Saturday, March 30, 2013

The Dogs of the Dow Are Outperforming Their Index

The "Dogs of the Dow" dividend strategy is one of the simplest for beating the market. Over the coming year, I'll track the Dogs' performance and keep you abreast of news affecting these companies.

The strategy
The Dogs is an investing strategy that buys and holds equal dollar amounts of the 10 best-yielding dividend stocks of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . The strategy banks on the idea that blue-chip stocks with high yields are near the bottom of their business cycle and should do much better going forward. Investors in the strategy then would not only get large dividends but also gains in the stocks underlying those dividends.

High-yield dividends
High-yield portfolios are often dismissed as inferior to their growth counterparts for various reasons:

  • Many people fear that increasing dividend yields mean lower portfolio returns.
  • Others believe that dividend payments mean that management believes the business is done growing.

Evidence compiled by Tweedy Browne refutes these falsehoods. Research shows that portfolios of high-yield dividend stocks outperform lower-yielding portfolios and the market in general. In fact, a study by noted finance professor Jeremy Siegel found that over 45 years, the highest-yielding 20% of S&P 500 stocks outperformed the S&P 500 by three times! The highest-yielding stocks turned a $1,000 investment in 1957 into $462,750 by 2002, compared with $130,768 if the same money was invested in the index.

After beating the Dow by 6.8% in 2011, the Dogs of the Dow underperformed the Dow by 0.2% in 2012.

Check out the Dogs' performance in 2013 so far:


Initial Yield

Initial Price

YTD Performance

AT&T� (NYSE: T  )




Verizon� (NYSE: VZ  )




Intel (NASDAQ: INTC  )




Merck� (NYSE: MRK  )




Pfizer� (NYSE: PFE  )




DuPont� (NYSE: DD  )




Hewlett-Packard (NYSE: HPQ  )




General Electric (NYSE: GE  )




McDonald's (NYSE: MCD  )




Johnson & Johnson� (NYSE: JNJ  )




Dow Jones Industrial Average



Dogs of the Dow


Dogs Return vs. Dow (Percentage Points)


Source: S&P Capital IQ as of March 30.

This week, the Dow Jones Industrial Average was up 0.40%. The Dogs rose more than the Dow, moving up 2.12%. That brings the Dogs' outperformance up to 6.57 percentage points better than the Dow itself!

Movers and shakers
The biggest mover this past week among the Dogs of the Dow was again Hewlett-Packard, which rose 3.47%. The second biggest mover was Intel, up 2.39%. On Tuesday, the government reported that PC sales rose 2.5% in February. Investors' concerns over declining sales have weighed on PC manufacturers, so the report was welcome news.

This week, ADP and the government release their reports on job growth. ADP is expected to report private-sector payrolls growth of 210,000, an increase from last month's 198,000. The government is expected to report nonfarm payrolls growth of 193,000, down from last month's 236,000 as the sequester kicks in and slows jobs growth.

More dividends
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6 Announcements Bank Investors Must Watch Next Week

In this series, we'll explore the data announcements and events that may affect the performance of bank stocks during the upcoming week.

The economic turmoil in Europe hasn't been friendly to American bank stocks this week. With the uncertainty in Cyprus and Italy, added investor concern has put pressure on recent gains that banks have made in the past few weeks. And though it's not completely behind us, the uneventful reopening of the Cypriot banks does give hope that U.S. banks will be able to rely on economic news for boosts in the coming week. Here's a look at what will be released, what banks may be affected, and what investors should expect.


  • Motor-vehicle sales: Auto sales are an important indicator of consumer confidence in the economy. Generally, consumers will hold off on large purchases if there's a great deal of uncertainty. And while we usually focus our attention on mortgage loan data, most banks also have a dealer services division that provides consumer auto loans. Since mortgage activity was down this month, it may be important to keep an eye on other revenue-producing operations within the banks. Since Wells Fargo (NYSE: WFC  ) was the largest mortgage originator in 2012, the recent slowdown of mortgage applications may be putting pressure on its other divisions to increase loan production.
  • Construction spending: A macro look at the pace of construction, this data point gives a broad view of how the construction industry is growing. This gives bank investors a sense of how new-home construction -- and, by degrees, mortgage originations -- may be growing as well.


  • Bank reserve settlement: It's that time again. Every two weeks, the nation's banks have to settle up with the Federal Reserve to meet capital reserve requirements. And while others may be scrambling to gather enough cash, Citigroup (NYSE: C  ) is probably sitting pretty following its top ranking in the Fed's stress test in terms of capitalization. Since banks may have to borrow from one another, the Fed funds rate may be affected, but don't expect any change to stick.
  • MBA purchase applications: With a resurgence in refinancing and home-loan applications this week, bank investors should watch to see if there's a new pattern emerging following a few weeks of lost ground. JPMorgan Chase (NYSE: JPM  ) , the second largest mortgage originator in 2012, will be happy to have some increased activity in its loan department. But JPM investors should be cautious when considering this data point, as the bank has some other major factors depressing its share price.


  • Household debt service and financial obligations ratios: This is a quarterly calculation from the Fed that looks at the average household's ability to pay its debts and financial obligations. This information gives investors a good sense of how households are managing their spending, as well as the ability to take on more debt -- which may provide future business for the nation's banks. It may also provide an opportunity to spot trouble. Foreclosures are on the rise again, with Bank of America (NYSE: BAC  ) wielding the biggest load of bad loans, creating more trouble for the recovering bank.


  • Consumer credit: Investors can use this data point as an overall indication of how consumers are using their available credit. Combined with Thursday's debt ratios, we can get a clear picture of current economic conditions as they apply to consumer spending. Using too little credit can indicate poor economic conditions, while too much credit can point to future reductions in purchases because of higher debt-payment requirements.

Fool on!
A Foolish investor knows that no single news blip will have all the information needed to assess a stock, but too much information can muddle a decision just as easily. As we move through the week, be sure to pick and choose which data points best help or hurt your stock picks. And as always, you can learn more by logging on to

If you think B of A's stock moved as much as it could when it doubled in 2012, think again. Though it still has significant challenges still ahead, this week's results of the stress test could be the catalyst for B of A's stock resurgence. It's critical to have a solid understanding of this megabank before adding it to your portfolio, regardless of the stress-test results.

In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, financials bureau chief, lift the veil on the bank's operations, including offering three reasons to buy and three reasons to sell. Click here now to claim your copy, and as a bonus, you'll receive a full year of free updates and expert guidance as key news breaks.

The Key to Success: Find a Need and Meet That Need

In the following video, Ronald Packard, CEO and founder of K12, sits down with Motley Fool analyst Matt Argersinger and�explains how his experience at his previous company, Knowledge Learning, helped him identify the need for a company like K12.

At Knowledge Learning, Packard ran preschools and early childhood education centers as part of his first job in the education industry. Packard also analyzed investments in the education industry targeting kids ages 0-13.

Working in the industry and having a school-age daughter gave Packard the idea and the expertise needed to start a firm to teach kids online. In 2000, K12 was born.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Are You Missing Something Easy at On Assignment?

Margins matter. The more On Assignment (NYSE: ASGN  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong On Assignment's competitive position could be.

Here's the current margin snapshot for On Assignment over the trailing 12 months: Gross margin is 31.0%, while operating margin is 8.3% and net margin is 3.4%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where On Assignment has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for On Assignment over the past few years.

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

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

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

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 34.1% and averaged 32.7%. Operating margin peaked at 8.3% and averaged 6.1%. Net margin peaked at 4.1% and averaged 1.9%.
  • TTM gross margin is 31.0%, 170 basis points worse than the five-year average. TTM operating margin is 8.3%, 220 basis points better than the five-year average. TTM net margin is 3.4%, 150 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, On Assignment looks like it is doing fine.

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  • Add On Assignment to My Watchlist.

