Saturday, April 20, 2013

The Top-of-the-Class Bakken Producer

In the following video, Motley Fool energy analysts Joel South and Taylor Muckerman look at the bigger picture of what's happening with oil production in the Bakken today, and why Bakken oil sells for dramatically less of a discount to West Texas Intermediate than it did last year. Joel then tells us about Whiting Petroleum (NYSE: WLL  ) , and what the tailwinds are for this company that make it is his favorite player in the Bakken today.

There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations and is poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this company before the market does. Click here to access your report -- it's totally free.

3 Reasons GM's New Buick Riviera Matters

The Buick Riviera concept car was unveiled in Shanghai on Friday night. Photo credit: General Motors Co.

There's a lot that's interesting about General Motors (NYSE: GM  ) new Buick Riviera concept car, and I'm mostly not talking about the way it looks.

Of course, there's no doubt that it's visually very striking. The Riviera Concept, which made its debut at an auto show in Shanghai on Friday night, is a coupe that combines sleek lines with an elegant evolution of the front grille that has become a Buick trademark in recent years.

It'll almost certainly never be put into production – at least not with all of its fanciful show-car details like the huge gull-wing doors. But there are (at least) three things that should make this Riviera quite interesting to those who follow GM's efforts closely.

First, it's not just a fanciful concept
Automakers have presented "concept cars" at auto shows for decades. Often, these have been just flights of fancy, an opportunity for designers to stretch, to play a little.

But as I wrote when GM showed its Cadillac Ciel concept car in 2011, "in the new cost-conscious GM, nothing, not even a fanciful show car, happens without a business case."

I think that's true here, too. The decision to call this car "Riviera" -- a badge worn by famous Buick coupes in the past -- wasn't an accident. While the Riviera (or at least, this Riviera) might not be destined for mass production, GM executives said that it "offers a preview of Buick's future design language."

That's what Ford (NYSE: F  ) said about its Evos concept car in 2012, and already we've seen its striking front-end design and other cues show up in cars like Ford's new Fusion.

2011's Cadillac Ciel concept hinted at the styling of future Cadillacs like the all-new CTS sedan. Photo credit: General Motors.

It's also what the Cadillac folks said about the Ciel two years ago. Elements of the Ciel's striking look are clearly reflected in the new CTS that GM showed last month, and we're likely to see more of those cues if the much-rumored big new Cadillac sedan is revealed.

More to the point, I thought (and still think) that the Ciel was a sort of sanity check for GM management on the idea of taking Cadillac back in the direction of large, opulent cars. I think the Riviera might be another sanity check for GM's management, this time for what they want to do with the Buick brand.

And what's that? Well, I think it has a lot to do with China.

Second, it was unveiled -- and designed -- in Shanghai
While the Buick brand doesn't get a lot of attention here in the U.S. anymore, it's big in China. There are many for that, not least of which is that the last Chinese emperor famously owned two Buicks.

Buicks are regularly among China's top-selling cars, and as GM looks to build on its already-big Chinese presence, it's natural that the Buick brand would have a big role in the company's plans.

But that's not why the Riviera was unveiled in Shanghai. It was unveiled in Shanghai because it was designed there -- by folks at the Shanghai GM joint venture and at GM's Pan Asia Technical Automotive Center in Shanghai.

GM's press release describing the Riviera draws on some very Chinese images, noting that the car's shape "has the vibrant nature of a moving river." Clearly, it was designed with Chinese consumers' tastes in mind.

And I think that's what GM is really saying here: Upcoming new Buicks will draw on the Riviera's design language -- and they will have those Chinese consumers in mind as well.

Third, it's a cool new kind of high-tech hybrid
It's entirely possible that GM will produce a coupe called Riviera in coming years. It's even possible that it will look quite a bit like this show car, though I'd be a little skeptical on that front.

But I'm not skeptical of the possibility that the Riviera's drivetrain technology will find its way into mass production, and not necessarily just in Buicks. If you have any interest in green cars, this is pretty cool: GM has come up with a plug-in hybrid -- a hybrid that can be charged up like an electric car and driven for a while without using any gas -- that doesn't need to be plugged in, though it can be.

Instead, the car recharges via a "sensory recharge panel" on the bottom: You drive it on to a special mat, and the car's batteries recharge wirelessly. Keep the mat in your garage, and you don't even have to think about recharging every night -- it just happens.

That's cool. That should play well in China, where high-tech car features draw lots of attention. And I bet that GM hopes to roll that idea out widely if the company can perfect it -- and not just in China, and not just in Buicks.

Is is time to buy GM stock now?
Few companies lead to such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's even bigger than you might think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.

Pentagon Awards Rockwell Collins $85.2 Million Radio Contract

Should Microsoft Shareholders Begin to Panic Over Falling PC Shipments?

Shares of Microsoft (NASDAQ: MSFT  ) took investors on quite the ride this week, but even though they plummeted more than 4.42% in just one day, they still managed to end the week higher than were they began. Do investors have anything to worry about? Let's take a look.

So what happened?
On Monday, Microsoft dropped by 0.38%, after the company announced that it was selling its IPTV business to Ericsson. The terms and price of the deal weren't disclosed, but it was estimated to sell for somewhere between $100 million and $234 million. The IPTV unit creates software that gives wireless device manufacturers the ability to deliver television signals over the Internet.  

Tuesday came along, and shares were flying high, up 3.57%, with a few analysts crediting Microsoft's attacks on Google (NASDAQ: GOOG  ) for the rise. Microsoft and a number of other technology companies are claiming Google's open-source operating system gives it an unfair advantage over the competition. The main problem is that Google gives its operating system away, and Microsoft, which charges for its operating systems, can't compete. The EU is looking into Microsoft's allegations against Google, but we'll have to wait and see who wins this battle. 

Also on Tuesday, the company announced that it's teaming up with Cisco (NASDAQ: CSCO  ) to help customers reduce complexity while enhancing IT productivity and business agility. The partnership is currently just focused on data centers and how to improve and grow operations in that area of business.  

On Thursday, the IDC released its PC shipment figures for the first quarter of 2013, and they were terrible. Sales dropped 14% in the quarter, while analysts were expecting a decline of only 7.7%. Microsoft tumbled 4.42% on the news and sent the PC manufacturers even further down than that.  

So what now?
Year to date, Microsoft is the sixth worst-performing component of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) during 2013, but based on my colleague John Maxfield's calculations, it's only the 14th most shorted Dow component, which would indicate that although the stock hasn't performed fantastically so far this year, most market participants don't think the stock is going to crash, either. (To see John's full list and how much of each Dow component is sold short, click here.)

Although the current trend clearly indicates that PC sales will probably continue to decline over time, it's clear that as a whole, the market hasn't lost faith in the company yet, and individual shareholders also shouldn't sell at this time.

While the company is best known for its Windows operating system, that's now become just a small piece of the modern-day Microsoft. The company has a number of different revenue streams today:



Operating Income (Loss)




Server and Tools



Online Services



Microsoft Business



Entertainment and Devices






Information found in Microsoft's most recent 10-K (revenue and operating income for three months ending Dec. 31, 2012). Figures in millions.

Futhermore, look at all the different things that changed the stock price this week alone. That alone illustrates how the company has a ton of moving parts and different revenue streams. The management team has taken a company that once just built software and turned it into a technology giant with its fingers in a lot of pies.

