Saturday, December 8, 2012

Orion Marine Group Headed For Near-Term Recovery

Orion Marine Group, Inc. (ORN) is a provider of marine construction services on, over and under the water along the Gulf Coast, the Atlantic Seaboard, the West Coast of the United States as well as Canada and the Caribbean Basin. The company currently trades for about $212 million relative to book value of $238 million ($205 million tangible), average operating income for the past two years of $32.3 million. It has zero debt and $35 million in cash and equivalents. Moreover, it has generated average ROE and ROIC of 15% over the last six years while growing revenues at 18% CAGR from 2004 to the end of fiscal 2010.

Growing revenues and respectable returns over a business cycle that encompasses a peak and (hopefully) a trough would normally indicate a business that should be trading at a P/B of at least 1. Perhaps the following chart provides an explanation:

Orion Marine Group, Inc - Historical Revenues and Margins, 2004 - 3Q 2011.

The Highest-Growth Electronics Retail Stocks

Why are investors willing to pay only 10 times earnings for some stocks, but 20, 50, even 100 times earnings for others?

The short answer: growth. Companies that can grow their earnings meaningfully could make lofty current P/E ratios look cheap in hindsight.

Of course, any company can promise a rosy, growth-rich future. Figuring out which companies can actually deliver is far trickier. In this series, I take the first step by identifying companies that have put up the best growth track records in their respective sectors.

Below, I've listed the top sales growers in computer and electronics retail (and one that's actually lost sales) over the last five years. Here's how to interpret each data column.

  • Five-year sales growth: I rank each company's sales growth, to capture its pure trailing expansion without regard to the vagaries of earnings.
  • Five-year EPS growth: Since sales growth means nothing if it doesn't ultimately fall to the bottom line, I've also included each company's five-year trailing EPS growth rate.
  • Five-year analyst estimates: This column shows us how much EPS growth analysts expect over the next five years. Just keep in mind that analysts tend to grossly overestimate a company's prospects.
  • Five-year ROIC range: Return on invested capital basically shows you how efficiently a company is converting its debt and equity into profits. We want companies that can do a lot with a little. By looking at the five-year range, we can start to gauge both the power and the consistency of a company's profit engine.


5-Year Sales Growth

5-Year EPS Growth

5-Year Analyst Estimates

5-Year ROIC Range

GameStop (NYSE: GME  ) 18.0% 33.1% 10.8% 10.9% / 15.4%
hhgregg (NYSE: HGG  ) 17.7% 8.7% 15.0% 15.4% / 23.6%
Systemax (NYSE: SYX  ) 10.8% 9.4% 13.0% 10.4% / 19.8%
Best Buy (NYSE: BBY  ) 9.1% 3.6% 9.2% 15.5% / 21.7%
Rent-A-Center (Nasdaq: RCII  ) 3.6% 3.2% 10.1% 8.1% / 10.7%
RadioShack (NYSE: RSH  ) (2.0%) 30.2% 8.0% 11.6% / 20.3%

Source: S&P Capital IQ.

Use the table above as a first step to help you generate ideas for your own further research. Once you identify stocks worth a closer look, the following three steps will help you further assess their growth prospects:

  • Carefully study the table for possible danger signs, such as high sales growth but low EPS growth, analyst growth expectations significantly trailing past growth, and low ROIC figures. Then follow the trail. For example, I listed RadioShack in the table even though its sales growth has been negative. Why? Because its five-year EPS growth has been strong. While I don't see big growth ahead for either Radio Shack or Best Buy, I actually like their futures better than GameStop's (the top past sales grower) at current valuations. Hence, I own shares of both. That said, my Foolish colleague Jim Mueller may disagree since he's bullish on GameStop.
  • Find out how the company achieved its prior growth: organically, or via acquisition? Can it sustain that previous growth?
  • Pay attention to how management plans to implement its growth plans. Does its strategy seem prudent and plausible to you?

Remember: The more profitable, efficient, and predictable growth a company can achieve, the more we investors should be willing to pay.

Learn more about any of the stocks that interest you by adding them to our My Watchlist tool. You'll get access to all the latest Motley Fool analysis, organized by company.

Fisher Adds to Japan Weight in Portfolio, Criticizes Media Coverage of Quake

Ken Fisher reports he has made some portfolio changes as a result of the situation in Japan: he has “increased weight in Japan and picked up some other things, mostly technology, on the presumption that things tied to [Japan] will” improve faster than many people think.

Overall, Fisher (left) told AdvisorOne in an exclusive interview on Wednesday that we have been in a “normal corrective phase since the beginning of the year. There are too many optimists and too many pessimists, and this is cooling down the optimists.” It’s “part of the same chop trend going nowhere,” he explains. “There are all kinds of super bulls and super bears, and not much in the middle.”

Meanwhile, says Fisher, founder and CEO of Fisher Investments, in Woodside, Calif., the firm isn’t changing how it communicates with clients. In a regular “weekly commentary e-mail, we said we think this is largely a tragedy that is being expanded in the media.”

Media ‘Hysteria’

“Rarely do people think they’re hysterical when they really are,” Fisher says, railing at media coverage of the unfolding tragedy in Japan—especially television. The story, he says is being “reported as worse than things there really are.” The media needs to be “responsible about how they are reporting this—TV is fanning the hysteria. I saw Elliott Spitzer interviewing a whistleblower about GE” regarding nuclear plant design—[there have been media reports that the GE design of the most troubled nuclear plant in Japan was less expensive to build and less safe].

Fisher asserts that “society will be hostile toward nuclear and utilities for a good long time. Everyone will be forced back to fossil fuels.”

Asked if he thinks this will boost green power—wind, hydroelectric—Fisher says green power is “dead in the water,” and that the only way wind power would be viable is if the “government provides huge subsidies. We have abundant fossil fuel.” But he doesn’t mean coal—Fisher notes that “natural gas undermines everything, including coal.”

“Good technology and real economics tend to win out.” Coal has “enough issues. The breakthroughs in [energy] technology all relate to natural gas.” Fisher says.

It’s a shame because people are acting like there is a major radiation problem all over Japan. I saw a [news] story on ‘Would Americans be safe flying in an airplane over Asia?’” Fisher concludes.

Friday, December 7, 2012

Silver Eagles Soar!

In World War I severe material shortages played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.

After World War II the United States created the National Defense Stockpile (NDS) to acquire and store critical strategic materials for national defense purposes. The Defense Logistics Agency Strategic Materials (DLA Strategic Materials) oversees operations of the NDS and their primary mission is to “protect the nation against a dangerous and costly dependence upon foreign sources of supply for critical materials in times of national emergency.” 

The NDS was intended for all essential civilian and military uses in times of emergencies. In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs - the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use 

American Silver Eagle

The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986 and is struck only in the one troy ounce size.

The Bullion American Silver Eagle sales program ultimately came about because the US government wanted, during the 1970s and early 1980s, to sell off what it considered excess silver from the Defense National Stockpile.

"Several administrations had sought unsuccessfully to sell silver from the stockpile, arguing that domestic production of silver far exceeds strategic needs. But mining-state interests had opposed any sale, as had pro-military legislators who wanted assurances that the proceeds would be used to buy materials more urgently needed for the stockpile rather than merely to reduce the federal deficit." Wall Street Journal

The authorizing legislation for the American Silver Eagle bullion sales program required that the silver used for the coins had to be from the Defense National Stockpile. By 2002 the DNS stockpile was so depleted of silver that if the American Silver Eagle bullion sales program was to continue further legislation was required.

On June 6, 2002, Senator Harry Reid (D-Nevada) introduced the Support of American Eagle Silver Bullion Program Act to “authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted."

2002 - 10,539,026 Bullion American Silver Eagles were sold.

2003 - 8,495,008 Bullion American Silver Eagles were sold, silver averaged $4.88 an ounce for the year. 

2004 - 8,882,754 Bullion American Silver Eagles were sold. For 2004 the average cost of an ounce of silver was $6.67.

2005 - 8,891,025 Bullion American Silver Eagles were sold. Silver averaged $7.32 an ounce.

2006 - 10,676,522 Bullion American Silver Eagles were sold. Silver averaged $11.55 an ounce. 

2007 - 9,028,036 Bullion American Silver Eagles were sold. 

2008 - 20,583,000 Bullion American Silver Eagles were sold. Silver averaged $14.99 an ounce and almost 80% more Bullion American Silver Eagles were sold then in any previous year. 

The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year. 

