson Highland Group, Inc. (Nasdaq:HHGP) announced today that it priced a public offering of 4,200,000 shares of common stock at $4.35 per share to the public. The company has also granted the underwriter for the offering an option for 30 days to purchase up to 630,000 additional shares of common stock at the same price per share to cover any over-allotments. The closing of the offering is subject to customary closing conditions and is expected to occur on April 6, 2010.

3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners, from finding low-P/E stocks to seeking companies selling at a discount to their future cash flows. At the small-cap investment service Motley Fool Hidden Gems, even in this market, analysts are able to stay ahead of the pack by finding undervalued stocks that Wall Street and investors have ignored.

But what if we could whittle down our list of prospects beforehand, to find those whose engines are just getting warmed up?

Using our investor intelligence database at Motley Fool CAPS, I screened for stocks that were marked up by investors before their share prices rose over the past three months. My screen returned just 97 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:


CAPS Rating, 5/13/11

CAPS Rating, 8/12/11

Trailing-13-Week Performance

American Railcar Industries ** *** 44.9%
Consolidated Graphics ** *** 39.8%
Applied Micro Circuits ** *** 38.1%

Source: Motley Fool CAPS Screener; trailing performance from Aug. 12 to Nov. 11.

This screen tells us which stocks we should have looked at three months ago, but we'd rather find the stocks that we ought to be looking at today. I went back to the screener and looked for stocks that were just bumped up to three stars or better, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 56 stocks the screen returned, here are three that are still attractively priced but that investors think are ready to run today.


CAPS Rating, 8/12/11

CAPS Rating, 11/11/11

Trailing-4-Week Performance

P/E Ratio

Career Education (Nasdaq: CECO  ) ** *** (52.1%) 3.9
Discover Financial Services (NYSE: DFS  ) ** *** 2.7% 6.5
Sunrise Senior Living (NYSE: SRZ  ) ** *** (1.0%) 12.7

Source: Motley Fool CAPS Screener; price return from Oct 14. to Nov 11.

You can run your own version of this screen over on CAPS; just remember that the data's dynamically updated in real time, so your results may vary. That said, let's examine why investors might think these companies will go on to beat the market.

Career Education
For-profit educator Career Education is starting with something of a clean slate after issuing a disastrous earnings report that saw profits slashed. The CEO resigned, and the board was on the lookout for "fresh leadership."

Career Education Corinthian Colleges (Nasdaq: COCO  ) , DeVry, and other profit-making colleges are under the gun for aggressive recruitment practices and their high default rates among former students. Accounting for only 10% of the country's college enrollments, for-profit students make up half of their defaults. Blame it partially on the economy, which is taking its toll on employment everywhere, but low-income students -- who typically enroll at for-profit schools -- will feel the brunt of it more.

CAPS member�EBStroke thinks the pressure from the government will be too much to bear at Career Education and other for-profits: "Career Education Corporation, a major for-profit post-secondary education provider, is facing trouble after it admitted to supplying misleading information on job placement rates. Other for-profit companies are struggling too, under pressure from new federal rules."

Add the stock to the Fool's free�portfolio tracker�to keep track of its progress and see whether can make it to the head of the class.

Discover Financial Services
According to Discover Financial Services' consumer-confidence survey, people feel slightly better about themselves and their situation in October, though they overwhelmingly still believe the economy is poor. As a result, they plan on spending less this holiday season than they did a year ago, which can't be good news for retailers, or the major credit and debit card issuers such as Capital One Finance (NYSE: COF  ) and Visa (NYSE: V  ) .

The better condition of consumers, though, is bolstered by Discover's default and late-payment rates, both of which fell to historic lows last month. It wrote off just 3.26% of its balances, down year over year and sequentially, and well below the all-time high in February 2010. Late payments were 2.48%, also below last year's and last month's numbers, and significantly below the highs in October 2009 as well.

CAPS member viewfromtop believes there's plenty of room for Discover to grow alongside Visa and American Express, which jibes with the feelings of the All-Star members: 87% of those rating the financial-services specialist say it will outperform the broad market averages.

You can provide your own opinion of its prospects on the Discover Financial Services CAPS page and then add the stock to the Fool's free portfolio tracker�to see whether consumers end up changing their spending habits.

Sunrise Senior Living
Despite an 11% revenue drop in the third quarter and a net loss of $0.15 a share -- it earned $0.33 a year ago -- the situation seems to have stabilized at Sunrise Senior Living. The assisted-living home operator also reported an increase in occupancy rates and operating profits, even if only marginally. Occupancy at its senior-living communities rose modestly to just under 88%, while revenue per occupied unit was up 5% from the year ago period.

Valued at less than a quarter of its revenues, Sunrise is cheaper than rivals such as Brookdale Senior Living, though perhaps not offering as much of a discount as Five Star Quality Care (NYSE: FVE  ) , which goes off at just a tenth of its sales.

CAPS member warrenscohn says the demographics of an aging American population make the long-term outlook quite bright for Sunrise: "I too agree that given the demographics of the largest generation ever (baby boomers) due to begin retiring, and moving into assisted facilities in greater numbers (at least once the economy gets better) this company is well positioned to do VERY well. Intangible assets, book value, technical trends, etc, make this a very attractive long term stock buy."