So while declining PC shipments are something shareholders should be aware of, it's not the end of the world for Microsoft. Investors should just sit tight and ride this one out.

More Foolish insight on Microsoft
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Friday, April 19, 2013

3 Reasons to Buy AIG

In this video, analyst Matt Koppenheffer outlines three reasons to buy AIG. First, the company is cheap. It currently sells for roughly 0.6 times tangible book value, far less than what it was selling for before the financial crisis. Second, it has made significant progress on turning itself around. It has paid off its government loans, sold off businesses, and restructured its balance sheet and itself to avoid past mistakes. Lastly, insurance is a cyclical market and the past few years have been soft for insurance companies. Right now, there are signs the insurance market is firming up and this should allow AIG to raise prices on its products and improve its profitability.

At the end of last year, AIG was the favorite stock among hedge fund managers. Have they identified the next big multibagger or are the risks facing the insurance giant still too great? In The Motley Fool's premium report on AIG, Financials Bureau Chief Matt Koppenheffer breaks down the key issues that you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you'll also receive a full year of key updates and expert analysis as news continues to develop.

J.C. Penney Blame Game: Bill Ackman Should Be Ashamed

Earlier this month, J.C. Penney (NYSE: JCP  ) fired embattled CEO Ron Johnson, after his plan to reinvent the troubled department store resulted in falling sales and big losses. The week before Johnson's firing, activist investor Bill Ackman -- whose Pershing Square hedge fund is J.C. Penney's top shareholder -- said that there was "too much change too quickly without adequate testing" under Johnson. Last week, after Johnson departed, Ackman leveled a further charge: While Johnson worked hard, he wasn't in the office enough. Ackman believes that Johnson should have relocated from California to Texas, where J.C. Penney is headquartered.

However, if Bill Ackman wants to find someone to blame for J.C. Penney's current troubles, he should probably start by looking in the mirror. First, Ackman encouraged J.C. Penney to deplete its cash on a share buyback program, eventually leading to the company's growing liquidity problems. Next, he recruited Ron Johnson and pushed out the previous -- and recently returned -- CEO, Mike Ullman. Last, he sat on the J.C. Penney board throughout the 2012 sales debacle and provided cover for Ron Johnson throughout the year with frequent bullish assessments of the company's prospects.

Money out the window
Ackman's first mistake after joining the J.C. Penney board in early 2011 was pushing for a big share repurchase program. At the 2010 Value Investing Congress, Ackman opined that J.C. Penney had excess cash that could be returned to shareholders . Accordingly, in the first half of 2011, J.C. Penney bought back 24.4 million shares for $900 million: an average purchase price of $36.98.

This maneuver to "return cash to shareholders" -- spearheaded by Ackman -- has clearly backfired. Based on the recent J.C. Penney stock price, these shares would be worth approximately $370 million, so the company essentially "wasted" more than $500 million. Moreover, J.C. Penney recently drew $850 million from its credit line as it ran short of cash to purchase inventory. With an extra $900 million in the bank, J.C. Penney would have a much stronger liquidity position today.

Bring on the pain
Another reason Ackman probably shouldn't blame J.C. Penney's demise on Ron Johnson is that he was instrumental in hiring Johnson. After Johnson's appointment as CEO was announced, Ackman called him "the Steve Jobs of the retail industry." At last year's Ira Sohn Conference -- after J.C. Penney reported a big loss and a 20% drop in sales for the first quarter -- Ackman defended Johnson, calling him the "best guy to run the company." In the same speech, Ackman highlighted why he thought the dismal first quarter did not spell trouble for J.C. Penney, predicting that shares could be worth $77 even in a downside scenario.

Ackman continued his steadfast support for Ron Johnson throughout 2012 and into early 2013, despite the growing signs that his plan was not working. As a board member, the biggest shareholder, and a prominent investor, Ackman could have used his influence to make changes at J.C. Penney, whether that meant telling Johnson to move to Texas, or insisting that pricing and merchandise strategies be tested before full implementation.

Instead, Ackman used his influence to market Ron Johnson's vision and J.C. Penney stock. As late as November -- after three straight disappointing quarters -- Ackman overlooked the vast negatives in public interviews. He professed confidence in Johnson's leadership, and pointed to high sales in the new shops as proof that the promised J.C. Penney revival was taking hold.

Foolish conclusion
Ron Johnson made a lot of mistakes during his brief tenure at J.C. Penney, even if his vision for the company was smart and innovative. However, Bill Ackman should only blame himself for his hedge fund's losses in J.C. Penney. He encouraged the previous management team to buy back shares, even though he was looking for new management to "transform" the company (a mission that was likely to require significant investment). Ackman then recruited Ron Johnson and gave him firm backing for over a year -- in spite of increasing evidence that Johnson's strategy was not working.

Ackman could have sold his interest in J.C. Penney for a big gain as shares skyrocketed in early 2012. Instead, he blinded himself to J.C. Penney's fundamental deterioration. Now his fund is sitting on a big loss, and Ackman himself probably deserves most of the blame.

J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

Poll Shows Americans' Economic Pessimism

Rite Aid Turns a Profit: Why I'm Not Impressed

On Thursday morning, Rite Aid (NYSE: RAD  ) posted a fourth-quarter EPS of $0.13, which beat the average analyst estimate for a slight loss. This quarterly profit -- the second in a row for Rite Aid -- allowed the company to post its first full year of profitability since 2007. This surprisingly strong performance caused Rite Aid shares to soar nearly 30% over the course of Thursday and Friday, to highs not seen for almost five years.

RAD Chart

Rite Aid 5 Year Price Chart, data by YCharts.

Nevertheless, Rite Aid's relatively strong fiscal year 2013 results were driven by a number of one-time or short-term benefits. These items helped mask the company's fundamental competitive disadvantages vis-a-vis larger rivals Walgreen (NYSE: WAG  ) and CVS Caremark (NYSE: CVS  ) . While Rite Aid could generate impressive stock returns in a best-case scenario, the company's poor competitive positioning creates substantial long-term risk for shareholders. Therefore, I still think investors would be wise to avoid the stock.

Strong results, modest outlook
Rite Aid's profit was driven by three major one-time or short-term impacts. First, the company gained a number of new customers from Walgreen's dispute with pharmacy benefits manager Express Scripts (NASDAQ: ESRX  ) . Walgreen's stores rejoined the Express Scripts network as of Sept. 15, and customers are beginning to trickle back, but Rite Aid still saw a significant benefit from the dispute in fiscal year 2013. On Rite Aid's Thursday morning conference call, executives estimated the full-year benefit at $70 million -- more than half of the company's fiscal year 2013 profit.

Second, Rite Aid -- as well as other pharmacy chains -- gained additional sales this quarter from a particularly bad flu season. For example, in January, Rite Aid reported a 5% increase in prescription count, with more than two-thirds of the increase attributable to flu shots and flu-related prescriptions. Last, pharmacy chains achieved higher profit margins this year due to the introduction of a number of new generic drugs, which are more profitable than brand-name drugs.  Over time, reductions in insurance reimbursement rates will negate this margin increase.

Looking forward, Rite Aid expects same-store sales, adjusted EBITDA, and net income to all be roughly flat next year. Management called attention to the loss of some Express Scripts customers who will return to Walgreen's, fewer generic introductions, and reductions in reimbursement rates as major headwinds for fiscal year 2014. If Rite Aid executives are being overly conservative with their guidance, then the stock could continue to rise. However, based on Rite Aid's fairly uninspiring March sales results, I think the guidance for flat sales and earnings next year is very appropriate.

