Saturday, June 15, 2013

Best European Companies For 2014

On Saturday, Jan. 12, 2013, the Green Bay Packers lost their chance at the Super Bowl. Playing before a sellout crowd at Candlestick Park against the San Francisco 49ers, the Packers gave up a playoff record 579 total yards, succumbing to a team that went on to claim the NFC Championship but eventually lost the Super Bowl to the Baltimore Ravens at an eventful game in New Orleans.

Three months later and an ocean away, another "football" team, British soccer club Manchester United (NYSE: MANU  ) , had a different story to tell. On Monday, April 22, 2013, Man Utd claimed their 20th league title, beating Aston Villa 3-0 to win the English Premier League Championship�.

Man Utd now enters the hunt for a place in next season's European Champions League, while the Packers must go back to the drawing board, and start again at 0-0 in the race for Super Bowl XLVIII. That fact alone tells you why Man Utd is probably a better "football" team than the Packers.

Best European Companies For 2014: BP p.l.c.(BP)

BP p.l.c. provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. Its Exploration and Production segment engages in the oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trading of natural gas, including liquefied natural gas (LNG), and power and natural gas liquids (NGL). This segment has exploration and production activities in Angola, Azerbaijan, Canada, Egypt, Norway, Russia, Trinidad and Tobago, the United Kingdom, and the United States, as well as in Asia, Australasia, South America, North Africa, and the Middle East. This segment also owns and manages crude oil and natural gas pipelines; processing facilities and export terminals; and LNG processing and transportation, as well as NGL extraction facilities. BP p.l.c. has interests in the Trans-Alaska pipeline system, the Forties pipeline system, the Central Area transmission sys tem pipeline, the South Caucasus Pipeline, and Baku-Tbilisi-Ceyhan pipeline, as well as in LNG plants located in Trinidad, Indonesia, and Australia. The company?s Refining and Marketing segment involves in the supply and trading, refining, manufacturing, marketing, and transportation of crude oil, petroleum, and petrochemicals products and related services to wholesale and retail customers primarily under the BP, Castrol, ARCO, and Aral brands. Its Other Businesses and Corporate segment produces and markets rolled aluminum products, as well as generates energy through wind, solar, biofuels, hydrogen, and carbon capture and storage sources; and engages in shipping activities. The company was founded in 1889 and is headquartered in London, the United Kingdom.

Advisors' Opinion:
  • [By Kennedy]

    BP plc (NYSE:BP): Up 0.36% to $35.86. BP plc is an oil and petrochemicals company. The Company explores for and produces oil and natural gas, refines, markets, and supplies petroleum products, generates solar energy, and manufactures and markets chemicals. BP’s chemicals include terephthalic acid, acetic acid, acrylonitrile, ethylene and polyethylene.

Best European Companies For 2014: Aegon NV(AEG)

AEGON N.V. provides life insurance, pensions, and asset management products and services worldwide. The company?s life insurance products include traditional, term, universal, whole, and other life insurance products sold as part of defined benefit pension plans, endowment policies, post-retirement annuity products, and group risk products; supplemental health insurance products comprise accidental death, other injury, critical illness, hospital indemnity, medicare supplement, and student health; specialty lines consists of travel, membership, and creditor products; and long term care insurance products for policyholders who require care due to a chronic illness or cognitive impairment. It also offers a range of savings and retirement products and services, including mutual funds, and fixed and variable annuities, savings accounts and investment contracts, segregated funds, guaranteed investment accounts, and single premium immediate annuities, as well as investment advice to individuals. In addition, the company offers employer solutions and pensions, such as retirement plans, pension plans, and pension-related products and services; investment products, including onshore and offshore bonds, and trusts; reinsurance products and solutions to life insurance and financial services companies; general insurance products comprising house, car, and fire insurance; and asset management products and services, including general account assets, unit-linked funds, and third party activities. AEGON N.V. markets its products through independent and career agents, financial planners, registered representatives, independent marketing organizations, banks, broker-dealers, benefit consulting firms, wirehouses, affinity groups, institutional partners, independent managing general agencies, and specialized financial advisors, as well as through online, direct, and worksite marketing. The company was founded in 1900 and is headquartered in The Hague, the Netherl ands.

Advisors' Opinion:
  • [By]

    Shares of this life insurance company are trading at $4.25 at the time of writing, and at the low end of their 52-week trading range of $4.18 to $8.07. At the current market price, the company is capitalized at $7.50 billion. Earnings per share for the last fiscal year were $0.69, placing the shares on a price-to-earnings ratio of 6.13.

    These earnings are expected to rise through the next couple of years, hitting $0.73 this year, and then rising to $0.89 the following year. AEG received Dutch government aid in the 2008 financial crisis, and has been selling operations to repay its debts. The latest sale, Guardian Life in the U.K. for $451 million, takes it a step closer to achieving this goal. It will continue to manage Guardian’s assets of £7.5 billion (approximately $11 billion).

    Well on the way to achieving its target of full repayment to the Dutch government, and continuing to shed non core assets, for Aegon it is deals like the Guardian one that will push it to a better-managed profit stream. When the company has fully repaid its debts, it is likely to reinstate dividend payments. This will help the stock price near and long term.

Top 10 Dividend Stocks To Own Right Now: Aercap Holdings N.V. (AER)

AerCap Holdings N.V., through its subsidiaries, operates as an integrated aviation company worldwide. It engages in leasing and trading aircraft and engines; and selling parts. The company also provides aircraft management services, as well as aircraft and limited engine MRO services, and aircraft disassembly services through its repair stations. In addition, it offers aircraft services, including remarketing aircraft; collecting rental and maintenance payments, monitoring aircraft maintenance, monitoring and enforcing contract compliance, and accepting delivery and redelivery of aircraft; conducting ongoing lessee financial performance reviews; inspecting the leased aircraft; coordinating technical modifications to aircraft to meet new lessee requirements; conducting restructurings negotiations in connection with lease defaults; repossessing aircraft; arranging and monitoring insurance coverage; registering and de-registering aircraft; arranging for aircraft and aircraft engine valuations; and providing market research. The company?s management services include leasing and remarketing, cash management and treasury, technical advisory, and accounting and administrative services. As of March 31, 2011, it owned 272 aircraft and 95 engines, which it leased under operating leases to 118 lessees in 53 countries. The company was founded in 1995 and is headquartered in Schiphol, the Netherlands.

Best European Companies For 2014: British American Tobacco Industries p.l.c.(BTI)

British American Tobacco p.l.c., through its subsidiaries, engages in the manufacture, distribution, and sale of tobacco products. The company offers cigars, cigarettes, smokeless snus, roll-your-own, and pipe tobacco products under the Dunhill, Kent, Lucky Strike, Pall Mall, Vogue, Viceroy, Kool, Rothmans, Peter Stuyvesant, Benson & Hedges, and State Express 555 brand names. It has operations in the Asia-Pacific, the Americas, eastern and western Europe, Africa, and the Middle East. The company was founded in 1902 and is headquartered in London, the United Kingdom. British American Tobacco p.l.c. operates independently of Remgro Ltd. as of November 03, 2008.

As NVIDIA Stock Becomes Indispensable to the Gaming World, Is It Time to Buy?

The folks at graphics-chip specialist NVIDIA (NASDAQ: NVDA  ) has certainly been busy of late. In fact, NVIDIA stock is currently trading within 6% of its 52-week-high after the company released solid first-quarter results last month. The month before, NVIDIA management announced plans to return at least $1 billion to shareholders in the form of dividends and NVIDIA stock repurchases by the end of this year.

In addition, so far in 2013, NVIDIA has already unveiled both its new Tegra 4 and Tegra 4i LTE mobile processors, outlined roadmaps for more powerful processors going forward, and is close to releasing its own handheld gaming platform, Project Shield.

Anytime, anywhere
What's more, in addition to Shield, the company has released a number of other GRID-enabled products to support its end goals of being able to remotely provide a superior cloud-based graphics experience no matter what the capabilities of your particular device.

Even so, that doesn't mean NVIDIA won't also support other dedicated gaming consoles, such as Microsoft's (NASDAQ: MSFT  ) coming Xbox One, which largely competes with NVIDIA's long-term vision. Remember, a little over two weeks ago, I noted that NVIDIA seemed curiously eager to help make games even better for Microsoft's new Xbox One console.

