Saturday, October 27, 2012

Electronic Arts FY Q4 Tops Ests; Affirms FY 2011 Guidance

Electronic Arts (ERTS) this afternoon posted non-GAAP revenue for its fiscal fourth quarter ended March 31 of $850 million, ahead of the Street at $835.4 million, and at the top of the company’s guidance range of $800 million to $850 million. Non-GAAP EPS of 7 cents a share was two cents better than the Street consensus, and ahead of the guidance range of 2-6 cents.

For the June quarter, the company affirmed previous guidance for non-GAAP revenue of $460 million to $500 million and a non-GAAP loss of 35-40 cents.

For the March 2011 fiscal year, the company continues to see non-GAAP revenue of $3.65 billion to $3.90 billion and a non-GAAP profit of 50-70 cents a share.

In late trading, ERTS is down 95 cents, or 5.1%, to $17.85.

How the iPhone 4S boosted Kindle Fire sales

NEW YORK (CNNMoney) -- Amazon set out to win the tablet market by beating Apple the way no one else could: pricing the Kindle Fire at just $199.

That tactic has paid off -- and it forced Apple to accidentally handicap itself, according to a report from IHS iSuppli.

The firm's analysis found that Apple's (AAPL, Fortune 500) share of the tablet market slipped in the fourth quarter, and IHS iSuppli blames that on the October release of the iPhone 4S. After shelling out at least $199 for a smartphone, not all Apple lovers were willing to spend another $499 on a tablet.

As IHS iSuppli's tablet analyst, Rhoda Alexander, put it: "Many loyal Apple customers devoted their dollars to shiny new alternatives."

IHS iSuppli estimates that Apple shipped a record 15.4 million iPads in the fourth quarter of 2011. That's almost 40% more units than Apple shipped in the previous three-month stretch.

But overall, Amazon was able to eat a bit of Apple's market share. Apple's iPads comprised 57% of the tablet market worldwide last quarter, down from 64% in the third quarter, by IHS's calculations.

Amazon (AMZN, Fortune 500) shipped an estimated 3.8 million Kindle Fires last quarter. That gives it a 14.3% share of the tablet market.

Pricing the Kindle Fire tablet at just $199 won't net Amazon a wide profit margin, but the company is willing to get tablets into customers' hands for cheap. Amazon is banking on making money by selling content like e-books, apps, videos and digital music.

Alexander called that method a "business gamble," and noted that the Kindle Fire's success hinges on the viability of those content sales.

Pure hardware players don't have that option, and customers who are willing to shell out $499 or more overwhelmingly choose the iPad. Sales of the Motorola (MMI) Xoom and Samsung Galaxy Tab have disappointed as a result.

Meanwhile, Alexander notes that the radically low prices of tablet-lites -- specifically the Kindle Fire and the Barnes & Noble (BKS, Fortune 500) Nook -- have "created chaos" in the market and could force overall tablet prices to come down. 

Top Stocks For 2011-12-26-9 Stock Report!

Wednesday August 5, 2009

Anadarko Petroleum Corporation (NYSE:APC) today announced that Jim Kleckner, Vice President, Operations, will present at the 2009 EnerCom Oil & Gas Conference in Denver, Colo. on Thursday, Aug. 13 at 10:30 a.m. MDT. A link to the webcast presentation will be available at The replay also will be available on the company’s Web site for approximately 30 days following the event.

Terra Industries Inc. (NYSE:TRA) today confirmed receipt of a letter from CF Industries Holdings, Inc. (NYSE:CF) in which CF Industries indicates that it is “prepared to enter into a merger agreement under which each Terra share would be exchanged for 0.465 of a share of CF Industries.”

Radiant Systems, Inc. (NASDAQ: RADS) announced today an agreement with Gippsland Petroleum Group (GPG), a Radiant customer for more than 15 years, to deploy the latest generation of point-of-sale technology across its 20 retail fuel locations in Victoria.

National Coal Corp. (Nasdaq: NCOC), a Central and Southern Appalachian coal producer, will release its second quarter financial results on Monday, August 10, 2009, via Business Wire. A copy of the press release will be available to the public via the media and the Company’s website at

Polypore International, Inc. (NYSE:PPO), a leading global supplier of high performance microporous membranes, today announced that its Celgard, LLC business unit has been selected for a grant award of $49 million from the U.S. Department of Energy (DOE) to expand production capacity in the United States.

SL Green Realty Corp. (NYSE: SLG) today announced the refinancing of the Graybar Building, the landmark Midtown Manhattan office tower located at New York City’s Grand Central Terminal. The building’s new mortgage was provided by Teachers Insurance and Annuity Association of America (TIAA). The $145 million loan transaction resulted in a $45 million financing increase and generated approximately $23 million in net cash proceeds.

Source: E-Gate System from

This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Universal dismay
As stock markets around the world turned green, one group of investors looked decidedly glum on Tuesday. While everyone else was popping champagne and tossing ticker tape, shareholders of organic light-emitting diodes pioneer Universal Display (Nasdaq: PANL  ) watched in dismay as their shares plummeted 11% in a widespread sell-off.

For this you can blame the analysts at Canaccord Genuity, which yesterday shaved $5 off its price target for the stock (now $35) while maintaining a "hold" rating. Citing a lack of "catalysts" to move the stock higher in the near term, and new revelations about the company's business model, Canaccord is walking back expectations for the stock.

According to Canaccord, you see, Universal Display isn't making as much money as previously believed on its patent royalties from Samsung. Instead of 1% of the cost of a TV, it's now believed to be collecting just 0.75% -- or about $300 million in revenue through 2017. Universal Display's materials business, of course, is still expected to be about 150% the size of its royalties business -- so about $450 million. But Canaccord warns that these revenues are lower-margin, about "75% vs. 97%."

But wait! What about the 55-inch TV?
Now, Universal Display fans will probably point out that $750 million in revenue over the next several years, while not $850 million, is still heady growth from today's run rate. They'll also argue that there are catalysts on the horizon, as evidenced by LG's announcement that it's going to begin selling a new 55-inch OLED TV. But to this, Canaccord replies that "a long-term agreement with LG has been delayed and that the existing materials and license agreement will be extended by another six months through June 2012. This push-out may come as a disappointment to investors looking for a positive near-term catalyst."

"Anticipation, anticipation... is keeping me waiting"
Disappointment is certainly the right word for investors who bought into the UD buy thesis of another analyst last month. As you may recall, that was when Goldman Sachs made a series of bets in the LED/OLED industry. That analyst told investors to buy into Cree (Nasdaq: CREE  ) first of all, because that company is closer to an inflection point as industry begins adopting LEDs for general lighting purposes. But further out, Goldman saw Universal Display and organic LEDs as the better long-term bet.

Indeed, Universal Display may ultimately turn out to be the best long-term debt. The company just turned free-cash-flow positive, after all. Problem is, with just $6 million in trailing free cash to its credit, Universal Display's price-to-free-cash-flow ratio of nearly 266 isn't going to win it any prizes from value investors. This week, it seems it's not winning any prizes from the gung-ho growth seekers on Wall Street, either.

A better idea
What's a better way to make money on the market? I've said it before and I'll say it again: I think General Electric (NYSE: GE  ) is today the company best-positioned, and with the best economies of scale, to make money from the LED revolution. It's already tied up with Cree to help it build out a line of LED lighting products. I wouldn't be surprised to see GE collaborate with Universal Display, too, when OLED technology becomes commercially viable on a large scale.

When that happens, I'm pretty sure GE will find a way to make money on it. Universal Display probably will, too -- but as we found out this week, maybe not as much money as its shareholders hope.

But what's the absolute best tech bet to make in the new year? Read all about it in the Fool's new -- and free! -- report: "The Next Trillion-Dollar Revolution."

CORN: Clear Price Patterns In Commodity

Issuer of CORN ETF says investors can take advantage of seasonal price declines at peak harvest time in Northern Hemisphere.

More than 18 months ago, Teucrium Trading issued its first agricultural exchange-traded fund, the Teucrium Corn Fund (NYSEArca: CORN). This past September, Teucrium, which draws its name from a classification of Mediterranean and Western Asian herbs and shrubs, announced three new single-commodity ETFs: the Teucrium Wheat Fund (NYSEArca: WEAT); the Teucrium Soybean Fund (NYSEArca: SOYB); and the Teucrium Sugar Fund (NYSEArca: CANE). Hard Assets Investor Managing Editor Drew Voros caught up with Teucrium Co-Founder and President Sal Gilbertie to discuss those ETFs and a Teucrium report that outlines seasonal prices declines for corn during peak harvest time.

Hard Assets Investor: You recently released a study that corn’s seasonal price decline is often associated with peak harvest time. Can you explain a little more?