In March 2008, sales increased nine times over the month before - 200,000 to 1,855,000.

In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to "unprecedented demand."

On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.

The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008.

2009 - 30,459,000 Bullion American Silver Eagles were sold

On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.

On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.

The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.

Silver Eagle bullion coins sold out on January 12, 2010.

The average cost of an ounce of silver in 2009 was $14.67


No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.

Production of the 2010 Silver Eagle bullion coins began in January instead of  December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.

In 2010 the US Mint sold 34,700,000 Bullion American Silver Eagle Coins.


According to the USGS’s most recent Silver Mineral Industry Survey, silver production fell to 37 tonnes in October - compared to 53 tonnes year over year (yoy).

In 2011, the United States produced approximately 1,054 tonnes of silver – down from 2010’s production of 1,154 tonnes and down from 2007’s production of 1,163 tonnes.

The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.

In 2011 the US Mint sold 39,868,500 Bullion American Silver Eagle Coins.

2011 was the first year in which official coin sales will surpass domestic silver production.


Jeff Clark of Casey Research writes “For the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the US and Canada. Throw in the fact that by most estimates less than 5% of the US population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month.”

The US Mint is required by law to mint the bullion Silver Eagles to meet public demand for precious metal coins as an investment option. The numismatic versions of the coin (proof and uncirculated) were added by the Mint solely for collectors.


United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.

As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.

Bullion Silver Eagles are guaranteed for weight and purity by the government of the United States and because of this the US government allows bullion Silver Eagles to be added to Individual Retirement Accounts (IRAs).


The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.

“Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.”  John Embry, Chief Investment Strategist, Sprott Asset Management

Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most -  the best way to hedge yourself against inflation could be owning silver.

Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

*Post courtesy of Richard Mills at where he covers the junior resource sector. 


Easy Money in Europe, America Revive Investor Sentiment

As we close this volatile year, a combination of the following�has lifted the stock market back to positive territory for the year:

  • The ECB�s generous offer of massive amounts of easy money at low rates.
  • A hint that the Fed will keep U.S. rates near 0% until at least 2014.
  • A new wave of better-than-expected economic news.
  • The S&P rose 3.75% last week and is at a slight 0.6% year-to-date gain, while the Dow is up 6% and NASDAQ is off 1%. Maybe this wild and crazy year will end on a positive note after all.

    The ECB�s New Leader Offers $641 Billion in 1% Loans

    The biggest news last week was that Mario Draghi, the new head of the European Central Bank, offered 523 euro zone banks up to $641 billion of up to three-year loans at only 1%. European banks are grabbing this 1% money to buy higher-yielding sovereign bonds in Italy, Spain and the other troubled euro zone countries. This arbitrage will help shore up capital at euro zone banks and curtail the massive interest-rate burden in Italy, Spain, and the other countries with high and rising debt loads.

    Essentially, by flooding the euro zone banking system with these cheap three-year loans, the ECB has avoided conducting controversial quantitative easing, while also shoring up the capital at euro zone banks and reducing the interest burden on troubled euro zone countries. As a result, respect for the new ECB president is soaring. His bold action also will help restore the international credibility of the euro.

    The new IMF director, Christine Lagarde, and some major U.S. economists have predicted a European financial collapse next quarter, followed by an �economic depression.� Now, thanks to the ECB�s essentially unlimited lending to banks via low interest three-year loans, a credit crisis has been avoided. For example: Spanish bond yields quickly fell below 5%, and Spain suddenly was able to sell its short-term debt at substantially lower interest rates.

    Also helping boost euro zone confidence is the fact that last Tuesday, the German Ifo business climate index rose to 107.2 for December, up from 106.6 in November — a second straight rise. The other piece of good news from Germany, reported by The Wall Street Journal on Friday — that third-quarter consumer spending in Germany rose 0.5% (vs. the second quarter, i.e. a 2% annual rate). Also, German household spending rose 0.8%. As a result, Germany looks poised to generate stronger GDP growth in the upcoming quarter and calendar year. This should help the entire euro zone avoid entering a recession in 2012.

    The Fed Might Keep Short-term Rates near Zero through 2014

    Meanwhile, back in the U.S., the Fed�s zero interest-rate policy is keeping a lid on the costs of funding our rising deficit, while helping the housing market recover. Now, it looks like this ultra-low interest rate environment will persist for years. The Fed already has confirmed it will keep the Fed Funds rate �near 0%� through mid-2013. And now, on Friday, The Wall Street Journal reported that the Fed might be signaling it will keep short-term interest rates near 0% well into 2014, or maybe beyond. These ultra-low rates are great for stocks, since frustrated savers must now turn to high-yielding stocks.

    Politically, we�re entering the key year of the four-year election cycle, a time when both parties pull out all the stops on courting votes. Last week, the House of Representatives (which wanted a one-year payroll tax cut extension) and the Senate/White House (which were pushing for a two-month extension) argued in public about who cared the most for working Americans. President Barack Obama apparently had to cut short his 17-day Hawaiian vacation and stay in the White House thanks to this bizarre act of Congressional infighting.

    The truth is that both sides were trying to thoroughly embarrass each other. Fortunately, the two-month payroll tax extension deal got approved on Friday after the House of Representatives caved — probably because everybody wanted to go home for the holidays. The bad news is that this kind of petty political posturing will resume fairly quickly, in February, before the short-term extension expires again.

    The good news is that the stock market usually rallies in an election year, especially when an incumbent is running for re-election. In the spring, when we get down to the two final presidential candidates, the presidential hopefuls typically take turns �sucking up� to the voters, which helps boost both consumer and investor confidence.

    I realize there will be some negative ads, similar to what we�re seeing in Iowa, but by next summer, you will see a more positive, upbeat tone. I predict that the most positive candidate will become our next president. You cannot get elected President of the United States unless you are a happy, positive person, so I predict that the presidential candidates will continue to smile — even as they insult their opponents.

    Stat of the Week: Leading Indicators Up 0.5%

    The U.S. economic news remains very positive for the most part — aside from the recent negative housing news. On Thursday, the Conference Board announced that their 10 Leading Economic Indicators (LEI) rose 0.5% in November — well above the economists� consensus expectation of 0.3%. Also, seven of the 10 LEI components rose. This strong rise supports my expectations of continued economic recovery throughout 2012, so the 0.5% LEI gain qualifies as my �Stat of the Week.�

    Also on Thursday, we learned that the new weekly jobless claims fell by another 4,000 to 364,000 — much better than the economists� consensus estimate of a rise to 375,000. The closely watched four-week average of new jobless claims declined by 8,000 to 380,250 — reaching the lowest level since July 2008.

    Lastly, on Friday, the Commerce Department reported that November durable goods orders surged 3.8%, for the best monthly gain since July. A rise in transportation orders, especially aircraft, was largely responsible for the big gain. But if you exclude transportation orders, November durable goods orders still rose 0.3% — following a revised 0.8% in October. This strong trend in durable goods orders is indicative of improving business and consumer confidence, which bodes well for rising GDP growth during this quarter and the next.

    BP Bites the Bullet: Analyzing the Full Cost of the Gulf Oil Spill

    The Exxon Valdez dumped 260,000 barrels of oil off the coast of Alaska, and ExxonMobil Corp. (NYSE: XOM) ended up spending about $4 billion in the wake of that disaster. That means Exxon spent nearly 600 times more on cleanup and litigation than what the oil was actually worth at that time.

    So how much will BP PLC's (NYSE ADR: BP) Gulf oil spill, which is significantly greater, set it back?

    The fact is, it's still impossible to know exactly how much BP will have to cough up to cleanse itself of this crude fiasco without knowing the full extent of the damage caused. But the picture is getting a little bit clearer each day the cleanup effort wears on.

    Ian MacDonald, a professor of oceanography at Florida State University, has calculated the amount of oil spilled in the Gulf by BP based on satellite imagery and established models of oil dispersion. He believes that the quantity is already greater than that dumped in Alaska by the Exxon Valdez, the Washington Post reported.

    MacDonald estimated last week that 9 million gallons of oil were already in the water, compared with 10.8 million gallons total in the Valdez disaster.

    MacDonald acknowledged that the real amount could be different but also said that any comparison to the Valdez spill is misguided because the coastal gulf is far more economically significant than the sparsely populated coast of Alaska.

    The type of oil polluting the Gulf is lighter than the heavy crude spilled by the Exxon Valdez. It evaporates more quickly, is easier to burn, and responds better to the use of dispersants, which break up globs of oil and help them sink. But the sheer magnitude of the spill, and the fact that oil continues to gush from the fractured well, adds to the complexity of this cleanup effort.