After all, the company had just officially announced support for its PhysX and APEX software development kits for the Xbox One, which will certainly make it easier for the console's game developers to effectively simulate the real-world physics and movement of objects in their games.

Loyalty where it really counts
Now, in a company blog post Thursday, NVIDIA has taken the opportunity to point out some of the ways game developers have grown to rely on NVIDIA's technology for making the most immersive game titles possible.

For example, at the E3 conference this week, Tony Tamasi, NVIDIA's senior vice president of content and technology, reminded the audience that NVIDIA employs more than 200 dedicated gaming engineers who work closely with game developers, and whose "inventions are woven into more than 56% of AA or better games. And NVIDIA now owns more than 66% of the market for the discrete GPUs powering the most sophisticated PC games."

More specifically, here's a nice little graphic from the company which breaks down some of those "inventions" with NVIDIA's GeForce "Works" technology, including modules focusing on movement as specific as hair, clothing, particles, turbulence, light rays, and water:

nvidia stock

Image source: NVIDIA.

Perhaps most impressive, however, is NVIDIA's aptly named Faceworks tech, which aims to capture every facet of how our faces ... ummm ... work.

In fact, just last month NVIDIA made available a Faceworks demo for anyone to download and play with on their own PC. To save you the trouble, though, check out this video of company CEO Jen-Hsun Huang showcasing Faceworks at the company's GTC Conference this past March: 

So why does this matter? 
Given these incredible technologies, and with the majority of the PC market using NVIDIA's solutions, Tamasi followed up with the following graphic to illustrate how PC is still by far the most important gaming platform in terms of both revenue and developers actively working on games for each platform:

nvidia stock

Image source: NVIDIA

Of course, with both Sony's PlayStation 4 and Microsoft's Xbox One to be released in time for the holiday season this year, you can bet that gap will narrow going forward.

That doesn't mean, however, that NVIDIA will undoubtedly suffer in the gaming market going forward. Remember, NVIDIA is not only tirelessly working to diversify its products into mobile, but is also striving to ensure that its technologies are as pervasive as possible across all platforms. Perhaps most importantly, though, is that NVIDIA is increasingly garnering the loyalty of gaming developers, who matter most to the industry by creating content to fuel the profit-rich global gaming market.

So even though the world is currently excited for the prospects of console dependent gaming with the release of the PlayStation 4 and Xbox One for the time being, it's safe to say NVIDIA should have no problems both maintaining its record margins and continuing its streak of ridiculous profitability, despite the impending threat to its core PC gaming market.

And remember, NVIDIA also boasted cash and equivalents of $3.71 billion with no debt on its balance sheet at the end of last quarter, compared with its current total market capitalization at just $8.85 billion. As it stands, NVIDIA stock trades at just 15.5 times last year's earnings. When you back out all the cash, though, NVIDA stock's price to earnings ratio drops to under 9. 

As a result, I'm convinced that anyone who owns NVIDIA stock now stands to be richly rewarded, even as shareholders wait for the company's cloud-based gaming ambitions to come to fruition down the road.

More expert advice from The Motley Fool
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 a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

The Dangerous Denial of Millennials

Millennials, or those born between 1982 and the early 2000s, don't have a lot going for them. They're buried in student debt. A lot of them are unemployed. Raises have been unheard of and job security is a dream.

But one thing millennials have going for them is time.

Most millennials aren't going to retire for another 30 years, at a minimum. Some have half a century or more ahead of them to save. The muscle that compound interest has over these periods is staggering.

So this finding, from a recent Wells Fargo survey, made me cringe: "Half of millennials (49%) say they are confident in their own abilities to earn and save money for their financial future, and more than a quarter (27%) say 'time is on my side for my savings/investments to grow.'"

Only 27% say time is on their side? Even though about half say they'll be able to save for their future?

That's astounding.

Earlier this year, Standard Life asked a group of retirees what their biggest financial regrets were. The No. 1 complaint: "I wish I had saved for retirement earlier."

I won't bore you with statistics on how much you'll benefit from beginning to save in your 20s instead of your 30s. It's huge, and I think most people know it. They get the math.

What I think most millennials are skeptical of is the idea that they'll earn a decent rate of return on their investments. After all, compounding doesn't work if you aren't earning anything. And the last decade has crushed people's return expectations. As economist Russ Roberts put it to me, it's hard to teach your kids about compound interest when they earn half a cent a year on their savings account.

Sure enough, Wells reports: "More than half of millennials (52%) say they are 'not very confident' or 'not at all confident' in the stock market as a place to invest for retirement."

But you know exactly what's going on here: Millennials are taking the performance of the stock market over the last decade and extrapolating it over the next three, four, or five decades.

Which is as irrational as it is predictable. I dug into the historical data to see how the S&P 500 (SNPINDEX: ^GSPC  ) has performed over every 25-year period from 1900 to 1987. Measured on a monthly basis, there are 1,053 of these periods. Here's what I found:

The worst return over all 25-year periods is a gain of 153%. The average (mean) return over all 25-year periods is gain of 1,240%. The median return over all 25-year periods is a gain of 959%.

The worst you did was more than double your money. And this period includes the Great Depression, two world wars, and the interest rate spike of the 1970s.

The fact that we put so much focus on short-term volatility in a market where long-term returns have been so astounding is a giant disservice to investors -- especially to those who have time on their side.

Make the most of the time you have
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.

Friday, June 14, 2013

Why Qualcomm Lagged This Week

Amid a broad market rally, mobile-chip giant Qualcomm (NASDAQ: QCOM  ) sat on the sidelines this week, significantly lagging the rest of the market. What were investors worried about?

A lot of hopes have been pinned on Samsung's newest Galaxy S4 flagship device. Qualcomm enjoys relationships with both Samsung and Apple (NASDAQ: AAPL  ) , the top two vendors currently dominating the global smartphone market. While Apple is in a summer lull and new iPhones aren't expecting to be launched until this fall, Qualcomm is happy to ride its win in the Galaxy S4, as its Snapdragon chips power several of the geographical variants.

Unfortunately for Samsung and Qualcomm, Galaxy S4 sales may not be stacking up to lofty expectations. Samsung lost more than 6% of its value on Friday on concerns over the Galaxy S4. JPMorgan Chase analyst J.J. Park believes Galaxy S4 units will disappoint investors, and that the South Korean conglomerate has been reducing its orders. Samsung also recently introduced lower-end versions of its flagships, including the Galaxy S4 Mini. That could put pressure on Samsung's revenue and margins.

That's all potentially bad news for Qualcomm. Disappointing unit sales would translate into the sale of fewer Snapdragons, while reducing selling prices of Samsungs would result in lower royalties to Qualcomm. In the meantime, it may be another few months until Apple ramps up new iPhone models carrying Qualcomm baseband modems.

Topeka Capital markets also expressed some neutral sentiment, starting coverage on Qualcomm with a "hold" rating and a $65 price target. Topeka analyst Suji De Silva believes Qualcomm has a strong position to capitalize on smartphone trends but that those opportunities are already priced in at current levels. Qualcomm faces competitive risks that could put pressure on margins as smartphone sales progress to emerging markets.

Qualcomm has underperformed the market year to date and currently trades at just 17.4 times earnings. That's a compelling valuation for one of the companies best positioned to continue riding smartphone adoption, risks included.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged among the five kings of tech. Click here to keep reading.

Unexpected Economic Data Send Markets Falling

A drop in the Thomson Reuters/University of Michigan consumer sentiment index and a surprisingly high Producer Price Index led investors to sell-off stocks, causing the markets to fall lower to end the week. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) ended the day down 105 points, or 0.7%, and now sits at 15,070. The S&P 500 shed 0.59%, and the Nasdaq was cut lower by 0.63% today.

The consumer sentiment index fell to 82.7, from a nearly six-year high of 84.5 in May, while the PPI rose 0.5% in May, which came in much higher than the 0.1% to 0.2% that most economists had expected. The bulk of the increase to the PPI came from higher food and energy prices during the month of May, and because the PPI fell the previous two months, the year-over-year increase to the index is only at 1.7%, which implies that inflation is still in check. For more about the PPI, click here. 

When the Dow falls more than 100 points, it's usually easy to find a few losers. This morning, I talked about why American Express, Du Pont, and Caterpillar were all lower; click here to read about those stocks, or continue reading to learn about JPMorgan Chase (NYSE: JPM  ) , AT&T (NYSE: T  ) , and IBM (NYSE: IBM  ) .