Encroaching competitors
Longer-term, I think Rite Aid will have trouble remaining profitable in the face of strong competition from its two larger rivals. Rite Aid has benefited from trends such as the growth of generics and the aging of the U.S. population, which are helping the whole industry. For Rite Aid, improving industry conditions have allowed the company to reduce its leverage while remodeling a few hundred stores each year. By contrast, Walgreen and CVS have more resources at their disposal, and so strong profitability has encouraged expansion. In their most recent fiscal years, CVS added 131 stores, and Walgreen added 175 stores.

Convenience is paramount in the drugstore business, and as Walgreen and CVS add locations -- thereby moving closer to customers -- they will gain market share. Expansion will also increase economies of scale for both chains. Rite Aid does not have the capital resources to expand, and has actually been reducing its store count. In the short term, closing underperforming stores should boost Rite Aid's profitability, but in the longer term, this will increase the competitive advantages of Walgreen and CVS.

Buyer beware
Rite Aid's high leverage gives the stock substantial upside if management is able to enact a sustainable turnaround. However, I am not optimistic about Rite Aid's chances in an industry where its two main competitors are significantly larger and expanding, while Rite Aid is slowly shrinking. As Walgreen and CVS move closer to customers through store expansion, Rite Aid will struggle to maintain its market share. As a result, the company's return to profitability could prove short-lived.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Thursday, April 18, 2013

Rosetta Stone Has a Clear Strategy for the Road Ahead

The following video excerpt was taken from an interview with Steve Swad, CEO of Rosetta Stone (NYSE: RST  ) , in which he talks about his business philosophy, and how it is driving success both for language learners and for the company itself. In this segment, he discusses his top three strategies for future growth. 

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.


Matt Argersinger: So you have three strategic priorities. Brand, platform, distribution.

Steve Swad: Right.

Matt: Can you tell us kind of what's driving each of those and what are the goals behind those platforms?

Swad: The company's got a number of wonderful assets. Its brand is one of them. That strategic priority is to grow the company into its brand and build more products under the Rosetta Stone brand and penetrate deeper markets, both inside a language and outside a language.

That's the brand. Platform is create an infrastructure where our products can reside, that bring special things to customers. So mobility is one, that customers live on an iPad or an iPhone or a tablet. We'll make sure our technology comes to the customers where they are. Social is another element of platform. Build a platform that enables community, enables connection, enables study groups. Then third in platform is, we call it "artificial intelligence"; I think of it as smart delivery of pages. So understand your learner, process it through machines and then deliver smart content just designed for that learner. That's platform. So think of it as a set of core capabilities that our products will rest on that will bring good things to customers. And then last, distribution is meet customers where they are and make it easy, make it seamless, make it frictionless.

5 Leading Companies in Employee Relations

Like most investors, you probably aim for the best possible return when picking potential investments. But as consumers increasingly clamor for companies to embrace social responsibility, good corporate citizenship is becoming a vital part of many companies' success. And it can boost the performance of our portfolios, too.

CR magazine recently released its "100 Best Corporate Citizens" list for 2013, in which it rated members of the Russell 1000 large-cap index on 325 different elements related to responsible behavior. In the coming weeks, I'll delve into each of the seven categories that contribute to a company's overall score.Today, we'll look at the employee relations category, which gets a hefty 19.5% weighting. Here are some of the top-rated companies:

Intel (NASDAQ: INTC  )

Gap (NYSE: GPS  )

Hewlett-Packard (NYSE: HPQ  )

Merck (NYSE: MRK  )

Cisco Systems (NASDAQ: CSCO  )

To earn their high scores, the companies above engaged in a variety of good practices, including offering their employees benefits such as onsite recreation facilities, vision insurance, and adoption assistance, and disclosing the percentage of employees and managers who are women or members of a minority group.

Digging deeper
So what, exactly, are these companies doing right? Here are a few examples of their employee-related practices:

Intel offers a wide variety of generous benefits, and at, 83% of employees chiming in would recommend their employer to a friend. One interesting twist at Intel is that workers are routinely rotated into new positions every 18 to 24 months, to keep them learning new things. Its flexible work options include telecommuting, compressed workweeks, flextime, and more.

At Gap, employees typically receive 20 to 35 days of paid time off, whether for illness, vacation, or personal time. Other benefits include discounts on company merchandise and on other items, too, such as computers, gym memberships, or flowers. There's also paternity pay and child care support. About 67% of workers would recommend their employer to a friend.

Hewlett-Packard has been struggling in recent years, making generous benefits all the more important, in order to attract and retain workers. (It's not always enough, as attested by only 41% of employees recommending the company to friends, per Along with the usual suspects (401(k) matching up to 4%, dental and vision insurance, adoption assistance, and more), it offers discounts on a wide variety of expenses, such as hotels, insurance, and company products.

Merck offers some workers a benefit that's hard to find these days -- a traditional pension. It has also boosted the percentage of women in executive roles from 25% to 35% between 2009 and 2011, and per its own "Culture Survey," 49% of its workers are "engaged" or "fully engaged." About 64% of its employees would recommend it to a friend, per

Cisco's benefits have led to its being included in Fortune's list of "Best Companies to Work For" for the past 16 years in a row. Its percentage of female workers is 22%, down a little over the past few years, and 82% of workers express satisfaction with their workplace. About 76% of workers would recommend their employer to a friend, per

Earning well while doing good
Companies doing good, such as treating their employees well, can boost your portfolio's performance. And various other studies have suggested that socially responsible investments are at least competitive with the overall market, if not outperforming it on occasion. That's a solid motivation for even the most coolly rational investors to take social responsibility to heart.

If you're in the market for solid socially responsible candidates for your portfolio, check out the real-money portfolio run by my colleague Alyce Lomax. Out of all the Fool portfolios in the group, hers was recently in first place.

Learn more about Cisco
Once a high-flying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the low down on the routing juggernaut in The Motley Fool's premium report. Click here now to get started.

How Intuitive Surgical's Earnings Will Fare

On Thursday, Intuitive Surgical (NASDAQ: ISRG  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Intuitive Surgical was a pioneer in the surgical robotics field, leading the industry with its da Vinci robotic surgical system. But recently, the company has faced some new challenges that pose a threat to its growth story. Let's take an early look at what's been happening with Intuitive Surgical over the past quarter and what we're likely to see in its quarterly report.

Stats on Intuitive Surgical

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$582.8 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will Intuitive Surgical bounce back this quarter?
In recent months, analysts have downgraded their views on Intuitive Surgical's earnings. They've cut earnings-per-share estimates for the just-ended quarter by a nickel as part of a broader cut in full-year 2013 earnings by $0.22 per share. Yet despite some wild gyrations since early January, the stock price has landed back right about where it started.

The big negative news for Intuitive Surgical this quarter came at the end of February, when reports arose that the FDA was looking at questionable safety reports linked to the company's da Vinci surgical systems. Even though major studies have looked at the system's safety before and judged the da Vinci favorably, investors nevertheless sold first and asked questions later about the stock.