Tell us in the comments section below or on the�Sunrise Senior Living CAPS page whether you think it has the capacity to grow further still, and add it to your watchlist to be notified of its progress.

Three for free
Are these companies still a good value and ready to make their move? I'm heading over to CAPS to mark them to outperform the broader averages. If you agree, join me there, or let us know in the comments section below whether you think these or any other stocks are starting to rev their engines.

What U.S. Consumer Spending Data Is Telling Us

The markets slid yesterday on news that U.S. consumer spending increased by 0.3% in March, while income rose 0.4% over the same time frame. This is the first time since December we've seen income rise faster than spending.

I can't say I am entirely surprised.

As prices for "must haves" like gasoline and food continue to rise, consumers are digging into their savings to cope. This is not small potatoes, given that the average family saved a mere $38 out of every $1,000 in take home pay last month, according to the U.S. Commerce Department.

I can't help but have huge concerns about Team Bernanke's plan; no amount of stimulus is going to overcome the struggle most families are having - which is to boost savings and shed debt.

Here's the thing... if consumers can't save, then they can't buy. And if they can't buy, they can't build up the nation's wealth, which is predicated on consumer spending.

All three sets of figures in isolation really don't tell you much. But when taken together - spending, income, and GDP - they suggest our economy is too weak to put millions of Americans back to work, much less in jobs for which they are appropriately qualified.

You can see that in last Friday's report on our nation's gross domestic product, which reflected a significant slowdown, from 3% in Q4/2011 to 2.2% in Q1/2012.

Either way, we'll know better on Friday morning when April's jobs figures are posted. If job gains are above 100,000, then it's reasonable to expect continued slow going but going nonetheless. If they are below 100,000, then we have reason to pull our horns in because the lack of new jobs may corroborate the income, spending, and GDP figures.

Here's the key takeaway from all of this data: Nearly 75% of the 275 companies that have reported so far this earnings season have beaten analyst expectations. Average earnings are up 7.1% versus expectations of merely 2.2% a month ago, according to Navellier and Associates.

That's good because earnings are probably the ultimate determinate of future market direction. As long as they are rising, the directional bias is up, especially if they're "glocal" and have high dividends, like those we prefer.

[Editor's Note: Keith Fitz-Gerald has hit winner after winner. In fact, his Geiger Index advisory service has notched 64 winners out of 67 total trades over the past three years.

That's a success rate of 95.5%.

If you aren't already getting Keith's market updates, just click here to check out his latest free report.]

Thursday, September 13, 2012

Potential January Effect Companies Worth Watching (Small Cap Edition)

We constantly read about stock market phenomena that occur that create a unique investment opportunity. One that caught our eye last year was the January Effect, and we were hoping that it would prove true as the market had already fallen off following the financial meltdown in September of 2008.

However, the January effect only materialized in part, as we witnessed nearly a 10% drop in the month of January 2009, marking the second consecutive year the January Effect has not been very effective. However, the market was up overall for the full year. The January Effect is a theory that says the stock market tends to rise the month of January as investors are buying up stocks, due to recently selling before the end of the year for tax purposes. The January Effect also notes that small cap stocks tend to outperform large cap stocks. This theory was first discovered by a Univ. of Chicago grad student Donald Keim in the 1980’s.

The part of the theory that small cap stocks tend to outperform large cap stocks has held true many times throughout history (only 6 years since 1980 did large caps outperform small caps 1982,1987,1989,1990 and 2008, 2009). One criticism of this strategy is that it is difficult to profit from this theory because the market expects the January Effect to happen and prices adjust accordingly.

Another part of the theory is that the performance of the market in January, especially the first five days, is used as a predictor and will set the trend for the performance of the market the remaining eleven months of the year.

  • 85% of the time the S&P 500 has seen a rise the first five days of the year, the index has followed suit the remainder of the year.
  • 32 of the last 39 years the performance of the S&P 500 has followed the direction of the index in January for the following 11 months.

Recap of 2009:

First five days the market was down (2009 The Market Closed Up)

Large cap stocks outperformed small cap stocks (It may be coincidence or it may be a trend but the last two years large caps outperformed small caps)

In this exercise we will take a list of small cap companies that we released last week (7 out of 10 are up so far and the group as a whole has currently outpaced the Russell 2000 by 2.88%) that look undervalued from a valuation standpoint and track the performance through January to see if the small caps we find attractive will keep with the trend. If small caps are most likely to outperform and VE believes that these 10 firms are the most likely to outperform from the Russell 2000, then this is a list you may want to consider as potential investment opportunities.