Shares of JPMorgan fell 1.92% today after the company announced it would spin-off its private-equity business known as One Equity Partners. The unit currently manages more than $4 billion for the bank, but under the direction of the top brass at the bank, the company has slowly been reducing its exposure to the private equity world for a number of years. In the long run, this should be a good move, as it will lower the bank's exposure to risk, but it may show up negatively in a few quarterly reports as revenue and profit may be lower. 

Shares of AT&T fell lower by 1.07% this afternoon, despite its closest competitor Verizon (NYSE: VZ  ) moving higher by 0.39% on news that should be seen as great for both companies. President Obama asked federal agencies to look for ways to increase the amount of wireless spectrum which would be available for private companies. This should help open new spectrum up for the two wireless giants as they grow their own networks and expand their offerings and broadband speeds. 

Lastly, shares of IBM closed lower by 0.77% today, after reports broke late yesterday that the company had fired 1,300 employees. The cuts came in the marketing department, the semiconductor research and development unit, and range from executives to rank-and-file workers. The cuts are likely a part of a global restructuring of the company, which IBM announced after it reported poor quarterly results back in April. 

More foolish insight

With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access!

The Fed: Hero or Villain?

Walgreen to Pay $80 Million to Settle Federal Allegations Over Painkiller Distribution

Pharmacy chain Walgreen (NYSE: WAG  ) and the U.S. Drug Enforcement Administration and Department of Justice have reached a settlement agreement over civil charges that the company had practiced improper distribution of prescription painkillers, the company announced yesterday.

The agreement includes Walgreen's paying $80 million and requires it to to surrender its DEA registrations at six of its more than 800 Florida pharmacies until May 2014 and at a Florida distribution center until September 2014.

The company had allegedly made violations in the record-keeping and dispensing of several controlled substances. Said violations were discovered through investigations of the company's distribution center in Jupiter, Fla., and six additional retail pharmacies in Florida. Walgreen has agreed to pay $80 million in the settlement, and expects the impact to be approximately $0.04 to $0.06 per share during its next quarter.

Kermit Crawford, Walgreen's president of pharmacy, health and wellness, said in a statement that the company has already made great strides in preventing abuse of prescription drugs. "We have identified specific compliance measures – many of which Walgreens has already taken – to enhance our ordering processes and inventory systems, to provide our team members with the tools, training and support they need to ensure the appropriate dispensing of controlled substances and to improve collaboration across the industry."

Authorities said the Jupiter center failed to flag suspicious orders of drugs it received from pharmacies, and the retail outlets routinely filled prescriptions that clearly were not for a legitimate medical use. The upshot was many more doses of prescription drugs were available illegally on the street. The drugs included oxycodone, hydrocodone, and Xanax.

Miami U.S. Attorney Wifredo Ferrer said the Walgreen civil penalty was the largest in the history of the Controlled Substances Act. The settlement also resolves similar allegations against Walgreens retail pharmacies in Colorado, Michigan and New York, Ferrer said. No criminal charges have been filed.

-- Material from The Associated Press was used in this report.


Thursday, June 13, 2013

Do You Trust the Earnings at Owens & Minor?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Owens & Minor (NYSE: OMI  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Owens & Minor generated $258.4 million cash while it booked net income of $105.7 million. That means it turned 2.9% of its revenue into FCF. That doesn't sound so great.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Owens & Minor look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only 4.4% of operating cash flow, Owens & Minor's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 2.1% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which represented 5.5% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Can your retirement portfolio provide you with enough income to last? You'll need more than Owens & Minor. Learn about crafting a smarter retirement plan in "The Shocking Can't-Miss Truth About Your Retirement." Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Owens & Minor to My Watchlist.

Are You Ready to Buy Chrysler Stock?

Bonds: We've Seen This Movie Before. It Doesn't End Well

Stephen Hester to Leave Royal Bank of Scotland

LONDON -- The shares of Royal Bank of Scotland  (LSE: RBS  ) (NYSE: RBS  )  slumped 21 pence, or 6%, to 305 pence during early trade this morning after the bank revealed the forthcoming departure of its chief executive last night.

The FTSE 100 member confirmed boss Stephen Hester would step down later this year.

RBS said Hester would continue to lead the business until December to ensure a "smooth handover," unless a successor was appointed before then.

The state-backed bank added that a search for a new chief executive would start immediately, and that it would consider both internal and external candidates.

RBS admitted an "orderly succession process" would give the new chief executive time to prepare for the bank's "privatisation process," and lead the group in the years that followed.

Hester confessed he was unable to make an "open-ended commitment" following five years in the job. He said:

We are now in a position where the Government can begin to prepare for privatising RBS. While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey.

Philip Hampton, the chairman of RBS, added:

On behalf of the Board I would like to thank Stephen for his leadership and dedication over the past five years. In the midst of a major crisis, he accepted the challenge of stabilising the bank, turning it around, and putting us in a position where we can begin to plan for returning the organisation to the private sector. His achievements have been considerable.

Hester will depart with a £1.6 million payment in lieu of notice, representing his annual salary and benefits. His long-term incentive plan is expected to pay out £3 million.

Of course, whether Hester's departure, the mooted "privatisation process," as well as the general outlook for the banking sector all combine to make RBS a buy or a sell remains something only you can decide.

For what it's worth, taxpayers acquired 9 billion shares during 2008 and 2009 and need to sell at 502 pence to avoid a loss.

Still, if you currently own RBS shares and are looking for less complicated blue-chip opportunities, this exclusive wealth report reviews five particularly attractive possibilities.

Indeed, all five opportunities offer a rich mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as "5 Shares You Can Retire On!"

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Best Heal Care Stocks To Buy Right Now

Bank of New York Mellon (NYSE: BK  ) reported first-quarter earnings on Wednesday, and while tidings are grim, they're aren't quite as grim as they first appear. Here are three key takeaways for investors.

1. Net-income loss of $266 million
Savvy investors saw this one coming, but it's a shock to see it in black-and-white nonetheless. The bank had previously announced it was going to take a $854 million hit for disallowed foreign-tax credits, courtesy of U.S. Tax Court, but first-quarter 2013 is where the rubber met the road.�

The nearly billion-dollar charge came right off BNY Mellon's bottom line, changing what would have been a $588 million profit into the aforementioned $266 million loss, translating into earnings per common share of -$0.23. The bank plans to appeal the tax court's ruling. �

Best Heal Care Stocks To Buy Right Now: Corporation(LOCM) Corporation operates as an Internet search advertising company that enables businesses and consumers to find each other and connect locally. Its Owned and Operated business unit manages its flagship online property and a proprietary network of approximately 20,000 local Websites that reach approximately 15 million monthly unique visitors. The company places various display, performance, and subscription advertisement products on its and proprietary network. Its Network business unit operates a private label local syndication network of approximately 1,000 U.S. regional media Websites; 80,000 third-party local Websites; and its own organic feed of local businesses plus third-party advertising feeds that focus primarily on local consumers to a distribution network of hundreds of Websites. The company?s Sales and Ad Services business unit provides approximately 45,000 direct monthly subscribers with Web hosting or Web listing products. The compan y was formerly known as Interchange Corporation and changed its name to Corporation in November 2006. Corporation was founded in 1999 and is headquarters in Irvine, California.

Best Heal Care Stocks To Buy Right Now: Hitachi Ltd. (HIT)

Hitachi, Ltd. manufactures and sells electronic and electrical products primarily in Asia, North America, and Europe. Its Information & Telecommunication Systems segment provides systems integration, outsourcing services, software, disk array subsystems, servers, mainframes, telecommunications equipment, and ATMs. The company?s Power Systems segment offers thermal, nuclear, hydroelectric, and wind power generation systems. Its Social Infrastructure & Industrial Systems segment provides industrial machinery and plants, elevators, escalators, and railway vehicles and systems. The company?s Electronic Systems & Equipment segment offers semiconductor and LCD manufacturing equipment, test and measurement equipment, medical electronics equipment, power tools, and electronic parts manufacturing systems. Its Construction Machinery segment provides hydraulic excavators, wheel loaders, and mining dump trucks. The company?s High Functional Materials & Components segment offers wires and cables, copper products, semiconductor and display-related materials, circuit boards and materials, specialty steels, magnetic materials and components, and casting components and materials. Its Automotive Systems segment provides engine management systems, electric power train systems, drive control systems, and car information systems. Hitachi?s Components & Devices segment offers HDDs, LCDs, information storage media, and batteries. Its Digital Media & Consumer Products segment provides optical disk drives, flat-panel TVs, LCD projectors, mobile phones, room air conditioners, refrigerators, washing machines, and air-conditioning equipment. The company?s Financial Services segment offers leasing services and loan guarantees. Its Others segment provides logistics and property management services. The company serves industrial companies, financial institutions, utilities, governments, and individual customers. Hitachi was founded in 1910 and is headquartered in Tokyo, Ja pan.

