Saturday, January 19, 2013

Ahead of Apple Earnings, Are There Guidance Clues?

In just a matter of days, all eyes will be on Apple (NASDAQ: AAPL  ) as it steps up to the earnings plate on Wednesday. Some analysts have characterized this as Apple's most important quarterly release of the past decade. That's because shares have experienced a gut-wrenching 30% pullback since September, as investors seem to have lost confidence in the iPhone maker, even though there are no signs of deterioration in its fundamental business.

One way to form expectations for Apple is based on exactly what it tells you: guidance.

The guidance game
Apple plays the guidance game, but historically it has done so in a way that's almost comically low. The company also doesn't update guidance, so it's a one-time glimpse each quarter into what Apple expects to put up for the following quarter. Here are the more pertinent details what CFO Peter Oppenheimer provided on the last conference call, and how they compare against last year.


Q4 2012 Guidance

Q4 2011 Actual


$52 billion

$46.3 billion

Gross margin



Operating expenses

$4.05 billion

$3.4 billion




Source: Earnings conference call. Calendar quarters shown.

Q4 2011 is currently the record holder for both revenue ($46.3 billion) and net income ($13.1 billion). Let's dig deeper into the outlook for the top and bottom lines and see what investors can expect.

Up high
It's a safe assumption that Apple will beat its own guidance and as such will post record revenues. The company has already said it expects 80% of sales to be driven by products launched near the end of the year, most notably including the iPhone 5 and iPad Mini.

Since the beginning of 2010, Apple has beaten its own revenue guidance by an average of 15.7%. That would imply that the company could post revenue of more than $60 billion, which is well above the current consensus estimate of closer to $55 billion. On top of that, the amount by which it normally beats has been declining more recently.

Source: SEC filings and earnings conference calls. Calendar quarters shown.

For the past two quarters, Apple "only" beat its guidance by single-digit percentages. That could indicate one of two things. Either it actually disappointed its own internal expectations since it normally beats by much more, or its guidance is becoming more realistic. If the company meets the Street forecast, it will top its outlook by just 6%, which is about the same as its revenue beat in the previous quarter.

The curveball is that in Q4 2011, Apple beat its guidance by a whopping 25% thanks to the busy holiday shopping season -- its biggest beat in three years. If Apple gets another holiday boost, it could post a revenue blowout.

Down low
There's been some investor concern over the idea that Apple will post negative earnings growth in the fourth quarter, because of gross margin contraction related to its newly redesigned products. Since 2010, Apple's average EPS beat relative to guidance has been 36.7%. This, too, has been declining lately, which carries the same two implications as noted above.

Source: SEC filings and earnings conference calls. Calendar quarters shown.

Since there are a lot of moving parts before you get to the bottom line, there's also a lot more potential for fluctuations, including for some things that are out of Apple's control, such as foreign currency exchange movements.

Apple hedges most of these fluctuations, but last quarter, foreign exchange hedging expense was higher than it expected. This type of activity is included in other income and expense, which Apple guided to $380 million. OI&E has been more volatile lately, in part because of macroeconomic factors.

Operating expenses are usually predictable and right in line with guidance, typically plus or minus a few percent, but there should be no surprises to speak of.

Blowout hints
There are already a number of hints that Apple will have a strong quarter. AT&T (NYSE: T  ) has said it sold a record number of iPhones during the quarter, which means it moved at least 7.6 million iPhones. Verizon (NYSE: VZ  ) also reported that its 9.8 million smartphone activations were driven in part by a "higher mix" of iPhones.

Apple also saw a monstrous sequential increase to $21.1 billion in manufacturing and component purchase commitments, implying it was preparing for a monster quarter. Investors could easily have a blowout on their hands.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Will GameStop Survive?

In the following video, Motley Fool analyst Austin Smith discusses GameStop's (NYSE: GME  ) chances of survival.

One of the problems facing GameStop is that fewer new games are being sold because there aren't a lot of new devices being made. It's been years since we've seen a big upgrade cycle of PlayStations and Xboxes. As a result, there's been a drop in used-game sales as well, and used games account for 70% of GameStop's earnings.

Even the release of a new console and new titles might not help. We've seen poor sales of Nintendo's (NASDAQOTH: NTDOY  ) Wii U, and last quarter, Halo and Call of Duty failed to lift GameStop's numbers. And when the next device upgrade cycle does come around, a lot of manufacturers are expected to introduce downloadable content -- which doesn't help GameStop at all. Electronic Arts (NASDAQ: EA  ) wouldn't want to give a middleman like GameStop a slice of its profits when it could build a relationship with the likes of Microsoft (NASDAQ: MSFT  ) for downloadable games. Microsoft, in turn, would want to have a relationship with a company such as Activision Blizzard (NASDAQ: ATVI  ) , which already has a strong foothold in the online streaming games space, particularly through its World of Warcraft franchise.

GameStop's same-store sales slid 8.3%, and revenue in the most recent quarter slipped 8%. The company would be more of a value trap than a value play right now.�

Just because GameStop is up against the ropes, that doesn't mean investors are out of options. Start 2013 with a bang by uncovering our the stock our chief investment officer has named "The Motley Fool's Top Stock for 2013." Grab a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

DELL: Deal or Not, LBO Highlights Cash Flow, Says Needham

Needham & Co.’s Richard Kugele, whose firm held a “Growth Conference” with tech companies in New York this week, this morning opines that a rumored deal to take Dell (DELL) private is certainly feasible, it’s hardly “stealing” the company, as some might think, and that it could really improve the company’s situation.

An LBO might better direct Dell’s cash flow — it made $1.5 billion in free cash flow in the last three quarters, after capital expenditures — toward opportunities that would make a difference:

Why go private? While we are not privy to discussions, we could argue that Dell is not a broken company and that the cash flow it is generating is not being fully appreciated by the market because it is not fully addressing the mobile opportunity (i.e. tablets and smartphones) that the stock market values more highly today. By being private, out of the public eye, the company could more aggressively acquire or invest in these markets. Once addressed, Dell could return as a well-rounded tech company. Alternatively, they could just reap the cash flow and continue to make small moves away from PCs.

As for will it happen, “Who knows,” says Kugele, but it has alright made clearer the value of the assets, he opines:�”They have suggested going private in the past (2010), but merely the talk has raised the profile of the company and its low valuation.”

We suspect that even if the deal fell apart that it would be unlikely to return to $9 in the near-term.”

Dell shares today are up4 cents at $12.86.

Previously: DELL Deal Can Get Done, Says Bernstein; Southeastern Potential Obstacle, January 18th, 2013.

Top Stocks For 1/19/2013-18

Reported By: Soha CRWE Newswire Middle East correspondent

Indian security forces have killed four protesters in Kashmir when they opened fire during ant-India demonstrations in held Kashmir. The killings come just one day after the beginning of the Holy month of Ramadan,

A police official said `security forces have fired in at least three places to quell violent protesters. Four people have died`. With the recent killings the death toll of Kashmiris since June 11 has now risen to 55.

Anti-India demonstrations were sparked by the killing of a 17 year old teenager by a tear gas shell fired by the Indian security forces. Since then the Muslim majority Kashmir valley has been paralyzed by demonstrations and curfews. In all these demonstrations, demonstrators were chanting slogans `we want freedom`.

A top Kashmiri leader Mirwaiz Umar Fraooq who is also the chairman of All Parties Hurriyat Conference (APHC) who was freed just weeks before from house arrest said in a mosque sermon `if Indians think by killing our young children they are going to suppress this movement, they are mistaken`.

While Farooq was delivering his sermon, worshippers interrupted his speech with shouts of `blood for blood`.


Top Stocks To Buy For 1/19/2013-2

Questar Corporation (NYSE:STR) achieved its new 52 week high price of $19.68 where it was opened at $19.51 up 0.37 points or +1.92% by closing at $19.68. STR transacted shares during the day were over 1.26 million shares however it has an average volume of 1.71 million shares.

STR has a market capitalization $3.49 billion and an enterprise value at $4.62 billion. Trailing twelve months price to sales ratio of the stock was 2.85 while price to book ratio in most recent quarter was 3.10. In profitability ratios, net profit margin in past twelve months appeared at 16.79% whereas operating profit margin for the same period at 29.83%.

The company made a return on asset of 7.11% in past twelve months and return on equity of 19.41% for similar period. In the period of trailing 12 months it generated revenue amounted to $1.20 billion gaining $6.80 revenue per share. Its year over year, quarterly growth of revenue was 10.80% holding -58.70% quarterly earnings growth.

According to preceding quarter balance sheet results, the company had $700.00K cash in hand making cash per share at 0.00. The total of $1.13 billion debt was there putting a total debt to equity ratio 101.75. Moreover its current ratio according to same quarter results was 0.51 and book value per share was 6.23.