Yet the episode led to criticism of Intuitive Surgical in other arenas. Last month, the president of a major group of OB/GYNs said that using robotic systems for hysterectomy procedures -- a significant area of potential growth for the company -- lacked data showing its usefulness and made procedures far more expensive. That could reduce sales and have an impact not just toward the end of last quarter but for future periods as well. Moreover, you can expect traditional medical-instrument makers Johnson & Johnson (NYSE: JNJ  ) and Covidien (NYSE: COV  ) to step in to take advantage of the situation, as they stand to benefit substantially if robotics are shown to be inferior. Both J&J and Covidien supply more traditional instruments and supplies for surgical procedures, and regulators are more familiar with their safety profiles.

Competition in robotic surgical devices is also starting to get fiercer. MAKO Surgical (NASDAQ: MAKO  ) recently filed lawsuits against rivals Blue Belt Technologies and Stanmore Implants, with allegations of improper conduct by a former sales manager in the case of Blue Belt and of patent infringement against Stanmore. Just today, Stanmore gave in to most of MAKO's demands, deciding to give up its robotics business and sell its related assets to MAKO to settle the dispute. As for Intuitive, it hasn't yet seen a major direct competitive threat, but if the da Vinci gets past current safety concerns, growing popularity could drive big industry players to look at coming up with robotic systems of their own.

In Intuitive Surgical's earnings report, be sure to watch for the impact that the new medical-device tax under Obamacare has on the company's earnings. With the tax taken on sales rather than profits, Intuitive will be in a better situation than MAKO, which isn't even profitable yet will still be subject to the tax. For its part, Intuitive Surgical could see a substantial hit to its net income as a result of the tax, holding back its growth even further.

Intuitive Surgical expert Karl Thiel believes a visible path to long-term growth for the company still exists. Will Intuitive capitalize, or be crushed by unforeseen pitfalls? His report highlights all of the key opportunities and risks facing the company -- and includes a full year of ongoing updates as key new hits -- so be sure to claim your copy by clicking here now.

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

5 Winners and Losers of the Week in Business

Windows 8 David Paul Morris/BloombergDavid Paul Morris/Bloomberg From sluggish PC sales to Facebook regaining an important advertiser to a department store chain finally dismissing its inept CEO, let's go over the wonders and blunders of business this week.

The PC --

Remember when analysts felt that Microsoft's (MSFT) Windows 8 would breathe new life into the moribund desktop and laptop businesses? Well, it seems to be sucking whatever life was still in the box makers.

Industry tracker IDC is reporting that PC shipments plummeted 13.9 percent worldwide during the first quarter.

More and more consumers are finding that they can get by with smartphones and tablets, and that's bad news for PC makers. It's also bad news for Microsoft, which is the leader in PC operating systems, but not a player when it comes to the mobile operating system space.

Facebook (FB) --

General Motors (GM) dissed Facebook as a premium marketing platform last May, but now it's back with a mobile advertising campaign for a new Chevy car.

Having GM back as an advertiser is a big deal. GM embarrassed Facebook by publicly announcing that it was abandoning the social networking website in the days leading up to the poorly received Facebook IPO. Did GM's departure raise doubts about the viability of advertising on social networking websites?

Well, GM is back. Facebook will naturally enjoy the ad revenue, but what it really gains here is the validation that it was lacking when GM peeled out last year.

J.C. Penney (JCP) --

The Ron Johnson era is finally over at J.C. Penney.

Investors were initially pleased with the announcement that the struggling retailer was dismissing its helmsman, but the stock headed lower when it was revealed that former CEO Mike Ullman would be stepping in as interim CEO.

Who were J.C. Penney investors expecting to step up? Did they want someone who rose up the ranks at a "cheap chic" darling before launching the wildly successful Apple Store concept that's the toast of the sale per square foot mall equation?

I hope not. Going dynamic didn't do J.C. Penney any favors last time out.

Better luck next time, J.C. Penney. Just know that fickle retail shoppers don't give chains too many chances.

Netflix (NFLX) --

Netflix CEO Reed Hastings didn't waste any time in taking advantage of a new SEC ruling that allows companies to disclose important facts through Facebook, Twitter, and other public social outlets.

"Over the last three months, you all watched over 4 billion hours on Netflix," Hastings revealed in a Facebook status update on Thursday.

If Hastings posting about service usage on Facebook rings a bell it's because he did the same thing when Netflix surpassed a billion hours of member streaming in a single month nearly a year ago. Netflix is now averaging more than 1.3 billion hours of served content a month. It's Hastings' way of letting folks know that the platform continues to grow in popularity.

Google (GOOG) --

Folks living in Austin won't just have next year's installment of the annual South by Southwest festival to look forward to. Google has tapped the trendy Texan city as the next market to get the company's bar-raising Google Fiber service.

Google Fiber initially rolled out in Kansas City, offering customers online access at speeds that are 100 times faster than conventional broadband connectivity. Google Fiber also offers a high-def TV service. The dual service will set Austin residents back $120 a month, but frugal Texans may want to consider a free monthly plan that Google offers at significantly slower speeds for a one-time installation fee of $300.

Google doesn't want to be your next cable provider. It just wants to make sure that cable companies that offer Internet access don't make connectivity too expensive or burdensome. Google will lead by example, and that's smart.


Wednesday, April 17, 2013

What Caused the Dow to Drop Today?

Earnings and expectations are ruling Wall Street this week. As we move deeper into earnings season, investors are focusing more on actual results, and it's becoming very clear that those earnings are driving the markets, not the hot news story of the day. And regardless of whether the market moves up or down for the day, it is very refreshing to see this happen.

But what is still disconcerting is that although earnings and, in some cases revenues, are climbing, shares prices are dropping simply because analysts expected better results than what is being reported. This is preciously what happened today. Bank of America (NYSE: BAC  ) released first-quarter earnings, and profit quadrupled to $0.20 per share, but Wall Street expected $0.22 per share and the stock fell 4.72% during the day, and with the help of another 25 components, managed to pull the Dow Jones Industrial Average (DJINDICES: ^DJI  ) lower by 138 points, or 0.94%, during the day.

More Dow losers
Shares of Alcoa (NYSE: AA  ) were on the losers' side again, after the stock fell 1.73% today. Alcoa is already down 8.29% since the start of 2013 after falling 5.9% in 2012 and 43.7% in 2011. You have to go back to 2008 to find a full year when Alcoa's stock rose higher. The company faces a number of heads in the future, increased competition from smaller local producers also in China, which is likely the cause for the oversupply in the country, and when supply outpaces demand, aluminum prices decline. To learn the three reasons my Foolish colleague Taylor Muckerman believes you should sell Alcoa, click here.

As investors prepare themselves for Verizon's (NYSE: VZ  ) earnings report, set to be released tomorrow, shares dropped 1.82% today. Analysts expect the company to report earnings of $0.66 per share. Based on today's drop, it would seem investors felt that may be too high and are selling ahead of tomorrow's announcement.  

Another big loser today, on very little news, was Travelers (NYSE: TRV  ) , which lost 1.71% of its value. The insurance provider was likely pulled lower along with the other financial related stocks due to the earnings report release from Bank of America, in which the company missed analysts' expectations on per-share earnings. A number of the financial institutions that hardly relate to B of A's operations, or even those that do such as JPMorgan Chase but have recently announced their own results, were pulled lower by the whirlpool effect that Bank of America caused this morning. To read more about what happened to B of A and JPMorgan today, click here.

More Foolish insight

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LivePerson Set on World Domination

The following video excerpt was taken from an interview with Robert LoCascio, founder and CEO of LivePerson (NASDAQ: LPSN  ) , as he talks about what was behind the company's incredible success story. In this segment, he explains the company's opportunities for international expansion.  