Housing ‘Shadow Inventory’ Declines

Experts had long warned of the dangers of the U.S. housing market’s so-called “shadow inventory” of distressed homes that sat on banks’ books as they waited for the market to improve, but a new report from CoreLogic shows that inventory is rapidly dwindling. The latest count puts the number of such homes at 2.2 million in January 2013, which is 18% lower than at the same time last year. Further, the decline is moving at twice the pace of the prior year and analysts believe that the entire inventory could be offloaded in nine month at the market’s current sales pace. For more on this continue reading the following article from TheStreet.

Shadow inventory, once considered a major threat to the housing recovery, is declining at a rapid pace, according to the latest report from real estate analytics firm CoreLogic.

Shadow inventory refers to distressed properties that are yet to be listed for sale. CoreLogic estimates shadow inventory by calculating the number of properties that are seriously delinquent and likely to result in foreclosure, properties already in some stage of foreclosure and homes held as real estate owned (REO) by mortgage servicers but not currently listed on multiple listing services(MLS).

Residential shadow inventory as of January 2013 was at 2.2 million units, down 18% from a year earlier. The number of shadow inventory properties in the United States peaked at 3 million in January 2010.

Of the 2.2 million properties currently in the shadow inventory, 1 million units are seriously delinquent, 798,000 are in some stage of foreclosure and 342,000 are already bank-owned. It would take 9 months to absorb the pending supply in the market at the current sales pace.

"The shadow inventory continued to drop at double the rate in January from prior-year levels. At this point in the recovery, we are seeing healthy reductions across much of the nation," according to CoreLogic CEO Anand Nallathambi.

Florida, New York, California, Illinois and New Jersey are still dealing with a huge pipeline of foreclosed homes and now account for 44% of the country's distressed inventory.

California enacted tough borrower protection laws last year that have stalled foreclosure activity, while the other four states follow a judicial foreclosure process, requiring banks to prove in court that borrowers are in default before initiating action.

Analysts expect these states to deal with a foreclosure backlog for several years, unless laws change.

Fear that millions of foreclosed homes would flood the market and force down home prices was a major weight on the housing market in the early years following the housing market bust in 2008. More recently, some of those concerns have eased as foreclosure activity has declined and as strong investor demand for distressed properties has helped clear the inventory more rapidly.

On the contrary, most parts of the nation are now dealing with a significant shortage of inventory, which has turned out to be a frustrating situation for home buyers just returning to the housing market.

Nationwide, inventory has declined so steeply that it would now take about 4.4 months to clear the market. In a balanced market, it would take 6 months.

The lack of inventory has created bidding wars in many parts of the nation and in traditionally hot markets such as Manhattan, brokers say the shortage of inventory is "absolutely insane."

For buyers in hot markets, the prospect of more homes hitting the market might actually be welcome, as TheStreet recently explained in When Foreclosures Are Good tor the Housing Market.

Wal-Mart Takes Another Shot at Best Buy

Best Buy (NYSE: BBY  ) has been beaten up by online competition in recent years and now it may have to fight off quick delivery from Wal-Mart (NYSE: WMT  ) as well. Wal-Mart announced yesterday that it would test locker storage for goods people order on the Internet. This would allow Wal-Mart to combine the ordering ease of�with the quick delivery of any item while still eliminating the headache of shopping in the store.

Best Buy is the one retail stock that's down on the news today, falling more than 3% for a short period in the middle of the trading day, because it is affected the most by these retail innovations.

Losing the one advantage it has left
Best Buy used to rely on people coming into stores and turning knobs, testing TVs, and eventually buying something and walking out the door. But the comfort of online shopping has become more popular�and the need to physically test items is diminishing. This has taken away Best Buy's biggest advantage.

To make matters worse, it is also fighting growing electronics footprints at Target�and Wal-Mart, where you can also pick up bread and milk. If Wal-Mart is now combining the ease of online shopping with the speed of drive-thru shopping it puts Best Buy in an even further hole. In time, there's no reason Target couldn't do something similar.

Another hit to Best Buy
Best Buy can't seem to out-innovate its competitors, allowing them to eat up sales with a more convenient shopping experience. Meanwhile, management has been spending time fighting off takeover bids instead of finding ways to improve the business. I'm rooting for Best Buy to survive but Wal-Mart's latest innovation is another reason it might not.

More on Best Buy

The brick-and-mortar vs. e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.

Can America Blow Away Nuclear Power?

Imagine if you opened up your electricity bill next month and it showed that your energy provider owed you money for sending you your monthly allotment of kilowatts. Think negative prices sound farfetched? Think again. Several Texas and Midwestern utilities, such as Exelon (NYSE: EXC  ) and Dominion Resources (NYSE: D  ) , are facing just such a predicament in several markets during off-peak hours.

OK, so customers don�t actually get paid by their providers since off-peak prices represent a small piece of the amount paid each month. Nonetheless, negative prices are a real problem facing utilities relying on nuclear and fossil-fuel generation -- and they have little to do with cheap natural gas. The main contributor to off-peak negative prices is actually wind power. If the problem persists, energy companies such as Exelon and Dominion, which focus on nuclear and coal, respectively, may be forced to retire their less competitive plants. Can America really blow away nuclear power?

Good news, bad news
Last year, the power industry sprinted to capture what was expected to be the last opportunity for a federal tax credit for new wind farm construction. The credit was eventually extended through 2013, but that didn�t stop a record 13 GW of capacity from being added to the nation�s grid. In fact, 8.38 GW were added in the fourth quarter alone. �

That�s great news for renewable energy-minded power generators such as NextEra Energy (NYSE: NEE  ) . The company owns more than 10 GW of wind capacity, or one-sixth of the nation�s total. The subsidy has enabled NextEra to create an impressive fleet of wind farms:

Source: NextEra Energy. Powered by Google Maps. �

Say what you want about the federal tax credit for new construction, but that isn't the government subsidy fueling negative prices. The owners of wind farms receive a production tax credit, or PTC, of $0.022 for every kWh of wind energy produced. That may not seem like much, but consider this: Wind speeds, on average, are inversely proportional to demand from the grid. When the grid needs the least amount of power -- during the night and in spring and fall -- wind speeds are at their peak.

Generally, providers curtail their power production during off-peak times to obey the law of supply and demand. Flooding the grid with juice that has nowhere to go results in negative prices, thus forcing providers to pay the grid to take the power they created. No business aims to sell products with negative values.

A question of fairness
The PTC for renewable-energy generation creates an artificial incentive for owners of wind farms. Why shut down turbines during the grid�s off-peak hours when it�s the best time to maximize production and therefore subsidy revenue? For instance, wholesale electricity prices for off-peak hours sank to negative-$0.0411 per kWh in October 2012. A recent report (link opens PDF) from the Northbridge Group, an electricity consultancy firm, showed that the problem is becoming more profound every year:

Source: The Northbridge Group.

Although natural gas has done its part to lower electricity prices, gas-fired generators usually come online in full-force during peak hours and as needed. Taking that into account, there does seem to be a correlation between wind capacity and negative prices. Is it fair for the government to subsidize renewable-energy generation at the expense of more established providers?

Competitive disadvantage
The splurge on wind turbines is certainly good news for renewable-energy advocates, customers, and the nation�s energy future. Carbon-fiber manufacturer Zoltek� (NASDAQ: ZOLT  ) reported a record 2012 thanks to the mad dash. The company states that its carbon-fiber wind turbine blades can capture three times the energy of their fiberglass predecessors. All good news for renewable energy. There couldn�t possibly be any negative long-term effects. Right?

Well, if negative prices persist for longer periods of time, it could force generators to make some potentially toxic long-term moves to protect margins. Exelon could be in particularly rough shape in the near term with much of its 19,000 MW of nuclear capacity serving the Chicago metropolitan area -- prime wind territory. I recently argued that nuclear energy shouldn�t be considered more expensive on new construction costs alone, but there's a different problem at play here.

The company's CEO, Christopher Crane, recently told Bloomberg that if the subsidy continues, "there is a very high probability that existing safe reliable nuclear plants will no longer be competitive and will have to be retired early." That could be a potential problem for prices in the long run. Why? Nuclear power plants operate for months at a time without interruption, thus stabilizing the grid and prices. Consider this comparison in utilization rates:��

Generation Source

2012 Capacity

% of 2012 Electricity Supply


51,620 MW*



101,409 MW


Source: EIA.
*Excludes 8,380 MW installed in 4Q12, which didn�t contribute to grid.