Investment Rank within Sector
Ticker Name Sector Opportunity Valuation Signal
Cheapest Stocks - Russell 2000
(NYSE:UFS) DOMTAR CORP Basic Material Attractive Attractive
(AMEX:CCF) CHASE CORP Basic Material Attractive Attractive
(NASDAQ:FUQI) FUQI INTERNATIONAL INC Consumer Durable Attractive Attractive
(NASDAQ:IPSU) IMPERIAL SUGAR COMPANY Consumer Non Durable Attractive Attractive
(NYSE:SNS) STEAK N SHAKE CO. THE Consumer Services Attractive Attractive
(NYSE:LUB) LUBY'S INC Consumer Services Attractive Attractive
(NYSE:CVI) CVR ENERGY INC Energy and Extraction Attractive Attractive
(NASDAQ:ATPG) ATP OIL & GAS CORP Energy and Extraction Attractive Attractive
(NASDAQ:MDTH) MEDCATH CORP Health Attractive Attractive
(NASDAQ:IDCC) INTERDIGITAL INC Technology Attractive Attractive

As a further layer of analysis the chart below is an example of The Applied Finance Group's (AFG’s) proprietary Intrinsic Value Chart which provides insight into how well AFG has tracked the company through time and how the company currently fares according to AFG’s default valuation model. The company example we are providing is Imperial Sugar Company (IPSU), one of the small caps companies from last week’s list that AFG has tracked well and looks undervalued. Also provided below is a map of the components of the Intrinsic Value Chart as well as how to interpret the chart and the important things to look for.

We will revisit these companies in February to see how they fared vs. large caps and to see what the overall performance of the market in January will predict for 2010.

AFG’s Intrinsic Value Chart:

• Identifies entry/exit points

• Shows how well AFG has tracked the company (accuracy)

• Displays the trading range of the company each year through time (blue bars)

• Displays the end of year closing price (dash on blue bar)

• Displays AFG’s default intrinsic value (red dotted line)

How to Read this chart:

• The Blue Bars represent the high and low trading range for a stock for each calendar year.

• The red dotted line represents Applied Finance Group’s (AFG’s) historical Intrinsic Value through time.

• When the red line (Intrinsic Value) is above the blue bars (trading range) the company looks to be undervalued.

• When the red line (Intrinsic Value) is below the blue bars (trading range) the company looks to be overvalued.

Below is an example of AFG’s Intrinsic Value Chart and the important things to look for within the chart.

Producer Inflation Continues to Heat Up

(Click to enlarge)

Inflation at the producer level continues to move higher, whether or not you include food and energy. Over the past six months, producer prices are up at a double-digit rate: 11.5% annualized. Core prices are up at a 3.1% annualized rate over the same period.

Compare these numbers to what we saw during the 10-yr period ending Dec., 2003, in which core producer price inflation averaged just 1% per year, and the headline PPI averaged 1.6% per year. That same period saw the headline CPI average 2.4% per year, and that was the lowest level of inflation in a 10-yr period that we had seen since the 1960s. Not coincidentally, the Fed was following a relatively restrictive monetary policy during that period, during which time the real Federal funds rate averaged 2.4% per year (today it is -2%), the dollar was generally appreciating, and commodity prices were for the most part unchanged.

The recent decline in oil prices undoubtedly will result in a decline in the headline PPI in the months to come (thank goodness, otherwise we'd be talking about double-digit year over year producer inflation), but it won't necessarily cause the core PPI to decline. Indeed, as I've noted before, it is noteworthy that core prices have been picking up of late even as oil prices have soared: if the Fed were tight enough to keep inflation at bay, then a big rise in oil prices would have resulted in a decline on average in non-oil prices. The fact that both headline and core PPI inflation have been picking up for the past 18 months is good evidence that monetary policy is indeed accommodative.

Easy money works first at the commodity and producer level, and eventually makes its way to the consumer level. By the time easy money shows up in the consumer price index, it's been out in the wild for many months and even years. And by that time it's almost too late to do anything about it. Gold and commodity price speculators for years have been anticipating the rise in inflation that is now underway. The only question now is whether inflation will prove to be as high as the runup in gold and commodity prices is assuming. Unfortunately I don't know the answer to that question. But I do know that deflation risk at this point is just about zero, and that nominal GDP is going to be picking up significantly in the years to come, and that is going to prove to be fertile ground for cash flows for all sorts of companies. That should be good news for equity investors, for holders of corporate and emerging market debt, and for owners of real estate.

Emerging Markets Look Risky In The Short Term

The emerging markets investment theme continues to sit at the forefront of any investment debate. In a world where the developed markets are going through an extended period of low growth, deleveraging and public finance crises, emerging markets look to promise a high-growth alternative for investors.

However, it is important to look under the hood of these headline arguments. It is true that emerging markets offer positive long-term prospects. The idea of convergence is well supported theoretically (albeit in practice, the evidence is mixed). But as investors, we must not only look at the potential higher return but also the time and the path it takes to get to that return. And while it is a bit of an incorrectly coined term, for emerging markets the predominant theme seems to be “long-term alpha, short-term beta.”

Rogoff and Reinhart have argued extensively that history shows countries in the periphery have not been immune to the shocks emanating from the center. While in the initial wave of the recent market woes, the EM markets sat relatively tight compared to the developed markets, they’ve lost ground recently, as evidenced by sharp currency and equity market moves.