Sal Gilbertie: The piece, "Harvest and the Seasonal Effect," explains the effects of the corn and soybean harvest — which occurs within a two- to three-month period every year in the Northern Hemisphere. Since the bulk of the world's corn supplies are grown in the Northern Hemisphere, there is a clear seasonal pattern that traders and asset allocators can often use to their advantage. Remember, with these crops, there is only one growing cycle, so all of the supplies for the entire year are grown and harvested at the same time. This massive influx of supplies on the world markets does two things: First, it often results in an absolute price low being set during harvest for corn that will be used the following year. Second — and this is very important for asset allocators — the abundance of supply often causes a negative divergence below the year's average price for both corn and soybeans.

HAI: How can investors take advantage of this pattern?

Gilbertie: Logic would dictate to acquire these two important agricultural commodities during the fourth quarter of the year. Should the absolute price lows also happen to be set in the fourth quarter — as is often, but not always the case — then all the better. Of course, a trader or opportunistic investor would be primarily focused on the absolute low price patterns, but both of these seasonals can be used to an investor's advantage in the fourth quarter of the year.

HAI: You’ve seen the same pattern with soybeans, right? Why the similarity?

Gilbertie: Soybeans and corn compete for acreage in the Northern Hemisphere, so there is an abundance of supply coming to market for both at the same time. The difference is that while both corn and beans share the seasonal negative divergence pattern, soybeans do not exhibit as strong an absolute price-bottoming pattern. That’s because there are vast amounts of soybeans also grown in the Southern Hemisphere.

HAI: If a December pattern of absolute lows is consistent, wouldn’t investors profit more through shorting corn?

Gilbertie: It is much more difficult to find a topping pattern in corn than a bottoming pattern. But it should be noted that investors could easily short corn by either shorting the shares of the ETP themselves or through the use of options, which are actively traded in the Teucrium CORN Fund as well.

HAI: Why should a diversified investor have agricultural assets in his or her portfolio?

Gilbertie: There are so many reasons, it's hard to list them. But there are three things that all investors should remember: First, agricultural commodities have less of a correlation to the overall markets than many other investments. In fact, this past August, corn was up almost 13 percent versus an overall decline in the S&P 500 of around -5.288 percent.

Second, agricultural commodities are now becoming so widely ingrained in every aspect of the global economy that the inherent supply uncertainties that come with farming make potential shortages of these commodities that much more of a reality in a world driven by an almost insatiable demand for everything, especially food and fuel.

Third — and perhaps most basic and easily understandable of all — is that there are limits to how much arable land and water can be found on the planet to produce enough for an ever-expanding global population. The only thing that will limit the Earth's human population is the availability of food and water, which an investment in the agricultural sector represents.

HAI: Are rising correlations here to stay?

Gilbertie: I just saw a study that said we are in the longest-ever period of positive correlation of commodities with stocks. I don't know if it’s here to stay, but I do know that the agricultural sector is one of the last to succumb to the rising correlation issue. Logic would tell us that as ags become increasingly used for industrial purposes, their correlations will rise a bit, but the uncertainty of supply issue that comes with the growing of crops should tend to offset positive correlations to other investments over time. Generally, we’ve seen that over a period of three to seven years, there seem to be major supply issues of one sort or another for any one of the “big four" ags: corn, soybeans, wheat and sugar.

HAI: Why should investors expect anything but the rate of inflation from their ag investments?

Gilbertie: As we've stated, a rising global population, coupled with a finite amount of arable land and water, plus production uncertainties faced by farmers, on an annual basis represents a recipe for supply imbalances of epic scale. Don't forget, there are no stockpiles of the big four ags that can withstand a huge crop failure of a multiyear supply imbalance. These are perishable goods that can't be stockpiled and the demand can't be stopped — people and animals have to eat and use the fuel and other goods that use these crops as a feedstock.

HAI: Should investors be worried about position limits or liquidity?

Gilbertie: No, not at this time. It is generally accepted in the trade due to specific Commodity Futures Trading Commission statements that position limit rules will be delayed into 2012 or 2013.

HAI: What’s the bigger driver of U.S. corn prices, China or the ethanol industry?

Gilbertie: Both are important. It's generally known what ethanol demand for corn will be now and into the future. Those projections are based upon regulatory guidelines that are public and easily analyzed. Chinese demand, on the other hand, is a true wild card. Both short-term Chinese purchases and the implications of large segments of the Chinese population entering the middle class — where they will use all agricultural products more aggressively — loom large on the future of all of the agricultural markets.

HAI: Can you describe the growth of the CORN ETF in terms of assets under management (AUM) over the past few years?

Gilbertie: The CORN fund is less than a year and a half old and it has had spectacular growth. It had $139 million in AUM on its one-year anniversary. Since then, corn prices have dropped and investor interest in all asset classes has waned, but the fund is clearly a success. Over the next year or two, we fully expect our soybean fund to follow CORN's growth, with sugar and then wheat doing the same, just not to the same degree of AUM due simply to the size of the underlying markets.

HAI: Is there a typical buyer of the CORN ETF? Hedge funds, for instance?

Gilbertie: Actually, registered investment advisors seem to be leading the way, but more and more, investors of all types, including mutual funds and hedge funds, are looking to get direct futures exposure without the use of a futures account, which basically points them toward the Teucrium family of funds.

HAI: I presume the success of CORN has led to your new offerings. Can talk about your new ag ETFs?

Gilbertie: These funds are just about a month old now. As I stated earlier, we expect similar success with these funds as we've had in CORN. We believe Teucrium has launched a valuable fund family for investors, since most of the investment world is looking for commodity exposure through intelligently designed exchange-traded products (ETP) that don't require the sophistication of knowledge futures trading. We've intentionally designed transparent, highly liquid products through which investors can gain commodity exposure but not increase the credit risk of their portfolios as they might with an exchange-traded note (ETN).

HAI: Why do you think a soybean ETF had not yet been created, since it is one of the major agricultures? Was the lack of one a motivator for Teucrium to launch one?

The lack of a soybean exchange-traded product was for the same reasons as the lack of a CORN ETP before Teucrium came along. The expertise needed to design and implement a single-commodity agricultural ETP product is very difficult to find, and those holding that expertise are gainfully and happily employed elsewhere. In addition, the large financial institutions that hold such expertise in-house make better use of it internally through proprietary trading activities.

The bottom line is that a single-commodity ETP in the ag space is never going to be a multibillion-dollar product, so the big banks simply won't dedicate resources that have a lower return than developing a big, multicommodity index that can attract billions or tens of billions in AUM. That's a great source of revenue for the banks, but in Teucrium's view, it doesn't necessarily serve the needs of investors and allocators looking to overweight or underweight certain commodities in their portfolios.

The advisors with whom we speak almost always express the opinion that ags and energies generally need to be overweight just because of their pervasiveness in the economy, and the big-four ags, along with crude oil and natural gas, are easy for investors to get information on and act accordingly.

Friday, October 26, 2012

European Central Bank May Be Experiencing Its Epiphany

No, today's headline does not refer to the Christian festival or to three wise men, but to the quasi-mystical "revelation" as defined by James Joyce. Let us hope that this "revelation" is bringing some real light to the dusty theology of the European Central Bank (ECB). The Epiphany, as defined literally, is often associated with moments of strong emotions, like those provoked by the crisis on the eurozone.

Make no mistake about it. The ECB and EU are in the process of successfully containing an even more serious crisis than that experienced in the United States during the subprime loan/CDO/money market fund upheaval. During this European crisis, the market is brutally questioning the "sovereign" quality of certain eurozone countries' debt and, by Adverse Feedbackloop effect, the euro and the European Union itself.

Although they are not about to scream it from the rooftops (their penchant for opacity being what it is), our august bank chieftains in Frankfurt may be much more concerned about their sole mandate (price stability, but the other way around this time) than is often believed. After all, this price stability mandate (the sole needle to their compass) implies not only constant vigilance against all sorts of inflationary risks, but also particularly attention to the danger of deflation, which is where things become interesting.

European monetary officials, who have historically focused so much on the growth of M3 money supply, must be more than worried about its growth, for which they had set an annual target of +4.5%, following +8.20% annual growth from 2000 and 2008, since it has been growing at a negative annual rate of -1.60% since April 2009. In the meantime, between October 2008 and April 2009, the ECB lowered its Refi rate from 4.25% to 1%!

This shows just how much the ECB seems to have lost its grip in the efficient management of "classic" monetary policy, not just in terms of the real economy but also in terms of the major monetary aggregates.

M3 is so important for the ECB because it includes all the liquid or quasi-liquid financial assets the speed of whose circulation may fuel the acceleration of money velocity, with all the inflationary implications during periods of overheating of the real economy. Aside from the obvious collapse of M3, if we take into account the change in the nature of a few other asset types, this also implies an unprecedented contraction in the velocity of money circulation.

Some (more or less) long-term assets (dynamic money market funds, CDOs, government bonds) have completely lost their "liquid" quality, due to the disparities that occurred during the non-valuation of some of them, but especially because of the disappearance of their collaterisabilisation (sic). The excessive repo market, which led to the impression that the Shadow Banking system was very liquid when it was in reality in a carry position on assets that are by nature un-mobilisable (CDO, Loans, etc.), has become ancient history.

Another example: The time when a Russian oligarch could secure the shares of his questionably audited company to invest in other assets, be they financial or trophy assets (yachts, Villa Léopold), is over.