    The oil clean up effort alone is costing BP about $6 million a day, according to the company.

    "Whilst difficult to accurately estimate, the cost to the MC252 owners of the efforts to contain the spill and secure the well is currently estimated to be more than $6 million per day," BP said on Tuesday, referring to the Mississippi Canyon block 252.

    The latest plan to stifle the oil leak that's pumping about 5,000 barrels of crude into the Gulf of Mexico each day is to drop a 98-ton, 40-foot iron box down onto the broken well. BP also has launched a drilling operation to permanently seal the leaking well 13,000 feet below the ocean floor. Drilling on the relief well is estimated to take some three months.

    Lawsuits & LitigationBP has announced grants of $25 million for states affected by the spill - Louisiana, Alabama, Florida, and Mississippi - but state officials have made it clear they expect more.

    "Well, I can tell you we're going to need a ton more," said Florida Governor Charlie Crist.

    A lawsuit "is certainly in the realm of possibility," he said.

    More than 50 oil spill lawsuits have been filed against BP, Transocean Ltd. (NYSE: RIG), Cameron International Corp. (NYSE: CAM) and Halliburton Co. (NYSE: HAL). Transocean leased BP the collapsed rig, Cameron supplied the blowout prevention equipment on the well, and Haliburton provided cementing services.

    Many more lawsuits are expected to pour in, but those involved hope to resolve such litigation quickly.

    About 200 lawyers last week descended on a New Orleans hotel to devise a strategy to consolidate as much of the litigation as possible. They have asked a federal judicial panel in Washington to combine thousands of claims into a single multidistrict case, Daniel Becnel, the lawyer who called the meeting, told Bloomberg.

    "We're not going to have a long march to trial,"said Becnel. "This could all be over in 90 days."

    Most of the suits have been filed by commercial fishermen, shrimpers, property owners, seafood processors and tourism-related businesses. Analysts are unsure how much economic activity will be lost as a result of the disaster.

    ExxonMobil was hit with a storm of litigation after its 1989 spill that cost the company $500 million in damages claims. That number was revised down through legal challenges from $5 billion.

    Experts at the Harte Research Institute for Gulf of Mexico Studies in Corpus Christi estimated that as much as $1.6 billion of annual economic activity and services - including effects on tourism, fishing and even less tangible services like the storm protection provided by wetlands - could be at risk.

    "And that's really only the tip of the iceberg," David Yoskowitz, who holds the endowed chair for socioeconomics at the institute, told the New York Times. "It's still early in the game, and there's a lot of potential downstream impacts, a lot of multiplier impacts."

    At least 10 wildlife preserves in Louisiana and Mississippi - which nurture the region's $1.8 billion seafood industry - are at risk, as are billions of dollars in revenue from outdoor recreation, sport fishing, and beach tourism.

    Fishing has been shut down in federal waters from the Mississippi River to the Florida Panhandle, leaving boats idle in the middle of the prime spring season. A special season to allow boats to gather shrimp before it got coated in oil closed last Tuesday.

    Analysts estimate that the Louisiana fishing industry could sustain $2.5 billion in losses, while Florida could lose $3 billion in tourism income. The total cost to the region could be $8 billion-$12 billion, according to estimates.

    Federal laws enacted after the Exxon spill require the "responsible party" to pay for all the costs associated with the cleanup. And while there is a $75 million cap on economic damages such as lost earnings and damage to local resources, U.S. lawmakers are seeking to raise that cap to $10 billion.

    "[BP] says it'll pay for this mess. Baloney," said U.S. Sen. Bill Nelson, D-FL. "They're not going to want to pay anymore than what the law says they have to, which is why we can't let them off the hook"

    U.S. Sen. Bill Nelson has filed a bill that would increase oil companies' liability to $10 billion and put them on the hook for lost business revenues.

    BP chief executive Tony Hayward - who promised to pay "all legitimate claims" privately balked at committing to paying all claims for economic damage caused by the company's oil spill, said Nelson.

    "When I said 'Will you be responsible for the economic damages?' he said, "That's something we'll have to work out in the future,'" Nelson said.

    Buy, Sell or Hold?BP stock plunged more than 15% to an intraday low of about $47 a share on May 3, from about $60 on April 20. However, the stock appears to have bottomed out, as it surged a little more than 4% about May 3 to its current value of $49.06.

    That bump was largely the result of a call by some analysts that the company had been oversold by panicked shareholders. Bernstein analyst Neil McMahon wrote in a note to clients that BP's decline seemed "extreme" relative to the potential worst cost scenario of about $12.5 billion.

    What's more, is that BP - with a price-to-earnings (P/E) ratio of 7.7 - is trading at a significant discount to other big oil firms. Chevron Corp. (NYSE: CVX) is trading at 11.71 times earnings and Exxon has P/E ratio of 14.50. BP's dividend yield stands at relatively rich 6.86%, as well.

    BP has lost roughly $30 billion in market value since April 20.

    Still, investors beware: The full extent of the impact the oil spill will have on BP's other operations or its earnings are still largely undetermined. The same can be said for Transocean, whose stock has plunged about 22% since April 20.

    Additionally, the prospects for offshore drilling as a whole have been put at risk.

    "This will be a financial calamity for many firms, not just BP and its partners and service providers. Their liabilities are immense and must not be underestimated," said David Kotok, chairman and chief investment officer of Cumberland Advisors, which does not own BP shares.

    Indeed, the energy sector as a whole has come under selling pressure as well, as traders fret over potential changes to U.S. offshore drilling policy. But that's not all. The price of crude oil has dropped precipitously in the wake of Europe's debt crisis, stumbling to $75.14 a barrel Friday from above $86 a barrel in early April.

    If Europe sidesteps a full-fledged debt contagion, and the price of oil rebounds, there's a good chance the sector will bounce back. But it will still have to wrestle with the potential political fallout from a BP backlash.

    President Obama lifted a ban on offshore drilling, opening up large portions of the East Coast and Gulf of Mexico to new development. But now the administration appears to be backing off.

    "All he has said is that he's not going to continue the moratorium on drilling," White House senior advisor David Axelrod told ABC's "Good Morning America." No domestic drilling in new areas is going to go forward until there is an adequate review of what's happened here and of what is being proposed elsewhere."

    That moratorium had been put in place after a disastrous oil spill off the coast of California sparked a public backlash against offshore drilling and drove lawmakers to action.

    California Governor Arnold Schwarzenegger has already withdrawn his support for new offshore drilling in his state.

    "You turn on the television and see this enormous disaster," said Schwarzenegger. "You say to yourself, 'Why would we want to take on that kind of risk?'"

    Still, offshore drilling enjoys widespread support among many lawmakers.

    "Depending on how bad the spill proves and how serious the public reaction is, we believe the most likely potential implications are" slower progress approving new leases and a smaller chance of lifting the moratorium on drilling in the eastern Gulf of Mexico, said Goldman Sachs Group Inc. (NYSE: GS) in a research note.

    How Fast Is the Cash at Polycom?

    It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

    When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Polycom (Nasdaq: PLCM  ) .

    Let's break this down
    In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

    Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

    To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Polycom for the trailing 12 months is 50.1.

    For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

    In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

    Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

    Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Polycom, consult the quarterly-period chart below.

    Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

    On a 12-month basis, the trend at Polycom looks OK. At 50.1 days, it is 1.3 days worse than the five-year average of 48.8 days. The biggest contributor to that degradation was DSO, which worsened 1.7 days when compared to the five-year average.

    Considering the numbers on a quarterly basis, the CCC trend at Polycom looks good. At 48.0 days, it is little changed from the average of the past eight quarters. With both 12-month and quarterly CCC running close to historical averages, Polycom gets a passing grade in this cash-conversion checkup.

    Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

    • Add Polycom to My Watchlist.

    3 Things People Miss When Looking for the Next Hot Small Cap

    Every portfolio needs a strong foundation of stable and dependable investments. Solid income producers and tried and true equities are the hallmark of a prudent retirement plan.
    But is that enough?
    Those of us heading into retirement may have to do more with our portfolios if we expect them to support us in our golden years. And that's not that easy, especially when you consider that the S&P 500 lost -9.1% from 2000 to 2009.
    But not all stocks had a lackluster performance.