While EM is not just one homogenous group, especially with stark differences between the characteristics of the countries among different geographies, there are several underlying factors that cause the anchor with the developed world. Firstly, EM countries do not live in a vacuum. Their growth phase is underlined by significant imports of capital to fuel growth. Therefore, they feel the heat very closely when the funding markets are under stress. The basket of EM currencies as well as the spreads have been moving higher sharply recently which is a signal that the funding problems in the developed world are is spilling over.

The situation poses the risk of a further negative feedback loop as the unwinding of existing positions primarily driven by hedge funds and banks put more pressure on the exchange rates, which result in further sell-offs. With an estimated $1.5 trillion of external funding needs, according to some estimates on the Street, the funding issue will continue to be the elephant in the room, and will trump any long-term fundamental arguments for the EM world. And there is no respite as long as the developed market woes (eurozone crisis, laconic growth) continue to occupy the agenda.

Furthermore, the situation is not something EM can be weaned off of quickly. We see that, except for Asia, the net foreign liabilities of emerging markets continue to fluctuate around 20-30% of GDP. The banking systems continue to rely on wholesale funding as loan-to-deposit ratios hover around 100%. Also, with relatively high developed market foreign ownership of the banking system, it will not be easy to adjust the funding situation. Even the relatively safer commodity-driven EM countries are not completely immune to the situation as the financial duress has now spread to the commodity markets.

The recent sell-off has not pushed the emerging markets into an oversold territory either. The EM funds continue to see net inflows predominantly driven by continued institutional allocation. This continues to keep the sales limited mostly to those who are more overextended. Therefore continued volatility and the ensuing lower returns could result in a reassessment of allocations, which will remove the cushion that has existed up to now.

This feedback loop poses a large risk as poor performance results in capitulation which drives further bad results. In fact, hints of this can be seen in the bond market, which initially did not see absolute price declines amidst increasing spreads, because it was the treasury yields coming lower. However, recently spread increases are driven by rising EM bond yields, pointing to selling in riskier EM names. Therefore, watching the flow of investment is another key factor.

Undeniable as the long-term arguments may be, the tipping point and the ensuing moves will be quite sharp in the short run if the funding problems continue. Therefore the investor should be careful before jumping on the emerging market bandwagon too quickly.

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

What Rockwell Collins Does With Its Cash

In the quest to find great investments, most investors focus on earnings to gauge a company's financial strength. This is a good start, but earnings can be misleading and incomplete. To get a clearer understanding of a company's ability to earn money and reward you, the shareholder, it's often better to focus on cash flow. In this series, we tear apart a company's cash flow statement to see how much money is truly being earned and, more importantly, what management is doing with that cash.

Step on up, Rockwell Collins (NYSE: COL  ) .

The first step in analyzing cash flow is to look at net income. Rockwell Collins' net income over the last five years has been impressive:






Normalized Net Income $553 million $504 million $529 million $589 million $550 million

Source: S&P Capital IQ.

Next we add back in a few non-cash expenses, like the depreciation of assets, and adjust net income for changes in inventory, accounts receivable, and accounts payable -- changes in cash levels that reflect a company either paying its bills, or being paid by customers. This yields a figure called "cash from operating activities" -- the amount of cash a company generates from doing everyday business.

From there, we subtract capital expenditures, or the amount a company spends acquiring or fixing physical assets. This yields one version of a figure called "free cash flow," or the true amount of cash a company has left over for its investors after doing business:






Free Cash Flow $372 million $569 million $562 million $436 million $418 million

Source: S&P Capital IQ.

Now we know how much cash Rockwell Collins is really pulling in each year. Next question: What is it doing with that cash?

There are two ways a company can use free cash flow to directly reward shareholders: dividends and share repurchases. Cash not returned to shareholders can be stashed in the bank, invested in other companies and assets, or used to pay off debt.

Here's how much Rockwell Collins has returned to shareholders in recent years:






Dividends $146 million $151 million $152 million $141 million $106 million
Share Repurchases $572 million $304 million $140 million $393 million $557 million
Total Returned to Shareholders $718 million $455 million $292 million $534 million $663 million

Source: S&P Capital IQ.

As you can see, the company has repurchased a decent amount of its own stock. That's caused shares outstanding to fall:






Shares Outstanding (millions)






Source: S&P Capital IQ.

Now, companies tend to be fairly poor at repurchasing their own shares, buying feverishly when shares are expensive and backing away when they're cheap. Does Rockwell Collins fall into this trap? Let's take a look:

Source: S&P Capital IQ.

Not that great. Rockwell Collins repurchased a lot of stock in 2007 when shares were fairly high, pulled way back as they plunged in 2009, and came back with buybacks after shares rebounded. No one expects management to time the market perfectly, but the "buy high, ignore the lows" behavior isn't encouraging.

Finally, I like to look at how dividends have added to total shareholder returns:

Source: S&P Capital IQ.

Shares returned -18% over the last five years, which increases to -10% with dividends reinvested -- a nice boost to top off otherwise low performance.

To gauge how well a company is doing, keep an eye on the cash. How much a company earns is not as important as how much cash is actually coming in the door, and how much cash is coming in the door isn't as important as what management actually does with that cash. Remember, you, the shareholder, own the company. Are you happy with the way management has used Rockwell Collins' cash? Sound off in the comment section below.