In short, the velocity of money circulation has in reality slowed much more than neo-classic statisticians are willing to admit. Is not frankly negative velocity one of the characteristics of deleveraging periods?

Given my incurable optimism, I continue to hope that the neo-classic cataract which has been obscuring the ECB's sight is slowly clearing up, in terms of the balance between inflationary and disinflation risks. I take heart from the surprising comments in the ECB's May survey, published this morning:

ECB Survey

  • Above all, the comments by ECB members in recent days are particularly interesting, because they illustrate that:

    • The dislocation of sovereign debt markets rendered its monetary policy (even more) inefficient (restrictive).
    • The doubts we continue to have about the reality of the planned sterilisation programme, whose announced only served to reassure the bond vigilantes and stabilise inflationary anticipations.

    Jean- Claude Trichet

    • We had observed destruction of financial markets that were gravely hampering the transition of monetary policy.
    • The ECB's momentous decisions were taken in view of dysfunctional markets that hampered the normal transmission of monetary policy.
    • We are not engaging in quantitative easing.
    • We will take back all liquidity that we are adding.

    Christian Noyer

    • ECB Policy was endangered last week by market disorder.
    • Monetary policy was threatened.

    Miguel Angel Fernandez Ordonez

    • Banks’ use of the ECB’s overnight deposit facility provides some sterilization of the central bank’s government bond purchases.
    • Huge amounts of money are being put in the deposit facility. There is an automatic sterilization.


    • We have of course the possibility for the ECB to take money in from banks, but maybe we will also construct some other additional instruments.
    • This is just a discussion we are leading; there is no immediate need to draw up a sterilization plan, which ensures that the overall amount of money in circulation is not increased.
    • Because we have the deposit facility and instruments that are available and are quite substantial.
    • But it might be a good idea to expand the arsenal.

    Jose Manuel Gonzalez-Paramo

    • New ECB measures to restore monetary policy transmission
    • The bank will announce the details on how it plans to sterilize its government bond purchases next week.

    Juergen Stark

    • I see no inflation danger for the foreseeable future
    • The excess liquidity is being collected again and there arises no inflation pressure.

    The bank will hold the government bonds it buys until they mature. (I had missed that one!) The printing presses aren’t being fired up, no inflation pressures from bond purchases, which will be neutralized. What a relaxed stance by the super hawk. Has his appreciation of inflationary (deflationary) risks gradually changed with the realisation that we are undergoing a real deleveraging crisis (the latest case being the Greek government balance sheet)?

    To wrap up, check out these two graphs:

    Deflation in Ireland

    And it's not over yet….

    (Click to enlarge)

    Price and Loan Deflation in Japan

    3 distinct periods…

    (Click to enlarge)

    As you can see in the above graph, the contraction in loans to the economy by Japanese banks led to the contraction in consumer prices during phase 1 from 2000 to 2005.

    The consumer price index (excluding food and energy), which had stabilised between 1997 and 2000, following the Asian crisis, declined an at an average annual rate of 0.75% until the beginning of 2006, while neighboring economies were picking up strongly.

    One of the explanations stems from this endlessly repeated notion of ‘Credit’ and the necessary slow and painful deleveraging of the zombie banks. On the contrary, the lending rebound from the beginning of 2005 enabled, with a slight delay resulting from the delayed transmission effect, the stabilisation of consumer prices, which remained at the same level in 2009 as three years earlier.

    As such, we fear that these prices, which are clearly on a downward trend with the collapse of demand following the outbreak of the ‘Great Financial Crisis,’ may be further depressed by this new reduction in loan access to the economy. According to statistic published this morning by the Japanese Finance Ministry, loans contracted an annual -1.8% in April, following -2% in March.

    Disclosure: Author long 20 years OAT and 30 years BTP Zero Coupons, EDF Corp 5 Years 4.5%, Greece 2 Y and 10 Y bonds

    Survey Says: Insurance Customers Are a Content Bunch

    Inertia is a powerful force when it comes to insurance. That is what found in its nationwide customer service survey of more than 4,500 Americans.

    By and large, the customers surveyed said they were content with their providers of auto, home, health and life insurance coverage. However, even those who had some gripes did not say they would bolt, pointed out Amy Danise, of

    Consider auto insurance. �Among car insurance customers who are �very unsatisfied� with the price they pay, 65 percent nonetheless plan to renew their policies,� Danise said. �That compares to 98 percent who plan to renew among customers who are �completely satisfied� with their price.�

    �Among customers who have made auto insurance claims and were �very unsatisfied� with the

    claims process, 67 percent will still renew,� she wrote. �That compares to 94 percent who will renew among those �completely satisfied� with their claims.�

    To see how your insurance company measures up, spin through the site�s tool bar, which breaks out five measurements of customer satisfaction, including customer service, claims experience, value for price paid, percent who plan to renew their policies and percent who would recommend their insurers.

    What�s really interesting is to see all the comments for each company. For example, on the top-rated insurance company USAA (which I happen to use), a customer in California said, �They offer very competitive rates and have excellent customer service. They don�t try to sell you anything you don�t need, either.�

    Based on the highest overall scores, said the following earned its

    2012 People�s Choice award:

    Best car insurance companies

    1. USAA

    2. Auto-Owners Insurance

    3. The Hartford

    Franchise Buying Tips From Franchise Attorney

    Buying a franchise can be a great investment, however, choosing the right franchise for you can be a challenge. With more than 3,000 franchise opportunities available, a prospective franchise buyer needs to be ready to weed through the clutter. Franchise attorney Lane Fisher, offers up some advice to franchise buyers in the article below. For more on this, continue reading the following article from TheStreet.

    Pursuing the franchise model can make a business owner a small fortune, especially since it remains a growing part of an otherwise struggling economy, but deciding among brands and industries in the franchise universe is a make-or-break decision, says franchise attorney Lane Fisher of Fisher Zucker.

    Fisher sits on the board of directors for the International Franchise Association, the industry's main trade association. This weekend, the IFA's International Franchise Expo will take place for the first time at the Jacob Javits Convention Center in New York City. In previous years, the Expo was held in Washington, D.C.

    More than 300 franchises looking to expand in the New York region will be exhibiting. The event is open to the public. Up to 10,000 attendees are expected to come to the convention.

    But before signing on the dotted line, there are several key points any franchisee should understand about buying into a system. Fisher lays out a few of the most important details to consider:

    What are the first steps to take after you make that decision to buy a franchise?

    Fisher: It's important to understand what your skill set is so you can look at opportunities that complement your skill set. You also need to consider the amount you have to invest in the business. That's incredibly important. In addition to what you might have in cash, often folks look to financing. While the financing market has been gloomier, we are seeing that loosen up -- there does appear to be companies that have financing available. There is also a unique way to garner financing by using your IRA. You need to gather some intelligence to figure out what you have to spend.

    Should a potential franchisee have all their financing in place before they approach a franchisor?

    Fisher: Smart franchisors have garnered relationships with lenders who understand their business model. [Banks that are not familiar with the franchisor] would have to invest a lot of resources to get to know the franchisor. It's hard to do that looking at a lot of disparate opportunities.

    While you might want to pull your credit report and have an idea of what your home equity line of credit is, until you start to dial in to a particular opportunity it's hard to get pre-approved. As part of the application process people make financial disclosures. Part of the approval process is [franchisors] will already be checking your assets and credit to approve you.

    Should new franchisees only look at big, known brands to invest in? Is this where they can get the most bang for their bucks?

    Fisher: I don't think well-known and low-cost are mutually exclusive. Most people don't have $1 million to invest. Many of them have been funded through 410(k) investments. If you look at [the IFA] members we have, many are home-based or mobile and have gigantic networks of business. If it's $100,000 or $200,000, the amount needed to make the same return on your money is different than you if you invest $1 million. The return is faster.

    What are the key factors of a good franchise?

    Fisher: In a good business, strong trademarks is certainly up there; reasonable unit economics -- we call it reasonable return on investment; one that has teachable skills with well-defined training systems and operating procedures; one that has a unique concept that is differentiated from competitors; and one that has seasoned management with both experience in franchising and in the underlying business that's being franchised. Look for a company with a track record of growth.

    What are some common misconceptions about franchising?

    Fisher: I think people don't recognize that it's a restricted relationship. You're often limited in geography and a particular channel distribution. You have to operate within standards and follow systems. You have to pay initial and ongoing fees to the franchisor. Often you have required purchases of things by the franchisor and you're limited in what kind of advertising you can do. Also, there are terms. [The franchise agreement] is not forever; you have rights to renew it.

    What should new franchisees have prepared besides financials?

    Fisher: I think you should know timing for when you're prepared to make an investment. You should have a process and procedure for looking at these investments. Identify a professional accountant to help you prepare well-thought-out projections of what your business will do and of course a franchise attorney -- not the person who wrote your will -- who is experienced in these kinds of matters. It's probably the most expensive investment that a person will make. A good place to start is [the IFA's website].