Looking at the trading information, the stock price history displayed that its S&P500 52 Week Change illustrated 4.66% where the stock current price exhibited up beat from its 50 day moving average price $18.40 and remained above from its 200 Day Moving Average price $17.83.

STR holds 177.51 million outstanding shares with 175.35 million floating shares where insider possessed 1.11% and institutions kept 77.20%.

PPL Buys Kentucky Utilities for $7.6B; Pre-Announces Q1 Profit

$10 billion (market cap) electric utility owner PPL (PPL), which has operations primarily in the Northeastern U.S., has agreed to acquire the U.S. operations of Germany’s E.ON AG for $7.6 billion, confirming reports from earlier today by CNBC.

The rumors had sent the shares down almost 8% during the regular session; that stock is now up 11 cents in after-hours trading at $25.71.

The deal brings PPL 1.2 million customers, primarily in Kentucky, at utilities Louisville Gas & Electric Company and Kentucky Utilities Company.

PPL plans to pay for the deal with $6.7 billion of cash and the assumption of $925 million in debt.

Buried in the release, PPL pre-announced its earnings per share for Q1, turning in 94 cents, versus the consensus estimate of 86 cents.

PPL also reiterated a forecast for $3.10 to $3.50 per share in earnings from continuing operations for this year and $2.82 to $3.22 per share in reported earnings.

This Trade Could Make You 40% If You Act Now

It's usually good news when a company delivers quarterly results that beat analysts' expectations, especially when they beat on earnings and revenue. That's exactly what Wells Fargo (NYSE: WFC) did on Friday, Jan. 11, but the stock sold off and that sell-off continued into Monday, Jan. 14. Buried in the report was a warning sign that the future might not be as good for banks as the recent past has been.  

Traditionally, banks have earned profits by borrowing money at a low interest rate and lending the money out at a higher interest rate. Savings accounts or certificates of deposit (CDs) are an example of how banks borrow money from depositors. The rates they pay on these accounts are usually very low. They lend money through mortgages or car loans at higher rates. The difference between their borrowing costs and what borrowers pay for loans is known as the net interest margin and is an important indicator of a bank's profitability.

Wells Fargo reported that its net interest margin fell to 3.56% in the fourth quarter of 2012. This is down from 3.89% in the fourth quarter of 2011, and is also down slightly from the third quarter of 2012. With the Federal Reserve doing its best to push down interest rates on mortgages and other consumer loans, the outlook for Wells Fargo troubled investors and the stock fell almost 2% in the two days after it announced its earnings.

Operating results and the subsequent sell-off in the stock could be a bad sign for financial stocks. One of the best-performing stocks in 2012, Bank of America (NYSE: BAC), reports earnings before the open on Thursday.

Bank of America had a net interest margin of 3.43% last quarter and a further decline could scare traders. My colleague, Michael J. Carr, pointed out in this week'smarketoutlook that the stock has dropped an average of about 1.7% on the day earnings are released.

Trading gains from a small move like that could be magnified with options that allow traders to obtain significant leverage on their trading capital. January options expire on Friday and have only a small amount of time premium remaining. Options prices always include a time premium based on how much life is left in the option. Contracts expiring months from now will have a higher time premium and cost more than options expiring in days.

The $12 put option that expires when trading ends on Friday is priced at about 60 cents with Bank of America stock at $11.47. To breakeven on the put, Bank of America would need to fall below $11.40 ($12 strike price minus the 60 cents premium). That breakeven point is only 0.6% away and the stock has declined more than that, on average, when it announces earnings.

Bank of America is likely to report a downward trend in its interest rate margin just like Wells Fargo did last week. The result in the market is likely to be similar with downward pressure on the stock price. If Bank of America stock trades down 1.7% on the earnings announcement, it could fall below $11.27 and the option would be worth at least 73 cents, a potential gain of about 22% in less than a week. Based on the chart, I expect BAC to fall to $11 where it should find short-term support, which makes the potential gain on the put option more than 66%.

After gaining about 80% in the past 12-months, Bank of America stock looks overvalued by many measures. The price-to-earnings (P/E) ratio is about 12 times next year's earnings and earnings growth is expected to be near 10% a year. That makes the PEG (price/earnings to growth) ratio, a comparison of the P/E ratio to the earnings growth rate, about 1.2. This is about 20% more than the ideal value of 1 that many analysts consider to be fair value in the PEG ratio.

Research firm Thompson Reuters rated Bank of America as one of the big-cap stocks most likely to miss its estimates this quarter. This options trade is a cheap way to profit if that forecast is correct. If Bank of America disappoints analysts this week, then traders are likely to sell the stock and lock in any gains they may have in the company.

> Buy BAC Jan 12 Puts at 70 cents or less. Set stop-loss at 50 cents. Set profit target at $1 for a potential 43% gain in less than a week.

4 Dividend Stocks With Heavy Insider Buying

I recently had some extra cash that I wanted to put to work, so I ran a screen for what I might call "well supported dividend stocks".

Specifically, I'm looking for companies that pay reasonable yield, but are supported by low p/e ratios, rising insider buying and low payout ratios.

I screened for large cap companies with dividend yields over 3%, p/e ratios under 15 and insider transactions that are up over 20% over the past six months.

Note: screens are step one in a multi-step research process, and aren't a substitute for fundamental analysis. The purpose of stock screens is to narrow down the unmanageably massive stock universe into a short-list of potential investment candidates.

Here's the short list:

ConocoPhillips (COP)

ConocoPhillips is an international, integrated energy company. As of Dec. 31, 2010, it is the third-largest U.S. integrated energy company, based on market capitalization, as well as proved reserves and production of oil and natural gas, and the largest refiner in the United States. ConocoPhillips is the seventh-largest holder of proved reserves and the fourth-largest refiner worldwide, of nongovernment-controlled companies.

Edison International (EIX)

Edison International, through its subsidiaries, is a generator and distributor of electric power and an investor in infrastructure and energy assets, including renewable energy. Headquartered in Rosemead, California, Edison International is the parent company of Southern California Edison-a regulated electric utility-and Edison Mission Group, a competitive power generation business.

Lockheed Martin Corporation (LMT)

Headquartered in Bethesda, MD, Lockheed Martin is a global security and aerospace company that employs about 123,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

Northrup Grumman Corporation (NOC)

Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.

I was surprised, but somewhat intrigued, to see two defense companies and an integrated oil producer make the list. These three companies potentially gain from the growing tensions in the middle east. Rising oil prices should benefit ConocoPhillips and combat operations should benefit Lockheed Martin and Northrup Grumman. Of course, these are macro generalizations based on the industries these companies operate within. The reality for each company will depend on individual contracts, risk exposures, assets, etc.

Looking at the results of the screen, these four companies appear worthy of further investigation. First, valuations appear reasonable, especially for ConocoPhillips and Northrup Grumman:


Dividend yields aren't mouth watering, but definitely satiate the appetite for yield. And with low payout ratios, you know these dividends aren't all filler:

TickerDividend YieldPayout Ratio

Finally, company insiders for all four companies see something that makes them want to buy the stock in droves. Over the past six months, all four companies have seen insider transactions rise by up to 357%.

TickerInsider Transactions

But let's be realistic here. These are big, widely-held companies and insider ownership is miniscule as a proportion of total float. But when viewed alongside valuations, yields and payout ratios I think these companies are worthy of further research.

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

Disclaimer: This is not advice. While Plan B Economics makes every effort to provide high quality information, the information is not guaranteed to be accurate and should not be relied on. Investing involves risk and you could lose all your money. Consult a professional advisor before making any investing decisions.

10 Tips for a Financially Sound Retirement

If saving for retirement was a struggle before the financial crisis of 2008, imagine how lost jobs, flat wages, underwater mortgages, higher energy and food costs, and local and state tax hikes have combined to make the goal even harder.

Insufficient retirement money is the number one financial worry among 66% of Americans, according to a Gallup poll. Yet many of them have long-term retirement savings plans.