Whereas it took wind energy 15,200 MW to generate 1% of the nation's electricity, nuclear needed only 5,337 MW to create the same share. Lower utilization rates alone don't make wind energy obsolete. After all, it's tough to beat free fuel inputs. It does, however, highlight the importance of more consistent generation sources. In other words, should nuclear capacity be taken offline because of pricing concerns, it would be unlikely for wind power to fill the void -- not exactly how the market is supposed to work. Natural gas plants could fill the gap, but that isn't necessarily good news for consumers. More volatile fossil fuel plants can lead to higher costs.

Foolish bottom line
It appears that American wind farms really could blow away nuclear energy's share of electricity production, although it will need big help from renewable-energy subsidies. While that may be considered a catalyst for companies such as NextEra, consider what would happen if the PTC were slashed or taken away. It's the only reason wind farms send power to the grid when demand is low.�

Therefore, I see the PTC being adjusted at some point in the near future to more accurately reflect the market. Any funds not handed to wind farm operators should be invested into grid-sized battery farms that could store cheap renewable energy generated in off-peak hours and send it to homes when demand is highest. Utilization rates of wind energy could then match those of nuclear energy, effectively tripling the nation's share of wind generation without adding a single kilowatt of capacity.

Until that happens, energy providers may be moving away from coal and nuclear and toward renewable energy and natural gas. With the swelling of the global middle class, energy consumption will skyrocket over the next few decades, so long-term investors know that you want exposure to this space now. We've picked one incredible natural gas company that presents a rare "double-play" investment opportunity today. We're calling it "The One Energy Stock You Must Own Before 2014," and you can uncover it today, totally free, in our premium research report. Click here to read more.

How CareFusion is Bringing Bucks Home More Quickly

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 CareFusion (NYSE: CFN  ) .

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 CareFusion for the trailing 12 months is 137.3.

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 CareFusion, 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 CareFusion looks good. At 137.3 days, it is 10.4 days better than the five-year average of 147.6 days. The biggest contributor to that improvement was DSO, which improved 6.3 days compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at CareFusion looks good. At 127.3 days, it is 8.9 days better than the average of the past eight quarters. With both 12-month and quarterly CCC running better than average, CareFusion gets high marks 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 underappreciated home run stocks.

If you're interested in companies like CareFusion, you might want to check out the jaw-dropping technology that's about to put 100 million Chinese factory workers out on the street � and the 3 companies that control it. We'll tell you all about them in "The Future is Made in America." Click here for instant access to this free report.

  • Add CareFusion to My Watchlist.

Friday, March 29, 2013

The Big Weight-Drug Wait

"Wait" seems to be the operative word for the obesity drug industry these days. Investors in VIVUS� (NASDAQ: VVUS  ) are still waiting to see if Qsymia can attain the levels of commercial success that they anticipated.�Arena Pharmaceuticals� (NASDAQ: ARNA  ) anxiously awaits finalization of scheduling for Belviq by the slow-moving U.S. Drug Enforcement Administration. But the biggest wait of all belongs to Orexigen Therapeutics (NASDAQ: OREX  ) . Here's the latest on the waiting game for the third potential weight-loss drug to hit the market -- Orexigen's Contrave.

In a hurry
After the initial New Drug Application, or NDA, for Contrave was not approved by the U.S. Food and Drug Administration, Orexigen hurried to move forward with the cardiovascular study needed to satisfy the FDA. The company launched this additional research, called the Light Study, in June. By early July, Orexigen announced that enrollment was going much faster than initially expected and could wrap up in first quarter of 2013 -- taking around half the time originally anticipated.

That outlook actually proved to be pessimistic. Orexigen completed screening for the Light Study by mid-December, enrolling around 9,000 patients to participate in the study and cutting off more than a year from the initial timetable. The next major milestone for the research will be an interim analysis. That analysis can't occur until 87 or so major adverse cardiovascular events, or MACE, occur with the patients. After the herculean efforts to get the study going so rapidly, Orexigen must now essentially wait for bad things to happen.

In January, the company announced that the resubmission process for the Contrave NDA could be hurried along somewhat. The FDA will allow a summary report from the Light Study interim analysis to be used with the NDA in lieu of a complete report. While the complete clinical study report will be required within 60 days of the resubmission, this decision cuts time out of the process.

How long will the waiting game take? Orexigen says that plans are to submit the NDA again by the end of this year. However, company executives have hedged in recent comments, stating that this time frame could be pushed back to early 2014 if the MACE rate is on the low end of the target 1% to 2% range.

Late to the game?
A key question for investors looking at Orexigen relates to how successful Contrave can be as a late entrant to the obesity drug market. With Qsymia already on the market and Belviq likely to launch in the U.S. any day now, will Contrave be too late to the game? The answer is: "It depends."

If Arena and VIVUS manage to achieve tremendous success and develop great patient and prescriber loyalty for their drugs, Contrave could face an uphill battle to gain a foothold. VIVUS recently introduced promotions that appear to be designed to attract and hold on to customers in anticipation of near-term competition from Belviq. With the earliest possible commercial launch of Contrave still over a year away, Orexigen's late arrival could be a significant handicap.

On the other hand, others point to factors that they think will differentiate Contrave and allow it to achieve success despite the slower start. If the Light Study goes as well as supporters hope it will, Orexigen will have solid clinical data to back up the safety claims for Contrave. The company's partnership with Takeda should also help tremendously with the commercial launch. Takeda has committed to call on more than 50,000 physicians assuming that Contrave gains approval. The larger company's experience in the diabetes market should be another big plus.

Foolish take
I don't doubt for a minute that Orexigen executives would much prefer to enjoy the first-mover status held by VIVUS. And I suspect that they would gladly trade the frustration that Arena has experienced with waiting on DEA scheduling in exchange for hitting the market a year earlier. They don't have those options, though, so they're forced to play the hand that they have been dealt.

That hand isn't all that bad in my view. Back in November, Orexigen discussed a physician survey that it commissioned that found plenty of opportunity in the market for multiple obesity drugs. I suspect those findings were on target. I also think that the company's partnership with Takeda will pay dividends. All this assumes, of course, that the Light Study goes well and the FDA ultimately approves Contrave. For now, we continue to wait.

Who will win the obesity drug market?
Can VIVUS pick up its lagging sales and fend off the competition, or will Arena Pharmaceuticals reign supreme in the obesity space before Orexigen joins in the fray? If you're in the dark, grab copies of The Motley Fool's premium research reports on VIVUS and Arena Pharmaceuticals to stay up to date. Senior biotech analyst Brian Orelli gives investors the must-know information, including an in-depth look at the obesity market and reasons to buy and sell both stocks. Click now for an exclusive look at�Arena�and�VIVUS -- complete with a full year of free updates -- today.

5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Sure, Tuesday's report on durable goods in this country is showing that orders spiked 5.7%; but it's not as rosy as it seems. Larger orders for commercial aircraft padded the results. Back out transportation, and the metric actually fell 0.5% for the month.

The news isn't just iffy on the macro level. There are also more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.


Latest Quarter EPS (Estimated)

Year-Ago Quarter EPS

Bona Films (NASDAQ: BONA  )



Team (NYSE: TISI  )



International Speedway (NASDAQ: ISCA  )






Xyratex (NASDAQ: XRTX  )



Source: Thomson Reuters.

Clearing the table
Let's start at the top with Bona Films.

The Beijing-based film distributor has been one of China's most-neglected stocks. The regional movie distributor went public at $8.50 three years ago, but it has never traded out of the single digits.

Some will argue that Bona has made its own bed. It has been profitable every single quarter in its brief public tenure, but the company has also missed Wall Street's profit targets in each of the four previous periods. It's hard to fathom that unwelcome streak coming to an end when Bona reports on Monday. Despite China's growing appetite for theatrical entertainment, Bona's been a disappointment.