Best Medical Companies To Invest In 2014: Emergeo Solutions Worldwide Inc(EMG.V)

Emergeo Solutions Worldwide Inc. develops, integrates, sells, and supports emergency management, environment health and safety, and security software solutions and services in Canada, the United States, the Middle East, and Australia. The company?s product line includes EmerGeo FusionPoint, a Web-based crisis information management system; EmerGeo Mapping software, an open emergency mapping tool that integrates with customer's existing GIS systems, EmerGeo FusionPoint, and Google earth; and Portable EOC. It also offers training, implementation, and integration services. The company was formerly known as EmerGeo Solutions Inc. and changed its name to EmerGeo Solutions Worldwide Inc. in August 2008. EmerGeo Solutions Worldwide Inc. was founded in 2002 and is headquartered in Vancouver, Canada.

Best Heal Care Stocks To Buy Right Now: Mesa Uranium Corp (MSA.V)

Mesa Exploration Corp., an exploration stage company, engages in the identification, acquisition, and exploration of mineral properties in the United States. It primarily explores for uranium, lithium, and potash mineral properties. The company holds interests in various mineral properties located in Utah and Arizona. It primarily holds interests in the Bounty potash project that consist of 104 square miles of potash leases and exploration permits located in the Great Salt Lake Desert of western Utah. The company was formerly known as Mesa Uranium Corp. and changed its name to Mesa Exploration Corp. in March 2011. Mesa Exploration Corp. is headquartered in Vancouver, Canada.

Wednesday, June 12, 2013

Today's 3 Worst Stocks

It's been a tough week for equities. Markets stumbled for a third straight day on Wednesday, as investors await with caution and anxiety next week's Federal Open Market Committee hearing. The central bank will address the next steps in quantitative easing efforts at that point, and some of the looming uncertainty should be cleared up. But until that point, stocks may continue to be nervous wrecks, like today's three laggards. The S&P 500 Index (SNPINDEX: ^GSPC  ) lost 13 points, or 0.8%, to close at 1,612. 

First Solar (NASDAQ: FSLR  ) has done a superb job at underperformance the past few days. Not only was it yesterday's worst performer, losing more than 7%, but investors also thought Tuesday's stumble wasn't brutal enough and further sold off shares to the tune of 10.8% today. Wall Street had good reason to be bearish: The solar-energy company plans to raise additional capital by diluting current shareholders with an 8.5 million-share secondary offering. 

Biogen Idec (NASDAQ: BIIB  ) slumped 7.4% after Citigroup downgraded the stock from a buy to a hold. Even more compelling was the rationale behind the downgrade, as the analyst worried about the company's MS treatment in Europe. The Citigroup report suggested that prescriptions may have been overstated by as much as 30%, and that the European Medicines Agency may not end up providing the competitive protection for the drug shareholders had hoped for. 

Lastly, shares of Electronic Arts (NASDAQ: EA  ) fell 4.7% Wednesday, its third straight day of major losses. EA said at the Electronic Entertainment Expo that it's still working on developing its policy on used games for the new Xbox One console. That's a luxury Microsoft gave game developers, which means EA could choose to make the resale of its gaming titles much more expensive -- and therefore undesirable -- for the second or third owner. However, if you're a fan of used games, you'll like the game developer's tone today, as a company official said it looks at used games "from a user standpoint and a gamer standpoint."

Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past two years. The stakes have never been higher for the company: Is it done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.

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SEC Charges 2 Brothers on Insider Trading Scheme

The Securities and Exchange Commission filed civil complaints against two brothers on Wednesday, alleging that Andrew W. Jacobs and his brother Leslie J. Jacobs II traded on inside information they possessed about a tender offer made by French pharmaceutical company Sanofi (NYSE: SNY  ) to buy OTC health-care manufacturer Chattem in 2010.

In a press release, the SEC described how in December 2009, Andrew learned from his brother-in-law, a Chattem executive, that the buyout was in the works. The brother-in-law told Andrew to keep the information confidential, but Andrew instead called his brother, Leslie, to tell him of the deal -- at which point Leslie allegedly bought 2,000 shares of Chattem before the share price could rise in response to the buyout. Leslie then allegedly sold these shares and pocketed a $49,457.21 profit.

The SEC is now suing the brothers based on those allegations and demanding they be permanently enjoined from taking part in similar shenanigans in the future, disgorge their profits, and pay interest on the illicit profits and penalties in addition. The SEC also wants Andrew Jacobs banned from serving as an officer or director of any public company for a period of time, inasmuch as he was serving in such a capacity for an unnamed public company at the time he allegedly passed confidential information to his brother.

Mindray Medical Appoints New Co-CEO

Has Amazon Stock Lost Its Golden Touch?

Don't look now, but the stock market may have finally woken up and realized that (NASDAQ: AMZN  ) stock isn't all its cracked up to be. Growth has slowed, profits don't exist, and a focus on adding more and more services to Prime is a recipe for bigger and bigger losses.

Yesterday, Amazon announced a big investment in content for Prime users. The company is licensing 250 TV seasons of Nick Jr., Nickelodeon, MTV, and Comedy Central from Viacom (NASDAQ: VIA  ) in an effort to become a major competitor to Netflix (NASDAQ: NFLX  ) . The terms of the deal weren't released, but for a proxy, Netflix is reportedly spending $300 million per year for Disney content. It's reasonable to assume the Viacom deal will cost tens of millions of dollars per year. Add to that the five new original series given the green light last week, and we could see hundreds of millions in new costs next year.

The problem for investors is that the cost of Prime is going up, and there's little evidence Amazon will ever turn Prime's success into a profit.

Another great deal for consumers -- but what about investors?
My fellow Fools may say this is another great deal for Amazon. The bigger Prime gets, the stickier it is, and the more consumers will spend shopping on Amazon. That's a great thesis if Prime were expensive enough to cover the services it provides, but it isn't.

Prime began as a "free" two-day shipping offer, and judging by the cost of shipping, that alone may be a money-loser. I'm a regular Prime user, and I order about five items a month. If we figure $10 per item (I've ordered golf clubs and vacuums, so $10 is generously low), that's a shipping cost of $600 per year. On top of that, Amazon is spending millions to bring in streaming content and millions more to develop its own content. I get all of this for $79 per year. 

The thesis is that Amazon makes up for the added cost with higher sales and eventually higher margins. But over the past year, Amazon's gross margin (including shipping) was down 0.2% to 6.8%. Click here for a deep dive I did into Amazon's margins after the first quarter.

On the streaming side, Amazon is playing an arms race against Netflix in a never-ending battle to attract customers. But neither company has proved the ability to make a long-term profit, and content costs are only going up while revenue per customer has remained relatively flat. That's a recipe for long-term losses for both companies.

The only thesis that makes sense
If you're an Amazon bull, you must think it will grow sales forever and eventually crush all retailers and eventually generate higher margins. The problem is that revenue growth is slowing and margins haven't picked up a bit.

AMZN Revenue Quarterly YoY Growth Chart

AMZN Revenue Quarterly YoY Growth data by YCharts.

How big does Amazon need to get before we can expect a profit? The company sold $64 billion of products over the past year, so maybe $100 billion is the tipping point -- or maybe $200 billion?

Investors are starting to question Amazon stock
Amazon CEO Jeff Bezos has said his competitors' margins are his opportunity, but that means he doesn't have a real interest in making a long-term profit. But investors do, and with a market cap of $121 billion Amazon eventually needs to show it can make money. With Amazon stock lagging the market this year, maybe it's finally time to pony up some profits for the lofty valuation.

What I've questioned all along about Bezos' model is its ability to make money. He can get into all the markets he wants, but if he can't make a profit, then the company isn't worth a hill of beans.

In the meantime, I'll take my shipping and streaming subsidies with a smile. Amazon has lower prices than lots of competitors, and with my Prime membership I get two-day shipping and lots of new streaming content. Speaking of which, a $1.93 battery order is here. Don't worry; it made it from New York to Minnesota in two days -- but I have to wonder what the overall cost was for Amazon.