Get alerts before Link and Cramer make every trade

Americans who don't save for retirement often outlive their assets. Of those folks, 68% have less than $1,000 in savings, according to the Employee Benefits Research Institute, EBRI. "More and more in today's environment, people really have to take responsibility for their own retirement security," says Jean Setzfand, AARP's vice president for financial security.So, think of saving for retirement as a second job.Here are some strategies to help you plan for a financially secure retirement. You may not be able to achieve all of them, but the more the better.1. Be debt-free before retirementDebt during retirement increases one's expenses while eroding one's nest egg.To avoid unnecessary financial burdens, "take stock of your situation and create a plan to reduce debt as you approach retirement. In some cases, paying down debt might mean delaying full retirement," says Setzfand.Many experts still recommend owning one's home before or at retirement."During the 2008 financial crisis, clients with a free and clear home tended to sleep better than those who still had a mortgage," says Brian Fricke, a certified financial planner (CFP) and author of "Worry Free Retirement."If you retire holding a mortgage, ensure that you can afford the utilities, maintenance, and insurance payments that also come with owning property, says Setzfand.Also, consider downsizing to a smaller home; paying down mortgage principal and refinancing the remaining portion to reduce your monthly mortgage payments; and weighing the tax benefits against a complete pay down.2. Design savings and spending plans This one is a must for everyone."Retirement planning is particularly hard because the implications of your choices tend to get magnified," says Jason Branning, CFP, and owner of Branning Wealth Management.

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You'll need to determine the amount of savings needed for your desired retiree lifestyle. Completing the calculation can boost one's confidence; over 25% of Americans who have completed a calculation say that they are very confident that they will save enough money for retirement, reports the EBRI.

A spending strategy is equally important. Rather than follow a budget, many people spend what comes in. Fricke encourages totaling the last 12 months' checks that you wrote to calculate a realistic withdrawal rate. Many professionals recommend a 4% spending rate of your savings, which should last for 25 years.

3. Think twice before leaving the workforce "The mystique of retirement can look good from a distance, but later leads to regret something akin to 'buyers' remorse,'" says Dr. John Osborne, a professor emeritus at the University of Alberta.So, try reducing work hours before quitting your job. It may enable you to return full-time, if needed.Another consideration is retiree benefits. If you don't have them, many experts recommend delaying retirement until you qualify for Medicare. As you near 65 years of age, you should be able to negotiate a flexible work schedule."Fifteen years ago, if people retired without a retiree medical benefit, nobody gave it a second thought; they just went out and bought an individual health plan," says Fricke.4. Be wary of cash buyouts Know the implications of taking a buyout."Those who take buyouts can have later regrets about accepting money to retire, especially when they come to see themselves as a commodity," says Dr. Osborne, who authored "Retirement Psychology."Osborne adds, "there can be feelings of being disposed of because one has reached a 'best before date,' or has been bought out."Employers often hire specialists to persuade senior staff members to take a cash buyout, which enables them to replace high-salaried seniors with less-expensive junior employees.If tempted with a buyout, first ask yourself: What you would do after accepting the buyout?"Are there still opportunities for you to earn an income either through a part-time job, a shift in career, or turning a passion/hobby into a money making venture?" says AARP's Setzfand.

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5. Optimize tax strategies

Use appreciated stock or mutual funds to make charitable contributions of $1,000 or more.

Say you have $10,000 in cash to donate to a charity, but you also have a stock worth $10,000, which you bought for $2,000, and you don't want to sell it."Give it to charity," says CFP Fricke.The tax-exempt charity won't pay tax on your stock profit, and your donation will be tax-deductible."You don't have to wait 30 days, because you're not selling at a loss. You still own the same amount of stock, but now you have a higher tax basis so if you do sell in the future, your capital gains tax bill won't be quite as big," says Fricke.There are lesser tactics, as well. Only buy municipal bonds if you're in a 35% and over tax bracket (rare for most Americans), and choose exchange-traded funds, ETFs, over mutual funds because you only pay taxes on profits when you sell your shares, thus avoiding annual cash distributions, which also complicate tax filing.6. Use tax-efficient income streams Retirees should "document, prioritize and categorize," says CFP Branning. The idea is to "use the assets that we own to generate income in a tax efficient way."Determine your annual base or mandatory expenses -- food, clothing, shelter, utilities, medical, and transportation -- and discretionary expenses.To avoid unnecessary taxes, retirees should only generate income that is needed to cover base expenses, says Branning."Most essential for retirees is generating actual net retirement income dollars, because not every dollar of income is equal from a tax perspective, " he explains. "Every dollar taken from tax-free accounts is actually worth a dollar in net terms, whereas a dollar taken from a taxable account may only be worth 80 cents," given the tax rate.7. Don't be an ATM to your kids or grandkids That's what CFP Fricke says.Be smart about how you give away money.Fricke advises grandparents to set up an investment fund with a goal that interests the child. "A grandparent 401(k)" he says. "To most teenagers, college isn't that sexy and fun to be working towards. But for teenage boys, their first car, by golly, that's something they'll work for."

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For every dollar the grandchild adds to an investment or savings account, the grandparent can supplement.

8. Wait to tap into Social Security

"Nearly a quarter of older Americans rely on Social Security for 90% or more of their family income," reports AARP.To guarantee sufficient monthly payments during retirement, one should know the best time to tap into Social Security benefits."The Social Security claiming decision is one of the most important, yet complicated, retirement-related financial decisions," says AARP's Setzfand.Many experts agree that waiting pays off. If claimed too early, the benefits could decrease up to 8% a year. If you wait until the age of 70, the benefits increase -- and by quite a lot.Find the right time for you: AARP created the Social Security Benefits Calculator to help people weigh the variables and compare estimated monthly benefits to make an informed decision.9. Prepare for the unexpected Update important documents every five years."Any time there's a birth, death, divorce, marriage. Especially as people are living longer and longer, and with health care advances being at what they are, it's important to have a health care surrogate or a health care power of attorney," says Fricke.A health care power of attorney is a legal document that appoints somebody to make medical decisions on your behalf if you can't.Retirees also should consider investing in long-term care insurance, which typically covers the cost of home care, nursing-home care, and assisted living, usually not covered by traditional health insurance. "They're not covered much by Medicare and they're only covered by Medicaid after you have spent all of your money," says Richard Johnson, director of the Program on Retirement Policy at the Urban Institute.When planning for retirement, don't overlook care-giving. Family members may ask you for help. "A retired couple may wind up with family members living with them, being called to baby sit, taking care of a spouse," says Dr. Osborne. Plan accordingly, as taking care of someone can cost money.10. Enjoy spending within your means Many retirees don't live as comfortably as they could, fearing they'll run out of money. "When you're 65, you don't know how long you're to live. 'What if I live to 110?' There's a lot of uncertainty involved," says Johnson.Johnson says the solution is to buy an annuity. An annuity is a pot of your money that an insurance company converts into regular payments until one's death.The uncertainty diminishes. "No matter how long you live, you will receive a regular payment each year," says Johnson.But others say annuities involve risks."You lose long-term capital gain tax treatment on profits. You can't offset gains with losses, and your heirs lose the stepped up tax basis if/when they inherit the account. Not to mention the high fees and big withdrawal penalties," says CFP Fricke. --

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Friday, January 18, 2013

S&P 500 Earnings Estimates and Direction of the Market

We're now at the threshold of the Q4 earnings season. While we await the individual reports over the next several weeks, let's have a look at earnings forecasts for the S&P 500 index for 2011 and 2012.

One of my favorite sources of market data is the spreadsheet on the Standard & Poor's website maintained by Senior Index Analyst Howard Silverblatt (see my instructions at the bottom of this post for accessing the data).

The table below illustrates the forecast trailing twelve month (TTM) "As Reported" earnings estimates for the S&P 500. The values in the TTM Earnings column are the sums of the trailing four quarterly estimates from column D in Silverblatt's spreadsheet (as of 12/31/2010). The % Change column uses the TTM earnings estimate for through Q4 2010 as the baseline and shows quarterly earnings growth estimates through 2012.

Now let's look at the three forecast columns based on P/E ratios. Even if you're on a low-sodium diet, take these with a grain of salt. The middle of the three is calculated using a P/E of 15.5 — the historical average TTM P/E ratio for the S&P Composite over the past 139 years. I've multiplied the TTM earnings estimates by this number. Thus, the earnings forecasts using this ratio would put the S&P 500 at 1346 at the end of this year and 1395 at the end of 2012.

The rightmost column uses the TTM P/E at the end of 2010 (December's close of 1257.64 divided by the 74.57 estimate rounded to one decimal place). The earnings forecasts at this ratio would put the S&P 500 at 1468 at the end of this year and 1521 at the end of 2012.

The pink column is based on an arbitrary P/E ratio of 14.1 — the same distance below the average P/E as 16.9 is above it.

Of course, this is merely playful exercise with earnings estimates that will change. Moreover, as the history of P/E ratios suggest, the S&P 500 price oscillates wildly above and below the average P/E multiple.

I'll revisit the table above as the forecasts change, as they inevitably will, over the months ahead.

Disclosure: No position

5 Large Caps To Buy On A Pullback

Although they fell a little on Friday, US markets are near their yearly highs, and so are a lot of big names. There are plenty of great companies out there that you can add to your portfolio currently, but for a lot of them, you want to wait until their prices become a little more reasonable. Last week, I named five big tech names to buy on their next pullback. This article will focus on five large names, not in the technology sector.