Team was a losing team after hosing down its guidance earlier this month. The provider of specialty industrial services warned that weakness at its Canadian and European business units, and the timing of large turnaround projects, find it scaling back on its expectations for its fiscal year ending in May.

Team now sees a fiscal year profit of $1.70 a share to $1.85 a share, with $705 million to $720 million in revenue. The third quarter -- the one that Team will be reporting on come Tuesday -- is seasonally a weak period, but the international weakness will sting this time around. Team is now targeting break-even results, well short of the $0.10 a share that it rang up a year earlier.

Some analysts have yet to update their projections, explaining why Team's average estimate is at $0.03 a share instead of closer to the likely goose egg on the bottom line.

International Speedway is the motorsports promoter behind some of the more iconic race tracks, including Daytona and Talladega.

The promoter made news for the wrong reason last month. A horrific multi-car crash during the final lap of the Nationwide Series race the day before the legendary Daytona 500 injured several spectators, after debris from the race car of Kyle Larson flew into the stands.

The company may address fan safety concerns, or any negative attendance trends since the tragic event took place, but the reason International Speedway makes the cut in this column is that analysts see it posting slightly lower earnings than it did a year earlier on flat revenue.

WD-40 naturally makes the namesake lubricant that's versatile for its countless applications. The company's product portfolio of cleansers and cleaners includes Lava industrial-strength soap, X-14 bathroom cleaners, and Carpet Fresh odor neutralizer.

Wall Street sees WD-40's profitability slipping 14% on a per-share basis and, unfortunately, the company has fallen short of bottom-line forecasts in two of the past three quarters.

Finally we have Xyratex. The provider of enterprise data storage solutions had posted just a single quarterly deficit in the three previous years before posting a loss in its most recent quarter. The market's braced for another quarter of red ink.

Xyratex rewarded investors late last year with a meaty $2 per share one-time dividend, but shareholders suffering through the losses now may be wondering if their patience will be rewarded this time around. The stock is actually trading higher so far through 2013, but eventually, the fundamentals will have to follow suit.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "Three Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of.�Click here now�to keep reading.

US Hotel Market Improving

New reports indicate the U.S. hotel property sector is gaining momentum, but only for those with enough capital to keep skin in the game. Hotel developers comment that it’s a very good time to be in the business, although pitfalls await for those who are light on capital. Tougher immigration laws are making it tougher to find skilled labor and government requirements for more eco-friendly buildings are making development more expensive. Lumber and other commodities are also getting more expensive, which adds to costs that some subcontractors can’t afford. That means lapses in work, and some developers who work without surety bonds could find themselves in hot water. For more on this continue reading the following article from National Real Estate Investor.

Hotel construction is on the upswing, with rising demand and low supply, but developers are worried about construction costs and labor scarcities, according to panelists at a conference on hotel development at last week’s Hunter Hotel Investment Conference in Atlanta.

“It’s a better time to be a hotel developer today than any time in my career,” said Bob Sonnenblick, chairman of Sonnenblick Development LLC of Pacific Palisades, Calif. Competition from developing apartments is gone, and he said “cities are dying for bed tax.”

Sonnenblick said he recently approached municipal officials in Palm Springs, Calif., pitching a project this way: either let this piece of property stay vacant, or do a deal with us and earn half of a bed tax for the next 30 years, and we’ll create 300 jobs. Municipalities are much more receptive to hotel developers, he said.

“Somebody turned a switch on last few months, and projects that had been stagnant are getting going,” said Jeff Jernigan, president of Pinkerton & Laws, of Marietta, Ga. His company has been a general contractor for 58 years, and just started their 250th hotel project, a 200-room Westin.

But spikes in lumber prices are driving up the cost of construction, Jernigan said. Lumber prices went from $250 for a thousand board ft. to $405 per thousand, a 43 percent increase in the last three months. Jernigan said the “wait it out” strategy, waiting for prices to fall, doesn’t look promising.

“And we’re not only dealing with commodities,” said Jernigan. “Our biggest problem is labor. There is such shrinkage on the labor side, we just don't have capacity.”

Tougher immigration laws in Arizona, Georgia and Alabama have chased some skilled laborers away, creating net negative migration, said Jernigan. One of his good workers, with legal immigration status, begged him: “Please don't send me to Alabama.” Other skilled laborers have been drawn away to lucrative jobs in the oil field.

The last year has been the highest year for subcontracting failures, Jernigan said. A glass contractor who had done one-third of Jernigan’s work went out of business last week. “He was just exhausted. He had nothing left in the tank capital-wise.”

“This is a tricky year,” said Jernigan. “Most of these guys are undercapitalized and don't have people.”

“Anybody that was building without surety bonds has got to be out of his mind,” said Sonnenblick. “If some subcontractor has a problem on another job,” could mean financial disaster on a deal without surety bonds. “Everybody should be using surety bonds on every deal,” he said.

New building codes requiring more energy efficient buildings are proving troublesome, said Jernigan. He described problems getting code enforcers to accept the use of exterior insulation and finishing system (EIFS), as well as another instance in which he was required to add ductwork to each room, requiring added framing to each floor. “They are ugly surprises. We’re looking at another $300,000 whammy from this code issue,” complained Jernigan.

California and New York remain difficult markets in which to develop, said Gerry Chase, president and COO of New Castle Hotels & Resorts of Shelton, Conn., due to government regulations. “If anything, development is getting more difficult. Those that have the patience to work the deal will find they have a pretty successful project.” Chase’s company has 27 hotels on the east coast and Canada.

Financing is available from a variety of sources, but lenders will be cautious. Doug Artusio, chairman and CEO of Dellisart LLC, of Roswell, Ga. said some projects are being financed with industrial revenue bonds, enabling developers to get tax-free financing from the bank. Developers may be able to develop deals to avoid property tax for up to 20 years. Some hotels are also using USDA-backed financing, but those loans are not available in all areas, and can be complicated to get.

S. Jay Patel, president and CEO of the North Point Hospitality Group, Inc., of Atlanta, recommended taking a potential project to several lenders. “Bankers are like tires,” Patel quipped. “You’ve got to always have a spare one in the trunk.” He says his company likes projects worth between $30 million and $35 million that are in the mid-11s in financing, with 30 percent to 35 percent equity.

Getting a hotel brand to back a project is critical to financing, Sonnenblick said. “It’s virtually impossible to get financing without a brand on board.”

Chase said hotel projects can get some financing in select service-type projects, but it must be a “good project, well located, somewhere the brand wants their flag to be located.”

But Patel complained that financing support from franchisers’ has been “close to zero” in his company.

“I know there are incentives, and there is key money out there to help finance a project,” said Patel. “But the brands we do business with, we have been unsuccessful with getting any financing from them.

Sonnenblick said that “if you have a really sexy project, you could pull 3-4 percent key money,” which will help get a project financed.

“Don't be afraid to ask, ‘how can you help me?’” advised Sonnenblick. “If we're not doing deals, they are not getting deals.”

“The message is be creative, be patient, and have your package compete, and good projects will get done,” said Artusio.

Something Worth Watching at Charm Communications

There's no foolproof way to know the future for Charm Communications (Nasdaq: CHRM  ) 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 Charm Communications 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 Charm Communications 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. Charm Communications's latest average DSO stands at 216.0 days, and the end-of-quarter figure is 175.6 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 Charm Communications look like it might miss its numbers in the next quarter or two?

The numbers don't paint a clear picture. For the last fully reported fiscal quarter, Charm Communications's year-over-year revenue shrank 41.3%, and its AR dropped 34.0%. That looks ok, but end-of-quarter DSO increased 12.5% over the prior-year quarter. It was down 29.0% 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 Charm Communications? 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 Charm Communications to My Watchlist.

Barclays Adds 14 Advisors With $4 Billion in Assets From Merrill, UBS and Other BDs

Barclays Wealth said Thursday that it hired 14 advisors with about $4 billion in total assets under management in New York, Miami, San Francisco, Los Angeles and Boston.  The new investment reps join from Merrill Lynch, UBS, JP Morgan, UBS, HSBC, Credit Suisse, Northern Trust and Thomas Weisel Partners.