    I always say to folks, don't fall in love with the yogurt. Make a business analysis. Even brands you never heard of might be an ideal opportunity for you. It's not that easy to pick them. We have so many people calling about yogurt today. There are yogurt stores on every corner, so you really have to make a competitive [decision].

    Greatest Stock Picks – Long-Term Picks For Newbies

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    Should You Get Out of Raven Industries Before Next Quarter?

    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. As another reality check, it's reasonable to consider what a normal DSO figure might look like in this space.


    LFQ Revenue


    Raven Industries $93 46
    Deere (NYSE: DE  ) $8,612 42
    Astronics (Nasdaq: ATRO  ) $56 59
    AeroVironment (Nasdaq: AVAV  ) $62 75

    Source: S&P Capital IQ. DSO calculated from average AR. Data is current as of last fully reported fiscal quarter. LFQ = last fiscal quarter. Dollar figures in millions.

    Differences in business models can generate variations in DSO, so don't consider this the final word -- just a way to add some context to the numbers. But let's get back to our original question: Will Raven Industries miss its numbers in the next quarter or two?

    The numbers don't paint a clear picture. For the last fully reported fiscal quarter, Raven Industries' year-over-year revenue grew 8.7%, and its AR grew 4%. That looks OK, but end-of-quarter DSO decreased 4.4% from the prior-year quarter. It was up 13.4% 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 below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

    • Add Raven Industries to My Watchlist.
    • Add Deere to My Watchlist.
    • Add Astronics to My Watchlist.
    • Add AeroVironment to My Watchlist.

    3 Major Stock Trends for the New Year

    Three major trends developing right now will greatly influence equities in 2012. Yet despite an immensely difficult trading environment � compounded by the seemingly never-ending eurozone debacle � several important forces are at play setting up specific investing and trading opportunities for the new year.

    Here�s what you�ll need to know to stay on top of your game as the new calendar year approaches:

    1. Pharma stocks are set to outperform the market �

    When it comes to prescription medications, Plavix, Symbicort and Viagra are three household names that have generated massive revenues during their respective lifetimes. And even though these three medications treat very different ailments, they do all have one important thing in common: Each of these drugs� patents is set to expire within the next two years.

    These aren�t the only big-name drugs that could give way to cheap generics. By 2016, patents are set to expire for many of the best-selling drugs on the market, totaling $255 billion in annual sales, according to EvaluatePharma Ltd., a London research firm. Now numerous generic makers are preparing drug applications for what should be an influx of new, cheaper drugs to the market.

    It�s not just the generic drug makers that are looking to post significant gains in Well-positioned pharmaceutical giants are already showing incredible strength. In fact, Eli Lilly & Co. (NYSE:LLY) is posted new 52-week highs this morning, capping off a strong December run.

    2. Technology stocks are faltering �

    Semiconductors were a strong performer for most of 2011. However, the tide appears to be turning for these tech stocks. The Dow Jones US Semiconductor Index flexed its muscles through November, yet failed to top its October highs. What resulted was a double-top, then lower highs after the post-Thanksgiving rally:

    Semiconductors are performing poorly relative to the market at large � and they aren�t the only tech stocks that have hit a wall. Poor earnings this week from Oracle Corp. (NASDAQ:ORCL) and the stock�s subsequent drop highlight how fragile the entire sector has become. It would be wise to avoid tech names for the time being � I do not see these stocks bouncing back anytime soon…

    3. A consumer comeback will propel new market leaders �

    Under the surface, unemployment statistics are showing strong improvements. New claims for unemployment benefits dropped to the lowest we�ve seen in more than three and a half years last week. If this trend continues (or accelerates), it will be a help to restart a stalled economy. �The drop in firings in the U.S. may be helping boost confidence. The Bloomberg comfort index rose last week to the highest level in five months as all three components � state of the economy, buying climate and personal finances � improved,� according to Bloomberg.

    This should also help reinvigorate consumer spending, helping to push top retail stocks to new highs. We�re already seeing stocks like Wal-Mart Stores Inc. (NYSE:WMT) and The Home Depot Inc. (NYSE:HD) lead the market this month with strong uptrends. There is a strong possibility that these names continue to post new highs in the coming weeks and months.

    DOL Extends Investment Advice Effective Date, Then Withdraws Rule

    A few days after saying it would extend the applicability and effective dates of the final rule on investment advice under the Pension Protection Act (PPA) to May 17, 2010, the Department of Labor's Employee Benefits Security Administration (EBSA) announced November 19 that it is withdrawing the final rule on the provision of investment advice under the Employee Retirement Income Security Act's prohibited transaction provisions.

    The DOL's notice "withdraws the January 21, 2009, final rule that implemented a statutory prohibited transaction exemption under the PPA, and provided an additional administrative class exemption." DOL says it "decided to withdraw the rule based on public comments that raised sufficient doubts as to whether the conditions of the final rule and the class exemption associated with the rule could adequately protect the interests of plan participants and beneficiaries."

    Now, the extended applicability and effective dates of the final rule until May 17, 2010, expires upon the effective date of this withdrawal, which won't be published in the Federal Register until November 20. As Fred Reish of Reish & Reicher in Los Angeles, which specializes in employee benefits law, notes, "The withdrawal will likely be effective when published on November 20." On November 20, Reish continues, "the old reg will 'die' and the extension will die also. There will then be no reg at all and, since there is no reg, there will not be any effective date. Then somewhere in the next 30 to 45 days, the Office of Management and Budget (OMB) will approve the new proposed reg that the DOL sent to them about four weeks ago, and the DOL will publish that proposed reg for comments." DOL says it "intends to publish separately a proposed rule that conforms to the PPA statutory exemption relating to investment advice."

    Reish says that the DOL's conclusion about withdrawing the rule "is not surprising, but the process is." The conclusion is not surprising, he says, "because the DOL has publicly stated that the regulation promulgated by the Bush Administration would not survive in its current form. Based on the delay of the effective date, the benefits community had assumed that the revised final regulation would be published before the extended date of May 17, 2010, and that the 'old' regulation would simply be replaced by the new regulation." However, Reish continues, "the process being used by the DOL is a little surprising because it's not clear why they would need to both extend the effective date and withdraw the regulation. On the face of it, it appears that the answer of it is that the withdrawal couldn't get published, for whatever reason, before the effective date of November 17, 2009."

    Should we tax junk food to control obesity?

    Americans are getting fatter and some legislators are looking to tax junk food to control obesity. Based on the history of how heavily taxing cigarettes changed personal behavior, extra taxes on soda may stop people from sugaring themselves to death.

    When I started to smoke, at age 13, cigarettes cost $ .30 per pack. Around that time, almost 3/4 of American males smoked. After the Surgeon General's report came out in 1964 identifying the health risks of smoking, there were media campaigns, restrictions on cigarette advertising and other efforts to get people to quit. But the only intervention that really was effective for people to kick the habit was hitting them in the pocketbook with additional taxes. Each time the tax on cigarettes increased, more people quit. Currently, 21% of American adults smoke as the cost of a pack of cigarettes hovers around six dollars.

    Today, there is a new health crisis-- obesity. In 1950, obesity was not considered to be a disease. Today it is viewed as an epidemic and the number one threat to health in the United States. From 1960 to 2000, the number of overweight people between the ages of 20 and 74 increased from 31.5 to 33.6 percent in U.S. The number of obese people during this same time period more than doubled--from 13.3 to 30.9 percent, with most of this rise occurring in the past 20 years.

    From 1988 to 2000, the prevalence of extreme obesity increased from 2.9 to 4.7 percent, up from 0.8 percent in 1960. In 1991, four states had obesity rates of 15 percent or higher, and none had obesity rates above 16 percent. By 2000, every state except Colorado had obesity rates of 15 percent or more, and 22 states had obesity rates of 20 percent or more. Currently:

    • 58 million people are overweight, 40 million are obese, and 3 million are morbidly obese
    • Eight out of 10 are over 25 lbs. overweight
    • 78% of Americans are not meeting basic activity level recommendations
    • 25% are completely sedentary
    • 76% increase in Type II diabetes in adults 30-40 years old since 1990

    Now, a number of legislators and researchers are suggesting a new approach to the obesity epidemic--tax soda. New York Gov. David Paterson says taxing soft drinks could help combat obesity. A study by Harvard researchers found that an additional 12-ounce soft drink consumed per day increases the risk of a child becoming obese by 60 percent. For adults, the association is similar. It is estimated an 18 percent tax will reduce consumption of soda by 5 percent. Additional taxes could further reduce consumption.

    The taxes raised could be used to fund education programs and efforts to improve health. Perhaps we can have the same success with obesity that we have had with smoking.

    Barbara Bartlein is the People Pro. For her FREE e-mail newsletter, please visit: The People Pro.