    Company (Ticker)2000-2009 Returns2000 Market Cap
    Medifast (NYSE: MED)+9,244%$2 million
    Green Mountain Coffee (Nasdaq: GMCR)+7,342%$27 million
    XTO Energy (NYSE: XTO)+6,988%$427 million
    Hansen Natural (Nasdaq: HANS)+6,563%$43 million
    Bally Technologies (NYSE: BYI)+5,407%$31 million
    Southwestern Energy (NYSE: SWN)+5,269%$165 million
    Terra Nitrogen (NYSE: TNH)+4,752%$93 million
    Contango Oil & Gas (AMEX: MCF)+4,452%$6 million
    Clean Harbors (NYSE: CLH)+4,424%$14 million
    Amedisys (Nasdaq: AMED)+4,208%$4 million

    Notice something about these top performers? They all started as small caps. That unto itself should come as no surprise. Historically, small cap stocks outperform their larger, slower-moving, peers. In fact, the Russell 2000, the benchmark index for small-cap stocks, returned +41.6% from 2000 to 2009.

    But with small caps' bigger returns come bigger risks. Plenty of small companies fail to slay the Goliaths of their industry. Despite the challenges, the decade's top performers overcame the odds -- and thrived. Why? Each had a unique driver to propel it.

    Re-inventors: Green Mountain Coffee Roasters (Nasdaq: GMCR) started as a small cafe in Vermont in 1981. Over the years, it grew into a solid specialty gourmet coffee distributor. But in 2006, the company revolutionized its business by acquiring Keurig, a manufacturer of single-cup brewing systems.

    People have been drinking coffee since the thirteenth century. But by delivering a unique delivery system, Green Mountain changed the industry's paradigm. They saw an opportunity that the big guys missed.

    Netflix (Nasdaq: NFLX) was another David that slew Goliath by changing the industry paradigm. Blockbuster (NYSE: BBI) and Hollywood Video were huge companies with locations all over the country. But the little upstart Netflix started delivering videos and DVDs by mail -- and now directly to your TV via the Internet. People loved not driving to the store, settling for whatever was left on the shelves and not paying late fees.

    Industry Wave Riders: Bally Manufacturing Company (NYSE: BYI) was founded in 1932, selling small cast-iron slot machines. The company first started trading on the New York Stock Exchange in 1975 with the ticker symbol "BLY." But believe me, you wouldn't have wanted to own it for all those years.

      For decades, the casino gaming machine market was limited. But in 2000, the market began to explode. Las Vegas went through a decade-long expansion, while additional states legalized gambling as well. It seemed like every American Indian nation established a casino business. As the industry expanded, so did Bally's customer base.

    Industries expand and contract for a myriad of reasons. But when a specific industry is on the upswing, it can turbo-charge the small caps within it.

    Macroeconomic Money Makers: Global trade and a falling U.S. dollar set the stage for the ascent of fertilizer company Terra Nitrogen (NYSE: TNH). As the economies in China and India grew at breakneck speed, so did the size of their middle classes. With more disposable income, the demand for more food -- and specifically meat -- grew. It takes about 4.7 pounds of corn to yield 1.0 pound of edible beef. This shift, initially driven by increased global trade, increased the demand for grain.

    Commodities are priced in U.S. dollars. If the dollar loses its relative value to other world currencies, the prices of commodities tend to compensate by rising. Between 2002 and the spring of 2008, the U.S. dollar lost -40% of its value, while commodity and fertilizer prices soared.

    Sometimes small macroeconomic shifts can cause big shifts in the investment landscape. Knowing the effects of those shifts can help investors harness a small-cap winner.

    Action to Take--> It wouldn't be prudent to devote a retirement portfolio to small caps. But just a few small gems can go a long way.

    Did Tesla Motors Hit a Wall?

    Did Tesla Motors (Nasdaq: TSLA  ) just hit a wall?

    The Silicon Valley electric-auto maker's stock was near $35 just a few days ago, but it fell sharply Thursday after a Morgan Stanley analyst downgraded the stock and cut his price target by 37%, saying in a research note that electric vehicles are "not ready for prime time" and that expected market share gains were unlikely to materialize.

    Tesla stock is trading right around $30 as I write this on Monday. Is that a buying opportunity? Or is the analyst right that Tesla's road is looking rocky?

    There's prime time, and there's prime time
    Full disclosure: I'm not an ardent Tesla fan. While I've admired the company's first car, the Roadster, I have been seriously skeptical of the idea that any start-up can enter the automotive mass market and thrive. Building cars to modern global standards of quality, reliability, and safety while making a profit is hard. The companies that are doing it most successfully -- Ford (NYSE: F  ) , Toyota (NYSE: TM  ) , General Motors (NYSE: GM  ) , Honda (NYSE: HMC  ) , Volkswagen -- are global giants with extensive engineering and research resources, decades of institutional experience, and vast economies of scale.

    And even with those vast efficiencies and economies of scale, these companies are getting by with margins in the 5%-8% range. If ever there were an industry with an enormous moat, automaking is it. Just ask the Chinese automakers that are finding themselves unable to compete with the global giants in their home market (where the rules favor them).

    Tesla's most ardent proponents often argue that the company has no competitors, that its upcoming Model S is a unique and compelling proposition that the mass market will find hard to resist. But plain and simple, it's not: Outside of the small universe of well-heeled gadget geeks and early adopters, it's an expensive luxury car powered by a technology that many buyers will have qualms about. Overcoming the technological qualms is one thing -- and Tesla may well have success there -- but the Model S and the Teslas that follow still have to compete well with the alternatives in the marketplace.

    Put another way, the Model S's interior, on-road experience, fit and finish, and safety have to be on par with the BMW or Audi or Lexus that the prospective buyers in that financial weight class are driving today -- if Tesla is going to expand its sales reach beyond its gadget-geek base into the mass market.

    That's an extremely high bar -- perhaps the highest in the global auto business. And that, in a nutshell, is why I have been a Tesla skeptic, though I've become more optimistic as Tesla has developed working relationships with several of the leading big-league automakers. But Morgan Stanley's downgrade was based on something a bit different, a big-picture issue, but I think its effect on Tesla is unlikely to be dramatic.

    Remember that rush to electric cars? It's not happening... exactly.
    Skepticism aside, Morgan Stanley and I agree that Tesla appears to be doing a great job of executing on its business plan. Development of the Model S is on schedule, the company has signed major agreements to supply technology and components to automakers like Toyota and Mercedes-Benz maker Daimler, and the company's marketers have so far done good work laying the groundwork for the Model S's scheduled launch in mid-2012.

    But Morgan Stanley's Adam Jonas didn't really downgrade Tesla as much as he downgraded electric cars. Jonas had previously predicted that EVs would make up 8.6% of the global car market by 2025, but lowered that estimate to 4.5% last week. Certainly prospects for EVs look a bit more glum now than they did a year or two ago: Technological teething troubles like the Chevy Volt's battery issue won't help speed adoption, and high prices, lack of recharging infrastructure, and range concerns continue to push buyers in other directions.

    Toyota chief engineer Satoshi Ogiso recently made it clear that the company is hedging its electric-vehicle bets in a big way, pushing development of fuel cells and other alternative technologies alongside EV work, because -- in Toyota's view -- it's not yet clear which of these technologies will pan out. Meanwhile, the company (rightly, I think) expects hybrids -- not electrics -- to be the dominant vehicles in developed markets in a decade.

    But what does that mean for Tesla? From a simple analytical point of view it's easy to say that electric cars will account for X% of sales and Tesla could capture Y% of that, so if X falls then Tesla's sales must fall as well. That seems to be where Jonas is coming from, but I think that's an imperfect equation. If Tesla's cars are good and fairly priced, they'll sell -- whether or not other automakers decide to push on with EV development instead of focusing on hybrids or other technologies, and even if a smaller proportion of consumers decide to make the leap to an electric car. In other words, the pie may shrink, but if Tesla's products pan out, the company seems well-positioned to capture a bigger piece of it.

    Now, if EVs are such a flop that no significant infrastructure to support them emerges, that will hurt Tesla's chances. But at least in the major developed nations, that infrastructure is likely to happen anyway; government pressure is already putting things in motion. I think this is unlikely to be a factor.

    Long story short, I agree that EVs are unlikely to be adopted as widely and quickly as optimists were projecting a year or two ago, but I don't agree that that necessarily means that Tesla's chances of success are diminished. Tesla's fate, for better or worse, still appears to be in its own hands.