Add Rockwell Collins to�My Watchlist.

The Ten Worst Countries to Invest In

After looking at some of will have a better journey elsewhere.

10. Croatia
With its long, beautiful coastline down the Adriatic Sea, tourism accounts for about 20% of the country's GDP. The slowdown in that industry explains a big portion of Croatia's problems. Additionally, hostility toward foreign investment -- on top of the slowing economy -- has stopped incoming capital by -60% in first-quarter 2009 versus year-ago figures.

P/E Rank: 8
Dividend Yield Rank: 29
Est. 2009/2010 Growth Rank: 36
Volatility Rank: 44
Inflation Rank: 25


9. Mexico
Mexico's puny dividend yield of 1.5% and its negative growth are bad signs. Swine flu fears now seem to have been overblown, but they certainly didn't help Mexico's GDP. More serious, however, is the country's endemic drug war, which scares away U.S. tourists and costs billions to wage.

P/E Rank: 27
Dividend Yield Rank: 40
Est. 2009/2010 Growth Rank: 35
Volatility Rank: 18
Inflation Rank: 24

8. Indonesia
One of only two countries on the list that are forecast to see economic growth, Indonesia is a country of more than 230 million people on some 17,500 islands. Expectations of growth have pushed Indonesia's P/E to nearly 30. Inflation is high, about 20%, and the country's dividend yield is below 3%. The prospects there are nothing to write home about.

P/E Rank: 42
Dividend Yield Rank: 36
Est. 2009/2010 Growth Rank: 4
Volatility Rank: 33
Inflation Rank: 33

7. Russia
The largest economy in this list, Russia's Cinderella story seems to have ended -- without the "happily ever after" part. Today, Russia is seeing flat growth, huge volatility and inflation in the mid-teens. But Russia's most serious long-term problem is its shrinking population. Although the rate of decline has dropped in recent years, hard times may kick it right back up.

P/E Rank: 6
Dividend Yield Rank: 37
Est. 2009/2010 Growth Rank: 26
Volatility Rank: 46
Inflation Rank: 35

6. Kazakhstan
Kazakhstan is an extra-credit question on a junior high geography exam: It's the largest landlocked country in the world. This former Soviet republic hasn't been a hotbed for foreign investment in recent memory. Its dividend yield of 0.8% makes it the worst place in the world for those seeking income. Inflation is approaching 20%, and growth is flat.

P/E Rank: 5
Dividend Yield Rank: 46
Est. 2009/2010 Growth Rank: 18
Volatility Rank: 41
Inflation Rank: 41

5. South Korea
Its neighbor to north isn't South Korea's only problem -- and perhaps not its most serious. Negative growth of -10% is expected in 2009, followed by a flat 2010. The country's yield is just over 1%, and with a P/E pushing 20, stocks here look very expensive.

P/E Rank: 33
Dividend Yield Rank: 43
Est. 2009/2010 Growth Rank: 44
Volatility Rank: 12
Inflation Rank: 19

4. Ukraine
The only reason this former Soviet republic of 46 million doesn't rank at the bottom of the list is that no one will touch it, That drives its P/E down to 2.7. Inflation tops 25%, growth this year is expected to fall by -10%, and dividends are small, infrequent and unreliable.

P/E Rank: 3
Dividend Yield Rank: 41
Est. 2009/2010 Growth Rank: 43
Volatility Rank: 21
Inflation Rank: 45

3. Slovakia
The sister country of top-ranking Czech Republic, Slovakia's numbers tell a different story. The country has negative growth, non-existent dividend yields and high volatility. Inflation is relatively low, but that's likely due to its adoption of the euro at the beginning of the year.

P/E Rank: 21
Dividend Yield Rank: 45
Est. 2009/2010 Growth Rank: 39
Volatility Rank: 35
ebt045 Rank: 17

2. Argentina
Argentina ranks the lowest of any of the major G-20 economies due largely to its 22% inflation rate. Unlike several countries on this list, inflation in this $330 billion economy is not accompanied by significant growth; growth in 2010 is expected to be just 1.5%. Plus the country is likely to default on its debt, again.

P/E Rank: 9
Dividend Yield Rank: 39
Est. 2009/2010 Growth Rank: 30
Volatility Rank: 39
Inflation Rank: 43

1. Vietnam
The only ray of light in Vietnam these days is that the country is expected to grow by 4% in 2010. This probably explains the relatively high P/E. Still, with a yields of about 2% and inflation approaching 25%, beware.

Airlines Swoon After Delta Misses EPS Expectations

Delta (DAL) missed third quarter earnings estimates, and shares slid 4.8% in afternoon trading as the entire sector slid.

Delta posted 91 cents of EPS excluding one-time items, 2 cents worse than expectations. The company said higher fuel prices cost the company an additional $1 billion, but a 10% jump in revenue helped offset the fuel price rise. Delta also said corporate demand has been strong.

“Our September quarter passenger unit revenue increase of 11% from prior year, a revenue premium to the industry, demonstrates that our plan is working. Corporate travel demand remains strong. �With continued capacity discipline, coupled with improvements we are making in our product and service, we are well positioned to deal with the impact of today’s high fuel prices and an uncertain economy,” said Delta President Ed Bastian.