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 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.


Brendan Byrnes: So let's talk about International. You guys get about 75% of your revenues from the United States. That's been pretty consistent over the past few years. Where do you see the opportunity internationally for LivePerson?

Robert LoCascio: Well, we just bought a company in Australia, so we're doing very well there. We had a partner there for the last two years and we decided to buy them. I think we're going to start to expand in Asia. There's a lot of opportunity between Japan and China, South Korea. Even look at Indonesia's got 300 million people, so these are untapped markets. South America, Brazil, we're looking at these areas, so we're really dominant here, but there's an opportunity now to expand between Europe, South America, and Asia and we're going to look at that over the next year or two years.

Why Western Union Will Keep Crawling Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, money transfer giant Western Union (NYSE: WU  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Western Union and see what CAPS investors are saying about the stock right now.

Western Union facts


Englewood, Colo. (1851)

Market Cap

$8.5 billion


Data processing and outsourced services

Trailing-12-Month Revenue

$5.7 billion


CEO Hikmet Ersek (since 2010)
CFO Scott Scheirman (since 2006)

Return on Capital (average, past 3 years)


Cash / Debt

$1.8 billion / $4.0 billion

Dividend Yield



American Express
Moneygram International

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 97% of the 1,641 members who have rated Western Union believe the stock will outperform the S&P 500 going forward.

Earlier this week, one of those Fools, compustat, succinctly summed up the Western Union bull case for our community:

[Western Union] has a admirable competitive advantage that is derived from its business model that takes full advantage of the network effect. As the company ties up loose ends regarding its misstep in Mexico and regulatory issues play out, this stock will be back on track. Very cheap valuation given its future prospects and sustainable moat.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong four-star rating, Western Union may not be your top choice.

We've found another stock we are incredibly excited about -- excited enough to dub it "The Motley Fool's Top Stock for 2013." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

13 Surprising Facts About Corning

Many of the most successful investors are the long-term ones who get to know their holdings very well. If you're invested in a company or are thinking about jumping in, you'd do well to read its annual and quarterly reports closely, and to follow it in the news. But for a deeper understanding of it, poke around its website and peer into its history -- you'll run across lots of interesting things that can enrich what you hope will be a long-term relationship.

Let's look at Corning (NYSE: GLW  ) , for example.

Why Corning?
The company is a giant in specialty glasses and fiber optics. Its fortunes are influenced these days by smartphone and tablet makers such as Apple (NASDAQ: AAPL  ) , which use its glass in their displays. Corning's Gorilla Glass is so strong that it has put a crimp in the business of screen-protecting companies such as ZAGG (NASDAQ: ZAGG  ) . Some worry about Apple's interest in sapphire, though, as it's even stronger than Gorilla Glass (though more expensive) and could threaten Corning.

Corning is also tied to the TV industry, where large-screen models require far more of its glass than relatively tiny smartphone screens. The company does have competition, though, such as from Universal Display (NASDAQ: PANL  ) , with its impressive OLED technology that threatens LCD displays' share. Both companies stand to benefit from Samsung's upcoming S4 phone, though, with its bigger and better screens.

What's so interesting?
1. The stock's history of rewarding shareholders has been a bit bumpy. Over the past five years, it has averaged 10% annual losses, but over the past decade, it has averaged a 10% gain. In the past 30 years, it has averaged 7% growth.

2. Its dividend recently yielded a solid 2.7% -- and better yet, the company has been raising that payment by about 19% per year, on average, over the past five years. That kind of growth has a chance of continuing for a while, as Corning's payout ratio is just 27%, meaning that it's only paying out roughly a quarter of its earnings in dividends.

3. The company is old, tracing its roots back to before the Civil War, to an 1851 investment in a glass company.

4. The range of products that Corning has specialized in or currently specializes in is extremely diverse, including railroad lanterns, light bulbs, television tubes, cookware, ceramic substrates, optical fiber, and active-matrix liquid crystal displays. Indeed, long ago, Corning developed a mass-production system for light bulbs that helped make them affordable.

5. Today Corning focuses on five key realms: glass substrates for TV, computer, and other electronic displays; ceramic substrates and filters for emission control systems; optical fiber, cable, and hardware for telecommunication networks; glass and plastic ware for laboratories; and specialty materials for a range of applications and industries.

6. During World War II, Corning boosted morale among employees (and others) by sponsoring a local radio show: the Corning Glass Works Radio Family Party. Corning also sponsored the opening-night concert at Lincoln Center in Manhattan, conducted by Leonard Bernstein, in September 1962. Some 26 million people watched it on TV.

7. Corning introduced Pyrex heat-resistant glass in 1913, and it was a hit not only in homes, but also in labs. In 1954, Jonas Salk grew the polio virus for his vaccine in Pyrex bottles.

8. Corning's clean-air products have helped reduce air pollutants by more than 3 billion tons since 1975.

9. Japan's National Astronomical Observatory contains a telescope mirror 27 feet wide that was made by Corning. It took several years to polish it.

10. Corning was active in the war effort during World War II, with some 174 research and development projects. It developed extra-strong tableware for mess halls and made glass used in various military applications -- and was seen as important enough that the Nazis reportedly planned to bomb the company.

11. Corning's improved production methodology for radio vacuum tubes lowered the average cost of radios from $133 to about $35 between 1929 and 1932, making radios much more affordable for the masses.

12. There are a lot of fascinating facts just about glass. For example: "Corning makes glass tough enough for windows on the space shuttle entering the atmosphere at 25,000 km per hour, clear enough to carry a pulse of light 1000 km, and pristine enough to make an LCD TV with 3 million pixels. Corning glass is anything but simple."

13. The company is known as just "Corning" today, but for more than 100 years, between 1875 and 1989, it was "Corning Glass Works."

There's a lot worth knowing about Corning, for both investors and history buffs.

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.

Tuesday, April 16, 2013

First Solar And Solar ETFs: Here's How You Can Participate

First Solar stock (FSLR) triggered a solar flare last week on the Nasdaq as circuit breakers were triggered on Tuesday, April 9.

The event was caused by a massive amount of short-covering in First Solar stock after the company issued impressive 2013 guidance, with full-year earnings expected between $4.00 and $4.50 a share on sales of between $3.8 billion and $4 billion. Analysts had been expecting to see earnings guidance of $3.51 a share in 2013 on sales of approximately $3.1 billion. Trading in First Solar stock was halted on the Nasdaq exchange during Tuesday's session, in accordance with the guidelines on triggered circuit breakers.

Previous to last week's solar flare, the sector has suffered through some awful growing pains. The financial crisis resulted in reduced subsidies for development in the rapidly-advancing photovoltaic power industry. Meanwhile, China increased government financing of its solar industry, having already established a strong presence in the sector with such companies as Suntech Power (STP) and LDK Solar (LDK).

With its ramped-up, less expensive production capabilities, China began "dumping" its lower-priced solar panels in foreign markets - especially the United States - putting many of the American competitors (such as Solyndra) out of business. Eventually the entire solar industry went into a slump. Chinese companies - such as Suntech Power, which was trading in excess of $40 per share in 2009 - saw their share prices sink even deeper than those of their American competitors. Things became so bad for Suntech that even with a 17% share price surge on April 11, the stock closed at a paltry 87 cents per share.

But that was then and this is now.