Another opinion on Amazon's value
Everyone knows Amazon is the king of the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of its competitors'. The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

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Tuesday, June 11, 2013

The Men and Women Who Run Capita

LONDON -- Management can make all the difference to a company's success and thus its share price.

The best companies are those run by talented and experienced leaders with strong vested interests in the success of the business, held in check by a board with sound financial and business acumen. Some of the worst investments to hold are those run by executives collecting fat rewards as the underlying business goes to pot.

In this series, I'm assessing the boardrooms of companies within the FTSE 100. I hope to separate the management teams that are worth following from those that are not. Today, I am looking at Capita (LSE: CPI  ) , the business process outsourcing company that collects TV licenses and council tax and runs army recruitment.

Here are the key directors:

Director Position
Martin Bolland (non-exec) Chairman
Paul Pindar Chief Executive
Gordon Hurst Finance Director
Andy Parker Deputy CEO and Joint Chief Operating Officer
Vic Gysin Joint Chief Operating Officer
Maggi Bell Business Development Director

A chartered accountant, Martin Bolland joined the board in 2008 and became chairman in 2010. He joined Lonrho when it was a sprawling conglomerate under Tiny Rowland in 1981, serving as a divisional CEO from 1986 to 1996. He co-founded private equity firm Alchemy Partners in 1997 and was a partner for 11 years. He has had no other FTSE 100 directorships.

Also a chartered accountant, Paul Pindar joined Capita from 3i in 1987, shortly after 3i backed the 330,000 pound management buyout of Capita from the Chartered Institute of Public Finance and Accountancy. He was appointed managing director in 1991 when Capita listed on the LSE and CEO in 1999.

Exponential growth
However, during this time of exponential growth, Capita was run by founder and executive chairman Sir Rodney Aldridge, who resigned in 2006 when it emerged he had secretly lent 1 million pounds to the Labour Party. Since Sir Rodney's departure, Capita's shares have risen more than 90%, far outstripping the FTSE 100 but only marginally better than nearest peer Serco's 80%.

A third chartered accountant, Gordon Hurst joined Capita in 1988 and became finance director in 1996. He is also the company secretary.

Maggi Bell, Andy Parker, and Vic Gysin are a newer generation. Bell, formerly operations director of Manpower, joined Capita in 1999 and the board in 2008. Parker and Gysin joined the company is 2001 and 2002 respectively, and joined the board in 2011. Parker, a chartered accountant, was elevated to deputy CEO last month, potentially lining him up as a successor to Pindar. Gysin is a former army officer.

Capita has just four non-executives including the chairman, outnumbered by executives in contravention of the Corporate Governance Code. Its justification appears to be the "complexity" of the business.

Together with formerly having an executive chairman and a non-exec who had been a long-serving executive, Capita clearly sees itself as distinct from the majority of FTSE 100 boards. The paucity of cross-directorships with other FTSE companies no doubt reinforces that attitude.

I analyze management teams from five different angles to help work out a verdict. Here's my assessment:

1. Reputation. Management CVs and track record.


Score 3/5
2. Performance. Success at the company.

Score 3/5
3. Board Composition. Skills, experience, balance

Non-compliant, lightweight, dominated by long-serving executives.
Score 1/5
4. Remuneration. Fairness of pay, link to performance.

Not especially controversial; all directors 1 million pounds plus.
Score 3/5
5. Directors' Holdings, compared to their pay.

CEO has 8 million pounds' worth, but FD with 24 years' service under 400k pounds.
Score 3/5

Overall, Capita scores 13 out of 25, a poor result. The company's performance has been good, but a tight-knit management team doesn't permit much independent scrutiny.

I've collated all my FTSE 100 boardroom verdicts on this summary page.

Buffett's favorite FTSE share
Legendary investor Warren Buffett has always looked for impressive management teams when picking stocks. His recent acquisition, Heinz, has long had a reputation for strong management. Indeed Buffett praised its "excellent management" alongside its high-quality products and continuous innovation.

So I think it's important to tell you about the FTSE 100 company in which the billionaire stock picker has a substantial stake. A special free report from The Motley Fool -- "The One U.K. Share Warren Buffett Loves" -- explains Buffett's purchase and investing logic in full.

Buffett rarely invests outside his native United States, which makes this British blue chip -- and its management -- all the more attractive. So why not download the report today? It's totally free and comes with no further obligation.


Google Beats Facebook Again

The following video is from Monday's MarketFoolery podcast, in which host Chris Hill, along with analysts Jason Moser and Andy Cross, discuss the top business and investing stories of the day.

Last month Facebook (NASDAQ: FB  ) was on the verge of buying Waze, the maps and traffic data service based in Israel, for $1 billion. Yesterday came reports that Google (NASDAQ: GOOG  ) is buying Waze for $1.1 billion to 1.3 billion. One of the key differences in the proposed deals is that Google's offer keeps Waze in Israel for the next three years, plus Waze keeps its brand and will operate independently.

In this installment of MarketFoolery, our guys analyze why the deal makes sense for Google as well as why Google's cash advantage over Facebook is so strong.

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.

The relevant video segment can be found between 0:45 and 6:59.

For the full video of Monday's MarketFoolery, click here.

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The First U.S. Utility and an Industry Doomed by the PC

On this day in economic and business history...

The first public gas utility company in the Western Hemisphere -- and one of the earliest known public utilities anywhere -- was born in a museum on Baltimore's Holliday Street on June 11, 1816. Museum proprietor Rembrandt Peale awed his patrons that day with a "ring beset with gems of light" fueled by coal gas, and the event planted the notion of lighting the streets of Baltimore in his mind. A week later, Peale obtained government approval for his plan to lay gas pipelines under the streets to light public lamps, and the Gas Light Company of Baltimore was born.

"A History of the Consolidated Gas Electric Light and Power Company of Baltimore," written in 1928 by Delbert B. Lowe, recounts the origins of this groundbreaking utility and the pre-natural-gas fuel it used:

The gas manufactured by this first company ... was made by burning coal in cast-iron retorts, the gas being driven off and conducted away from the retort by a pipe. It was then cooled and stored in gas holders. This gas was used exclusively for over 50 years, or until the introduction of water gas. ...

The water gas was made by passing steam over anthracite coal, heated to incandescence. In order to make the gas burn with a luminous flame it was mixed with vaporized oil. It proved to be so much cleaner and cheaper than coal gas that the plant ... continued in operation until 1904.

By the 20th century, electric generators and power plants had begun competing with the gas utilities of the world, and the competition pushed the original Baltimore gas utility into a 1906 merger with an upstart electric-power company. From this point on, the integrated utility (eventually renamed Baltimore Gas and Electric) had no real local competition. It continues to provide Baltimore with power and natural gas today as a subsidiary of Exelon (NYSE: EXC  ) , which merged with BGE's corporate parent in 2012.

Utilities have come a long way in the two centuries since that first dazzling display of gas lighting in 1816. In 2009, gas utilities in the United States reported nearly $78 billion in total revenue, and the electric-power industry reported more than $350 billion in aggregate revenue that same year.

One big mistake deserves another
The minicomputer era came to an end (years after its natural death) when onetime minicomputer industry leader Digital Equipment Corporation became part of Compaq on June 11, 1998. The $9.6 billion merger, which had been proposed early that year, was at the time the largest such deal in computing history and was intended to help Compaq compete in the highly competitive enterprise-computing arena. CNNMoney noted that the deal "enable[d] Compaq to take advantage of the coming boom in business computing as companies upgrade their equipment ahead of the new millennium." The new company was to become the second-largest computer-maker in the world, ahead of even Compaq's eventual acquirer, Hewlett-Packard (NYSE: HPQ  ) .

Compaq never figured out what to do with DEC, which by 1998 was already greatly diminished by the dominance of PCs. Its software, training, disk-drive, microprocessor, printer, networking, and minicomputer lines were all divested between 1992 and the time Compaq came calling with its offer, leaving a company primarily focused on the Internet, including then-popular search engine AltaVista. Within a year, Compaq would sell majority ownership of AltaVista, and this was only one aspect of the difficulties it had in absorbing DEC.