    Tesla shareholders might be waiting a long time for a dividend, but you don't have to wait to put the power of reinvested dividends to work in your portfolio. In a special new report, Motley Fool analysts identify "11 Rock-Solid Dividend Stocks," all great additions to a long-term investor's portfolio. This new report is completely free for Fool readers -- click here to get instant access.

    Thursday, December 6, 2012

    Bank of America Leads Market Surge; What, Me Worry?

    Investors were just aching for an excuse to buy stocks this morning. Absent a real excuse, like aggressive action by the European Central bank or a sharp increase in productivity by American businesses, investors are simply buying stocks anyway. And they are currently emptying their pockets to grab a piece of Bank of America (BAC), which was recently trading 7% higher.

    The Dow was recently up about 200 points and the S&P 500 was up 22 points. Bank of America is leading the index higher, breaking out of a tight range around $7 per share that it has been trading in for the past two weeks. Citigroup (C) rose 4.7%. Evercore analyst Andrew Marquardt recently pointed out that BAC has much less international exposure than some competitors.

    News out of Europe is mixed, but the market appears to be hanging its hat on the notion that policymakers are at least considering more aggressive actions. ECB President Mario Draghi said that some members of the ECB wanted to cut interest rates below the current 1%, although they were eventually outvoted.

    Zynga: Poised For A Stock Price Realization

    On Tuesday, Zynga (ZNGA) reported its first earnings as a publicly traded company. The earnings exceeded analysts' expectations, but the stock traded down as much as 9% in after-hours trading on the cautionary outlook the company provided for 2012. ZNGA fourth-quarter results were as follows:

    • 2011 net loss of $435.0 million or $1.22 on revenue of $311.2 million (up 59% from last year)
    • Non-GAAP net income was $37.2 million in the quarter (down 41%)
    • EBITDA in the fourth quarter 2011 was $67.8 million, which is down 34% year-over-year
    • Total revenue of $1.14 billion (up 89% from last year)

    Though these numbers may be impressive, what should be frightening for investors is the fact that the company sees 2012 growth being "weighed down" in the first part of the fiscal year. Investors are hoping the company can keep up with its past performance of developing and distributing as many as 12 games per-year, several of which being hits. Due to the company's incredibly high valuation (with a trailing price/earnings ratio of nearly 200), ZNGA is not expecting the results for 2012 that would support the elevation of its stock price. Investors should be wary of a company that is in an ever-changing industry where the barrier to entry is low and the expectation is perfection, time and time again.


    Why Zynga stockholders could be in for a realization and the chart (above) could look drastically different in the future:

    Where is the revenue coming from?

    In the IPO filing of Facebook (FB), it was revealed that ZNGA made up 12% of Facebook's total revenue. This gave ZNGA a tremendous boost from investors seeing that this company represents such a portion of Facebook, potentially worth over $100 billion. Barbara Ortutay of US Today reports, "[ZNGA] relies on Facebook games for nearly all of its revenue, Zynga is working on expanding to other areas, notably mobile devices." The problem with ZNGA relying almost entirely on Facebook for revenue is that many believe Facebook, with over 800 million users, is not in a position to grow user counts dramatically in the coming years. This marks an opportunity both for ZNGA to have the same viewership it currently does now and for other companies in the same gaming vein to come in and diminish the gaming monopoly that ZNGA currently has. This creates potential for serious issues to arise for ZNGA where the company would not be able to reach a greater audience and at the same time would have its gaming monopoly removed by other large companies. On these prospects, one must think twice of the valuation the company currently has.

    2012 Growth & Beyond:

    ZNGA CEO Mark Pincus stated in the fourth-quarter earnings release, "We expect that growth will be weighted towards the back-half of the year with slower sequential growth in the first half of the year." These results are not worthy of the current multiples the company is currently trading. Forbes highlighted the 2012 growth prospects of ZNGA:

    • Bookings are projected to be in the range of $1.35 billion to $1.45 billion.
    • Adjusted EBITDA is projected to be in the range of $390 million to $440 million.
    • Stock-based compensation expense is projected to be in the range of $400 million to $425 million excluding the impact of equity awards granted in connection with potential future acquisitions.
    • Capital expenditures are projected to be in the range of $140 million to $160 million. Our effective tax rate for non-GAAP net income is projected to be in the range of 20% to 25%.
    • We project non-GAAP weighted-average diluted shares outstanding to be approximately 865 million shares in Q1 2012 and approximately 890 million shares in Q4 2012. Full year 2012 non-GAAP EPS is projected to be in the range of $0.24 to $0.28.

    The problem lies in the fact that these results are rooted within the expectation that ZNGA will be able to break into the mobile environment and gain other sources of revenue outside of Facebook. Though it is not unreasonable to think that ZNGA cannot build other sources of income, it is not something an investor should bank on. With a strong history of servicing social media, the company will likely not lose much ground in that area, but the prospects of expanding beyond this market are not certain at this point. The long-term growth prospects are largely up in the air because this industry can be broken into without the barriers to entry companies like Google (GOOG) or Amazon (AMZN) have with extensive infrastructures. Investors should wait to see proof of the long-term strategy the company is putting forth. Without more data, an investor is banking on predictions that are not rooted in facts. This decade could easily be the bubble of internet startups like Groupon (GRPN), Pandora (P) and Linkedin (LNKD). With ZNGA trading at an astronomical valuation, the risk of missing perfection is too high .


    Market Cap: $10.04 billion - this proves to be extremely high being that the company has revenue of roughly $1 billion and operating profits of roughly $35 million. Though investors are not buying the current earnings/profit, until improvements occur in either earnings or a more realistic valuation, the stock is one to stay away from.

    Trailing price/earnings: 193.95, this is an incredible figure and is amongst the highest in all of technology and internet stocks. For this to be justified, true growth would need to commence.

    Forward price/earnings ratio: 65.24, in the same vein as above, this forward PE ratio is extremely high.


    • PEG Ratio: 3.01, this is the most accurate way to measure a company's valuation and it is clear that a PEG of over 3 is not healthy. Even with earnings increasing by the five year projection (above), the PEG ratio will not decrease to a level near its pears. As aforementioned, the stock will either need to trade at a more realistic valuation or growth will have to be elevated.

    EV/EBIDA: 44.32, this is a valuation multiple used to measure the value of a company and a healthy company usually has an EV/EBIDA of below 10. Even a company like Amazon (AMZN) trading at nearly 100 times earnings has a EV/EBIDA value of 20.62.

    R&D Spend 2011: $590 million. This amount of spend in a fiscal year represents the expense in creating the games that ZNGA does. With earnings and cash flow as they currently sit, the company's spend is unsustainable. This speaks to the idea that ZNGA must perform at near perfection to avoid further losses.

    Conclusion: As Dennis Gartman of The Gartman Letter states, "This is not a business of buying low and selling high. It is, however, a business of buying high and selling higher." In the case of ZNGA this can read, do not bet on market capitalization by a tech company, rather wait for strength that is tangible. For ZNGA, the current valuation is unrealistic unless the company can continue to build incremental sales in multiple areas of its business (which do not currently exist). With a direct tie to Facebook and little competition, the landscape for ZNGA is bound to become more difficult. In buying this company an investor is betting that ZNGA can do everything perfectly in the coming years. This is not a risk I am willing to take now. Be wary of ZNGA until tangible growth is demonstrated over a longer duration of time.

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

    Currency Trading:Analysis – China to slow yuan rises but repeg unlikely – Reuters

    AFPAnalysis – China to slow yuan rises but repeg unlikely
    Still, such heavy handed intervention to manage the yuan would also be a reminder to China's trading partners of the risks of adopting the currency in their trade settlement. Currency appreciation has helped the fight against import-fuelled domestic …
    US Yuan Debate Ignores Economic Realities, China's Currency ReformsWorld Politics Review
    US cannot export its crisisPeople’s Daily Online
    Ohio senators push Chinese currency billWKSU News -Reuters India -AFP
    all 73 news articles »

    {fcurrency trading} – Forex News

    Bio-Reference Laboratories, in the Spotlight Soon

    Bio-Reference Laboratories (Nasdaq: BRLI  ) is expected to report Q4 earnings around Dec. 6. Here's what Wall Street wants to see:

    The 10-second takeaway
    Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Bio-Reference Laboratories's revenues will grow 15.9% and EPS will increase 24.3%.

    The average estimate for revenue is $175.3 million. On the bottom line, the average EPS estimate is $0.46.

    Revenue details
    Last quarter, Bio-Reference Laboratories notched revenue of $172.3 million. GAAP reported sales were 16% higher than the prior-year quarter's $148.0 million.