Philip Morris (PM): The cigarette maker hit a new 52-week high this week after its earnings report, which was decent. Although earnings per share only beat by a penny, they beat revenue expectations by $320 million. Guidance for 2012 was very good, and the company stated it will buy back $6 billion worth of its shares this year. That's about 4.3% of its market cap, as of Friday's close. The stock also boasts a nearly 4% dividend yield, and their dividend has been increasing each year.

When the stock dropped below $73 last month, I called it a great buying opportunity. Through conversations with other investors and traders, most agreed that the analyst downgrades were slightly unwarranted and created a great entry point for the stock. If you bought then, you are doing quite well on your purchase. The stock is up about 10% since then. With a near 4% dividend and large buyback, this stock will continue to be an investor favorite, and will definitely go higher from here. You don't want to overpay for the name, so I would start entering a position around $78 and adding more if it goes lower. I'll have more out on the name this week.

Intuitive Surgical (ISRG): The surgical robot maker fell after last quarter's earnings report, creating a tremendous buying opportunity around $430. It has rallied $60 since then, and I believe there is more growth ahead. I recently argued that this name could be a $700 stock by the end of 2013.

Intuitive has virtually no competition in the surgical robot arena, and is receiving approval for new procedures using its machines each year. The company is expected to have revenue and earnings growth in the high teens or low twenties, percentage wise, both this year and next. The company has virtually no debt, an exceptionally clean balance sheet, and is buying back stock. It's a very high margin business and there is still plenty of room for growth.

Mastercard (MA) and Visa (V): Both companies rocketed higher after great earnings reports, and these are names that should be in your portfolio. The credit card industry is doing extremely well, and these names are very profitable. Both names are projected for double digit revenue growth this year, and knowing their propensity for beating estimates, they could do even better.

Both names are near 52-week highs, so you should definitely wait to get them cheaper. Both companies are mostly growth names, but they do offer small dividends, and Mastercard just doubled theirs. I stated in my 2012 predictions that I think these two names could return 25% this year, and they are doing well so far. Be ready to get into these names on any weakness.

McDonald's (MCD): I can't give you too many growth names, so I'll throw in another value play. McDonald's offers a near 3% dividend, is buying back plenty of stock, and is expected to grow revenues by more than 5% this year and next. Analysts like the name and most price targets are a bit higher than current prices.

McDonald's is a couple of bucks off its 52-week high already, which means if you want to start a position here, you can. But don't buy a significant portion of it here. Buy small, and average in as it goes lower. If you could get in around $95, that would be excellent. A good dividend, buyback, and some growth offer decent potential for this blue chip name.

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

Stocks set to swing higher

NEW YORK (CNNMoney) -- U.S. stocks point to a higher open Tuesday, as investors weigh a tentative deal to fund the government into next year and await the Federal Reserve's meeting.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were up slightly ahead of the opening bell. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.

Investors continue to keep a wary eye on Europe's debt crisis, but are anxious to hear if the Fed has anything else up their sleeve to help the economy.

"The market is oscillating between Europe and then how U.S. companies are actually doing," said Peter Tuz, president at Chase Investment Counsel.

U.S. stocks tumbled in a broad sell-off Monday, amid growing investor doubt that Europe's debt crisis will be resolved, and a sales warning from chipmaker Intel.

Europe debt saga far from over

World markets: European stocks advanced in morning trading. Britain's FTSE 100 (UKX) ticked up 1%, the DAX (DAX) in Germany added 0.8% and France's CAC 40 (CAC40) edged higher 0.2%.

Asian markets ended lower. The Shanghai Composite (SHCOMP) lost 1.9%, the Hang Seng (HSI) in Hong Kong shed 0.7% and Japan's Nikkei (N225) declined 1.2%.

Companies: Former MF Global (MFGLQ) CEO Jon Corzine will be back to testify before Congress Tuesday, this time flanked by two former colleagues from the brokerage's parent company, MF Global Holdings: Chief operating officer Bradley Abelow and chief financial officer Henri Steenkamp.

Seeking shelter in FDIC banks

Shares of electronics retailer Best Buy (BBY, Fortune 500) got slammed after the company reported earnings that fell far short of forecasts.

Intel warned that it will badly miss its sales forecast for the current quarter on Monday, because of the worldwide hard drive shortage caused by massive floods in Thailand. Shares of Intel (INTC, Fortune 500) dropped nearly 4% in trading Monday, making the chipmaker's stock one of the biggest losers among Dow issues.

Netflix's (NFLX) stock jumped 6% Monday, on chatter that the company could be acquired by Verizon (VZ, Fortune 500). A spokesman for Netflix said the company doesn't comment on speculation.

Economy: Retail sales for the month of November rose 0.2%, which was much lower than expected, according to the U.S. Commerce Department. But the disappointing report had little impact on futures.

Retail sales were expected to have increased by 0.6%, after a 0.5% increase the month prior.

Investors will also be awaiting news from the Federal Reserve, which is expected to hold interest rates at 0.25% for the month of December.

Currencies and commodities: The dollar lost ground against the euro and the Japanese yen, but was flat against the British pound.

Oil for January delivery rose 64 cents to $98.41 a barrel.

Gold futures for February delivery rose 40 cents to $1,668.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.04% from 2.01% late Monday.  

Big Buzz All About 3D: Who Will Benefit?

At the forefront of new inventions and new product launches for 2010, the world's largest electronics show, the Consumer Electronics Show in Las Vegas, ended this week. If going in everyone was talking about advanced telephones, on the way out the big buzz was all about 3D.

With or without connection to the dizzying success of the movie Avatar, the first televisions with 3D processors will hit the market this year already. Together with the special glasses that will be included, we will be able to watch three dimensional content at home. Hollywood is now beginning to develop the special broadcasting channels for them.

The television market has not begun to scratch the great potential of HD (high definition) and "green" LED lighting, and already an additional growth engine is bursting onto the scene.

3D will bring early adapters - those who don't care about paying huge prices as long as they get the most advanced equipment - running to stores.

When investing in various technology niches, until today the focus was telephones and computers, but it seems that the Consumer Electronics Show [CES] put a third platform that provides content strongly on the map - the television. It’s a platform that until recently was considered not "sexy" and boring, that besides the width and depth of the screen did not undergo major revolutions.

Today, more than ever, we are near to the convergence of the three platforms, with connection to broadband Internet, the glue that holds them all together.

Among public Israeli companies, there are several which will benefit directly from the new age, which will apparently arrive in the next few years to the digital TV niche. Among chip companies, there are Marvell Technology Group (Nasdaq: MRVL), Sigma Designs, and Zoran Corp. (Nasdaq: ZRAN). They all provide HD processors and other solutions to TV manufacturers, and Orbotech Ltd. (Nasdaq: ORBK) provides the inspection systems for various LCD screen production lines.

Shares in Orbotech, which I hold in my portfolio tracked at "Globes", frustrate me because since the summer they have stuck in a very narrow band, more or less around $10, despite the fact that Orbotech's main niche, LCD screen inspection, has never been as hot as it is now. It is clear to me as well that the acquisition of major US competitor Photon Dynamics, for $290 million at the end of 2008- timed at the eve of the major crisis seeming almost suicidal, will very soon prove to be a brilliant move.

With the TV industry going through major technological revolutions, there is no doubt that the inspections niche is gaining in importance daily , and Orbotech controls about 80% of this market. It's been known for a while that huge investment is planned in existing and new lines. This is not just because of the technological revolutions which became the story of the day in Las Vegas, but because of demographic revolution. Hundreds of millions of households, mainly in China and India, will switch in the coming decade from "ancient" CRT televisions to thin LCD screens.

I assume that if Orbotech published a shelf prospectus for raising up to $150 million, nearly half its current market cap, then it has in its pipeline many good things to tell potential investors in an offering that will take place in the coming months. I expect to hear some of them today at the Needham & Company growth conference in New York.

Disclosure: Author holds shares as part of his portfolio tracked by "Globes".

Published by Globes [online], Israel business news - - on November 17, 2009; Reprinted on Seeking Alpha with permission

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

Top Portfolio Products: AdvisorShares, Cousteau Develop ETF; Van Eck Introduces Closed-End Municipal Bond ETF

New products introduced in July included a socially responsible ETF from AdvisorShares and a closed-end municipal bond ETF from Van Eck, as well as a guaranteed income annuity from New York Life and a China currency bond fund from Guinness Atkinson.

In addition, IndexIQ brought out its first emerging market mid-cap ETF; Altegris launched a new macro strategy fund; a Franklin Templeton fund changed its name; Morningstar Direct introduced new functionality; and Dominick & Dominick selected the CAISfunds platform.