By the time HP and Compaq merged four years later, Compaq execs were publicly acknowledging the failure of their DEC deal, which was entered into without a clear understanding of how DEC would fit into its new corporate structure or how it would contribute to the combined company's bottom line. If Compaq execs learned their lessons, they didn't apply them particularly well to the HP megamerger: Within months of completing that deal, the new company's two (former) halves began squabbling over divisions of responsibility and corporate culture -- early evidence of marital strife that would undermine the company's long-term progress in the fast-changing computer industry of the early 21st century.

The massive wave of mobile computing has done much to unseat the major players in the PC market, including venerable technology names like Hewlett-Packard. However, HP is rapidly shifting its strategy under the leadership of CEO Meg Whitman. But does this make HP one of the least-appreciated turnaround stories on the market, or is this a minor detour on its road to irrelevance? The Motley Fool's technology analyst details exactly what investors need to know about HP in our new premium research report. Just click here now to get your copy today.

An American industry titan hits the growth wall
The Dow Jones Industrial Average (INDEX: ^DJI) is nothing if not discerning. Every component it has added (prior to the Nasdaq's creation) has been a member of the New York Stock Exchange. In many cases, a dominant company joins the Dow within a few years of graduating to the Big Board from lesser exchanges, as was the case with Alcoa (NYSE: AA), which began trading on the NYSE on June 11, 1951.

Alcoa in 1951 was midway between its momentous antitrust victory of 1945 and its ascent to the Dow, which it accomplished in 1959. The aluminum titan rolled into the NYSE on the strength of net earnings that had doubled since its 1949 fiscal year from $20.9 million to $46.9 million. Its expansion plans had brought the first new aluminum plant built since the end of World War II to production status in 1950 as well, which helped boost annual revenue by more than $100 million year over year to $481 million. Sixty years later, its top and bottom lines had grown to $21 billion and $254 million, respectively, highlighting both the growing demand for aluminum products and Alcoa's difficulty in keeping its costs under control as foreign producers encroach on its territory. The discrepancy between Alcoa's 6.5% annualized revenue growth rate and its tepid 2.9% annualized income growth over this period helps to explain why Alcoa has become one of the Dow's weakest stocks in recent years.

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The Curse of the Parabolic Move

 Oh sure... it's all fun and games when prices are going straight up.
But as the old saying goes... What goes up must come down. And the straighter up it goes, the faster it drops...
 Take the utility sector, for example...
We first warned about the dangers of the parabolic move in utility stocks a few weeks ago. You can see what has happened to the sector since then...
Utility Stocks Have Crashed Over the Last Few Weeks
So with this chart in mind – and with a profitable utility short sale under our belt – it's worthwhile to look for other parabolic moves in danger of breaking down. Here's what we found...
 Japan's stock market has been ripping higher since December – when the Bank of Japan announced its own version of quantitative easing. The Japan iShares Fund (NYSE: EWJ) rallied 33% in five months before giving up some of those gains last week.
Over the long term, this bull market could power higher. But in the short term, if the parabolic breakdown plays out as it has in the utility sector, any brief bounce this week could be followed by even lower prices later on. EWJ has support at about $10.50 – which looks like a good downside target...
Japanese Stocks (EWJ) Have Further to Fall
 What started out as a steady grind higher for Microsoft (NASDAQ: MSFT)shares this year has morphed into a parabolic blast-off. The stock is up 23% in just the past five weeks.
The chart does look like it can push higher at least one more time. But the move is getting very stretched. A reversal from slightly higher levels could knock the stock back down to support near $31. If you have a long-term position in the stock, that shouldn't affect you one way or the other. But short-term traders can consider taking some money off the table...
Microsoft's (MSFT) Upward Move is Getting Stretched
 With the stock up 200% in two months, there's no question shares of Tesla Motors (NASDAQ: TSLA) have gone parabolic. Shorting this stock is tough to do, though, since 44% of the float is already sold short – and painfully underwater. When this electric-car bubble finally pops, it should be one heck of an explosion...
Tesla Motors (TSLA) Has Gone Parabolic
– Jeff Clark

Monday, June 10, 2013

S&P 500 Posts Biggest Two-Day Gain Since January on Jobs

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The Top Ten Stocks for June 7

U.S. stocks rose, giving the Standard & Poor's 500 Index its best two-day rally since January, after better-than-forecast growth in employment indicated the economy continues to expand.

Boeing Co., Walt Disney Co. and American Express Co. added more than 2.4 percent, pacing gains in the Dow Jones Industrial Average (INDU) as a gauge of cyclical stocks rallied. Wal-Mart Stores Inc. added 0.9 percent after approving a new buyback program. Gap Inc. rose 2.7 percent after reporting same-store sales for May that beat analyst estimates. Iron Mountain Inc. tumbled 16 percent after saying its conversion to a real estate investment trust is being scrutinized by tax regulators.

The S&P 500 (SPX) jumped 1.3 percent to 1,643.38 at 4 p.m. in New York. The index rallied 2.1 percent in the past two days to finish the week 0.8 percent higher. The Dow jumped 207.50 points, or 1.4 percent, to 15,248.12. More than 6.4 billion shares traded hands on U.S. exchanges today, in line with the three-month average.

"This report's in the sweet spot," Brian Jacobsen, who helps oversee $221.2 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by telephone. "It shows investors that the economy is growing but not fast enough for them to be concerned that the Fed is going to start tapering its asset purchase program."

Federal Reserve stimulus and better-than-expected earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 143 percent from a 12-year low in 2009. The index has dropped 1.5 percent since closing at a record high on May 21, the day before Fed Chairman Ben S. Bernanke suggested the central bank could curtail its $85 billion monthly bond purchases if the job market improved in a "real and sustainable way."

Jobs Report

Stocks surged after a Labor Department report showed payrolls rose 175,000 last month from a revised 149,000 increase in April that! was smaller than first estimated. The jobless rate climbed from a four-year low as more Americans entered the labor force. Data yesterday showed jobless claims decreased by 11,000 to 346,000.

The improvement in the labor market is a sign companies are looking beyond fiscal restraint this quarter and are optimistic enough about the prospects for demand in the second half of the year. At the same time, bigger job and wage gains are needed to move Fed policy makers closer to scaling back record monetary stimulus.

Bernanke's Target

Bernanke needs to see four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases, according to Vincent Reinhart, a former director of the Fed's Division of Monetary Affairs. About 194,000 jobs were added on average over the past six months.

"The jobs report provided a sense of relief for a lot of investors," Robert Doll, chief equity strategist at Nuveen Asset Management LLC, said in a phone interview. His firm manages about $250 billion in assets. "Many people had feared it was going to be worse than the estimates, but we remain stuck in the middle. It's not so weak that you say 'Oh my goodness, the economy,' and it's not so strong that you expect the Fed is going to start scaling back bond buying in September."

Bill Gross, manager of the world's biggest bond fund, said in a Bloomberg Radio interview that the Fed is unlikely to reduce its asset purchases after the unemployment rate climbed. Economists estimate the Fed will scale back bond buying to $65 billion at the Oct. 29-30 meeting of the Federal Open Market Committee, according to the median estimate in a Bloomberg survey this week. In a similar survey before the Fed's last meeting, economists forecast the central bank to taper to $50 billion in the fourth quarter. The FOMC next meets June 18-19.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, lost 9 percent to 15.14. The benchmark! gauge fo! r American stock options, which moves in the opposite direction as the S&P 500 about 80 percent of the time, fell for the second day after briefly erasing its loss for the year yesterday. The index has dropped 16 percent this year.

Nine of 10 industries in the S&P 500 advanced, with consumer discretionary and industrial stocks rising more than 1.7 percent to pace gains. Boeing, the world's largest plane maker, added 2.7 percent to $102.49, the stock's highest since 2007.

The Morgan Stanley Cyclical Index (CYC) rose 1.6 percent as companies whose earnings are most tied to economic swings rallied after the jobs data. Disney, the world's largest theme park operator, added 2.7 percent to $64.85, and American Express, the biggest credit-card issuer by purchases, gained 2.4 percent to $78.04. Morgan Stanley, the biggest financial brokerage, surged 6.3 percent to $27, the most in the S&P 500.

'Stable Footing'

"We're seeing a rotation into cyclicals and a belief that the economy is on stable footing," Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said by phone. "We're still in a buy-the-dips mentality and people continue to look at the value that equities pose."

Wal-Mart Stores climbed 0.9 percent to $76.33. The new $15 billion buyback program was effective yesterday and replaces the previous $15 billion authorization, which had about $712 million remaining, the world's largest retailer said in a statement.