“The addition of these outstanding teams underscores our commitment to growing through high performing Investment Representatives,” said Mitch Cox, head of Barclays Wealth, Americas, and head of research and investments globally for the firm, in a press release. 

"The combination of deep wealth management expertise, a growing business, and direct access for clients to the world-class resources of Barclays globally is compelling for many seasoned advisors who serve the needs of high net worth individuals and families," explained Cox, a former Merrill Lynch executive.

In New York, Steven Sweetwood joins Barclays Wealth from JP Morgan, while Robert Meenan and Shlomi Yedid come on board from Merrill Lynch.

The three new Barclays Wealth advisors will report to Mark Stevenson, regional manager for the New York office.

In Miami, Louis Tinoco joins Barclays Wealth from UBS, while Ruben Lesmes joins the firm from HSBC. They will report to Marilyn Gonzalez, regional manager for Miami.

In San Francisco, Alex Witherill and Matt Hodus come on board from Credit Suisse.

Also joining the Northern California team are Christopher Bender, John Show and Peter Kong, joining from Thomas Weisel Partners.

All five new San Francisco-based investment representatives report to Doug Ireland, the area’s regional manager.

In Los Angeles, Ron Jacoby joins Barclays Wealth from JP Morgan, while Larry Roth and Gerald Gallagherare hired from Northern Trust. The three report to Brian Sears, regional manager for Los Angeles.

In Boston, Joel Beeders joins Barclays Wealth from Merrill Lynch.

 “We are delighted to welcome these highly experienced professionals to Barclays Wealth,” said Steve Houston, who oversees the regional offices and investment representatives as head of wealth management for the Americas, in a press release.

With more than 250 advisors or investment reps in 14 offices across the U.S. and Latin America with some $255 billion in assets under management, including its trust office in Delaware, Barclays Wealth in the Americas aims to provide comprehensive wealth management to high net worth individuals and families.

Top Stocks To Buy For 3/29/2013-5

Kraft Foods Inc. (NYSE:KFT) achieved its new 52 week high price of $35.47 where it was opened at $34.92 UP 0.40 points or +1.15% by closing at $35.23. KFT transacted shares during the day were over 8.87 million shares however it has an average volume of 8.67 million shares.

KFT has a market capitalization $61.93 billion and an enterprise value at $89.04 billion. Trailing twelve months price to sales ratio of the stock was 1.21 while price to book ratio in most recent quarter was 1.64. In profitability ratios, net profit margin in past twelve months appeared at 6.00% whereas operating profit margin for the same period at 13.56%.

The company made a return on asset of 4.41% in past twelve months and return on equity of 8.47% for similar period. In the period of trailing 12 months it generated revenue amounted to $50.64 billion gaining $28.84 revenue per share. Its year over year, quarterly growth of revenue was 11.10% holding -57.60% quarterly earnings growth.

According to preceding quarter balance sheet results, the company had $2.24 billion cash in hand making cash per share at 1.28. The total of $30.06 billion debt was there putting a total debt to equity ratio 80.17. Moreover its current ratio according to same quarter results was 0.89 and book value per share was 21.26.

Looking at the trading information, the stock price history displayed that its S&P500 52 Week Change illustrated 28.55% where the stock current price exhibited up beat from its 50 day moving average price of $34.55 and remained above from its 200 Day Moving Average price of $32.46.

KFT holds 1.76 billion outstanding shares with 1.65 billion floating shares where insider possessed 0.05% and institutions kept 74.00%.

Is Amgen a Cash King?

As an investor, it pays to follow the cash. If you figure out how a company moves its money, you might eventually find some of that cash flowing into your pockets.

In this series, we'll highlight four companies in an industry, and compare their "cash king margins" over time, trying to determine which has the greatest likelihood of putting cash back in your pocket. After all, a company can pay dividends and buy back stock only after it's actually received cash -- not just when it books those accounting figments known as "profits."

Today, let's look at Amgen (NASDAQ: AMGN  ) and three of its peers.

The cash king margin
Looking at a company's cash flow statement can help you determine whether its free cash flow actually backs up its reported profit. Companies that can create 10% or more free cash flow from their revenue can be powerful compounding machines for your portfolio. A sustained high cash king margin can be a good predictor of long-term stock returns.

To find the cash king margin, divide the free cash flow from the cash flow statement by sales:

Cash king margin = Free cash flow / sales

Let's take McDonald's as an example. In the four quarters ending in December, the restaurateur generated $6.97 billion in operating cash flow. It invested about $3.05 billion in property, plant, and equipment. To calculate free cash flow, subtract McDonald's investment from its operating cash flow. That leaves us with $3.92 billion in free cash flow, which the company can save for future expenditures or distribute to shareholders.

Taking McDonald's sales of $25.5 billion over the same period, we can figure that the company has a cash king margin of about 14% -- a nice high number. In other words, for every dollar of sales, McDonald's produces $0.14 in free cash.

Ideally, we'd like to see the cash king margin top 10%. The best blue chips can notch numbers greater than 20%, making them true cash dynamos. But some businesses, including many types of retailing, just can't sustain such margins.

We're also looking for companies that can consistently increase their margins over time, which indicates that their competitive position is improving. Erratic swings in margins could signal a deteriorating business, or perhaps some financial skullduggery; you'll have to dig deeper to discover the reason.

Four companies
Here are the cash king margins for four industry peers over a few periods.


Cash King Margin (TTM)

1 Year Ago

3 Years Ago

5 Years Ago






Biogen Idec (NASDAQ: BIIB  )





Gilead Sciences (NASDAQ: GILD  )





AstraZeneca (NYSE: AZN  )





Source: S&P Capital IQ.

All of these companies far surpass our 10% threshold, with Amgen offering more than three times our desired 10%. However, Amgen has seen its margins fluctuate significantly over the past five years, with current margins more than nine percentage points lower than they were three years ago. Biogen is close behind Amgen, with margins at nearly 30%. Like Amgen, Biogen has seen some fluctuation in its margins, but its current margins are more than 6 percentage points higher than they were five years ago. Gilead is right behind Biogen, offering margins of nearly 29%. However, its current margins are the lowest they have been in the periods here. AstraZeneca's margins are several percentage points behind the rest of the listed companies, but are still more than double our desired 10%. Also, aside from a spike in its margins 3 years ago, the fluctuation of its margins has been pretty narrow.

Amgen has managed to offer a wide range of products treating illnesses as diverse as arthritis, cancer, and psoriasis. It also has some promising drugs in its pipeline, and its recent acquisition of deCODE Genetics may allow it to take the lead in providing personalized medicine options based on patients' genetic codes. However, Amgen has taken a hit from competition put up by Teva Pharmaceuticals and companies outside the U.S. that have developed biosimilar drugs that compete with some of Amgen's offerings, including its Neulasta/Neupogen treatment system, which battles the side-effects of chemotherapy.

Biogen got some good news last week when the EU's drug regulatory agency recommended approval of its MS treatment drug Tecfidera. Also, Biogen expects an approval decision for the drug from the FDA later this week.

Gilead Sciences'�acquisition of Pharmasset last year poised the company to dominate the market for hepatitis C treatments after Bristol-Myers Squibb and Idenix Pharmaceuticals faced major setbacks from introducing their own hep-C drugs into the market.

AstraZeneca has suffered from the loss of its patent on Seroquel, which treats schizophrenia. In addition, the company lacks a strong pipeline of drugs that could offer hope of replacing the revenue lost due to its expired patent on Seroquel, and the upcoming loss of revenue that will likely occur when the patents expire on its Nexium and Crestor drugs.

The cash king margin can help you find highly profitable businesses, but it should only be the start of your search. The ratio does have its limits, especially for fast-growing small businesses. Many such companies reinvest all of their cash flow into growing the business, leaving them little or no free cash -- but that doesn't necessarily make them poor investments. Conversely, the formula works better for slower-growing blue chips. You'll need to look closer to determine exactly how a company is using its cash.