    Top Stocks For 3/28/2012-15

    Endocyte, Inc. (Nasdaq:ECYT) reported financial results for the first quarter ended March 31, 2011, and provided an operational update. “We were pleased that in the first few months since our initial public offering, we have achieved some very significant milestones,” said Ron Ellis, Endocyte’s president and CEO. “Our recent interactions with the European Medicines Agency, including the Scientific Advice Working Party, were productive and led to our decision to seek conditional marketing authorization for both EC145 and EC20 in the EU, which could potentially accelerate our commercial timeline. As anticipated, we also began enrolling patients in our Phase 3 PROCEED trial for EC145 in women with platinum-resistant ovarian cancer. Our plan is to file for approval in the U.S. based on the PROCEED results.”

    Endocyte, Inc., a biopharmaceutical company, develops targeted therapies for the treatment of cancer and inflammatory diseases.

    Cleantech Transit, Inc. (CLNO)

    Biomass energy can really come from so many sources. What we are talking about here is any animal or plant-derived materials, for example such as wood, woodchips, paper, trash, agricultural crops, animal waste (slaughtering), manure, sewage, hemp, and algae.
    Biomass energy in the forms of gas can occur spontaneously, as marshgas, or landfill gas for example, but alcohols do not. Agricultural wastes or manures undergo certain processes first.
    Bio energy is renewable and solar in origin. It is renewable as the materials it comes from can be replaced, or grown, in a short period of time.
    And burning biofuels is not necessarily a contributor to global warming in the way that fossil fuels are.
    Biofuels do not add to the net amount of CO2 already present in the atmosphere. This is because carbon in the biofuel is locked up only for the short period of time in plants or animals and can be considered as recycled as newly growing crops and animals once again take up the atmospheric CO2 used in burning.

    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 can generate shareholder returns as well benefit the Company’s manufacturing clients worldwide.

    Cleantech Transit, Inc. original aim was to develop opportunities utilizing advances in technology and manufacturing processes in order to develop significant market share in the growing clean energy public transportation sector.

    With the growth in the green sector as a whole the CLNO has expanded its focus to invest directly in specific projects. Recent advances in the technology of converting wood waste into power have so greatly enhanced the economic value of their systems they have launched the biomass division as a separate company, Phoenix Energy, to focus exclusively on generating greater returns for manufacturing clients worldwide.

    For more information about Cleantech Transit, Inc.

    National Health Partners, Inc. (NHPR)

    Medical expenses are rising faster than the costs of any other service. They are climbing at rates that exceed not only those of inflation and dollar depreciation but even the Federal government itself. In fact, they are consuming an ever larger share of personal and national incomes.

    Some 40 years ago American medical spending was estimated at 5 percent of national income; today it is calculated at some 16.5 percent and rising continually. Several reform proposals in Congress would boost the share ever higher.

    Many observers offer lucid explanations of the medical-spending explosion. Some are convinced that the present generation of Americans, which enjoys a level of income and living standard higher than that of its forebears, is more mindful of health and wholesome living and, therefore, is spending a larger share of income on health care.

    National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called “CARExpress.” CARExpress is one of the largest networks of hospitals, doctors, dentists, pharmacists and other healthcare providers in the country and is comprised of over 1,000,000 medical professionals that belong to such PPOs as CareMark and Aetna.

    The company’s primary target customer group is the 47 million Americans who have no health insurance of any kind. The company’s secondary target customer group includes the millions of Americans who lack complete health insurance coverage. The company is headquartered in Horsham, Pennsylvania.

    National Health Partners, Inc. recently announced that it has signed a new agreement with a major marketing company that will significantly enhance the growth of its CARExpress membership base.

    According to the Company, this deal, in combination with the previous partnership with Xpress Healthcare, will enable the company to build its membership base exponentially, initially generating in excess of an additional 2,000 new members per month. The new campaign is set to launch within the next few weeks and will provide a material positive impact on the company’s 2nd quarter sales.

    National Health Partners anticipate that this new marketing agreement will provide a major impact on their overall sales not only for the 2nd quarter, but more importantly for the year. They look forward to building on the profits that they anticipate generating in 2011 that will be driven by substantial growth in sales of their CARExpress health discount programs. The combination of their substantial growth with their low price-to-equity ratio should reflect itself in the price of their stock over the coming months.

    For more information about National Health Partners, Inc visit its website

    New England Bancshares, Inc. (Nasdaq:NEBS) announced that the Company’s Board of Directors declared a cash dividend for the quarter ended March 31, 2011 of $0.03 per share. The cash dividend will be payable on June 10, 2011 to stockholders of record on May 24, 2011. New England Bancshares, Inc. is headquartered in Enfield, Connecticut, and operates New England Bank with fifteen banking centers servicing the communities of Bristol, Cheshire, East Windsor, Ellington, Enfield, Manchester, Plymouth, Southington, Suffield, Wallingford and Windsor Locks. For more information regarding New England Bank’s products and services, please visit

    New England Bancshares, Inc. operates as the holding company for New England Bank that provides various commercial banking products and services.

    Cyberonics, Inc. (NASDAQ:CYBX) announced that the company will report financial results for the fourth quarter and fiscal year ended April 29, 2011, on Thursday, June 2, 2011, before regular market trading hours. The company will conduct a conference call to discuss those results on the same day at 8:00 AM Central Time (9:00 AM Eastern Time). The conference call will be available to interested parties through a live audio webcast in the investor relations section of Cyberonics’ corporate website at

    Cyberonics, Inc., a neuromodulation company, engages in the design, development, manufacture, sale, and marketing of implantable medical devices that provide vagus nerve stimulation (VNS) therapy for the treatment of refractory epilepsy and treatment-resistant depression.

    Ford Recalls 530,000 Vehicles

    Ford (NYSE:F) on Wednesday announced the worldwide recall of more than half a million minivans and SUVs over potentially hazardous defects.

    Ford has recalled about 286,000 of its 2001- and 2002-model Escape SUVs to fix the caps on the brake master cylinder reservoirs. The company said some vehicles� caps might be leaking break fluid, which could lead to corrosion that might cause a fire.

    Ford also has recalled about 253,000 Ford Freestar and Mercury Monterey minivans from the 2004 and 2005 model years to fix their powertrains� torque converter output shafts. The shafts are susceptible to failure, which would cause sudden loss of power.

    Ford spokesman Dan Pierce said two minor Freestar/Monterey-related accidents have allegedly occurred in the past eight years.

    Ford recalled 3.3 million vehicles in 2011, the third-most among automakers, according to the National Highway Traffic Safety Administration. Honda (NYSE:HMC) recalled the most, at 3.9 million vehicles, and Toyota (NYSE:TM) recalled 3.5 million. General Motors (NYSE:GM) only recalled 500,000.

    F stock was up less than half a percent before the bell Thursday.

    – Kyle Woodley, Assistant Editor

    Top Stocks For 2011-12-29-20

    Cleantech Transit, Inc. (CLNO)

    Biomass is the main source of energy for a large number of small, rural, and cottage industries along with the majority of rural households. The majority of these enterprises belong to an unstructured sector and hence information and data on these industries are scarce. These industries provide employment to millions of people and form a very important part of the rural economy. The biomass-consuming industries can be divided into two categories, namely traditional industries and new or potential industries.

    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.

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

    NetScout Systems Inc. (Nasdaq:NTCT) announced that it has completed its acquisition of privately held Fox Replay BV, a leading provider of session reconstruction and replay technology that enables organizations to perform forensic analysis of end-user actions in support of CyberIntelligence, Information Assurance, Lawful Intercept and general security practices.

    NetScout Systems, Inc. engages in the design, development, manufacture, marketing, sale, and support of unified service delivery management, service assurance, and application and network performance management solutions worldwide.

    Mitcham Industries Inc (Nasdaq:MIND) announced that it has opened a new warehouse, logistics and repair facility in Budapest, Hungary. Bill Mitcham, the Company’s President and CEO, stated, “We are extremely pleased to announce the opening of our new facility in Budapest.

    Mitcham Industries, Inc., through its subsidiaries, engages in the leasing, manufacture, and sale of seismic equipment to the oil and gas industry worldwide. The company operates in two segments, Equipment Leasing and Seamap.

    Enzo Biochem, Inc. (ENZ)

    Biotechnology is technology based on biology, especially when used in agriculture, food science, and medicine. It may also be included under the very broad term bioengineering. One aspect of biotechnology is the directed use of organisms for the manufacture of organic products: examples include beer and milk products. For another example, naturally present bacteria are utilized by the mining industry in bioleaching. Biotechnology is also used to recycle, treat waste, cleanup sites contaminated by industrial activities (bioremediation), and produce biological weapons.

    Enzo Biochem, Inc., is a growth-oriented integrated life sciences and biotechnology company focused on harnessing biological process to develop research tools, diagnostics and therapeutics, and serves as a provider of test services, including exotic tests, to the medical community. Since ENZ was founded in 1976, their strategic focus has been on the development of enabling technologies in the life sciences field.

    Enzo Biochem Inc. recently announced that it has added four highly experienced executives at its Enzo Life Sciences subsidiary to focus on rapidly evolving new pharmaceutical and clinical applications.

    The officers, all filling newly created positions, are Bruce Taillon, PhD, as head of global technology business development, John D’Errico, PhD, to lead the commercial merchandising operations, Kara Cannon, as head of global marketing and Paul Munger, PhD, to lead Global Manufacturing.