Here are the nine latest developments of interest to advisors:

1) Philippe Cousteau Jr. and AdvisorShares Develop Socially Responsible ETF

Social entrepreneur and environmental advocate Philippe Cousteau Jr., grandson of Captain Jacques-Yves Cousteau, and AdvisorShares Investments announced July 12 a partnership to develop the AdvisorShares Global Echo ETF (GIVE), a multimanager fund with an absolute return and sustainable investment mandate. The fund will make socially responsible, sustainable investments using a variety of specially selected money managers.

The Global Echo Foundation, a 501(c)(3) charitable foundation co-founded by Philippe Cousteau Jr., will provide funding solutions to many of the challenges facing the world community, from social issues impacting women and children to environmental conservation, as well as supporting social entrepreneurship. The Global Echo Foundation will be funded through a portion of the Global Echo ETF management fee.

2) Van Eck Introduces Market Vectors CEF Municipal Income ETF

Van Eck Global announced Wednesday that it launched Market Vectors CEF Municipal Income ETF (XMPT), the first ETF to specifically focus on closed-end municipal bond funds.

XMPT is intended to track, before fees and expenses, the performance of the S-Network Municipal Bond Closed-End Fund Index (CEFMX), an index composed of shares of municipal bond closed-end funds listed in the U.S. principally engaged in asset management processes to produce federally tax-exempt annual yield. The index methodology assigns a greater weight to closed-end funds trading at discounts, potentially enhancing yield and providing the opportunity for capital appreciation.

XMPT carries a gross expense ratio of 1.57% and a net expense ratio of 1.43%, and expenses (excluding interest expense, offering costs, trading expenses, taxes, extraordinary expenses and acquired fund fees and expenses) are capped contractually until September 1, 2012 at 0.40%. The fund expects to distribute a monthly dividend that, if properly reported as exempt-interest dividends, may not be subject to regular U.S. federal income tax.

3) New York Life Launches Guaranteed Future Income Annuity

New York Life Insurance Co. announced on July 11 the launch of its Guaranteed Future Income Annuity, a deferred income annuity that offers consumers an opportunity to create pensionlike retirement income at a time when employer-sponsored defined benefit plans are dwindling. The flexible premium product provides a way to allocate a portion of retirement savings to a future guaranteed income stream that can’t be outlived.

The product allows a policyholder to make an initial premium payment of at least $10,000 and set an income start date in the future, at which time they will begin receiving guaranteed income payments for the rest of their life. Between the initial premium date and the income start date, the policyholder can continue to make premium payments in smaller increments, and can defer or accelerate their income start date as personal needs change.

4) Guinness Atkinson Launches China Currency Bond Fund

Guinness Atkinson Asset Management, advisor to the Guinness Atkinson funds, recently announced the launch of the Renminbi Yuan & Bond Fund (GARBX), the first traditional open-end mutual fund to invest directly in bonds denominated in the Chinese currency. The fund will be managed by Edmund Harriss, the company's veteran China fund manager. The June 2011 issue of Asia Brief provides a detailed overview of the renminbi bond market.

The fund's investment strategy combines evaluation of global macroeconomic conditions with in-house credit analysis based on study of company fundamentals. The fund will employ proprietary modeling screens to support the portfolio management team's credit analysis. The strategy's active approach and structure as a mutual fund provides the portfolio management team with a high level of flexibility in executing buy and sell decisions in changing market conditions.

5) IndexIQ Launches First Emerging Market Mid-Cap ETF

IndexIQ launched the IQ Emerging Markets Mid Cap ETF (EMER) on the NYSE Arca platform on Wednesday. EMER seeks to replicate, before fees and expenses, the performance of the IQ Emerging Markets Mid Cap Index (IQMDEMG), a float-adjusted market cap-weighted index intended to track the overall performance of the mid-capitalization sector of publicly traded companies domiciled and primarily listed on an emerging market exchange.

EMER is the first ETF dedicated to providing access to mid-cap emerging market equities and will do so via a “pure play” approach; all the equities included in the fund’s underlying index will be listed on an exchange in a less developed market in the Americas, Europe, Asia, Africa and the Middle East. The fund will be diversified across both emerging market countries and industry sectors. As of May 31, 2011, the fund’s underlying index contained exposures to consumer discretionary (18.69%), financials (18.10%), industrials (15.88%), materials (13.28%), technology (9.15%) and more.

6) Altegris Announces Macro Strategy Fund Launch

Altegris announced July 12 the launch of the Altegris Macro Strategy Fund (MCRAX), which offers access for individual and professional investors to the global macro approach to investing through an actively managed mutual fund. Jon Sundt, president and CEO of Altegris, is co-portfolio manager of the fund.

Between January 1997 and March 2011, global macro as a category has experienced significantly lower volatility as measured by the Barclay Global Macro Index (6% on an annualized basis) when compared to the S&P 500 Index (16.5% annualized). In addition, over this same period, the global macro category achieved +9.7% annualized return, as represented by the Barclay Global Macro Index, compared with the S&P 500 Total Return Index’s +6% annualized return.

7) Templeton Income Fund Changes Name to Templeton Global Balanced Fund

Franklin Templeton Investments announced July 11 that the Templeton Income Fund has been renamed Templeton Global Balanced Fund. Available to U.S. investors, the fund seeks both current income and capital appreciation by investing in global stocks and bonds.

The fund allows investors access to both global equity and fixed income markets through a single fund, supported by insights from two investment teams. The Templeton Global Equity Group invests the equity portion; the Franklin Templeton Fixed Income Group invests the fixed income portion. In addition to identifying the individual stocks and bonds to invest in, managers collaborate to determine the fund’s asset allocation, employing a bottom-up assessment of current opportunities combined with top-down macroeconomic analysis to shift the overall asset allocation to take advantage of market inefficiencies.

8) Morningstar Direct Launches New Asset Allocation and Forecasting Functionality

Morningstar announced July 11 new asset allocation and forecasting functionality in Morningstar Direct, its Web-based global investment analysis platform for institutional investors. This new feature is a risk management tool for investors. It allows users to choose from a number of return distribution assumptions to model asset class behavior, so that they can optimize their portfolio allocations to take into account “fat-tailed” return distributions and measure downside risk.

9) Dominick & Dominick Selects CAISfunds Platform

Dominick & Dominick LLC, an independent securities firm established in 1870, recently announced that it has selected CAISfunds to broaden its menu of top-tier alternative investment funds. CAISfunds, a New York-based financial technology company, provides an independent alternatives investment platform to the global wealth management industry.

The CAISfunds platform will give Dominick advisors access to a diversified menu of top-tier alternative investment funds, portfolio management tools, streamlined execution and integrated reporting. CAISfunds conforms to Dominick’s current product platform and compliance protocol while integrating client positions with Pershing LLC, Dominick’s custodian.

Read last week’s Portfolio Products Roundup at

Buy, Sell, or Hold: InterDigital

It would seem that the near- and mid-term future for a company that offers wireless connectivity solutions and improved bandwidth worldwide would be golden. But blanket assumptions can lead to nasty surprises for investors, so let's take a closer look at why you might want to buy, sell, or hold InterDigital (Nasdaq: IDCC  ) .

Lots of InterDigital's numbers look quite promising. Its revenue and earnings have been growing by double digits, and their growth rates have been growing, too. Over the past year, revenue grew 33%, and earnings 76%. When earnings grow faster than revenue, it suggests that the company is becoming more efficient, wringing more profit out of each dollar of sales than before.

Meanwhile, those net profit margins are fat, topping 30%, while the stock's forward price-to-earnings (P/E) ratio is just 16, suggesting that it's not wildly overvalued at all.

On the negative side, InterDigital ranks near the bottom of its industry in terms of research and development (R&D) spending. That's not auspicious, since investments in R&D can lead to new technologies, patents, licensing deals, and profits. Of course, a company can choose to just buy new technology instead, and InterDigital has done a fair amount of that.

Another issue of concern is the arena in which InterDigital competes -- that of technology patents. As my colleague Anders Bylund has pointed out, the system is broken, with many companies (and consumers) hurt when some companies are able to patent algorithms or ideas. Companies such as VirnetX seem to be basing their business models around patent litigation, while others, like Universal Display, are focused on patents, but also spend significantly on R&D and maintain profitable operations. It's useful for investors to distinguish between the two.

A big reason to consider staying on the fence about InterDigital is that it has expressed interest in putting itself on the block, partially or completely. If such a sale happens, shareholders will see a big chunk of change arrive -- presumably more than $1 billion and potentially several billion.