On April 9th, Arizona-based First Solar announced the development of new technology that improves the efficiency rate of its solar panels. The panels it manufactured last year could convert 13% of the sunlight into electricity. The new panels have improved the efficiency rate to just! above 16%. First Solar also announced that it had purchased a start-up called TetraSun, which was in the process of developing technology to improve solar panel efficiency rate to 21%. The news sent First Solar stock skyrocketing from $27.14 at the opening bell to $39.95 at the close.

first solar, fslr, nasdaq:fslr, solar stocks, solar etfs

chart courtesy of

This week's action in the solar sector is a continuation of action that began around the beginning of the year. For instance, California-based SunPower (SPWR) has seen its share price skyrocket by over 96% since the start of 2013. At the close of trading on April 11, SPWR had advanced 2.50% on the day, compared with the 2.41% gain by First Solar. Another American solar heavyweight is MEMC Electronic Materials (WFR) which has enjoyed an 18% increase in its share price during the past week.

For investors wanting to join in the solar heat via exchange traded funds, there are presently two ETFs focused exclusively on the solar sector:

Market Vectors Solar Energy ETF (KWT) has a market cap of only $12 million, which is invested in a portfolio of 34 stocks related to the solar industry. The top holding is First Solar and it accounts for 9.34% of the weight. The major drawback to this ETF is that it is thinly-traded, averaging about 8,000 shares per day during the past three months.

The Guggenheim Solar ETF (TAN) has a market cap of $64 million, which is invested in 22 securities from the solar sector. Its top holding is also First Solar and it accounts for 14% of the weight. Its average trading volume over the past three months has been a healthy 147,000 shares.

solar stocks, tan, nysearca:tan

chart courtesy of ! StockChar!

Another ETF which invests in the solar sector is the PowerShares WilderHill Clean Energy ETF (PBW). Although its holdings are not limited to the solar sector, its most significant holding is SunPower Corporation at 4.96% of the weight. Its number three holding is MEMC Electronic Materials at 3.42% of the weight. PBW's average trading volume is robust at over 400,000 shares per day. Its market cap is $135 million.

Bottom line: The solar sector finally appears to be emerging from its own Dark Age. With the Obama Administration solidly supporting alternative energy and with new technologies on the horizon, alternative energy and solar ETFs could offer significant growth potential for making hay while the sun is shining.

Disclosure: Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions can change at any time.

Disclaimer: The content included herein is for educational and informational purposes only.

Understanding the Organization Whose Sole Purpose Is to Bash Google

You don't become the dominant search engine in the world without picking up a few enemies along the way. That's why there's an organization whose sole purpose is to bash Google (NASDAQ: GOOG  ) -- an organization that's comprised and funded by many of its fiercest competitors.

FairSearch masquerades as a consumer watchdog, advocating for -- you guessed it -- fair search practices and innovation. However, it's pretty clear that FairSearch's primary objective is to hinder Google in every imaginable way, which in turn would inevitably benefit the rivals who foot FairSearch's bills.

The group was initially formed in 2010 by a handful of travel companies looking to defend themselves from Google stepping on their toes by adding flight-booking tools to its site. The search giant had just acquired flight information specialist ITA Software for $700 million, much to the chagrin of these companies.

There are 17 companies and organizations that are listed as members. Here are the more prominent names.

TripAdvisor Kayak  HotWire Expedia Microsoft (NASDAQ: MSFT  ) Oracle (NASDAQ: ORCL  ) Nokia (NYSE: NOK  ) is in the process of acquiring Kayak for $1.8 billion. Priceline has chosen not to join FairSearch thus far, but now it's acquiring a member. We'll have to wait to see if Priceline joins up or if Kayak drops out, or perhaps the parent and subsidiary will just agree to disagree.

The most recent attack was a complaint with the European Commission over the bundling of Google apps in Android. The group calls Google's distribution strategy "predatory" since it's technically free, which makes it difficult for other operating system providers to compete.

Of course, Microsoft is likely spearheading this move, since it hopes to charge license fees for Windows Phone, despite the fact that Microsoft gets its fair share of Android-related royalties. To the extent that Microsoft's ability to compete in mobile is hurt, so is Nokia's as the dominant maker of Windows Phones.

Oracle has also had its fair share of battles with Google, including its high-profile lawsuit over Android. Google has also been moving further into enterprise software. That's currently more of a direct threat toward Microsoft's enterprise offerings, but it still likely makes Oracle uncomfortable. Oracle and Nokia are among the newest members, joining last September.

FairSearch features a presentation on its site that includes out-of-context quotes from current and former Google execs, including Marissa Mayer, who has since moved to Yahoo!, that seemingly undermine its famous "Don't Be Evil" motto while displaying the inherent conflicts of interest that Google faces.

On one hand, any company that wields as much power as Google definitely needs oversight. On the other hand, that oversight shouldn't be originating from Google's biggest competitors who have every interest in seeing it fail.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Coke Stock Is Today's Dow Winner

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is rebounding after yesterday's big drop. As of 1:15 p.m. EDT the Dow is up 142 points, or 0.97%, to 14,741. The S&P 500 (SNPINDEX: ^GSPC  ) is up 1.24% to 1,572.

There were four U.S. economic releases today.





Consumer price index




Core CPI




Housing starts


1.04 million


Building permits




Industrial production




Source: MarketWatch U.S. Economic Calendar.

The two to focus on are the housing numbers. February's rate of housing starts was revised upward from 917,000 to 968,000. In March, housing starts rose to a seasonally adjusted annual rate of 1.04 million -- the highest level since late 2008.

Growth in housing starts for both February and March is good news for the ongoing recovery of the housing market, which has been strengthening over the past year. There are worrying signs ahead, however: Building permits dropped in March from 939,000 to 902,000. Building permits are a leading indicator of future housing starts. While permits were down 4% month over month, they are still up 17% from March 2012.

US Housing Starts Chart

US Housing Starts data by YCharts.

Coke stock leads the Dow
Today's Dow leader is Coca-Cola (NYSE: KO  ) , up 5.6% to $42.35 after it reported first-quarter earnings. The company earned $0.39 per share, or $0.46 when you exclude one-time items. That's better than the year-ago quarter's $0.45 and better than analyst expectations of $0.45. Revenue was $11.04 billion, down 1% from the year ago but better than analyst expectations of $11.02 billion. Worldwide, the company saw 4% growth in volume, with 3% growth in the U.S. and 5% growth abroad.

In the U.S., Coke announced that it will sell some of its internal bottling operations to its five U.S. independent bottlers: Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE  ) , Coca-Cola Bottling Company United, Swire Coca-Cola USA, Coca-Cola Bottling Company High Country and Corinth Coca-Cola Bottling Works. No details were released, but the company did say it expects to close the deals in 2014.

Long-term Coke shareholders should be concerned by the rising tide against soda in the U.S. However, Coke's diversification into global markets and other beverages like juice and tea both cap this risk over the long run.

Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering buying shares in the company, you'll want to click here now and get started!

What ADTRAN's Earnings Headlines Didn't Tell You

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 ADTRAN (Nasdaq: ADTN  ) .

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 ADTRAN for the trailing 12 months is 109.7.

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 ADTRAN, 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 ADTRAN looks less than great. At 109.7 days, it is 8.7 days worse than the five-year average of 101. days. The biggest contributor to that degradation was DIO, which worsened 15.6 days when compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at ADTRAN looks good. At 111.5 days, it is 6.2 days better than the average of the past eight quarters. With quarterly CCC doing better than average and the latest 12-month CCC coming in worse, ADTRAN gets a mixed review 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.