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

    EPS details
    Last quarter, EPS came in at $0.45. GAAP EPS of $0.45 for Q3 were 25% higher than the prior-year quarter's $0.36 per share.

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

    Recent performance
    For the preceding quarter, gross margin was 51.9%, 40 basis points better than the prior-year quarter. Operating margin was 13.2%, 80 basis points better than the prior-year quarter. Net margin was 7.3%, 50 basis points better than the prior-year quarter.

    Looking ahead

    The full year's average estimate for revenue is $660.9 million. The average EPS estimate is $1.51.

    Investor sentiment
    The stock has a four-star rating (out of five) at Motley Fool CAPS, with 320 members out of 338 rating the stock outperform, and 18 members rating it underperform. Among 100 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 97 give Bio-Reference Laboratories a green thumbs-up, and three give it a red thumbs-down.

    Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Bio-Reference Laboratories is buy, with an average price target of $28.40.

    Is Bio-Reference Laboratories the best health care stock for you? Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks," including one above-average health care logistics company. Click here for instant access to this free report.

    • Add Bio-Reference Laboratories to My Watchlist.

    Georgia Gulf Jumps 35% On Hostile Takeover Bid

    Despite the down day on Wall Street, shares of �building products maker�Georgia Gulf (GGC) were soaring 35% to $33 on an unsolicited takeover offerfrom Westlake Chemical (WLK).

    Westlake, which already owns nearly a 5% stake in the company, said it had sent its proposal to Georgia Gulf in September, and would prefer to enter talks directly with�management, but felt compelled to make the news public following the rejection of its offer.

    The original offer was for $1.03 billion, or $30 a share — less than today’s highs but a 23% premium to Georgia Gulf’s close on Thursday.

    Despite today’s pop, Georgia Gulf, which fell as low as $12 in October, �is still trading well below its 52-week high of $40.59, set back in April 2011.

    In recent trading, Westlake, which manufactures a variety of polymers, PVC products and vinyls, was up 1%.

    PowerShares Adds Small Cap Technical Leaders ETF (DWAS)

    Invesco PowerShares this week announced the latest addition to its lineup of ETFs, rolling out a fund that will utilize relative strength indicators to determine individual holdings.�The PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS) will be the fourth PowerShares fund to utilize the DWA Technical Leaders strategy, seeking to replicate an index comprised of small cap U.S. stocks. Other products in the “Technical Leaders” suite include funds focused on the broad U.S. markets (PDP), emerging markets (PIE), and Developed Markets (PIZ).

    [Get alerts on all new ETF launches with the free ETFdb newsletter]

    Under The Hood

    DWAS will seek to replicate the�Dorsey Wright SmallCap Technical Leaders Index, which includes about 200 small cap U.S. companies. The primary metric considered for inclusion in the index will be relative strength, which generally refers to a stock’s performance compared to the rest of the market. Several studies have shown that relative strength can be a powerful indicator of future performance, and the lineup of existing relative strength ETFs from PowerShares has done quite well over the past few years (more on this below).��We are pleased to once again partner with Dorsey, Wright & Associates for the PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS), providing investors with a full suite of Technical Leaders ETFs based on the firm�s respected research.� said Ben Fulton,�Invesco PowerShares�managing director of global ETFs. �The DWA Technical Leaders strategy, based on relative strength, is widely followed by advisors and professional asset managers.�

    The DWAS portfolio consists of 200 individual holdings, and is relatively balanced with only about 15% of assets in the top ten positions. The largest stocks include Jazz Pharmaceuticals (1.7%), Pier 1 Imports (1.6%), and Clean Harbors Inc. (1.6%). JAZZ has gained about 26% over the past year, while PIR has added about 37% and CLH is up about 5%.�

    DWAS will charge an annual expense ratio of 0.60%, which falls within the range of the Small Cap Blend ETFdb Category. The cheapest ETF in that category, the Focus Morningstar Small Cap Index ETF (FOS), charges just 12 basis points.�

    [ETFdb Pro members can see the Small Cap ETFdb Portfolio; sign up for a free 7-day trial for full access]

    Relative Strength ETFs

    PowerShares already offers a trio of relative strength ETFs that utilize similar methodologies. Each of these products has turned in impressive results over the past three years, handily outperforming broad-based indexes covering similar asset classes (tables below show performance data as of 6/30/2012).�

    • DWA Developed Markets Technical Leaders Portfolio (PIZ): This ETF replicates an index that consists of about 100 companies with powerful relative strength characteristics from developed markets outside the U.S. The underlying index has outperformed the MSCI EAFE index to which popular ETFs such as VEA and EFA are linked.�
    Index3 Yr Return
    DWA Developed Markets Technical Leaders Index10.21%
    MSCI EAFE Index5.96%
    • DWA Emerging Markets Technical Leaders Portfolio (PIE):�This ETF seeks to replicate an index comprised of stocks with powerful relative strength characteristics from emerging markets. PIE’s index has beaten the MSCI Emerging Markets Index over the past three years.�
    Index3 Yr Return
    DWA Emerging Markets Technical Leaders Index20.55%
    MSCI Emerging Markets Index9.77%
    • DWA Technical Leaders Portfolio (PDP): This ETF covers the U.S. market, focusing on domestic stocks with strong relative strength characteristics.�
    Index3 Yr Return
    Dorsey Wright Technical Leaders Index22.12%
    S&P 500 Index16.40%

    Why Acacia Research Shares Popped

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

    What: Shares of Acacia Research (Nasdaq: ACTG  ) , a company that partners with inventors and patent owners then markets those products to corporations and shares the revenue, reported significantly better-than-expected earnings results last night and are up as much as 14% as a result.

    So what: For the first quarter, Acacia reported a 62% increase in revenue to $99 million, and a non-GAAP profit that rose to $1.48 -- nearly triple what it reported last year. Both of these figures easily sailed past what Wall Street had expected and speak to the high-margin nature of Acacia's business, which has very few expenses. The company currently holds 118 technologies under license in its portfolio.

    Now what: Despite today's bullish results, I'm not ready to jump on board yet for two key reasons. First, the company says itself that its portfolio revenue recognition can ebb and flow from quarter to quarter, so you have to take huge earnings beats like this with a grain of salt. Secondly, the company purchased Adaptix for $150 million and sold 6.12 million shares to raise $225 million (mainly to finance the purchase) during the quarter. There are still question marks in my mind about how Adaptix will fit into Acacia's operations and whether Acacia might dilute shareholders further. It's worth a watchlist add here, but nothing more.

    Craving more input? Start by adding Acacia Research to your free and personalized watchlist so you can keep up on the latest news with the company.

    S&P Moves Least in 41 Years

    The S&P 500 has gained 0.6% for the year as 2011 winds down. A 3.7% increase last week helped that rate of change, the smallest for the index since 1970–thanks to stock swings that reached twice the five-decade average.

    Bloomberg reported that the last time the S&P moved less on an annual basis was in 1970, when it recorded a drop of 0.1%. Within the gauge, companies least tied to economic growth increased an average of 15.7% including dividends, and returned 8.2 times more than the index after adjusting for historical price swings. That’s the biggest gap since at least 1989.

    One result of the index’s activity is that utilities, soap makers and health-care providers are now at their highest valuations since 2008. Bears find themselves left out in the cold, of the opinion that 2011 performance indicates there are even fewer stocks worth buying after valuations for defensive shares increased 7.4%.

    Bulls, on the other hand, find indications of growth in the U.S. economy are harbingers of a marketwide rally–something they say is indicated by the divergence between defensive shares and the shares of companies most dependent on the economy. Similar divergences foretold rallies in 2001, 2007 and 2009.

    Andrew Slimmon, the Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney, was quoted saying, “The combination of a very crowded trade and a market that’s very cheap with a lot of doubters suggests to me the place to put funds is in the market overall.”

    The year has been one of the most volatile on record, with the Dow alternating between gains and losses of more than 400 points on four days for the first time ever in August. That same month, swings in share prices in the S&P 500 averaged 2.2%; that has not happened in any August since 1932.

    The index has moved 1.3% a day since April–also highly uncharacteristic, since a 50-year average pre-collapse of Lehman Brothers Holdings in 2008 came in at a mere 0.6%.

    The Magic Formula for These Media Companies

    If you're a busy investor with more than just stock-picking on your plate, you might want to consider a mechanical investing strategy. And if you're interested in stocks, one of the most intriguing of these strategies is Joel Greenblatt's Magic Formula.