But there doesn't seem to be a long line of companies bidding for InterDigital. And even if the company is sold, that will leave shareholders with either some money or shares of the acquirer -- whose attractiveness is not yet known. That's not the ugliest proposition. Receiving a chunk of change is nice, and if you get shares of the acquirer, those can always be sold.

Speculation abounds on which company or companies might be interested in InterDigital. Patent-grabbing is of great interest to many. Google and Intel were recently outbid for Nortel Networks' patent portfolio by a group of companies including EMC and Research In Motion.

In the meantime, the company is positioned to profit from patent-licensing deals, which can be announced at any time. But that kind of uncertainty can make it hard to value the company.

The verdict
InterDigital certainly has a lot going for it, but ideally, I'd rather be invested in a company that seems committed to growing and building its business rather than putting itself up for sale. Such a company would have a more unlimited upside.

I'm cautiously bullish on InterDigital's future, but for now, I think I'll steer clear.

If you're in the market for another portfolio candidate in the wireless connectivity field, check out -- for free -- our special report, "The Next Trillion Dollar Revolution," which details a company set to benefit strongly from the mobile revolution.

Thursday ETF Roundup: XLF Jumps On U.S. Data, GLD Slumps On Profit Taking

Equity markets charged higher on Thursday, recouping losses from yesterday, as optimism swept over Wall Street following better-than-expected jobless claims data. The Nasdaq and the S&P 500 Index tied, both gaining 0.83% on the day, while the Dow Jones Industrial Average lagged behind, clinching gains of 0.51%. Gold futures drifted lower amidst the holiday cheer, settling near $1,605 an ounce as the trading session drew to a close. Crude oil on the the other hand crept higher alongside equities, finishing the day right around $99.50 a barrel.

Employment data on the home front struck a positive chord with investors as the number of people applying for unemployment benefits in the U.S. dropped to 364,000, the lowest level since April 2008. “The underlying story here, we think, is that businesses were braced in the fall for a weakening in demand - implied by plunging consumer confidence - which did not then happen. Robust sales growth has therefore left many firms in a better position than they expected, so layoffs are falling,” commented Ian Shepherdson, chief U.S. economist with High Frequency Economics.

The State Street Financial Select Sector SPDR (XLF) was one of the biggest winners, gaining 2.11% on the day. Financial stocks led the way higher as investors jumped into equity markets after better-than-expected jobless claims data. U.S. consumer sentiment also beat analyst expectations, further paving the way higher for domestic indexes as confidence in the economic recovery improved.

The State Street SPDR Gold Trust (GLD) was one of the worst performers, losing 0.71% on the day. Gold futures slumped after investors took profits from the safe haven metal as improving confidence in the U.S. economic recovery painted a less-gloomy outlook for equity markets. Despite ongoing drama in the eurozone, futures prices have drifted sideways with a downward bias over the past week, with many investors liquidating their gold holdings in an effort to raise cash in case debt woes intensify.

Disclosure: No positions at time of writing.

Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.

Original article

Obama Lays Out Gun Control Plan; Smith & Wesson, Sturm Ruger Stocks Jump


President Barack Obama just finished his press conference where he gave an impassioned, heartfelt speech about the need for tighter control guns. At the same time he outlined proposals that could constitute the biggest effort to tighten US gun laws in decades.

As the president was speaking the shares of two leading gunmakers jumped, with Smith & Wesson‘s (SWHC) stock now up more than 3% and shares of Sturm Ruger (RGR) up about 4%.

(Click on the image for larger version; chart from FactSet)

At first glance these two paragraphs seems to contradict each other — surely tighter rules will be bad for gunmakers?

If they pass Congress (which is open to question) the rules could well be bad for business, but it seems the market has decided that they won’t be as bad as previously feared — or maybe there’s just certainty now for investors that didn’t exist; the worst case scenario regarding regulations is clear.

That said, it’s still surprising to see�Sturm Ruger’s stock nearly 5% higher than it was at the close on Dec. 13, the day before the shootings at Sandy Hook Elementary. Smith & Wesson’s shares, even with today’s gains, are still down 9% since that day.

One reason for the difference is that Sturm Ruger has “lower exposure to what may be classified as assault rifles,” said Rommel Dionisio, analyst at Wedbush Securities who covers the industry.� Obama’s plan calls for a ban on sales of assault weapons and high-capacity magazines — Smith & Wesson’s best-selling handgun is the M&P series, said Dionisio, and many M&P guns exceed the 10-round limit that Obama wants.

And remember that gun sales have been through the roof recently — as I reported earlier this month, using background checks as a proxy for sales December saw a 59% year-on-year sales jump, and that was on the heels of November’s 39% increase. Though he’s not at the event, Dionisio said he’d heard that sentiment among retailers and gunmakers at the National Shooting Sports Foundation’s SHOT Show taking place in Las Vegas right now is very strong for the near term.

Update: Here’s a video of the full speech and the list of Obama’s 23 executive actions.

Fusion-IO ‘ioScale’ Suggests Upside, Say Benchmark, Piper

Shares of server technology vendor Fusion-IO (FIO) are up 58 cents, or 2.7%, at $21.76 as the�Open Compute Project Summit gets underway in Santa Clara, California, and announced its latest wares, something it calls “Fusion ioScale.” and the response from the Street seems to be fairly positive so far.

The Benchmark Company’s Gay Mobley, who has a Buy rating on the shares and a $35 price target, this morning writes that “We view the launch of this new product line as a catalyst for Fusion-io’s already-strong sales pipeline.”

“While the low price point for the new product could cap Fusion-io gross margin potential (LT guidance at 56%-58%, but more hyperscale may mean a range toward the lower end of a 54%-60% range), we believe the new hyperscale market focus is very incremental to gross profit dollars.”

And Piper Jaffray’s Andrew Nowinski, who has an Overweight rating on the shares, and a $33 price target, writes “We have never been concerned with the notion that either Facebook or Apple would consider dual-sourcing PCIe flash cards away from Fusion-io and this product launch confirms our belief.”

Nowinski thinks ioScale is indicative the company has room to grow at both Facebook (FB) and Apple (AAPL):

Fusion-io�s launch of the new ioScale product this morning is indicative of the growing opportunity at Facebook and Apple. The product is specifically designed for the scale-out �disposable server� architecture that both strategic customers currently leverage. We have never been concerned with the notion that these customers are considering dual-sourcing, though the concern continues to linger within the investment community.This product launch confirms our belief that Fusion-io�s growth at Facebook and Apple is solely dependent on the growth of each customer. When Facebook or Apple grows, Fusion-io grows.

Today’s Summit is sponsored by a number of companies in addition to Fusion, including server chip startup�Calxeda, RackSpace (RAX), and�Hewlett-Packard�(HPQ).

Apple: iPad Only Slightly Cannibalizing PC Sales, NPD Contends

Contrary to popular belief, the Apple (AAPL) iPad isn’t seriously cannibalizing the PC market, according to a new report from research firm NPD Group.

According to the report, only 13% of iPad owners surveyed bought an iPad instead of a PC, while 24% replaced a planned e-reader purchase.That suggests the device is more a threat to the Amazon (AMZN) Kindle than it is to Dell or HP.

NPD also notes that iPad owners, expecially those who bought one within two months of launch, are significantly more likely than other consumers to own Apple products, e-readers and smart phones.

NPD finds that 48% of iPad owners also own a Mac desktop or notebook computer, which compares to the 11% of U.S. households who owned a Mac in a previous NPD study earlier this year. Just 53% of iPad owners also have a Windows-based computer, compared with 75% of total households. About 38% of iPad owners also own an iPhone.

“Early adopters, like iPad owners, follow a traditional pattern of consumer behavior; they purchase products because they want them, not because they need them,” NPD analyst Stephen Baker said in a statement. “However, as Apple increases iPad distribution and consumer interest peaks, the profile of an iPad owner is much more likely to mirror the overall tech population. When that does happen other tech products with similar usage profiles as the iPad, such as notebooks, netbooks, and e-readers will come under increased pressure from the iPad. Until then, however, most iPad sales are likely to be incremental additional technology devices in the home, rather than a one-for-one replacement of a planned purchase.”AAPL today is down 98 cents, or 0.4%, to $282.77.

Dow Slips, S&P Flat; CBS Stock Pops

Getty ImagesMoonves makes a move

The Dow Jones Industrial Average fell 2.66 points today, 0.17%, bringing an end to a five-day winning streak. The Standard & Poor’s 500 index�was essentially flat on the day, though its 0.29 point gain was enough to edge it to a new five-year high, closing at its highest level since Dec. 28, 2007.

Boeing‘s (BA) stock closed the day down 3.4% after investors reacted badly to the latest troubles to befall the 787 Dreamliner, while Northern Trust (NTRS) was the biggest decliner on the S&P 500 after its fourth-quarter earnings missed analyst estimates.