Internet software and services are being consumed in radically different ways, on increasingly mobile devices. Does ADTRAN fit in anymore? Check out the company that Motley Fool analysts expect to lead the pack in "The Next Trillion-dollar Revolution." Click here for instant access to this free report.

Add ADTRAN to My Watchlist.

Should I Buy Rio Tinto or BHP Billiton?

LONDON -- After making strong gains toward the end of last year, shares in miners Rio Tinto  (LSE: RIO  ) (NYSE: RIO  ) and BHP Billiton  (LSE: BLT  ) (NYSE: BBL  ) have fallen by around 10% since the beginning of 2013.

The falls have been caused by institutional shareholders trimming their holdings in each company -- but I believe this is a great opportunity to buy into these two world-class companies at very attractive prices.

Rio Tinto vs. BHP Billiton
'm going to start with a look at a few key statistics that can be used to provide a quick comparison of these two companies, based on their last published results:


Rio Tinto

BHP Billiton

2012 revenue



P/E ratio



Dividend yield



Net gearing



Both Rio and BHP made paper losses last year, after writing down the value of several major assets. The P/E ratios I've included in the table above are based on underlying earnings, which I think provides a more realistic view of each company's performance.

The income available from both companies is also attractive -- both dividend yields are above the FTSE 100 average of 3.2%, making them worth considering for a diversified portfolio of income shares.

I expect Rio's and BHP's dividends to continue to grow over the next few years, as both companies have said they will cut back capital expenditure on new projects, and focus on maximizing their profitability and enhancing shareholder returns.

What's next?
Analysts' forecasts are notoriously unreliable, but FTSE 100 companies generally get the benefit of the most comprehensive analysis, and tend to deliver fewer surprises than smaller companies.

With that in mind, let's take a look at the forecasts for Rio Tinto and BHP Billiton. These apply to the companies' current financial years, which end in June (BHP) and December (Rio):


Rio Tinto

BHP Billiton

Forecast P/E ratio



Forecast dividend yield



Forecast dividend growth



Forecast earnings growth



These figures, which are based on the companies' guidance figures and analysts' forecasts, suggest that Rio may be nearer the end of its consolidation phase than BHP, which is expected to deliver another year of disappointing earnings.

It's worth taking a brief look at the main commodities produced by each company. Around 75% of Rio's earnings come from iron ore, while the remainder is split between aluminum, copper and coal.

In BHP's case, around 50% of earnings from iron ore, while around 25% comes from oil and gas production, mostly in the U.S. The remainder comes mostly from copper, aluminum and coal.

Which share should I buy?
BHP's major commitment to oil and gas is something to consider if you want a diversified portfolio, as it could take you overweight on oil if you also hold shares in a supermajor like BP or Royal Dutch Shell.

On the other hand, BHP does offer exposure to all the major industrial commodities in one share, which may be attractive, depending on your requirements.

I prefer Rio's focus on mining, rather than petroleum, and I like its growing emphasis on copper. For all of these reasons, Rio is my pick as a buy -- but I believe that both companies represent good value for money and provide an attractive way of earning an income from commodities.

2013's top income stock?
Despite the attractive incomes offered by Rio Tinto and BHP Billiton, the U.K. utility sector remains one of the best places to find reliable, high-yielding income stocks.

The Motley Fool's top analysts have looked closely at all of the listed U.K. utility companies and identified one FTSE 100 utility share which offers a 5.7% dividend yield, and which they believe may be undervalued by up to 20%.

They are so confident in this share that they've named their report "The Motley Fool's Top Income Stock For 2013"! This exclusive new report is completely free, but will only be available for a limited time -- so click here to download your copy now.


Monday, April 15, 2013

Gold and Other Miners Are Crushed by China

Gold and Silver Lost Their Shine Today

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

What: Gold and silver miners are taking it on the chin today. Royal Gold (NASDAQ: RGLD  ) fell as much as 10.4%, Allied Nevada Gold (NYSEMKT: ANV  ) fell up to 11.5%, and Silver Wheaton (NYSE: SLW  ) dropped as much as 11.2%.

So what: Gold continued its free fall today, falling 9.2% as I'm writing, and silver has been even worse, down 11.6%. Slower than expected GDP growth of 7.7% during the first quarter in China has everything from gold to oil moving lower today.

Now what: Commodities can be extremely volatile but gold can be hit especially hard because there's little industrial use for the commodity. The rapid rise of gold during the recession was driven by fear and now the drivers and traders buying the commodity are starting to subside. It's days like today that keep me out of the commodities market because there's little warning of problems and the moves can be extreme. I'm surprised miners haven't moved even lower because their financial results should be levered to the commodities they're producing.

One idea for gold bugs
If you're still looking to get into gold then check out our free report, "The Tiny Gold Stock Digging Up Massive Profits." The Motley Fool's analysts have uncovered a little-known gold miner they believe is poised for greatness; find out which company it is and why its future looks bright -- for free!

Why Citigroup Is Booming Today

First-quarter numbers for Citigroup (NYSE: C  ) are in, and given how good they are, investors are understandably happy, driving the superbank's share price up 2.98% already on the day.

Tale of the tickers
But before we dig into the particulars, let's have a quick look at where Citi's peers and the markets are so far:

Bank of America is up 0.82%. Up 0.45%, JPMorgan Chase (NYSE: JPM  ) has just edged out of the red, where the superbank began the day's trading. Wells Fargo (NYSE: WFC) has finally climbed out of the red, as well, where it began the trading day: It's now up 0.32%.

So far, so bad in the markets, however, with the Dow Jones Industrial Average down 0.46%, the S&P 500 down 0.56%, and the Nasdaq Composite down 0.55%.

Foolish bottom line
There's no mystery as to why Citi is beating the band today; the bank's first-quarter results are impressive, and investor money is flowing in.

First-quarter net income rose 30%, to $3.8 billion, not significantly far off from JPMorgan's Q1 results, which showed an increase in net income of 33%. This puts Citi's earnings per share at $1.23, easily beating estimates. 

Perhaps even more significantly for Citi, revenue actually rose in the first quarter: up 3% year over year. In comparison, JPMorgan's revenue dropped 3.8% year over year for Q1. Even Wells had reduced first-quarter revenue, down 1.4% year over year. 

A few other Citi bright spots to report:

Revenue rose 12% from the fourth quarter. Net losses at Citi Holdings, the "bad bank" created after the financial crisis to hold the superbank's bad assets, dropped to $794 million, or 21%. Operating expenses rose 1% year over year, but dropped 3% from Q4: The more efficient Citi can be in its operations, the more money for the bottom line. 

There you have it. Happy numbers make for happy investors, but as a Foolish investor, always remember that you're in this for the long term. Though the share prices of your favorite companies may spike and plummet on a day-to-day, week-to-week, or even month-to-month basis, so long as the fundamentals of the companies you're invested in remain sound, have faith that your money is in the right place.

Looking for in-depth analysis on Citi?
If so, look no further than our new premium report on the superbank. In it, Matt Koppenheffer -- The Motley Fool's senior banking analyst -- will fill you in on both reasons to buy and reasons to sell Citigroup. They'll also clue you in on what areas investors need to watch going forward. For instant access to Matt's personal take on Citi, simply click here now.