    Greenblatt details this approach in his enriching, funny The Little Book That Beats the Market. His strategy revolves around two factors:

    • How cheap is the stock?
    • How profitable is the company?

    This simplified approach really boils down value investing to its essence. When you find a company whose price fails to reflect its high profits, you might have a winner.

    A cheap business and a profitable company
    To find cheap companies, the Magic Formula looks for a high earnings yield -- basically, a company's EBIT divided by its enterprise value. EBIT is earnings before interest and taxes, otherwise known as operating earnings. Enterprise value includes the company's market capitalization, then adds its net debt. In general, the higher the earnings yield, the better. The Magic Formula looks for a yield higher than 10%.

    To find profitable companies, Greenblatt's Magic Formula seeks businesses that generate pre-tax returns on assets greater than 25%. In other words, for every $100 in assets it holds, the company would produce at least $25 in net profit. In general, the higher the ROA, the better the business. Greenblatt looks for companies with an ROA higher than 25%.

    So how do some of the biggest companies in the media fare?


    Enterprise Value (in Millions)

    EBIT (in Millions)

    Earnings Yield


    SIRIUS XM Radio $10,464 $676 6.5% 9%
    Sinclair Broadcast Group $2,178 $226 10.4% 14.4%
    Interpublic Group $5,425 $635 11.7% 5.4%
    IMAX $1,426 $20 1.4% 5.5%
    World Wrestling Entertainment $565 $65 11.4% 16.8%
    Comcast $129,422 $10,028 7.7% 6.4%
    News Corp. $55,242 $5,422 9.8% 9%
    Time Warner $52,775 $5,955 11.3% 8.8%
    DIRECTV $44,536 $4,453 10% 24.4%
    Time Warner Cable $45,632 $4,199 9.2% 8.7%

    Source: S&P Capital IQ.

    Going by the Magic Formula criteria, none of these companies meets both standards, but DIRECTV comes close, with an earnings yield meeting the formula's 10% standard, and an ROA less than 1 percentage point away from the formula's desired 25%. None of the other companies comes close to meeting the formula's desired 25% ROA, but Sinclair Broadcast Group, Interpublic Group, World Wrestling Entertainment, and Time Warner Cable all offer the formula's desired 10% earnings yield.

    Sirius XM Radio (Nasdaq: SIRI  ) performed well in 2011, with 12% gains in its stock price when the average share price remained relatively flat for most companies. While the company does not have competition from conventional radio stations, it faces challenges from other companies like Pandora, which allows individuals to access streaming radio through their smartphones and wireless Internet. Also, Ford and Toyota are making cars that allow consumers to listen to streaming music through Bluetooth technology. Both allow individuals an alternative to traditional radio when they wish to listen to music in their cars.

    At the end of last year, TV broadcaster Sinclair Broadcasting Group (Nasdaq: SBGI  ) announced that it was raising $555 million to acquire Four Points Media and some assets held by Freedom Communications. These acquisitions represent a major expansion for this relatively small company by giving it 15 new stations in areas like West Palm Beach, Albany, and several cities in the Midwest. However, it does increase the company's already large debt load.

    International advertising conglomerate Interpublic Group (NYSE: IPG  ) has taken two big hits in the last decade. First, the dot-com bust brought the company into a money-losing cycle that continued long after most companies recovered. Just as Interpublic began to recover, it was hit again by the current recession. Now that some of its major clients in the automotive and financial services industry are starting to recover, Interpublic shows some hope of recovery as well.

    While IMAX (NYSE: IMAX  ) was previously associated with museums and other non-traditional theaters, it has successfully positioned itself as an integral part of the distribution strategy for major films. An important step was its work in developing technology that allowed IMAX screens to be installed in traditional theater spaces. As a result, the portion of box office revenue from IMAX viewings is growing over time.

    World Wrestling Entertainment's (NYSE: WWE  ) access to revenue has declined with the struggling economy and a decreased willingness of individuals to spend money on entertainment. However, WWE has responded with cost cuts that have allowed it to keep its net income up. It is also working to increase the value of its brand by striking licensing deals with toymaker Mattel and video game maker THQ, which bring in a steady stream of income.

    Foolish bottom line
    The key advantage of the Magic Formula is speedy decision-making. You can run a screen and mechanically buy the stocks, then spend your free time doing the activities you love. However, such an approach means that you need to pick a lot of stocks (say, 25 or 30), since you haven't performed any strategic analysis of your investments. According to the formula, you should hold the stocks for one year in order to receive favorable tax treatment, sell all of them, and then run the screen again to find your new picks.

    While this approach sounds easy, Greenblatt cautions that it can be tough to stick with during hard times. In some years, this mechanical strategy simply won't work. However, Greenblatt's extensive backtesting suggests that over the long haul, his Magic Formula can significantly outperform the market.

    But if you'd like one stock that's been checked up and down by The Motley Fool's analysts, we've created a special free report for investors to uncover a soon-to-be rock star. The report "The Motley Fool's Top Stock for 2012" highlights a company that is revolutionizing commerce in Latin America, and you can get instant access to the name of this company. Thousands have already requested the report, which is free today, but it won't be available forever, so click here to access it now.

    Wednesday, December 5, 2012

    Top Stocks For 12/5/2012-20

    BIRMINGHAM, Ala., Aug. 3, 2010 (CRWENEWSWIRE) — Four Star Holdings, Inc. (OTCBB:FSTH) is pleased to announce further advancement with D.R. Horton on the tail of an article from CNN Money saying congratulations to those who live in Birmingham, Alabama because “the housing tornado passed you by”. Management of Four Star Holdings, Inc. says “Not in our Market” as a response to all the negative articles on the residential market as they close their second lot sale/exchange to Birmingham’s only national homebuilder, D.R. Horton for over $500,000 in buildable lots.

    Bobby Smith, CEO states, “This demonstrates credence to our developments and our revenue stream to have a national homebuilder in two of our neighborhoods.” D.R. Horton plans to market the homes they will be constructing to first time home buyers while Four Star will continue to market their homes to second or third time buyers. Fran Mize, President and COO of Four Star’s Qualifying Broker said, “This will add a much needed dimension to our overall package in the Brookhaven Neighborhood.” Brookhaven is a 1,000 acre development just east of Birmingham on the outskirts of Moody, Alabama. According to a recent article published in the Moody Chamber of Commerce magazine, preliminary census numbers for 2010 indicate a 70 percent increase in Moody’s population. Four Star plans to make sure their neighborhoods are where this influx resides.

    With home sales up 8% for the mid-year period of 2010 compared to 2009 according to the Birmingham MLS for the Greater Birmingham Metropolitan Area, it is time to look to expansion which is exactly what Four Star is now doing. There is not a week that goes by without a discussion with either a bank or another developer offering unbelievable opportunities for growth and expansion at prices that are almost impossible to pass up. While we plan to make our expansion in a conservative manner, it is really difficult not to be excited about the opportunities which exist in this market. This is an opinion shared by both Fran Mize and Bobby Smith, founders of Four Star Holdings.


    Four Star Holdings, Inc. (OTCBB:FSTH) operates as the 4th largest homebuilding company in the Birmingham, Alabama area. The company operates in three segments, Land Development, Structural Community Planning including Homebuilding, and Realty Brokerage Services. The corporation is headquartered in Odenville, Alabama.


    Golden Key Business Ventures
    (631) 750-6718


    13 Dividend Stocks With At Least 7% Earnings Yield

    Dividend investors usually don’t consider stocks that yield less than 3%. This makes sense if you are retired and need the income. We believe younger investors should consider stocks that are below the radar of dividend investors but have huge potential to increase their dividend payments over the long-term.

    Below we compiled a list of 14 large cap stocks that have at least 7% earnings yield. The current dividend yield of these companies would be more than 7% if they had a 100% payout ratio. Currently these companies in this list have annualized dividend yields between 2% and 3%. However, these companies are likely to increase their dividends significantly over the next 10 years because their earnings are growing and their debt/equity ratios are very low, too.



    Dividend Yield

    Total Debt/Equity








    Microsoft Corporation





    Chevron Corporation





    3M Co.










    Newmont Mining Corp.





    Walgreen Co.





    The Travelers Cos





    General Dynamics Corp.





    Illinois Tool Works Inc.





    Johnson Controls Inc.





    AFLAC Inc.





    Corning Inc.