Gap advanced 2.7 percent to $42.09 after the largest U.S. specialty-apparel retailer reported a 7 percent increase in total comparable sales for last month. Analysts had projected a 3.7 percent gain, on average, according to researcher Retail Metrics Inc.

GameStop Rallies

Yum! Brands Inc. (YUM) climbed 3.4 percent to $73.52. UBS AG raised its recommendation for the owner of KFC to buy from neutral and added the company to its U.S. "key call"! list, sa! ying sales and profitability in China will start to improve from the impact of recent health scares in the country.

GameStop Corp. rose 6.2 percent to $36.75 for the second-biggest gain in the S&P 500. The world's largest video-game retailer rose after Microsoft Corp., responding to concerns about trade-in rights on its new Xbox One console, said users may sell titles back to retailers or give them to friends provided they have approval from the publisher.

TiVo Inc. dropped 19 percent to $11.10. The developer of digital-video recorders settled a patent dispute with Google Inc.'s Motorola Mobility unit, Cisco Systems Inc. and Time Warner Cable Inc. for $490 million -- less than estimated.

Iron Mountain tumbled 16 percent to $28.95 for the biggest decline in the S&P 500, and Equinix Inc. slumped 5.5 percent to $192.57. The two technology companies said the U.S. Internal Revenue Service is scrutinizing their eligibility to convert to real estate investment trusts.

AT&T Tightens Its Purse Strings at Apple's Expense

Two years ago, wireless carriers tightened their upgrade policies across the board, while also implementing upgrade fees to partially offset subsidy expenses. That trend is happening again this year, which could very well come at Apple's (NASDAQ: AAPL  ) expense.

In April, No. 1 carrier Verizon (NYSE: VZ  ) Wireless announced that it was tightening its upgrade policy, increasing the timeframe from 20 months to 24 months, to "align the upgrade date with the contract end date," as if that's a good thing for consumers. Big Red has been aggressively seeking to rein in subsidy expenses, in part by promoting platform competition.

AT&T (NYSE: T  ) has just announced that it is following in Big Red's footsteps, similarly extending the amount of time that consumers have to wait before they can buy shiny new smartphones, which will now be a full 24 months. That will also "align" upgrade dates with contract end dates, and the changes will impact Ma Bell customers whose contracts expire in March 2014 or later.

In some ways, AT&T's change is a bigger blow to Apple than Verizon's. AT&T has historically been the predominant iPhone carrier in the U.S., with the iPhone comprising 80% of its smartphone activations last quarter. Carriers tightening upgrade policies will inevitably come at the expense of smartphone makers, and Apple is the most prominent smartphone maker on AT&T.

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

Even though Verizon is larger than AT&T, Ma Bell still sells more iPhones than Big Red. Verizon has been selling a lot of older models, in part by fulfilling pent-up demand at lower price points once the iPhone 4 moved to free on contract. Still, the iPhone was over half of all smartphones sold on Verizon Wireless last quarter.

Now the two largest domestic carriers have tightened their upgrade policies, which are both incrementally negative developments for Apple. The Mac maker has the strongest installed base in the U.S., with comScore's latest estimates putting Apple's 39.2% well ahead of Samsung's 22%. One saving grace may be that iOS users tend to be more loyal -- they'll just have to wait longer now.

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

McDonald's and Yum!: Competing Visions in China

Following his recent presentation at Sanford Bernstein's 2013 Strategic Decisions Conference in New York, McDonald's (NYSE: MCD  ) CEO Donald Thompson was asked about his company's strategy in China, given that it lags behind competitor Yum! Brands (NYSE: YUM  ) in both revenue and number of outlets in the country. Thompson was suffering from a cold on the day of the conference, but his breakdown of the question was one of the more coherent and emphatic position points you'll hear from a Fortune 500 CEO. Thompson outlined clear strategic and philosophical differences with Yum!'s approach to entering China's massive consumer market, and his answer is worth reading in its entirety:

The headline I would say for us is -- this is not about a race with any one competitor. Not only that, for us at McDonald's the 1,500 to 1,600 restaurants that I talked about from a development perspective are spread around the world. We think that that is the best approach. It gives us diversification in our portfolio of assets around the world. We've got 34,000-plus restaurants, almost 35,000 restaurants around the world. When we grow and develop we will grow and develop in not only the BRICs of Brazil, Russia, India, China, we'll also grow in the South Koreas of the world. We're also growing in the Malaysias of the world. We're growing and franchising even stronger in many other areas that are around the world. So our portfolio is more diverse. We think that's the right approach. Relative to China specifically, China is a great market and it will be a great growth market for years to come.

Today it represents 3% of our operating income. Will that grow in time? Yes, it will grow in time, but we don't have all of our eggs in one basket. So we'll continue to grow China. We'll grow it at a pace that allows us to franchise effectively. We'll grow it at a pace that allows us to continue to seek out sites that we can place drive-throughs in, because that's the best long-term returns. And we'll do it in a way that grows along with the automotive growth in China. We'll start to grow outside of the core cities, which we['ve] begun to do, and we'll establish development licensees even stronger, which we've already begun to do. So our strategy in China is a solid strategy, but it is part of a broader strategy. It's not just about China.

Source: Seeking Alpha Transcript of Sanford Bernstein 2013 Strategic Decisions Conference.

To understand why Thompson shaped his answer the way he did, it helps to review the impetus behind the question: Yum!'s success in China. Yum! has famously staked its future on China, and today, it derives more than 50% of its revenues and 44% of its pre-tax operating profits from the country. This reliance on a single, huge market can garner tremendous rewards, but the pendulum swings both ways: In the first quarter of 2013, operating profits in the company's China division declined 41%, as dreadful publicity surrounding its KFC restaurants' supply chain scared Chinese consumers away. 

Yum!'s three-layer China concentration
Just how concentrated is Yum!'s bet? Yum! is "all in" in China in three ways: First, it has staked its future on an overall revenue concentration in the country, as mentioned earlier. Second, within that concentration, it is focused primarily on the Chinese appetite for fried-chicken menu items at its KFC restaurants. The company wants to exploit the Chinese appetite for its fried chicken while it is still a novelty, and hopes to gain loyal, long-term customers in the process.

Lastly, the company is refranchising (selling company stores to franchisees) aggressively around the world, but in mainland China, it is building its own restaurants. When a company operates its own stores, and those stores outnumber franchises, healthy profits can follow. But the extent to which Yum! has concentrated its business model in China on company locations is surprising. Between 2010 and 2012, Yum! added a net of 1,319 company-owned stores in China. But total worldwide company-owned stores increased by only 307 during the same period, as China additions were offset by refranchising and company-owned-store closures in the rest of the world. As of the end of 2012, 79% of the company's locations in China were company-owned. So not only is Yum! incurring greater revenue risk in China, ultimately it is reshaping the nature of its operating profits, and dialing up both the potential reward and the risk on its bottom line.

McDonald's game plan is more measured
McDonald's has taken a much more balanced approach to China, as Thompson pointed out. With just 3% of operating income generated in the country, McDonald's has a different set of objectives than Yum!. Not that McDonald's is neglecting China: The company considers the country to be one of eight "major markets" that comprise over 70% of the company's revenues. But almost every facet of McDonald's approach differs from Yum!'s. McDonald's will grow in a mix that supports its current balance of franchised versus owned stores. It won't ignore dynamic markets such as South Korea and Malaysia, which, like China, should also see phenomenal growth but will provide portfolio diversification -- something Yum! is apparently not concerned with. McDonald's practices portfolio allocation reminiscent of a cautious mutual fund manager when it expands in developing markets, while Yum! is doubling down in China, a concentration strategy that brings to mind the tactics of large hedge funds. McDonald's possesses a proven restaurant revenue model that squeezes optimum revenue out of drive-through traffic. Yum! has expanded KFCs primarily in malls.

Which strategy wins in the long run?
At this point, it's early to tell which strategy will bear out over time. If you're a fan of McDonald's, you need simply to look at the company's steady growth and clockwork earnings since the 1970s, and it becomes apparent that Thompson's hunt for revenue in developing markets should naturally be diversified and methodical, just as he says. If you're positive on Yum!, the following chart may indicate that near-term setbacks are a risk worth taking. Take a peek at the percentage increase in income from continuing operations over the last five years between the two companies:

MCD Income from Cont. Ops Quarterly Chart

MCD Income from Cont. Ops Quarterly data by YCharts.