3 Horrendous Health-Care Stocks This Week

Sometimes, you just have to put things in perspective. North Korea's threats to potentially attack the U.S. with nuclear weapons make stock market gyrations seem somewhat trivial. Nonetheless, there were plenty of gyrations to cause worry for some investors over the past few days. Here are three of the week's most horrendous health-care stocks. 

Maybe somebody needs to go to the hospital
Large hospital systems operator Health Management Associates (NYSE: HMA  ) saw its shares fall 13% this week. That's the biggest drop for the stock in four years. 

The company provided a sneak peek at its first quarter results and gave its outlook for the full year on Tuesday. Adjusted admissions were down by 5.7% compared to the same period in 2012. HMA says that the drop appears to be due to fewer uninsured inpatient admissions and higher observation stays where the patient isn't admitted to the hospital.

HMA also revised its full-year earnings down. In January, the company estimated that 2013 earnings could be as high as $1.01 per share. Now, it says the range will be $0.86 to $0.95 per share. At least one analyst, Jefferies and Co.'s Brian Tanquilut, thinks HMA's woes stem partially from a negative 60 Minutes broadcast focusing on the company's emergency department practices.  

Recall recoil
Medical instrument maker Integra LifeSciences (NASDAQ: IART  ) shares dropped 11% this week. The stock's fall stemmed from a product recall announced on Wednesday. 

The recall includes products made in Integra's Anyasco, Puerto Rico, facility between December 2010 and May 2011 and between November 2012 and March 2013. Integra stated that "there may have been deviations from approved processes" in the manufacturing of several products. 

This bad news wasn't all of the story. Integra also said that the recall would cause revenue to fall by $8 million to $11 million in the first quarter. The company appears likely to lower full-year guidance in its quarterly earnings conference call scheduled for May 2. On Thursday, Northland Capital downgraded Integra from "outperform" to "market perform."

No favors from Favus
Analyst Favus Institutional Research didn't do a favor for Questcor Pharmaceuticals (NASDAQ: QCOR  ) this week. Questcor shares fell 10% after Favus downgraded the stock from "buy" to "sell."

It appears that Favus is quite jittery about Questcor's upcoming first-quarter results. Concerns center on three areas: potentially sluggish Acthar sales, Questcor's start-up of a new reimbursement center during the quarter, and possible issues resulting in lower Medicaid rebates.Fears about lower-than-expected Acthar sales also tie in with higher volumes filled toward the end of fourth quarter that could impact first-quarter results. 

Short-sellers hope that the worries expressed by Favus prove accurate. And there are plenty of folks out there gunning for Questcor to fail. The stock's short interest currently stands at 49.5%.

Which of these three horrendous stocks of the week are most likely to bounce back? I'd say that Questcor probably stands the best chance. If the company confounds its critics by reporting strong Acthar sales, shares should take off. That's not a given, by any means, though.

Horrendous or humongous?
Questcor is one of the most debated names in all of biotech. Its premium priced drug, Acthar, is growing at a torrid pace -- and minting money in the process. However, recent events have created significant doubts about Questcor's future -- causing shares to bounce up and down. Will insurance companies continue to cover the drug? Will a government investigation lead to huge fines? We highlight these high-profile issues inside our brand new premium research report on Questcor. In it, you'll learn about the key opportunities and threats facing the company, as well as multiple reasons to buy and sell the stock. So make sure to claim a copy today by clicking here now.

Sunday, April 14, 2013

Is Franklin Covey's Cash Machine Shutting Down?

Microsoft's "Trojan Horse"

Microsoft's (NASDAQ: MSFT  ) latest attack on Google (NASDAQ: GOOG  ) through a trade group is being called a "Trojan horse." The practice is becoming more commonplace for Mr. Softy, and it's joined in this case by some big names, including Nokia (NYSE: NOK  ) and Oracle (NASDAQ: ORCL  ) . While the practice is technically within the rules, it begs the question of whether regulation is really to become a new offensive weapon of competition in Europe.

In the below video, Fool contributor Doug Ehrman discusses the actions taken by Microsoft and looks at both the merits and potential fallout of this type of practice.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

The Flu: Peril, Profit, and Prevention

Stock Up for the Coming Collapse

You should stock up for the coming economic collapse, because American businesses aren't. A just-released Commerce Department report adds to the growing list of indices pointing to a major economic decline coming our way. February inventories rose just 0.1%, well below the 0.4% increase economists had anticipated and much worse than the downwardly revised 0.9% increase seen in January.

When companies slowly rebuild their inventories, as they are now, it means factories produce less, lowering overall economic output. And if we look at the Institute for Supply Management's inventory survey for March, we get a sense that when Commerce releases its own figures for the month, it's going to look ugly. The ISM survey showed a 2% decline in March inventories to 49.5, an indication that things are contracting at an accelerated rate. 

The down escalator
That's on top of a collapse in consumer confidence, the non-participation rate in the labor market hitting Depression-era levels, unadjusted weekly unemployment claims jumping again, vehicle sales missing estimates, and a whole slew of other economic indicators coming in below expectations.

Clothing and accessories retailers had their best showing in February, as inventories gained 3% from January. Yet as we saw just recently, March retail sales contracted, so the uptick that was enjoyed is apparently over already, and coupled with a gloomy consumer outlook, those tax increases implemented at the start of the year are beginning to weigh down the economy.

Try this on for size
While some clothing shops such as Gap (NYSE: GPS  ) beat analyst expectations on same-store sales last month, the fact that they were down 1% anyway is hardly a source of confidence. TJX (NYSE: TJX  ) was down 2.2%, while Ross Stores (NASDAQ: ROST  ) was up 2%, actually beating expectations, but far below the 10% jump it experienced a year ago. 

Although some of the sales declines in March were the result of lower gas sales, Americans also spent less on other goods. Even among big-box retailers, the results were disappointing. Costco (NASDAQ: COST  )  reported that same-store sales rose 4% in March, but they were significantly below the 5.2% analysts were anticipating. Overall, the Thomson Reuters index of retailers showed that comps grew just 2.2% last month, its lowest showing since September 2009.

Running off the road
One of the bright spots of the economy has been automakers, but there, too, car sales fell 1.3% in March to an annual pace of 15.3 million, down from 15.4 million the month before. Where Ford, General Motors, and Chrysler all reported sales gains, they couldn't make up for the losses at many foreign manufacturers, and it's showing, as car sales are steadily falling.

Many analysts point to the increase in taxes at the start of the year, particularly payroll taxes, as the lead cause for the slack showing up. The economy appears to be ratcheting down rather abruptly, following Europe's epic slide into a double-dip recession that even China couldn't stanch.

Perhaps we don't need to act like doomsday preppers, but then again, stocking up for a potentially harsh outcome like a squirrel storing nuts for the winter might not be a bad idea after all.

Worried about Ford?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.

Why CarMax's Earnings May Be Less Than Awesome

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 CarMax (NYSE: KMX  ) .

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 CarMax for the trailing 12 months is 41.0.

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 CarMax, 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 CarMax looks less than great. At 41.0 days, it is 4.5 days worse than the five-year average of 36.5 days. The biggest contributor to that degradation was DIO, which worsened 3.7 days when compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at CarMax looks OK. At 44.3 days, it is 5.5 days worse than the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With both 12-month and quarterly CCC running worse than average, CarMax gets low 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.

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Add CarMax to My Watchlist.