Shares of CBS (CBS) are jumping after hours, rising 8% after the media company said it would turn its outdoor billboard company into a real estate investment trust:

Real estate investment trusts, or REITs, have become a popular method for companies to lower taxes and improve returns for investors. REITs don�t pay federal income taxes to the Internal Revenue Service, with the understanding that they distribute at least 90 percent of taxable earnings to shareholders in the form of dividends.


What Shorts Might Be Watching at Teledyne Technologies

There's no foolproof way to know the future for Teledyne Technologies (NYSE: TDY  ) 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, at times, 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 Teledyne Technologies 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 Teledyne Technologies 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. Teledyne Technologies's latest average DSO stands at 55.1 days, and the end-of-quarter figure is 58.1 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Teledyne Technologies look like it might miss its numbers in the next quarter or two?

The raw numbers suggest potential trouble ahead. For the last fully reported fiscal quarter, Teledyne Technologies's year-over-year revenue grew 10.3%, and its AR grew 24.4%. That's a yellow flag. End-of-quarter DSO increased 12.8% over the prior-year quarter. It was up 5.8% 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.

Looking for alternatives to Teledyne Technologies? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

  • Add Teledyne Technologies to My Watchlist.

Thursday, January 17, 2013

NL Industries Passes This Key Test

There's no foolproof way to know the future for NL Industries (NYSE: NL  ) 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, at times, 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 NL 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 NL 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. NL Industries's latest average DSO stands at 43.0 days, and the end-of-quarter figure is 42.7 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does NL Industries look like it might miss its numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, NL Industries's year-over-year revenue grew 3.8%, and its AR grew 3.1%. That looks OK. End-of-quarter DSO decreased 0.7% from the prior-year quarter. It was up 1.0% versus the prior quarter. 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.

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CRM Slips on SEC Note; Nothing to Worry About, Says Morgan Stanley

Shares of (CRM) are down after the company this morning disclosed in a filing with the Securities & Exchange Commission its responses to a letter from the SEC questioning some of its reporting of cash flow.

The stock is off $4.64, or 2.7%, at $170.01.

In the letter, the company pledged to “revise future filings to include additional discussions of significant fluctuations in our working capital acccounts necessary to convey a deeper understanding of operating cash flows.”

The SEC took exception to the following phrasing of operating cash flow, as presented in Salesforce’s 10-K filing for the fiscal year that ended in January of 2012:

[Cash flow from operations] has historically been affected by: the amount of net income (loss); sales of subscriptions, support and professional services; changes in working capital accounts, particularly increases and seasonality in accounts receivable and deferred revenue as described above, the timing of commission and bonus payments, and the timing of collections from large enterprise customers; add-backs of non-cash expense items such as depreciation and amortization, amortization of debt discount and the expense associated with stock-based awards.

In response, the SEC asked the company “What consideration was given to quantifying and explaining significant fluctuations in working capital accounts” and “how you manage accounts receivable,” and “disclosing the specific factors that affected the change in deferred revenues from period to period as well as key operational or financial metrics you track in evaluating deferred revenues and revenues,” among other questions.

A number of bulls on Salesforce shares are out defending the stock today. One was Morgan Stanley’s Adam Holt, who reiterates an Overweight rating on the shares, writing that the� “re-surfacing of filings from earlier this week detailing correspondences between the SEC
and Salesforce should be viewed as a non-event.”

Holt writes that the SEC investigation was completed on December 13th, and that the requests from the SEC seem to him to be not very different from similar requests that other companies he follows have received from the SEC:

The SEC commonly requests further information as it relates to a company�s 10-K filing, and after review, nearly 80% of our large-cap companies have received such a
request of their FY12 filings (and this could actually be higher since they are not immediately disclosed). As it relates to Salesforce in particular, we interpret the
requests as very common to those of other companies and they do not suggest any accounting improprieties.

Cramer: New View on Banks Starts Today

Editor's Note: This article was originally published on Real Money on Jan. 16. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

The days of the radical revaluation of banks is now upon us. The days when we sit there and say "they are awful because of the net interest margins" are being put behind us. The days when we worried about the government every minute are behind us, too.Now it is just time to make money and it is important to recognize that because of the difficulties of the previous era and how hard it is now to run the new gauntlet of regulations, there will only be a handful of companies that can dominate in each space and they will make fortunes.This morning we saw that the traditional investment banking business is alive and well at Goldman Sachs (GS) and JPMorgan Chase (JPM).Goldman dazzled not just in that department. I was truly shocked at how much many was made by equities, fixed income and commodities. Goldman has a return on equity of 15%, much, much higher than people thought.It also had a remarkable decline in compensation costs. The shareholders are getting the incremental gains now, not the people who work at Goldman as the ratio of compensation and benefits to net revenues was 37.9% compared with 42% for 2012.That's shocking.Remember this is a real story now, not a jury-rigged one. These gains are NOT about a hedge fund that's in drag. They are about regular business lines making a huge amount of money.Plus the place is brimming with cash. Tangible book value is now $134 and this company now deserves to sell at a 20% premium to tangible book like the old days.You can see it going to the $160s on this quarter.JPM? What do you say about a company that did $100 billion in revenue and yet cut the compensation of the CEO in half because of the Whale issue, which is now put behind them for good.The whale's back in the Natural History Museum. We don't need to relive the Star Trek save-the-whales movie.Here's what's incredible about JPM's numbers. Almost every single line but one, the net interest margin, was blowaway good. 1 2 Next › Last »

You know what that means?

To me it says you are overly focused on that one line, which is going to change as business gets better in America and around the world.The fixation on the government? It is passed. The fixation on the net interest margin? It's about to pass.The focus on earnings and return of capital? That's 2013's emphasis.And it is starting now. Today. Get big or go home.FREE for a limited time only: Get TheStreet Ratings #1 Stock Report NOW! « First ‹ Previous 1 2

Top stocks 2013: Western Gas Partners

Our top conservative pick for 2013 is Western Gas Partners LP (WES), which owns 15 gas-gathering systems, eight treating facilities, nine processing plants and one pipeline.

Gathering systems consist of small-diameter pipelines that connect individual wells to processing facilities and treating facilities. Customers pay Western Gas Partners a volume-based fee for access to the MLP�s gathering system.

Gas treating and dehydration plants remove carbon dioxide, hydrogen sulfide and water vapor that can occur in raw gas stream. Natural gas transported over interstate pipelines to end-users cannot contain these impurities.

Gas-processing plants separate NGLs, a heaver group of hydrocarbons that includes propane, butane and ethane, from the gas stream. The price of a mixed barrel of NGLs has historically tracked the price of crude oil.

Regardless of the commodity transported, pipelines usually entail little exposure to commodity prices and only modest exposure to economic conditions; the contracts governing these assets often involve a capacity-reservation fee that the pipeline owner receives regardless of whether the customer uses its allotment.
Despite its exposure to gathering and processing, Western Gas Partners is one of the lowest-risk MLPs in our coverage universe -- thanks to its conservative, fee-based contracts and strong support from its parent and general partner, Anadarko Petroleum, one of the largest independent oil and gas producers in the US.

Western Gas Partners continues to benefit from Anadarko's accelerating development of Colorado�s liquids-rich Denver-Denver-Julesburg Basin, where the parent plans to sink 170 horizontal wells in 2012 and boasts an inventory of 2,700 drilling locations.

Western Gas Partners owns a 2,880-mile gathering system in the region, significant processing and treating capacity, and an interest in an oil pipeline.

Drop-down transactions from Anadarko Petroleum will continue to drive Western Gas Partners� distribution growth. In these deals, the parent company sells midstream assets to the MLP at a price that�s immediately accretive to the child�s cash flow, enabling the publicly traded partnership to boost its quarterly distribution.

Anadarko Petroleum owns 100 percent of the general partner interest in Western Gas Partners, entitling the independent oil and gas producer to incentive distribution fees from the MLP.

The parent also owns about 42 percent of the partnership�s outstanding units. These financial ties incentivize Anadarko Petroleum to follow a strategy that will enable the MLP to grow its distributable cash flow.

Management has indicated that the publicly traded partnership plans to raise its quarterly payout by at least 15 percent in 2013. With a current yield of 4.4%, buy Western Gas Partners LP up to $52 per unit.

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  • Top stocks 2013: Susser Petroleum
  • Top Picks 2013: El Paso Pipeline

With Valuations Rising, Consider Automakers Carefully

We all know that the recession took a toll on many industries, and US automakers were one of the hardest hit. Ford (F), General Motors (GM), and the like were punished, but they have recovered a bit. US auto sales in 2011 were at their highest level since 2008, although the 12.8 million number was still well below the 16 million level we saw before the recession.