    Over the past two years, Enzo has been engaged in enhancing the Life Sciences subsidiary’s operating performance through added capabilities, greater integration and a more focused product mix. These efforts are all aimed at significantly expanding Enzo’s presence and marketing beyond the traditional academic and research laboratory core to greater penetrate the pharmaceutical and clinical customer base with new and cutting edge platform technologies.

    For more information about Enzo Biochem Inc. visit its website:

    MedAssets, Inc. (Nasdaq:MDAS) announced that it plans to release its financial results for the third quarter and nine-month period ended September 30, 2011 after 4:00 p.m. ET on Thursday, November 3, 2011.

    MedAssets, Inc. provides technology enabled products and services for hospitals, health systems, and other non-acute healthcare providers in the United States. It operates in two segments, Spend and Clinical Resource Management, and Revenue Cycle Management.

    Thursday, October 25, 2012

    Dubai Sinking — No, For Real

    Dow Jones Newswires writer Alex Delmar Morgan reports today that Dubai’s state-owned real estate developer Dubai World’s Palm Jumeirah, an island dredged from the Persian Gulf at a cost of $12 billion, may be sinking as much as 5 millimeters per year and may be flooded if future ocean levels rise, citing a surveying firm based in the region. Dubai World denied the claim.

    Dubai World is of course grappling with plummeting real estate prices, and in another note today, the DJ wire notes that Dubai World is to meet with 100 creditors on Dec. 21 to formally ask for a “standstill” on repayment of some of its $26 billion in debt, according to “bankers with knowledge.” The article notes that a U.K. law firm, Ashurst, and New York-based hedge fund QVT Financial LP, are working to twist arms among creditors to come together in discussions about Dubai’s debt.

    The 400% Man

    On a fall day in 2010, half a dozen wealthy investors and portfolio managers converged on an office in midtown Manhattan. These were serious Wall Street moneymen; in aggregate, they handled more than a billion dollars. They had access to the most exclusive hedge funds and investment partnerships and often rubbed shoulders with the elite of New York, Greenwich and Palm Beach.

    Inside the March Issue
    • The Cost of Living Longer -- Much Longer
    • Job Hunting: When Parents Run the Show
    • The 400% Man
    • 10 Things Baristas Won't Tell You

    But on this day, they had turned out to meet an unknown college dropout from Utah -- and to find out how he was knocking them all into a cocked hat.

    The unknown, Allan Mecham, had been posting mind-bogglingly high returns for a decade at a tiny private-investment fund called Arlington Value Management, and the Wall Streeters were considering jumping on board. For nearly two hours, they peppered him with questions. Where did he get his business background? I read a lot, he replied. Did he have an MBA? No. I dropped out of college. Did he have a clever computer model or algorithm? No, he replied. I don't use spreadsheets much. Could the group look at some of his investment analyses? I don't have any of those either, he said. It's all in my head. The investors were baffled. Well, could he at least tell them where he thought the stock market was headed? "I don't know," Mecham replied.

    When the meeting broke up, "most people left the room mystified," says Brendan O'Brien, a New York City money manager who was there. "They were expecting to see this very sharp-dressed, fast-talking guy. They were saying, I don't get it, I don't understand why he wouldn't have a view on the market, because money managers get paid to have a view on the market." Mecham has faced this kind of befuddlement before -- which is one reason he meets only rarely with potential investors. It's tough to sell his product to an industry that's used to something very different. After all, according to their rules, he shouldn't even be in the business to begin with.

    Over a 12-year stretch, through the end of 2011, Mecham, now a mere 34 years old, has earned an astounding cumulative return of more than 400 percent by investing in the stock of U.S. companies -- many of them larger ones like Philip Morris, AutoZone and PepsiCo. That investment performance leaves the stock market indexes and most mutual funds trailing far in the dust. Of the thousands of mutual funds in America, only a smattering of stock-oriented funds have done better, according to Lipper. Arlington, which is structured like a hedge fund, has put most firms in that category deep in the shade as well. It even managed to turn a profit during the crash of 2008, when Standard & Poor's 500-stock index fell nearly 40 percent. And Mecham has done this mostly while sitting in an armchair, in an office above a taco shop, in downtown Salt Lake City.

    Mecham doesn't look, talk or act like a typical Wall Street manager. He's soft-spoken. He doesn't use jargon. He dresses like he works in a bookshop, with a patterned shirt and a plain tie. And the story of his success, arguably, says a lot about the flaws of the fund-management industry. By his own account, and those of other investors who have vetted his fund, Mecham has no secret sauce or amazing algorithm; what's extraordinary about this young man is how ordinary he is. But his investment approach relies on a handful of common-sense tactics -- focusing on just a few stocks, for example, and avoiding or ignoring short-term statistical analysis -- that big money-management firms either can't use or are reluctant to try. Skeptics and admirers alike agree that Mecham's approach involves a higher-than-usual potential for hefty losses. Russ Kinnel, director of fund research at Morningstar, says most fund customers would be unlikely to take that chance. "Pension funds, consultants, investors in general are quite benchmark-centric," Kinnel notes; they get uncomfortable when their money managers deviate.

    Allan Mecham Photograph by Tom Bear for SmartMoney

    At the helm of a tiny, obscure investment fund, Allan Mecham has put up a stunning 400% return over the past 12 years. How long can the streak last -- and why can't mutual funds do the same thing?

    But that notwithstanding, it would be a bit of a stretch to characterize Mecham as a rebel -- this is a man, after all, for whom one of the highlights of the past year was a trip to Omaha. (He took his girlfriend to Warren Buffett's annual investment conference.) As does virtually every other manager in the business, Mecham says he would like to raise more capital to invest -- his firm is small, with $80 million under management. But for now, the handful of pros who have jumped on his bandwagon are happy to have the fund remain undiscovered. It's clear that several think they're onto something special.

    After the awkward New York meeting, O'Brien, who runs Gold Coast Wealth Management, was sufficiently intrigued to do more digging -- and after spending months talking with Mecham and checking his results, he got on board, investing more than $1 million with the Utah unknown. "To use a sports analogy," O'Brien says, finding Mecham was like "one of the rare few times when a star free agent becomes available in the beginning of his prime."

    It's sensible these days for investors to approach the story of any stock market wunderkind with caution -- all the more so in the private-investment world, where money managers operate without the checks, balances and scrutiny that large mutual funds endure. Many such funds don't have to register with the Securities and Exchange Commission, especially if they're small and if big research companies like Morningstar don't track their performance. With the minimum stakes in such funds often very high -- at Arlington Value, the ante is typically at least $1 million -- investors have an even bigger incentive to do their own due diligence. (O'Brien, for instance, says he spoke to Arlington's auditors to confirm the investment figures, then did a background check on the auditors.) Factor in that the history of Wall Street is littered with the careers of investment hotshots who flamed out, and betting on a manager ultimately becomes a leap of faith.

    Rule-Breaker's Rules

    Money pros who know him say none of Allan Mecham's investing tactics are astonishingly difficult -- but for various reasons, most investors don't use them.

    Ignore the economy. Where is the economy going next quarter? Where is the S&P headed? Mecham says he ignores those issues; instead, he looks for stable, defensive businesses that can thrive whenever bad times come.

    Don't diversify. Most mutual funds own dozens or even hundreds of stocks (regulations usually require them to own at least 15). But to outperform with a big portfolio, a manager has to outsmart the market simultaneously on a raft of securities. Smaller funds and private-investment funds, which are not under the same requirements, can rely on just six or eight stocks.

    Don't sweat the spreadsheets. Many Wall Street analysts build elaborate financial analyses to calculate a company's earnings growth and other patterns. But some say it's more productive to use that time trying to understand a company and its industry -- the management, the competition, the customers and so on.

    Think decades, not quarters. Shareholders and managers tend to focus on companies' announcements of quarterly or annual earnings, and whether they beat or miss analysts' estimates. But some managers -- including one Warren Buffett -- say it's more useful to try to figure out where a company will be in a decade or more.

    Don't just do something. Stand there! One of the toughest things for investors to do is to sit still and do nothing -- especially when nervous clients demand that they respond to short-term fluctuations in the market. But most of the time, say a few contrarians, inactivity is the right longer-term move. It's about "keeping emotions from corroding the decision process," says Mecham.

    In Mecham's case, that faith resides in someone whose background is highly unusual for this industry. Mecham attended a community college and the University of Utah for two years -- but soon after starting an investment club, he says, he found his schoolwork boring by comparison. He would read books about investing and business. "I was 19," he recalls. "I was staying up till 3:30 a.m. devouring this stuff." Salt Lake City is a cohesive town where people know each other, and a classmate knew people at Wasatch Advisors, a local mutual fund company. Mecham landed a job there and eventually decided not to go back to school, choosing to stay on with the firm instead.