Other ailrines also fell, with United Continental Holdings (UAL) down 4.2%.

Best Buy Raises Dividend on Strong Cash Flow

Best Buy Company Inc. (BBY) , the leading specialty retailer of consumer electronic products, recently boosted its quarterly dividend by 7.1%. The board has approved an increase in annual dividend to 60 cents (or 15 cents quarterly) from 56 cents a share (or 14 cents quarterly).

The increased dividend will be paid on October 26, 2010 to stockholders of record as on October 5, 2010. The company initiated its regular quarterly dividend in fiscal 2004. The last paid quarterly dividend of 14 cents represented an increase of 8% year-on-year.

Wednesday, September 12, 2012

Global Manufacturing Production: Momentum Rapidly Decelerating

The August manufacturing PMIs came in mixed. The U.S. and China surprised on the upside while Japan disappointed with its manufacturing sector barely growing.


Manufacturing PMI
August 2010 July 2010 Trend
United States 56.3 55.5 Higher, expanding
Euro zone 55.1 56.7 Lower, expanding
Germany 58.2 61.2 Robust, slowing
France 55.1 53.9 Higher, expanding
Greece 43.0 45.3 Weaker, contracting
Italy 52.8 54.4 Softer, expanding
Spain 51.2 51.6 Softer, expanding slowly
Ireland 51.1 51.4 Softer, expanding slowly
U.K. 54.3 56.9 Softer, expanding
Japan 50.1 52.8 Weaker, barely expanding
Emerging Economies
Brazil 49.5 51.8 Moved to contraction
China 51.7 51.2 Higher, expanding slowly
Czech 57.3 56.8 Robust, improving
Poland 53.8 52.1 Higher, expanding
Turkey 51.3 52.8 Softer, expansion slowing
India 57.2 57.6 Robust, slowing
Russia 52.9 52.7 Higher, expanding
South Africa 50.3 49.5 Expanding again
Taiwan 49.2 50.5 Weaker, contracting
Global 54.1 55.1 Softer, expanding

Sources: Markit; CFLP; ISM; Plexus

The downtrend of our global GDP-weighted Manufacturing PMI for the major economies (U.S., U.K., Euro zone, Japan and China) is now firmly underway. The measure in August came in weaker at 54.1 compared to 55.1 in July, the fourth consecutive decline since the high of 57.6 in April.

Click to enlarge images

Sources: ISM; Markit; CFLP; Plexus Asset Management.

Sources: ISM; Markit; CFLP, Plexus Asset Management.

The downtrend in the global weighted manufacturing PMI is indicating a rapid deceleration of global manufacturing production growth.

OECD industrial production growth in July is estimated to have slowed to 9% on a year-ago basis from a high of an estimated 10.5% in May. The GDP-weighted global manufacturing PMI suggests that industrial production growth has slowed down further in August to a pace of between 7% and 8%, with a further slowdown in September to approximately 5% to 6%.

Sources: I-Net; Plexus Asset Management; ISM; Markit.

Non-manufacturing and services PMIs due within the next few days are likely to give better insight into where the global economy is heading.

Your Smartest Money Move for 2012

It's rare that the financial markets give you multiple chances to save money. But as dire as conditions in the housing market have been, the silver lining for many creditworthy borrowers is that refinancing your mortgage can give you fixed rates among the lowest in history -- producing low monthly payments that aren't going to get pulled out from under you down the road.

Big winners, big losers
Unprecedented low interest rates have had a huge impact on borrowers, savers, and financial institutions. For savers, low rates have cut off a major source of income, forcing them to make desperate moves to higher-yielding alternatives like dividend-paying stocks. And for banks, low rates have helped boost net interest income over the longer term, with Wells Fargo (NYSE: WFC  ) , US Bancorp (NYSE: USB  ) , and Canadian/U.S. hybrid Toronto-Dominion (NYSE: TD  ) all posting double-digit percentage gains in net interest income over the past three years.

But for borrowers, the news has been mixed. Some borrowers who are underwater on their mortgages have essentially gotten locked out of the refinancing market, as doing so would require them to pay back tens of thousands of dollars in negative home equity that they don't have. But for others who aren't dealing with owing more than their homes are worth, low interest rates have allowed them to consider either refinancing to create huge savings or trading up to better homes whose prices are at attractively depressed levels.

Just how good are rates?
For the past few years, we've seen mortgage rates repeatedly hit new record lows. Currently, though, 30-year fixed mortgages are under 4% -- meaning that a $200,000 loan would cost just over $950 per month to repay. To put that in perspective, it wasn't that long ago that 30-year mortgages carried rates of 6%, which had homeowners making $1,200 monthly payments.

Those rates may finally be having the impact on the housing market that the Federal Reserve hoped they would have when it cut rates to such low levels. Both PulteGroup (NYSE: PHM  ) and Hovnanian (NYSE: HOV  ) saw their losses narrow in the third quarter, and Beazer Homes (NYSE: BZH  ) and Standard Pacific (NYSE: SPF  ) had huge rises both in new orders and in backlog units. Admittedly, those comparisons come from unusually weak levels, but it's still an encouraging sign.