For the automakers, unit sales are up, as are prices. The average price of vehicles sold in December was up 5% over the year ago period. You might think that's good for these stocks, but that is only half of the picture. They aren't quite getting these increased revenues to the bottom line. These names have risen in price over the past 3 months, and analysts have been cutting earnings per share numbers left and right. That has pushed valuations higher, and that may lead some investors to stay away from these names.

Let's look at Ford first. When Ford reported third quarter and nine month results for the year, revenues were up quite nicely. However, net income was down, and thus, earnings per share were too. Third quarter revenues increased from $29.89 billion to $33.05 billion, but net income declined from $1.687 billion to $1.649 billion. Thus, earnings per share declined from 49 cents to 43 cents.

Ford's sales were up 11% in 2011 on a unit sold basis, and revenues are currently expected to be up 15% on the year. However, earnings per share are currently expected to decline from $1.91 to $1.87. Three months ago, they were predicted to rise by 2 cents.

Why is this such an issue? Well, next year, Ford is only expected to increase revenues by 3.5%. Earnings per share are expected to fall, and more so than they were just three months ago. Take a look at the following earnings estimate chart from Yahoo:

EPS 2011 2012
90 days ago $1.93 $1.77
60 days ago $1.89 $1.66
30 days ago $1.87 $1.62
7 days ago $1.87 $1.59
Current $1.87 $1.58

Analysts have taken down expectations by 19 cents in the past three months, and if you go to CNBC, the number they show for consensus in 2012 is just $1.54. Now, in the past three months, Ford's stock is actually up about a dollar, despite the lowered expectations. This has led to the P/E valuation increasing quite a bit.

P/E 2011 2012
90 days ago 5.54 6.04
60 days ago 5.84 6.65
30 days ago 5.90 6.81
7 days ago 5.75 6.77
Current 6.26 7.41

On Friday, Ford traded at its highest level since late October, but even since then, we've seen estimates come down by nearly a dime. Now the average analyst price target for Ford is $16 currently, and just using current estimates, that would be a P/E of about 10, more than a third above where we are now. I want to use this as caution, because I think we could see estimates come down even further going forward. We could see the price rise even if earnings come down, but at some point, the company will need to grow profits.

Looking back to the past couple of years, Ford has traded in the 4 to 11ish range in terms of P/E's, so it is fair to say that we are basically in the middle of the range. However, we've come up a bit in the past few months, and if the trend continues, we might find ourselves at the high end of the range before long.

If you think this is a company-specific issue, it's not. Here are two more examples, the first being GM, and the second being Honda Motor Company (HMC).

GM P/E 2011 2012
90 days ago 5.17 5.05
60 days ago 5.21 5.19
30 days ago 5.35 5.42
7 days ago 5.16 5.31
Current 5.83 6.05

General Motors is expected to increase revenues at an 11% clip this year, and like Ford, a smaller number at 4% in 2012. GM's earning expectations have come down more than Ford's, on a percentage basis, over the past 90 days. However, GM's stock is only up 4.13% during that time, while Ford's is up 9.54%. That's why the P/E growth numbers are as close as they are. Honda's stock is up 10.15%, but since its expectations have not come down as much, the P/E number has not increased as much.

HMC P/E 2011* 2012*
90 days ago 13.96 7.22
60 days ago 15.55 7.97
30 days ago 18.55 8.15
7 days ago 18.29 8.08
Current 19.24 8.50
2011 fiscal year ends in March 2012; 2012 FY in March 2013.

I'm sure you will ask about Toyota (TM), but due to the earthquake and recent flooding in Asia, its earnings estimates have been too volatile to make a true comparison.

The article I referenced above does make another important point I should discuss. US automakers did well, while their Asian counterparts did not, due to lingering issues from the 2011 earthquake and tsunami, as well as the recent flooding. As Toyota, Nissan, and the like get back on their feet, it might come at the expense of the US automakers.

Overall, you can still buy these names, but just know that you are paying approximately 20% more on a 2012 P/E basis than you were 3 months ago. Ford has reinstated its dividend, so that is a positive sign for the company. Ford has beaten expectations the past three quarters, but maybe that will stop the decrease in estimate revisions for a while if it beats again.

Valuations are always a tricky subject, so my point here is not to say that you have to use the P/E number for every argument. You don't. All I'm saying here is that the numbers have risen by a decent number in the past months, and that is causing me a little concern. I still consider these names buys at the moment, but if the valuations continue to rise as they have been, I may need to come back here and change my opinion.

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

Will Redbox Be an Instant Success?

Maybe it was just a head fake, but reports that Redbox would be delaying until January the launch of its streaming video service are proving false. Instead,�Coinstar (NASDAQ: CSTR  ) is taking the instant-viewing game to the home court of Netflix (NASDAQ: NFLX  ) �and starting a limited beta test of the instant-viewing challenge over the next few weeks.

Toppling the throne
While the service itself has been under development for some time, specific details of pricing have been kept under wraps, and in a joint statement with its partner Verizon (NYSE: VZ  ) , Coinstar shows that it plans on aggressively attacking Netflix's dominant position.

A basic streaming service will cost just $6 per month, cheaper than its rival's $8 per month Watch Instantly streaming service. But where it really gets compelling is in the hybrid streaming-DVD packages Redbox is offering: For $8, viewers can also get four DVD rentals, or for a dollar more, you can make them Blu-ray disks. Netflix charges another $8 to get an unlimited number of disks, but you can only take them out one at a time.

Considering turnaround times for mailing back and receiving a new disk, you're talking about twice the cost for pretty much the same number of disks -- that is, if you're fastidious in returning them. I know my disks would often sit for a day or so before I would send them back, and I wouldn't necessarily watch them the minute they came in, either. So with the Redbox package, you're getting movies only when you want to watch them -- though I've also been known to be delinquent in returning a disk to a kiosk, too, which adds an upcharge to the rental.

It's deja vu all over again
My Foolish colleague Anders Bylund is less than impressed with Redbox's foray into streaming, believing we've seen all this before in bankrupt Blockbuster's Total Access package. There are key differences between the two, asAnders acknowledges, such as that Blockbuster was sending actual DVDs to viewers whereas Redbox is sending bits and bytes, but I think there are equally important differences that make the potential for Redbox's success -- even win -- more probable.

Blockbuster had to support a vast bricks-and-mortar network, so that with every DVD it shipped out, it left less inventory for its stores, and they cost a lot of money to maintain. Redbox, on the other hand, has a minimalist footprint in its kiosk network: locations that aren't expensive and whose presence can be expanded almost at whim. I have a dozen kiosks within a mile of my home that I can choose from; I'm sure others in more densely populated areas have more. And adding DVD viewers to its streaming service doesn't harm existing customers; it can just add more kiosks if necessary.

At the end of the third quarter, Coinstar reported having 42,400 kiosks as well as a host of others it acquired from NCR after Blockbuster's demise. Revenues grew 19% last quarter to $460 million on the strength of its pace of opening new kiosks, as well as greater comps from those already existing and the price hike it initiated last year.�Redbox is dealing from a position of strength and is using it to expand into other areas like ticket sales.

A deep bench
Many Netflix bulls contend that the real value in the company is its vast library of movies. At last count it exceeded 100,000 titles and had some 60,000 titles available for instant viewing. In comparison, Redbox has some 200 movie DVDs in its kiosks and its streaming plan will offer 5,500 titles from Time Warner's (NYSE: TWX  ) Warner Bros. studio as well as the cable channel Epix, which is a joint effort of Viacom's (NASDAQ: VIAB  ) Paramount Pictures, MGM, and Lions Gate Entertainment (NYSE: LGF  ) .

It seems a pretty anemic comparison until you consider just how many of Netflix's movies are unwatched or unwatchable. There's a lot of chaff mixed in with the few kernels of wheat, and sussing them out for a night of viewing is an undertaking all in itself, even using its queue feature. With Redbox, the DVDs are typically the top titles that are out, and through Epix it will have top features like The Hunger Games.

The right mix
The future of movie viewing is streaming. There are lots of options out there and coming out soon that will continue to challenge Netflix's preeminent position. There's's�streaming service, as well as Hulu, Vudu, and even YouTube. Cable operators like Comcast�are developing competing services, and I've said it won't take much for Cablevision's�mobile app to adapt to a streaming option.

Redbox, however, is the first to combine the right mix of streaming and DVDs at the right price that can't be ignored. I've often held that Coinstar's kiosk network was never a replacement for Netflix, but rather a supplement to it. Now with Verizon backing its entrance into streaming, there's the real chance Redbox will replace its rival as the preferred streaming service.

Now showing
The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.