    Mecham's Wasatch bosses say they remember him as a good, but not unusually good, employee who made one memorably successful stock pick, recommending that the firm buy a health-services company that did quite well. Still, it was only about a year before Mecham decided he could run money himself. He raised seed capital -- less than $200,000, he says -- from a handful of local investors led by Robert Raybould, a former real estate developer who is the father of Mecham's childhood friend Ben Raybould. And in 1999, Mecham launched his fund -- at the well-seasoned age of 22.

    Since then, word of mouth has drawn more assets to Arlington, with Ben Raybould acting as Mecham's partner and the fund's main salesperson; regulatory filings show that the firm has about 120 investors, with more than 75 percent of them identified as "high-net-worth individuals." According to Raybould, of the $80 million in the fund, about half is investors' principal, and the rest, profit. But Mecham says his habits today are roughly the same as they were back when he had $200,000 to invest. He sits in that armchair by the window, carefully reading company filings and other records from atop a giant pile of material that he prints out each day. (Mecham prefers to read only on paper, not online -- old school.)

    His investment approach will be familiar to anyone who has been even a casual follower of Buffett. Mecham looks for businesses with great long-term prospects, great management, strong cash flow and big defensive "moats," or barriers to entry for potential competitors. And he stresses the importance of sitting still and doing nothing. "Activity is the enemy of returns," says Mecham. "If I find two new ideas a year, that's phenomenal." Two ideas a year adds up to a pretty small portfolio -- Mecham typically owns between six and 12 stocks. (That's one thing that sets him apart from mutual fund managers; because of industry regulations on diversification, traditional funds typically have to have at least 15 holdings.)

    The names of the stocks from which he has made his money over the years tell a lot of the story. They're not exactly glamorous or sexy businesses. (Mecham has never owned Apple. "Our portfolio is not one to get you excited," he jokes.) Some are well known, such as PepsiCo, fast-food giant Wendy's, health care firm Wyeth, consumer-products company 3M and Buffett's Berkshire Hathaway. Others are less so, like Watsco, a $2 billion company that's the U.S.'s largest distributor of air-conditioning equipment and supplies. Mecham says he loves the company's management and business model, but the choice was an industry pick as well -- in much of the country, he notes, when your air-conditioning system breaks down, getting it fixed "isn't a want, it's a need." Another little-known favorite, Heico, makes components for jet engines. Mecham's argument for the stock is brief, straightforward and Buffett-like: There are huge barriers to entry, he says, the replacement cycle is driven by regulation, and customers are not aggressive about demanding lower prices.

    Indeed, Mecham can tell a good story like this about any stock he owns. But he writes these stories by himself, based on his own research -- unlike most fund managers, he generally doesn't meet company management. That's partly a function of his fund being small; he's not in a position to buy huge stakes that can make or break a company. But Mecham doesn't like meeting management even where it's possible. "Management is usually likable," he says. "They'll never tell you things are going to hell in a basket." Indeed, Arlington's worst patch came from getting too close to a company: local Internet retailer Ben and Robert Raybould take the blame for persuading Mecham to invest in it and then persuading him to hang on when the stock cratered in 2005. Mecham called the decision "management by committee." The fund dropped by a third that year, while the market rose. Mecham argued with his backer, and in the aftermath, Raybould agreed to leave Mecham alone. ( President Jonathan Johnson declined to comment about the stock price, but says he knows and likes Mecham.)

    It was a very different story in 2008, Wall Street's annus horribilis, the year of Bear Stearns and Lehman Brothers. The financial meltdown was an event that blew up almost every smart money manager from Boston to Beijing. The S&P crashed 37 percent. Most actively managed stock funds did worse, and those that cut their losses often did so by fleeing stocks for cash. Arlington? It doubled down, loading up on stocks that would do well in a downturn.

    An Elite Club

    A 400% gain, which turns a $100,000 stake into a $500,000 jackpot, is a hall-of-fame feat for money managers. Below, some of the few who have pulled it off.

    Warren Buffett
    • Holding company: Berkshire Hathaway (BRK.A)
    • Market cap: $191 billion
    • The 400% run: 80 Months. july 1989-February 1996
    • The Oracle of Omaha has punched his 400 percent membership card more than once. This run, capped with a 57 percent gain in 1995 alone, got a boost from Buffett's famous investment in Coca-Cola, which he bought in 1988. Berkshire's recent returns haven't been as dramatic, but the company largely managed to avoid stumbles that have tripped up other well-known managers over the past decade.
    Kenneth Smith (with others)
    • Fund: Munder Growth Opportunities (MNNAX)
    • Assets: $460 million
    • The 400% run: 17 Months. october 1998-February 2000
    • This fund, formerly known as Munder NetNet, epitomized the industry's embrace of the dot-com era. After it nearly tripled investors' money in 1999, its assets ballooned to more than $11 billion and then the bubble burst. In the three years that followed, the fund lost 85 percent of its value. Over the past decade, though, Growth Opportunities, which has shuffled its management team, has beaten the market handily.
    Bill Miller
    • Fund: Legg Mason Capital Management Value Trust (LMVTX)
    • Assets: $2.6 billion
    • The 400% run: 85 months. April 1994-April 2001
    • Miller, who quintupled investors' money in just seven years, attributes gains during this period to savvy tech calls: buying names like AOL and Dell early, then selling ahead of the tech crash. But he will be stepping down from the fund in April on a less triumphant note. After a series of big bets on banks went sour during the financial crisis, he has trailed the S&P 500 in five of the past six years.
    Sam Stewart, Robert Gardiner, Daniel Chace
    • Fund: Wasatch Micro Cap (WMICX)
    • Assets: $275 million
    • The 400% run: 90 months. november 1999-April 2007
    • This fund managed a four-bagger in less than eight years by finding bargains among companies valued below $1 billion. The bad news: Small firms "struggled mightily" when financing dried up during the recession, according to Wasatch founder Sam Stewart. Micro Cap lost roughly half its value in 2008, but investors who stuck with it have beaten the S&P 500 by three percentage points a year, on average, over the past decade.

    -- By Ian Salisbury

    One was AutoZone, the chain that made more than $8 billion in revenue in 2011 selling car parts directly to consumers. Mecham had been building a stake since 2005, and he was convinced it was a "countercyclical stock" that would thrive even in a poor economy -- when consumers are hurting, he explains, they keep their old cars longer and fix them themselves. AutoZone stock gained more than 16 percent in 2008; since then, it has more than doubled. Mecham also zeroed in on Canadian insurance company Fairfax Financial Holdings. Wall Street had dumped the stock overboard in the panic, but Mecham had actually read the company's filings -- and he knew most of its assets were in Treasury bills and other ultrasafe positions. Arlington added to its already large position, and Fairfax rose 12 percent in the last two months of the year. The result: Arlington as a whole was up a remarkable 11 percent in 2008 and another 59 percent in 2009. No public equity mutual fund in America came close.

    So why don't other mutual fund managers think and act like this? Bonnie Sewell, a wealth manager at American Capital Planning who oversees money for high-net-worth clients across the country, says concentrated portfolios can prove incredibly volatile. She says she wouldn't bet more than about 10 percent of a portfolio on an individual manager like Mecham, no matter how good, because of the inevitable risk -- or even likelihood -- that what goes up will come down. Regardless of their strategy, even managers with terrific track records can get cocky or complacent, or they can just make mistakes.

    As investing sages like Buffett often point out, people on Wall Street are also subject to enormous career pressure to conform. If they took a big bet, like Mecham's on Fairfax, and it didn't work out, clients would bolt, and they typically would be fired or pushed out. But no one would get fired for missing an opportunity like that. The same goes for how managers react to short-term news in the market. Mecham says one of his big advantages over Wall Street managers is that he is free to ignore "noise" -- like the quarterly obsession over short-term earnings, which often drive stock prices sharply up and down as investors stampede in herd behavior. The first question he asks of any investment, he says, is where it will be in 10 years or more: "You have to have a high degree of confidence in the cash flows over the next decade." Mecham says that in contrast, the typical mutual fund manager is like someone who's hired to run a marathon -- only to have his clients announce that they're going to compare his time every 100 meters with that of an Olympic sprinter running a dash. "It's a myopic process," he says, with resignation.

    Where does Arlington head next? Mecham says he won't compromise his strategy to play the Wall Street game. That leaves Ben Raybould battling to market a fund, and a manager, that many other money managers can't even understand. Mecham is bemused that so many people expect him to hold a broad basket of stocks and follow a benchmark, such as the S&P 500. "It's laughable to think that in this competitive world, you're going to find brilliant ideas every day," he says. "The world's just not set up that way."

    Regions Financial Draws Bullish Play

    By David Russell

    Regions Financial (RF) ripped higher on bullish technicals yesterday, and the call buyers weren't far behind.

    Money rushed into the August 9 contracts, which traded 5,938 times against open interest of 1,671 contracts. Most of large transactions priced for $0.15 to $0.31, according to optionMONSTER's Heat Seeker tracking program. Call buying dominated the session, which was six times busier than usual.

    RF rallied 5.5 percent to $7.29 after establishing a new 52-week high of $7.62 earlier in the session. The shares have been gradually squeezed higher in the last month while being held in check below $7. They gapped above that level at the open and quickly made a run for the $7.50-$7.60 range that had served as resistance in the last year.