Weighing the refinancing decision
If refinancing were as simple as just getting your bank to let you make lower interest payments, then everyone would do it. But unfortunately, refinancing often comes with huge closing costs. For instance, you may have to pay mortgage origination fees, typically around 1%, to get a new mortgage. In addition, your bank may require a new appraisal of your home, new title insurance, and another round of other costs such as escrow fees and loan application charges. And if you want the best rates out there, you may have to pay points upfront.

Add up all those costs and they can end up being several thousand dollars. Even if you'd save $250 a month by refinancing, it can take you years to recoup those costs and break even on the deal.

In addition, refinancing involves having to go through the same long, involved process to get a mortgage. And if you originally got your loan during the go-go days of the mid-2000s, you may find that the mortgage process is far more onerous than what you went through back then, because many banks have tightened up on credit standards, and some have upped their standards on the amount and type of documentation you need to get a mortgage.

Make your move
Don't let the hassle of refinancing be an excuse not to do it, though. If the numbers work out to make refinancing a smart option, make it one of your New Year's resolutions to get it done soon. So far, you've been rewarded for waiting, but rates can only go so low before you'll have missed out on the deal of a lifetime.

Dealing with your home is a big part of figuring out how to have a successful financial plan. But you also need to know about one shocking can't-miss truth about your retirement -- and what you can do to address it. Our latest special free report has all the answers, so grab a copy today and find out everything you need to know.

Is a Revenue Miss Coming for Raven Industries?

There's no foolproof way to know the future for Raven Industries (Nasdaq: RAVN  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Raven Industries do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Raven Industries sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Raven Industries' latest average DSO stands at 53.2 days, and the end-of-quarter figure is 58.0 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Raven Industries look like it might miss its numbers in the next quarter or two?

Investors should watch the top line carefully during the next quarter or two. For the last fully reported fiscal quarter, Raven Industries' year-over-year revenue grew 36.3%, and its AR grew 52.0%. That's a yellow flag. End-of-quarter DSO increased 11.5% over the prior-year quarter. It was up 16.2% versus the prior quarter. That demands a good explanation. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments section below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

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Today In Commodities: Finding Direction

Today is only the second full day of trading as markets are still trying to find direction. I maintain a weighting in commodities is necessary for all suitable investors that desire diversification…just saying. Albeit slight gains Crude made it to higher ground and appears like we will see further upside from here. My suggestion exit any remaining bearish trade. Natural gas was higher by almost 4% today lifting prices as of this post above the 9 day MA for the first time on a closing basis in five weeks. If February can muster a further advance above $3.25 this week the bottom may be in…stay tuned. Some clients maintain small bullish positions three months out and will add on further proof of a bottom. European equity markets continued higher while domestic markets failed to follow through flat in today’s session. The tone in January generally is what guides performance throughout the year so I am keen to see the coming weeks action. From where I sit I sense higher ground but clients have no exposure in the indices.

Gold gained for the third consecutive day adding nearly .80% today. We seen another $60-70/ounce before serious resistance. Silver appears to be taking a breath after the 13% surge in the previous three sessions. Once we trade above $30.25 we see $32 followed by $33…likely in the coming weeks. Head fake as the dollar index is back above the 20 day MA. The 32 day EMA supported as it has for two months. Expect a range bound market between 79.00-81.00 in March. The biggest loser today was the Swiss which cannot get out of its own way falling 1.05% today. Bearish trades should continue to work here…trade accordingly. A freeze scare in Florida; the largest OJ producer sends OJ prices to a one year high. This spike should be short lived in my opinion and aggressive traders could sell after a further ascent. 30-yr bonds are back under the 20 day MA while 10-yr notes closed at that pivot point. Forced into the market we would be selling rallies but we currently have no exposure with clients. All those that caught the recent leg higher in grains great trade but my suggestion is book profits and move to the sidelines. That goes for corn, wheat and soybeans. Live cattle appears to be finding support at the 20 day MA though I would still expect a probe lower…trade accordingly. February lean hogs must maintain 83.50 for me to remain friendly. A trade over 86.75 and I would suggest adding to the trade.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Greece Stalls, Germany Pushes for Deal

German Chancellor Angela Merkel is demanding that Greece agree to bailout terms. (Photo: AP)

Greece has already missed its deadline of Monday to win approval by various government factions of measures demanded by the European Central Bank, International Monetary Fund and European Union before they will approve the latest bailout package for Athens–all that stands between the ancient country and default. As the matter drags on, German Chancellor Angela Merkel, spearheading the demand for austerity, is becoming impatient.

Reuters reported that Merkel, after a meeting with French President Nicolas Sarkozy, said she and Sarkozy have agreed that Greece should deposit funds from revenue into a specially designated escrow account to ensure the country's creditors are paid in a timely manner.

EU officials have said that all agreements must be complete between Greece and the troika before Feb. 15, so that there is sufficient time to put together the bond swap that will reduce Greece's overall indebtedness. That swap must be executed in time for a March 20 bond redemption. Some euro zone countries must seek parliamentary approval for the deal to proceed.