Still, if you can cut through the earnings headlines to follow the cash instead, you might be on the path toward seriously great investments.

While you can certainly make huge gains in biotech and pharmaceuticals, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of.�Click here now�to keep reading.

The Truth About Why Most People Only Buy One Mobile Home Park

Lays potato chips used to have a slogan: “bet you can’t eat just one.” Mobile home parks don't seem to have that in common with potato chips. In fact, most mobile home park owners only own one park. If mobile home parks are so successful, then why do most owners not venture beyond that first property? The answer is because mobile home parks are sometimes too successful for their own good.

A good mobile home park has no equal in real estate

We buy mobile home parks all the time at 10% cap rates. When you put a 70% loan-to-value debt instrument on that park, the cash-on-cash return will typically come out in the high teens. That sounds great, right? But that’s only half the story. The other half is that mobile home park acquisitions normally have some built in profit drivers that allow you to significantly boost the income day from one. The most common of these are raising rents and cutting costs – and they cost almost nothing to put into play. Due to the large scale of mobile home parks – with sometimes 50 to 250 income units – small improvements in operation can pay huge dividends.

Raising rent

It is surprising how many mobile home parks are significantly under market with their rents. The reason is that the mostly mom & pop owners lose interest in the business over time, and just leave rents at the level where they lost interest.  How far down can they be? I bought a park in Grapevine, Texas that had $100 lot rent when every other park in the market was at $325. That’s 325% more. You never see those type of situations in other real estate asset classes. Equally importantly, it costs $3,000 to $5,000 to move a mobile home (if they structurally can be moved at all) so the customer can do nothing but accept the rent increase. In the case of Grapevine, I increased the rent after closing on the deal, to $275 – and I did not lose a single customer.

If you found a park that was only $50 per month under market in lot rent (which is pretty common) and the park had 100 lots (which is also pretty common) then the increase in cash flow from that simple change would be $60,000 per year. And it only costs 50 cents per lot to raise rents; basically, the cost of a stamp to send the notice.

Cutting Costs

The number one way to increase the net income in most parks is to replace the manager. Why? Because at the same time that mom & pop lost interest in raising the rent, they also lost interest in watching over what they were paying the manager. Although the going-in salary was probably fair (maybe $18,000 per year) when you give 10% annual raises and later add on free health insurance, it’s not unusual to find managers making $50,000 to $100,000 per year. You can find a million manager candidates out there for $20,000 per year or less. So this one step normally nets the new park owner $30,000 to $80,000 per year in additional cash flow. And it’s free – you just fire the existing manager.

Putting it all together

So if you bought a park at a 10% cap rate and had a high teen cash-on-cash return, that would mean that you have cash flow after debt payment. That’s good. But then you add on $100,000+ per year in additional cash flow in rent raising and cost cutting, and that’s phenomenal. And the giant cash flow seen from the first mobile home park is what causes many owners to settle, as they don't see the need to add additional time, effort or risk to their portfolio.


Lays potato chips taste great, and I’m more than happy to eat an entire bag if you open one up. But mobile home parks aren’t like Lay’s potato chips. Most people who buy a mobile home park for financial security end up with more than they had hoped for, choosing then to sit around and eat Lays rather than buying more parks. And I might, too, if you add in French onion dip.

Thursday, March 28, 2013

Make Money in Recovering Solar Stocks -- the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some solar-energy-related stocks to your portfolio, the Guggenheim Solar ETF (NYSEMKT: TAN  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is 0.70%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed poorly, losing to the world market over the past three years. These have been some hard years for solar companies, though, and as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why solar?
Interest in alternative energies has been around for a long time, but it seems to finally be gaining some traction. The solar energy industry has taken a beating lately, though, but that just leaves some investors finding it more attractive than it was before.

Relatively few solar-energy-related companies had strong performances over the past year.

MEMC Electronic Materials (NYSE: WFR  ) , the second-largest U.S. polysilicon maker, bucked the trend, rising 12%. It recently announced plans to change its name to SunEdison, and warned of price weakness in 2013, sending its shares down sharply. The company will also focus on financing.

Power-One (NASDAQ: PWER  ) sank by 18%, as some see its inverters becoming commoditized, despite being quite efficient. Its net income has fallen recently, but it's free-cash-flow positive and is expanding globally, poised to benefit as the industry heats up. It looks like a bargain to some, with improved market share, financial results, and demand.

GT Advanced Technologies (NASDAQ: GTAT  ) plunged 63%, hurt by oversupply in the industry. Its emerging HiCz technology is promising, though, and may make solar even more efficient and cost effective. To some, the long-term prospects for GT Advanced are solid and the stock seems undervalued. Meanwhile, the company is also�diversifying into sapphire technology,�which might supplant Corning's�Gorilla Glass in mobile devices..

New to market is SolarCity (NASDAQ: SCTY  ) , which had its IPO late last year. Bulls are intrigued by its disruptive possibilities, helping consumers bypass traditional utility companies with its solar offerings, and also partnering with major entities such carmakers and Wal-Mart (NYSE: WMT  ) to provide solar technology. However, it's not profitable, and its expenses are high.

The big picture
Demand for solar energy is likely to grow. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

If you don't think the time is quite right for solar energy, look into the smartphone industry. With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand-new premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy.

Top Stocks For 3/28/2013-17

SavWatt USA, Inc. (PINK:SAVW), pioneers in LED lighting and the Green revolution, recently released that their first product has been approved and received Lighting Facts� Certification by the U.S. Department of Energy. As innovative LED lighting products emerge, the facts about LED lighting performance must hit the market with equal speed. Clear labeling on lighting performance is the critical link between innovation and successful market introduction. Lighting Facts� showcases LED luminaire manufacturers who commit to testing products and reporting performance results according to industry standards. For lighting buyers, designers, and energy efficiency programs, the Lighting Facts label provides information essential to evaluating products and identifying the best options.

Michael Haug, CEO of SavWatt, commented, “This is a proud and exciting moment for SavWatt, having Lighting Facts certification means we are one of the few companies that meet the U.S. Department of Energy standards. This endorsement means SavWatt’s Brand has the quality and performance American consumers demand.”

SavWatt is leading the LED lighting revolution and setting the stage to obsolete the incandescent light bulb through the use of energy-efficient, environmentally friendly LED lighting. SavWatt is a market-leading innovator of LED lighting. SavWatt’s product families include LED fixtures, bulbs, Street Lights and Parking Lights.


PTS, Inc. (OTCBB:PTSH) revealed that through its ThinLine division has signed a 3-year Voice Over Internet Protocol (VOIP) contract with MC Universal Art. MC Universal Art has been designing and installing quality framed art for over 30 years. They are a leading provider of wholesale and retail art frames, fine art prints, signed limited additions, as well as providing interior design consulting services. MC Universal Art works with leading interior designers, architects, and office furniture dealers – they help their wholesale clients achieve an environment that drives the image and identity they want to project for customers.

“We were looking for a company that had VOIP expertise but also had the IT expertise to install, manage and scale our telecommunications infrastructure”, said Macky Pannu CEO of MC Universal Art. “ThinLine met all of our criteria and we look forward to growing our services with them in the future,” added Macky Pannu.

MC Universal Art is expanding its office and manufacturing infrastructure and required a scalable communications system that can handle their growth without effecting customer service. They also had a need to insure that their IT architecture would not be impacted with their communication upgrade.

“I am impressed with MC Universal Art. They have a world class company and I am excited to have the opportunity to work with Macky and his team,” said Raj Kalra CEO of PTS, Inc. “Our VOIP product will work perfectly to meet their existing demand, and will allow them to grow as quickly as they need so they can scale to keep up with their growth,” added Raj Kalra.


Financial Engines (NASDAQ:FNGN), the leading independent provider of investment management and advice to employees in retirement plans, recently reported financial results for its third quarter ended September 30, 2010. Revenue increased 31% to $28.8 million for the third quarter of 2010 from $22.0 million for the third quarter of 2009.