    The holding company has a lower price-to-book ratio than most of its rivals and a relatively high short interest, which represented 11 percent of the float as of Feb. 12. That may be helping the stock outperform other regional banks as measured by the SPDR KBW Regional Banking (KRE) exchange traded fund: RF is up 32 percent in the last three months, compared with a 21 percent gain for that ETF.

    RF must rally another 27 percent by August expiration for the calls to turn a profit. Investors also purchased the March 7 calls, April 7 calls and March 8 contracts. Call options overall outnumbered puts by almost 4 to 1 yesterday, further reflecting the bullish sentiment.

    Disclosure: No positions

    Can Whole Foods Hold On?

    Grocery stores, convenience stores, and even full service gas stations are on every corner nowadays. With the market so saturated, how can anyone make money? Well, on paper Whole Foods Market (Nasdaq: WFM  ) looks like it's found a way. The company's business approach has allowed it to expand rapidly, adding 34 new stores in the past two years, and it plans to add at least 52 more stores in the next two years. Same-store sales growth was 8.4% in 2011, up from 6.5% the year before. Overall sales for the company were up 12% in 2011, and profit margins are impressive -- more than double those of the industry.

    The average net profit margin in the grocery industry currently sits at 1.5%. This means for every $100 in sales, the average grocery store only makes $1.50. In contrast, Whole Foods pockets $3.39! By looking at this information, you might want to go out and mortgage the house in order to buy as much stock as you can. But let's take a little deeper look.

    Company Name

    Profit Margin Shown in %



    Whole Foods Market �3.39% 33.96 10.11 B
    The Fresh Market (Nasdaq: TFM  ) �2.71% 62.53 1.03 B
    Kroger (NYSE: KR  ) �1.37% 11.77 87.06 B
    Safeway (NYSE: SWY  ) �1.24% 13.18 42.84 B
    SUPERVALU (NYSE: SVU  ) �0.07% 55.19 36.88 B

    Source: Yahoo! Finance.

    Compared to its peers, Whole Foods is overpriced. With a current P/E of 33.96, that's almost three times what Kroger or Safeway are currently selling at. Let's not forget this is an industry that is not normally known for huge leaps in sales.

    Size does matter!
    Whole Foods is a relatively small company with only 311 stores. Compare that to Safeway with more than 1,702 grocery stores or even Wal-Mart (NYSE: WMT  ) with more than 3,194 grocery locations. Larger companies have stronger buying power that can affect the overall market. To illustrate just how much power they wield, when Wal-Mart entered the choice-grade beef market, they drove wholesale prices to an eight-year high as the gap between choice and prime grew to as much as $0.19 per pound. Plainly put, their massive purchase affected supply and demand dynamics for a whole market. Whole Foods lacks this purchasing power, and therefore will be unlikely to obtain the low prices their larger purchasing competitors realize.

    Whole Foods current market cap is $11.78 billion, while Kroger's is $13.31 billion. Whole Foods is priced only $1.53 billion less than a company in the same industry that has nearly nine times higher sales and net income almost three-and-a-half times higher. About 15% of Kroger's sales come from fuel, which is another revenue stream that Whole Foods hasn't entered, and practically won't be able to given the layout of many of its stores.

    Whole Foods current brand image is great, but competitors are eroding its niche market. Grocery stores such as Safeway are rapidly remodeling their stores by adding hardwood floors, less fluorescent lighting, and just plain mimicking Whole Foods' store layout. Safeway also carries its own in-house brand, O Organics. Many other grocers have already started adding organic and other natural food items like Stop N Shop's Nature's Promise. As these competitors continue to expand on the trends that Whole Foods started, consumers might not express the same brand loyalty they once had for Whole Foods.

    My Foolish opinion
    Wall Street has set some very high expectations for Whole Foods. In my opinion, I think it may be possible to meet these expectations, but not for a long time. Maybe not even until Whole Foods has completed the 1,000 stores it is projecting to build in the U.S. This sort of growth could take two decades, even with ambitious growth rates. Looking that far out, will Whole Foods still realize the same sales growth of today? Will their brand still resonate as strongly? I'm skeptical. Having said that, I don't think Whole Foods can build enough stores and raise revenue fast enough in the near future (three to five years) to sustain the growth rate that the stock price currently has built in.

    Not everyone here at the Fool is as bearish as I am about Whole Foods. Check out these articles to see another point of view: "Is Whole Foods Still Relevant?" by Molly McCluskey or "Don't Panic About Whole Foods" by Alyce Lomax. Add any of the stocks mentioned in this article to your watch list by clicking on one below.

    • Add Whole�Foods�Market to My Watch list.
    • Add Wal-Mart�Stores to My Watch list.
    • Add SUPERVALU to My Watch list.
    • Add The�Kroger to My Watch list.
    • Add Safeway to My Watch list
    • Add The�Fresh�Market to My Watch list.

    EU Expected to Nix NYSE-Deutsche Boerse Merger

    Although the decision is neither official nor public yet, the European Union is expected to recommend against allowing a Deutsche Boerse takeover of NYSE's Euronext. EU officials are preparing the official recommendation, which may come as soon as next week.

    In a Dec. 21 meeting, according to Bloomberg, the European Commission team conducting an examination of the proposed deal said they were likely to recommend prohibition of the deal, according to unidentified sources familiar with the proceedings. The team’s advice is nonbinding.

    European regulators are concerned about the possibility of competition in derivatives and clearing being threatened by the arrangement. Both NYSE and Deutsche Boerse have offered concessions, but officials told the companies in a Brussels meeting last week that those concessions did not go far enough. The commission has until Feb. 9 to make a ruling on the case.

    U.S. regulators already agreed, on Dec. 22, to permit the deal to proceed, provided the Frankfurt-based Deutsche Boerse sells its 31.5% stake in another U.S. equity market, Direct Edge Holdings. Europe has not been so quick to act on a decision, and previously said that the companies would have to divest an entire derivatives business such as Liffe or Eurex.

    Both CEOs have said they are not prepared to consider such an action, and offered other concessions instead–capping fees on derivatives trading and clearing for three years, selling the Liffe single-stock derivatives business and licensing the Eurex trading system to a third party.

    If the takeover occurs, it would put more than 90% of the region’s exchange-traded derivatives market and approximately 30% of European stock trading under the control of a single company.

    Eurex is the region’s biggest derivatives exchange and Liffe the second largest. In the U.S., trading in interest-rate, agricultural and commodity futures is already dominated by a single company, CME Group Inc., after its merger in 2007 with the Chicago Board of Trade and with the New York Mercantile Exchange in 2008.

    Earning Money From Greka Futures By using Short-Term Trades

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    Nevertheless, if you are looking to earn money for a while, you may need to adopt a trading method. The ultimate way to make money from Greka shares is to attempt to make investments in the cost fluctuations of such shares. The Greka shares are particularly of significant price to merchants since they usually provide excellent profits. When you’re looking to trade Greka shares for the short term you’d ought to discover methods for making sure that you don’t wind up losing plenty of cash as has been mentioned above. One method of accomplishing this is by making use of signs as your instructions on whether to get or sell the shares.

    The concept that governs earning profits using Greka futures in this way is quite easy. Fundamentally, you simply have to obtain the Greka futures when you believe that the worth of the futures are positioned to boost, and then sell them when the costs increase and are just preparing to start dropping again. It is an effective way of earning profits, though you have to be careful concerning how you choose whether or not to sell or buy the futures.

    An exceptional demonstration of this is to simply keep to the most up-to-date news flash. There are several news reports which generally have something related to electricity expenses. For instance, if you hear of reports in england that could lead to a growth in power desire, you can be sure that it is going to additionally result in an increase in the importance of futures as more folks seek to obtain the shares to capitalize on this. You can make use of this as a signal to acquire the Greka futures also. Even so, you have to obtain the futures early enough, in order that you do not turn out buying them when the industry is soaked with consumers. In such cases, the cost of the Greka futures would then start dropping and act to your pitfall.

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    Starbucks K-Cup Packets Debut at Stores Next Week

    Starbucks (SBUX) has been making lots of high-profile announcements this week that point to the direction of the brand.

    On Monday, the companysaid it will buy a bakery chain and roll out new food products; then on Tuesday Starbucks announced a partnership with Coinstar (CSTR) to serve Seattle’s Best coffee from hundreds of kiosks; and today, Starbucks said that its K-Cup packets will be available in Starbucks stores starting next Tuesday thriough a partnership with Green Mountain Coffee Roasters (GMCR).

    “Pike Place Roast and Sumatra, medium and dark roast coffees, respectively, and among Starbucks most popular coffees, will be available in 12-count packs for $11.95,” the company said. Starbucks will also offer teas and other coffees starting in July.

    �The availability of Starbucks K-Cup packs in our retail stores is an added convenience for our customers and a complement to the variety of coffee choices we provide,� said Cliff Burrows, Starbucks president, U.S. and the Americas.

    We asked earlier this week if Starbucks’ new offerings might cannibalize sales at its stores.