    The best performing stock on the list above is Chevron Corporation (CVX), which was up 23.08% during the past 52 weeks. In the same period, the S&P 500 index returned 2.42%. CVX had a dividend yield of 2.97% and an extremely low total debt-to-equity ratio of 0.08. It has a market cap of $217 billion and a P/E ratio of 8.09. Bill Miller’s Legg Mason Capital Management and Cliff Asness’ AQR Capital Management both had $100+ million invested in CVX at the end of the third quarter.

    Another energy stock with high earnings yield is ExxonMobil Corporation (XOM). It also generated a double-digit return of 17.53% during the past 52 weeks. The stock has a dividend yield of 2.19% and a total debt-to-equity ratio of 0.11. It has a market cap of $411B and a P/E ratio of 10.33. At the end of September, there are 46 hedge funds with XOM positions in their portfolios. Among them, Ken Fisher’s Fisher Asset Management had the largest position of XOM. The fund reported to own $519 million of XOM shares at the end of the third quarter.

    Microsoft Corporation (MSFT) is also a mega-cap stock with a 10% earnings yield. It has a market cap of $233B and a P/E ratio of 10.07. During the past 52 weeks, MSFT returned 1.47%, slightly lower than the market. It has a dividend yield of 2.89% and a total debt-to-equity ratio of 0.2. As of September 30, there are 94 hedge funds disclosed to own MSFT in their 13F portfolios. Boykin Curry’s Eagle Capital Management, Jean-Marie Eveillard’s First Eagle Investment Management and Ken Fisher’s Fisher Asset Management all had $400+ million invested in MSFT.

    Other large cap stocks with high earning yields include 3M Co (MMM), Freeport-McMoRan Copper & Gold Inc (FCX), Lowe's Companies Inc (LOW), Newmont Mining Corp (NEM), Walgreen Co (WAG), The Travelers Companies, Inc (TRV), General Dynamics Corp (GD), Illinois Tool Works Inc (ITW), Johnson Controls Inc (JCI), AFLAC Inc (AFL), and Corning Inc (GLW). All of these stocks yield more than the 10-year Treasuries and they are very likely to boost their dividend payments significantly over the next 10 years. We encourage long-term dividend investors to do some in-depth research on the stocks listed above for their portfolio.

    Disclosure: I am long MSFT.

    3 Home Run Stocks My Wife Found

    In early 2008, I convinced my wife -- with much arm twisting involved -- to set up a portfolio in The Motley Fool CAPS community. She's not into investing at all, so after making her initial seven picks, she put it completely out of her mind. And though I checked on the portfolio occasionally for a while, I lost track of it as well. Until yesterday.

    Roughly three and a half years later, five of her original seven picks are beating the market by an average of more than 52 percentage points per pick. Three of those seven picks have been serious home runs, each beating the S&P 500 by 50 points or more. Specifically, she's ridden Nordstrom (NYSE: JWN  ) up 45% for a 57 point outperformance, while she's gotten a double from Estee Lauder (NYSE: EL  ) and darn near a triple from (Nasdaq: AMZN  ) .

    What's her secret?
    Fans of Peter Lynch won't be too surprised to hear me say that "she buys what she knows." In other words, her stock picks -- with the notable (underperforming) exception of Cisco (Nasdaq: CSCO  ) -- go to companies where her shopping dollars also go.

    Nordstrom may be a pricey destination next to Macy's or Kohl's (NYSE: KSS  ) , but with a high-quality selection and stellar customer service, my wife has a consistently satisfying shopping experience. Estee Lauder is the parent company of MAC, the insanely expensive line of cosmetics that are apparently the makeup equivalent of crack cocaine. And while the previous two picks sell pricier wares, Amazon is my wife's go-to for the best deals on everything from books to dog toys and Christmas presents.

    Why this works ... and why it doesn't
    I recently wrote an article focusing on competitive advantage and, specifically, on companies that seem to have a really strong grasp on exactly what makes them better than their competitors. While it's important for a company to understand what gives them an edge, it's also important for investors to understand the same if they're going to become shareholders.

    Buying stocks of companies you frequently patronize provides you an advantage because your understanding of the company's products or services gives you first-hand knowledge of exactly what makes that company better than its competitors. And if you ask Warren Buffett -- a guy that knows a thing or two about good investments -- it's hard to overemphasize the importance of competitive advantage.

    That said, as I pointed out earlier this year, the "buy what you know" advice could also get you in big trouble. You may be a customer of a company and know its products well, but it's also possible that you're a fan of a fad, the company has great products but terrible management, or the company's stock is wildly overvalued. Any of these could turn a seemingly good investment idea into a gaping hole in your portfolio.

    Buy what you know and is a good buy
    My wife's CAPS portfolio has done quite well on nothing more than the straight-up, no-chaser, "buy what you know" strategy. However, for Foolish investors putting real money into the mix, I think "buy what you know" can be a great starting point but can be nicely augmented by these three additional steps:

    • Is it really better? "Buy what you know" works best when you're buying a company because its products or services are a must-have for you rather than just another purchase. For my wife, MAC makeup isn't a makeup choice; it's the makeup choice. On the other hand, we currently have Aquafresh toothpaste (a GlaxoSmithKline product) in the bathroom, but I couldn't really care less about which toothpaste I'm using -- I could just as easily buy Colgate-Palmolive's (NYSE: CL  ) Tom's of Maine or Procter & Gamble's (NYSE: PG  ) Crest.
    • Is it well-managed? Who exactly runs the company? Have they had past success? Do they have an applicable background for the industry? Are they paid like a trusted steward or a greedy mercenary? You can make a lot of headway on these questions with a few Internet searches and a good read of the company's proxy statement. If you want to cheat to get a quick view on this, check out a company's return on capital -- well-managed companies are typically earning attractive returns on the capital they've deployed.
    • Is the stock fairly priced? The subject of determining whether a stock is fairly priced is a whole article (or book) of its own. In short, though, the best companies are generally hard to find at steep discounts, but they can still be bad investments if you drastically overpay, so pay attention to the valuation.

    Don't get me wrong, there are great investments to be dug up in dusty corners of the market where most investors simply aren't looking. But as my wife reminded us with her CAPS portfolio, some of the best investments out there may be right under your nose.

    In the special report "13 High-Yielding Stocks to Buy Today," my fellow Fools kick off with "one dividend stock for the rest of your life." That stock is a company that we all know very, very well, but is it a good investment? Download a free copy of the report and find out.

    Facebook’s Fiasco & Tech Outperformance

    Facebook founder Mark Zuckerberg. (Photo: AP)

    The most overhyped initial public offering (IPO) in the history of mankind is officially in a bear market.

    Facebook shares (FB) have already sunk close to 30% to under $28 per share from their $45 peak. It’s hardly the trading start most folks, including company insiders and underwriters, envisioned.

    Yet, despite Facebook’s poor debut, the Select Sector Technology SPDR ETF (XLK) had risen over 15% in April and continues to be up more than 5% for past six months (vs. about 2.5% for the S&P 500). It’s one of the S&P 500’s top-performing industry sectors. Top holdings within XLK include Apple, Cisco Systems, and Microsoft.

    The Nasdaq Composite was up about 9% on May 31.  Other technology indicators like the Nasdaq-100 have been ahead by more than 11.5% in the past few weeks.

    Facebook ‘Fun’

    How weak was the social networking giant’s IPO debut? It was so bad, that lead underwriter Morgan Stanley (MS) was forced to buy up FB shares to prevent them from dipping below its $38 offer price. The Wall Street Journal described Morgan Stanley (MS) as Facebook’s “stabilization agent.”

    The tech sector has been boosted by a combination of product innovation and positive fundamentals in recent months, though.

    U.S. based technology companies are sitting on a boatload of cash. Apple has around $100 billion, Google has $47 billion in its coffers and Microsoft has roughly $58 billion. Some of the capital is already translating into higher dividends for shareholders.

    Retail investors weren’t the only ones who got burned betting on Facebook.

    Several Wall Street’s analysts issued buy ratings even before the company went public. Wedbush Morgan and Stern Agee had buy ratings on Facebook at $44 and $46 per share, respectively.

    The fact that FB shares are trading lower suggests that underwriters mis-priced the shares, leaving gullible investors and traders with a sack of coal. In contrast, for Facebook insiders, venture firms, and fee-collecting underwriters, the IPO was a bonanza.

    Facebook’s earnings in the 12-months through March 31 were $972 million on sales of more than $4 billion. That gives the company a gluttonous valuation of 107 times trailing 12-month earnings.