Financial Engines, Inc. and its subsidiaries provide independent, technology-enabled portfolio management services, investment advice, and retirement help to participants in employer-sponsored defined contribution plans, such as 401(k) plans.


RADA Electronic Industries Ltd. (NASDAQ:RADA) recently announced that it has signed a contract for avionics installation design, valued at over $4.7 million. This contract is part of an upgrade program for fighter aircraft run by a South American customer, a program for which RADA also supplies various avionics units. Under this contract, RADA will design the installation of all upgraded units in the aircraft as well as support the customer in the implementation of these upgrades.

RADA Electronic Industries Ltd. is an Israel based defense electronics contractor.


Mama is talented in so many ways; she cooks, gardens, crafts and now cares for little ones! Majesco Entertainment Company (NASDAQ:COOL), an innovative provider of video games for the mass market, has just announced the availability of Babysitting Mama exclusively for Wii at major retailers nationwide.

Majesco Entertainment Company provides interactive entertainment products primarily in the United States and Europe.

U.S. Oil, Gas Rigs Down by 6 This Week

HOUSTON (AP) -- The number of rigs actively exploring for oil and natural gas in the U.S. fell this week by six, to 1,811.

Texas-based oilfield services company Baker Hughes (NYSE: BHI  ) reported Friday that 1,386 rigs were exploring for oil and 424 were searching for gas. One was listed as miscellaneous. A year ago, Baker Hughes counted 1,993 rigs.

Of the major oil- and gas-producing states, Texas gained two rigs.

New Mexico, North Dakota, and Wyoming each lost two rigs, while Colorado, Louisiana, and West Virginia each lost one. Alaska, Arkansas, California, Oklahoma, and Pennsylvania were unchanged.

The rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Dow Drops 216 Points; Worst Day Since November

The Dow Jones Industrial Average lost 216.4 points today, about 1.55% — its largest fall since Nov. 7. At one stage the benchmark was up 81 points; the intraday trading range of about 297 points was the largest since Jan. 2. The Dow crossed zero 19 times today. Just three of the 30 stocks rose: McDonald’s (MCD), up 0.9%, Verizon Communications (VZ), up 0.7%, and Wal-Mart Stores (WMT), which rose 0.06%.

The Dow closed at 13,784.17, its lowest level since Jan. 23. Much of the loss came in the late afternoon, perhaps as the reality of Italy’s election results (and what they mean for the euro and, by extension, the global economy) came into sharper focus, as well as the growing awareness that the budget sequester is likely to kick in on March 1.

The Standard & Poor’s 500 also fell sharply, losing 1.83% to close at 1,487.85. Today was also the S&P’s largest fall since Nov. 7; the index closed at its lowest level since Jan. 18.

The Russell 2000 index saw the biggest drop of the three, down 2.22% to close at 895.84. Again, it was the largest fall since Nov. 7, and the lowest close since Jan. 18.

Utilities: From Hero to Villain?

I�ve written a couple of articles here on InvestorPlace highlighting the strength the utilities sector started exhibiting in early April, which is around the time I began arguing in my various writings online that a �mini-correction� was likely.

I have maintained a consistent belief that 2012 could play out like 2003 and 2009 in terms of being a year of reflation, and the most recent spike upwards in risk assets seems to confirm that this is a very real possibility.

Despite a powerful negative narrative and the fear that the bond market has expressed through panic low yields, year-to-date, the S&P 500 Index is as of this writing up over 6%.

In many ways this seems shocking as the �mini-correction� has felt much worse than it actually was. I have argued in various interviews (which can be seen at that resiliency is a key component of a bull market. If investors begin to wake up to this fact, then the utilities sector, which has performed quite strongly in the last two months, goes from being a sector to hide in to being a sector to flee from.

Take a look below at the price ratio of the iShares Dow Jones US Utilities ETF (NYSE:IDU) relative to the Dow Jones Industrial Average (DIA). As a reminder, a rising price ratio means the numerator/DIA is outperforming (up more/down less) the denominator/DIA.Click to Enlarge

Notice the strong period of strength utilities exhibited on the far right of the chart. I have drawn in what has historically acted as a �ratio resistance� line, after which stocks tend to perform better as fear subsides and money favors more aggressive sectors.

I suspect a period of renewed weakness in utilities is at hand given that it has outperformed so strongly despite equities holding up well and in the face of very bearish news and sentiment.

Utilities were in many ways a hero sector to stand behind, but every now and then the hero turns to heel and betrays those who had believed in the (bearish) story the most.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Has Target Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock and then decide whether Target (NYSE: TGT  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Moneymaking opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Target.


What We Want to See


Pass or Fail?


5-year annual revenue growth > 15%



1-year revenue growth > 12%




Gross margin > 35%



Net margin > 15%



Balance sheet

Debt to equity < 50%



Current ratio > 1.3




Return on equity > 15%




Normalized P/E < 20




Current yield > 2%



5-year dividend growth > 10%



Total score

4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Target last year, the company has kept its four-point score for the third year in a row. The stock, though, has managed to climb higher, rising about 20% over the past year.

Target's success comes from straddling multiple segments of the retail industry. Although its prices offer a discount-retail feel, the company has collaborated with major fashion moguls to produce custom lines of merchandise that draw a lot of buzz and pull shoppers into its stores.

Yet Target is seeing competition on that innovative model. A recent partnership between Nordstrom (NYSE: JWN  ) and online marketplace Etsy will bring unique products into Nordstrom stores, differentiating the upscale retailer and potentially attracting younger customers who are already familiar with Etsy.

Target is looking to greener pastures to try to find new growth. With a planned push into Canada, the company is hoping to take on Wal-Mart (NYSE: WMT  ) on foreign soil. Wal-Mart has had substantial success in the Great White North, but Target hopes to take away some of the gains that Wal-Mart has gotten by opening more than 100 stores throughout the remainder of 2013.

Earlier this month, Target also turned to Canadian bank Toronto-Dominion (NYSE: TD  ) in a deal to sell Target's lucrative consumer credit card business. TD Bank was willing to pay $5.7 billion for the business, with Target earnings nearly a $400 million profit on the transaction. Target will still have to service the card accounts, but the move allows Target to focus more on its retail operations.

For Target to improve, it needs to stay aware of competitive trends and seek to stay one step ahead of its rivals. Its best chance at getting closer to perfection is to work on improving its balance sheet, which is eminently doable if it can generate the growth it expects.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

If individual stocks aren't for you, learn more about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy. Just check out The Motley Fool's special free report "3 ETFs Set to Soar During the Recovery." It can be yours free just by clicking here now.

Click here to add Target to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Why We Still Prefer Equities Over Bonds And Dollars Over Euros

By Simon Lack

Barron's has a couple of interesting articles this weekend. They lead with "Buckle Up" and make the case for equities by highlighting the very wide equity risk premium (the S&P 500 earnings yield of 8% minus the yield on ten-year treasuries of 2%) something we've also noted in the past. This spread is historically wide and, it can be argued, makes a compelling case for stocks. What seems more clear is that the spread will narrow but that could just as easily be through bond yields rising. We do think equities represent an attractive long-term investment but we are more sure that bonds do not. Public policy in the U.S. is to effect a transfer of real wealth from savers to borrowers, so while stocks look attractive bonds look positively ugly.

Of course, noting that bond yields are low and can only really move up is scarcely a contrarian view. Randall Forsyth notes in Barron's a solid agreement among forecasters that bond yields will be higher a year from now. While it makes a great deal of sense, presumably the Federal Reserve will respond to higher yields by increasing its purchases unless rising yields are accompanied by an upside surprise in GDP growth. They're likely to maintain negative real rates of return for a considerable time.

A hedge fund, QB Asset Management, forecasts "face-ripping inflation", a term likely to catch your attention. The output gap (such as the difference between current unemployment and the natural rate) seems too high for that - there still appears to be plenty of excess capacity in the labor force. It's hard to see how inflation (at least as measured by the Bureau of Labor Statistics) can take off when so many people are available to be employed. QB could be right, but it hasn't happened so far and without an increase in money velocity the jump in money supply isn't likely to become inflationary. But similar to the wide equity risk premium, while low current inflation may persist it's not worth betting on a continuation of the status quo.