Even as Greece postponed a critical Monday meeting till Tuesday, Merkel was quoted saying, "We want Greece to stay in the euro. I want to make clear once again that there can be no deal if the troika proposals are not implemented. They are on the table ... Something needs to happen quickly." She added, "I honestly can't understand how additional days will help. Time is of the essence. A lot is at stake for the entire eurozone."

The office of Prime Minister Lucas Papademos gave no reason for the delay, but issued a statement after Merkel's comment saying he would hold further talks with the troika. Bloomberg reported that he did so overnight.

Finance Minister Evangelos Venizelos was quoted saying, "A failure of the negotiations, a failure of the program or a default by the country means even greater sacrifices. Unfortunately, the negotiations are so tough that as soon as one chapter ends another one opens."

Dimitras Reppas, public administration minister, said that the troika has said that 15,000 public sector jobs must be cut by the end of 2012; that is only part of the 150,000 public sector jobs it has said must be eliminated by 2015. In protest, ADEDY and GSEE, the largest public-sector and private-sector union groups, called a 24-hour general strike Tuesday that shut down government services, courts, schools and ferry services. 

Additionally, walkouts that included dockworkers and bank employees, as well as culture ministry employees, further disrupted everything from business to tourism.

In a statement, GSEE head Yannis Panagopoulos said, “What is taking place isn’t a negotiation. It’s raw, cynical blackmail against a whole people.” 

Hot Penny Stock’s Wild Rally stops Short; Raptor Technology Review

After the huge rally in Wednesday�s trading session shares of Raptor Technology Inc. (OTC: RAPT) are marginally lower in today�s trading. On Wednesday Raptor Technology shares soared more than 180% after the company announced the signing of a long-term contract for mineral recovery.

Raptor Technology said that Raptor Fabrication and Equipment Inc., which the company is currently in the process of acquiring, signed a long-term contract with Washoe Custom Processing LLC, which will enable Raptor to process more than 2,000 tons of ore per year.

Raptor said that employing its patent pending mineral recovery method, the company expects to process 60%-70% of the precious metals that are in the hard rock ore deposits� from the Washoe mine tailings.

Tom Gleason, president of Raptor, said that the company�s contract with Washoe will enable it to use its technology platform to make recovery of rare earth minerals and precious metals an economically viable operation.

On Wednesday, Raptor also provided an update on its proprietary mineral recovery process. The company said that it processed more than 20 tons of ore from its Washoe Custom Processing site, which has an estimated dollar value of $250,000 per ton. The company said that the ore represents a range of rare earth minerals.

Commenting on the progress, Gleason said that the company believes that significant value exists for those who are now establishing major positions in gold, platinum, palladium, rhodium, rare earth oxides and similar high-value metals.

Raptor Technology is a supplier of technology that offers eco-friendly and green solutions to global issues.

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Important Facts You Need To Know About Your Home Builder’s Contract

If you’re planning to purchase a brand new home, the builder will expect you to follow certain procedures in order to buy the home. It doesn’t matter if you’ve got an Realtor to act on your behalf you, the builder will you to utilize their personal standard purchase proposal and perhaps a another form for the contract. At initial glance, these documents might appear as if they’re the identical ones your local real estate Realtor would hand you, a closer inspection will uncover this contract can be really dissimilar. Plus a lot of of these differences won’t be composed with your best concerns in mind.

For instance, in circumstances when the ceramic tile you’ve selected is no longer in stock, the developer’s contract can permit the developer to swap materials comparable to the ones you’ve chosen. In addition there may be a specification permitting the developer an extended cushion in incidences when your house’s finish date will be detained. Once you detect these conditions, you’ll need to work out terms with the developer to alter them – and brush aside the developer’s contention their standardized forms can’t be modified.

There may also be a clause permitting the builder a large time span in circumstances where your homes finish date has to be pushed back. When you find these terms, you will need to discuss them with the builder to change them – ignoring the builder’s attitude he can’t change the original forms.

If you feel the agreement isn’t fair, you can change or add additional terms – the developer can decide if it wants to accept your terms. For instance, you could:

1) Establish A Ceiling On Your Money Deposit – If you can place fewer dollars down, you’ll have fewer risks if the builder ends up not following through like they should.

2) Insert A Finish Date – Negotiate hard to include a date by which the house has be finished, or you get the choice to call off the transaction.

3) Negotiate A Holdback Clause: Try to include a clause stipulating a portion of the sales price will be set aside if the home if finished at the time of closing, which you can apply towards having the home completed.

4) Negotiate For Several Home Inspections And Walk-Throughs – If the builder is to construct the home to your specifications, negotiate to have the right for independent inspections and you to inspect the property several times – not only just prior to closing. This will insure the work is being done properly and on time.

5) Expect Equal Quality – Whenever you’re buying a house that reduplicates the model, insert a clause saying you’ll be receiving equivalent or better grade construction than the model, not merely marginal grade acceptable for the local construction codes.

Want to find out more about La Palma homes for sale, then check out local La Palma real estate for your homebuying needs.