Shorting euros is another crowded trade. It's just hard to see how any of the solutions on offer will promote growth within the region. The Real GDP differential is likely to be 2.5% next year in favor of the U.S. European governments are following pro-cyclical policies during a time of slowing growth. The euro has weakened in recent weeks but really ought to be far lower. However, we run this risk in our hedge fund in combination with long equities from a number of different trades. We think the euro will depreciate, but if we're wrong it'll most likely be in a scenario that is good for stocks. Borrowing euros to buy U.S. equities represents an attractive opportunity. Mike Platt, co-founder of BlueCrest, a global macro hedge fund, offered a most dire outlook on Europe and its banks. BlueCrest is one of the most successful hedge funds around, and the TV interview is worth a look. Platt is frustratingly vague about how he's positioning for what he expects will be a continued deterioration but leaves little doubt about his overall view. If European banks valued their positions the way hedge funds have to they'd all be declared insolvent. I can't really see why anyone would lend anybody in Europe any money, except perhaps in Germany and the UK.

Finally, I'd note that JPMorgan issued revised valuation estimates for large cap E&P names. Devon Energy (DVN) remains one of the largest positions in our Deep Value Equity Strategy, trading at close to the value of its proved reserves. The continued shift from natural gas to oil production in the U.S. in response to relative pricing should work to Devon's advantage given its asset mix.

Disclosure: I am long SPY, EUO, DVN.

Wednesday, March 27, 2013

Fitch Cuts Portugal’s Sovereign Debt Rating to Junk Level

Increasing debt levels and a foundering economy were the reasons Fitch Ratings cited on Thursday for cutting Portugal’s credit rating to junk. This was after Standard & Poor’s boosted Iceland’s credit rating outlook from negative to stable on Wednesday, as the country’s growth after its financial meltdown in 2008 brought it to the next step in its recovery.

Bloomberg reported that Fitch dropped Portugal to BBB- from BB+, with a negative outlook; the country’s 10-year bonds fell after the announcement, with yields increasing 16 basis points in early trading Wednesday. The Portuguese economy is expected to shrink by 3% next year, the only euro zone economy that the European Commission has predicted will shrink, besides Greece.

In making its ratings cut, Fitch said in a statement, “The country’s large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign’s credit profile is no longer consistent with an investment grade rating.” Iceland is already rated as junk by Fitch, but S&P ranks it at its lowest investment grade level of BBB-/A-3.

Moody’s had cut Portugal’s sovereign debt rating below investment grade in July, while S&P had cut the country’s rating twice in March.

Iceland’s cheerier outlook was accompanied by an S&P statement that said in part, “Iceland’s economy is recovering from the systemic failure of its three largest banks, and has returned to positive economic growth after two years of severe contraction. Significant headway has been made in restructuring the private-sector balance sheet and we expect the process to be mostly completed by mid-2012.” The ratings agency added that the higher outlook on the BBB- grade “balances our view of Iceland’s improved economic fundamentals with downside risks associated with capital controls being lifted in the next few years.”

Last week Iceland announced that it had recovered sufficiently to move on to the next step in relaxing capital controls that have been in place since its three largest banks defaulted on $85 billion in debt three years ago.

This Midstream Player Is Thinking Ahead

As earnings season comes to a close, we are left to process an awful lot of information. The midstream industry has been particularly interesting to watch, given the state of oil and gas production in North America. Its boom time now, but I can't help but wonder which companies will continue to find success when the boom goes bust. Enbridge (NYSE: ENB  ) is one company that stands out in my mind as being incredibly forward thinking. Today I'll look at three areas where Enbridge is taking the long view: safety, renewables, and international operations.

1. Safety
Safety is number one at Enbridge now, so that's where we'll start. Earlier this year, I spent a fair bit of ink covering the fallout from the National Transportation Safety Board's highly critical report of Enbridge's embarrassing failure that led to a devastating oil spill in the Kalamazoo River in Michigan in 2010. The problem wasn't that an Enbridge pipeline leaked, that will happen, but rather that warnings went unheeded, and Enbridge employees seemed at best incredibly unprepared to execute the appropriate response.

But Enbridge's reaction to the spill on a companywide level will serve it well in the future. Since 2011, the company has been conducting arguably the most thorough integrity management program in the industry. It has carried out 4,300 digs to make inspections. Enbridge has gone as far as using medical imaging technology to take a closer look at its buried assets.

More importantly, Enbridge has started up a new control center and made "significant organizational enhancements," a crucial development given that the excessive volume of the Kalamazoo spill can be attributed to employee's ineptitude in the control room.

Only time will tell how effective Enbridge's new commitment to safety and integrity will be, but at the very least the company is finally giving the subject the attention it deserves. It was one of the few companies to spend any significant time on the topic on its earnings call. As citizen opposition to pipeline projects continues to increase, it will never hurt to be best in class in this area.

2. Renewables
It is easy to see the importance for big oil to diversify assets to include renewable energy sources, but big pipe is getting in on the action as well. For example, Kinder Morgan Energy Partners (NYSE: KMP  ) increased volumes of transported biofuels by 22% last quarter. Enbridge has thrown its hat in the ring, and it has a significant renewable presence.

Believe it or not, Enbridge is actually the largest solar power generator, and the second-largest wind power generator, in Canada. The company owns nine wind farms and four solar farms.

Developing renewable assets is important. As CEO Al Monaco noted in the fourth-quarter earnings release: "We see renewable energy playing an important role in our longer-term strategy of developing a more diversified asset base as we move toward a future energy economy with lower reliance on hydrocarbons."

Our energy future will likely include a variety of sources, and it will be important for midstream companies to diversify operations outside of hydrocarbons. Enbridge is proving it can be done now, and profitably.

3. International operations
In the world of North American pipeline companies, an international presence more or less means operations in the U.S. and Canada. TransCanada (NYSE: TRP  ) does a little work in Mexico, and Kinder Morgan (NYSE: KMI  ) has a few connections at the Mexican border, but that's about it.

Enbridge is one of the few midstream players with true international experience; that is, outside of North America. The company has had operating or ownership projects in Spain, Oman, Venezuela, and Colombia. Though those past projects haven't always gone well in the past, and operating with foreign governments is sometimes easier said than done, there are some excellent opportunities out there and Enbridge is looking to develop that presence once again.

On Enbridge's fourth-quarter conference call, Monaco spoke to the company's vision for international development, highlighting opportunities in Australia, Peru, and Colombia as the most likely places where projects will come to fruition. Monaco stressed that Enbridge will not enter into any project just for the sake of international business, but that it has to be the right project for the company�:

So if we're talking about, obviously, crude oil or gas pipeline, then we would be a strong player. Colombia is probably one where that fits exactly right, good volume growth profile there for oil. And certainly, we have a good opportunity, in that there's a lack of infrastructure, generally, in terms of connecting that crude supply with markets.

That last comment is significant. We have seen in the U.S. just how important pipelines are to domestic oil markets. A lack of infrastructure can wreak havoc on oil prices. As shale oil production increases worldwide, it will be important -- especially in countries that rely heavily on oil to generate money for government operations -- to have sufficient takeaway capacity. That reality provides an excellent opportunity for Enbridge to do business abroad.

Foolish takeaway
I have been very critical of Enbridge in the past, but it is hard to ignore the progress the company is making, particularly with its safety and integrity program, and how it is setting itself up for success in the years to come.

Kinder Morgan is another tremendously diverse midstream company, and one that investors should commit to memory due to its sheer size � it's the third-largest energy company in the U.S. � not to mention its enormous potential for profits. In The Motley Fool's new premium research report on Kinder Morgan, our top energy analyst breaks down the company's growing opportunity, as well as the risks to watch out for, in order to uncover whether it's a buy or a sell. To determine whether this dividend giant is right for your portfolio, simply click here now to claim your copy of this invaluable investor's resource. As an added bonus, you'll receive a full year of key updates and guidance as news develops, so don't miss out!