One can't deny the upside of Yum! throwing so much of its resources into China. But for all that momentum, McDonald's investors can hardly complain: Due to a significant dividend, and the company's steady earnings per share, McDonald's total-return mark over the last five years is not very far behind Yum!'s, with much less risk:

MCD Total Return Price Chart

MCD Total Return Price data by YCharts.

How to choose
So what to make of these differences? Both companies present intriguing investment opportunities. Whether you weight one more heavily in your portfolio depends on how you align philosophically with each of these visions. Personally, I believe McDonald's presents a safer investment from a risk/reward perspective. With reinvested dividends, McDonald's stock has been a total-return monster over the last 20 years, returning almost 1,000 percent. But for those who possess a fair amount of risk appetite and can hold the stock for several years, Yum! may be worthy of attention. A final investing note: If you buy Yum!, you may want to check the "Restaurant Unit Activity" tables that the company publishes in each quarterly and annual report. Today, over 62% of company-owned stores are found in China. Every percentage point above this in the future will represent potential reward, but also potential gray hairs for buyers of Yum! stock.

Want more direction?
Our top analyst weighs in on McDonald's future in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.

Dow Set to Open Higher After Friday's Gains

LONDON -- Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average (DJINDICES: ^DJI  ) may open 0.26% higher this morning following a 207-point gain on Friday, while the S&P 500 (SNPINDEX: ^GSPC  ) may open 0.35% higher. CNN's Fear & Greed Index has recovered to 46, or "neutral," after closing at 32, or "fear," on Friday.

European markets were broadly unchanged this morning at the start of what is expected to be quiet day, with no major economic reports due in the U.S or Europe. Overnight news that Japan's first-quarter GDP growth was upgraded from 3.5% to 4.1% helped Japan's Nikkei 225 rebound to a 4.9% gain, and most other Asian markets closed slightly higher after last week's losses. In London, the FTSE 100 is up almost 1% as of 7:35 a.m. EDT, while the German DAX is up 0.9 %. The FTSE was held back by falls for resource stocks, which weakened on news that consumer price-inflation in China dropped 2.1% in May from 2.4% in April, missing consensus forecasts of 2.5%. Falling inflation is likely to indicate weak underlying demand for key commodities.

No U.S. economic reports are due today, so investors may continue to consider the implications of Friday's nonfarm payrolls report, which showed that 175,000 jobs were added to the U.S. economy in May. This is below the 200,000 level needed to deliver a material fall in unemployment, and the unemployment rate rose from 7.5% to 7.6% in May, increasing investors' confidence that the Federal Reserve will continue with its QE program for some time yet.

Among the handful of large companies due to report results today, Texas Instruments is expected to report second-quarter earnings of $0.42 per share on revenue of $3.1 billion after markets close tonight, while clothing retailer Lululemon Athletica is expected to report earnings of $0.30 per share on revenue of $341 million. A Bloomberg report suggested that Google may be about to announce a $1.1 billion deal to acquire Waze, an Israeli mapping and navigation firm. Apple may also be in focus; the iPhone-maker is expected to reveal an updated version of the software used on its iPad and iPhone devices at the firm's annual developer conference, which starts today.

Finally, let's not forget that the Dow's daily movements can add up to serious long-term gains. Indeed, Warren Buffett recently wrote, "The Dow advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions." If you, like Buffett, are convinced of the long-term power of the Dow, you should read "5 Stocks To Retire On." Your long-term wealth could be transformed, even in this uncertain economy. Simply click here now to download this free, no-obligation report.

American Eagle: On-Trend Fashion

Sunday, June 9, 2013

Guess What's Driving the Dow Down Again

A huge amount of important economic news from around the world makes it tough to decipher exactly what might be responsible for the stock market's movements this morning, but that in itself shows just how big an impact uncertainty has had in driving the market downward from recent record highs. Overnight, the Japanese stock market plunged once again, falling 4% as comments from Prime Minister Shinzo Abe failed to have as strong an effect as some investors had hoped. Mixed data in the U.S. showed weaker-than-expected job growth and factory orders, stronger-than-expected service-sector activity, and favorable trends in labor costs and productivity, failing to answer any questions and leaving investors once again speculating about whether the Fed will taper off its bond-buying in the near future. The net effect was a loss for the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , which is down 96 points, or 0.63%, as of 10:45 a.m. EDT, while the broader market has lost a similar amount in percentage terms.

Among the morning's worst decliners was Alcoa (NYSE: AA  ) , which has fallen 1.6%. News that two companies in Dubai and Abu Dhabi will merge into a $15 billion joint venture reflects the need throughout the aluminum industry to cut costs and find potential synergies, and Alcoa has been making its own efforts to take advantage of opportunities among the weaker players in the industry. Nevertheless, with the joint venture expected to increase output, it could lead to extended periods of low prices, further hurting Alcoa's long-run prospects.

Disney (NYSE: DIS  ) has also given up ground, falling 1.9% to give back some of its gains from earlier in the week. The company's theme-park ticket price increase over the weekend drew the usual negative responses from customers who already consider the costs of admission to be exorbitant, but it's unlikely that they'll result in substantially lower demand for tickets. Those who sell off the stock even at its current levels, near all-time highs, could miss out on the huge growth opportunities presented by future blockbuster movies from the Marvel and Lucasfilm segments, as well as the potential in television and other content deals.

Finally, beyond the Dow, Chinese solar stock JA Solar (NASDAQ: JASO  ) has dropped 9.1% following an analyst downgrade. Despite soaring sales during the past quarter, with particularly strong growth in the Japanese market, JA Solar still isn't close to making money and has to rely on the potential for module prices to rise once some of its Chinese competitors drop out of the picture. Funding sources continue to provide financing to many struggling Chinese solar companies, and this forestalling of the day of reckoning is bad for companies like JA Solar that would benefit the most from a shakeout.

Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about 15% of global production in this highly consolidated industry, Alcoa is in prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this prospect and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant, simply click here now to get started.

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$10 Million Says Amazon Buys MakerBot

As fellow Fool Blake Bos pointed out last week, it appears that 3-D printing specialist MakerBot is in talks with suitors, which could potentially lead to an acquisition of the four-year-old company.

MakerBot Replicator 2 image, Image source:

More specifically, according to a Wall Street Journal article Wednesday, the folks at MakerBot were recently gauging "options for a new round of venture capital at a valuation of $300 million when the discussions led to interest from possible acquirers."

For those of you keeping track, MakerBot last publicly accepted venture0capital money back in August 2011, when CEO Bre Pettis excitedly announced on the company's website a number of investors had supplied $10 million to help fund its growth. In all, the contributors during that round were led by Foundry Group, but also included Bezos Expeditions, True Ventures, RRE, and more than a dozen other angel investors.

Yes, that Bezos
If you're wondering why Bezos Expeditions might sound familiar, that's because it belongs to none other than (NASDAQ: AMZN  ) CEO Jeff Bezos.

As of this writing, Bezos has used Bezos Expeditions to make selected investments in exactly two dozen promising young businesses, including MakerBot, Business Insider, Heartland Robotics, and, of course, Twitter.

Now, that doesn't mean Jeff Bezos intends on using Amazon to eventually gobble up all of these companies. After all, Bezos Expeditions is a natural extension of his knack for encouraging long-term-minded innovation. What it does show, however, is that Bezos most certainly maintains an interest in MakerBot's operations.

Amazon definitely isn't afraid of making acquisitions that complement its core business. Remember, the company's more recognizable past purchases include Internet Movie Database in 1999, and Box Office Mojo in 2008, Zappos in 2009, Woot in 2010, LoveFilm in 2011, warehouse-optimizing robotics specialist Kiva Systems just last year, and both display-maker Liquavista and book-sharing site Goodreads so far in 2013.

Why not MakerBot?
Back in February, I went out on a limb to say someone needs to by MakerBot already. Naturally, I started by naming the usual suspects, including both 3-D printing stalwart Stratasys (NASDAQ: SSYS  ) and serial acquirer 3D Systems (NYSE: DDD  ) .

But Stratasys, for its part, already seems plenty busy trying to fully integrate the operations of fellow additive manufacturing industry giant Objet, the acquisition for which was completed just last December. Even so, shares of Stratasys did manage to pop 6% in a single day after it announced better-than-expected results during its first quarter (during which GAAP revenue rose 116% from the same year-ago period while adjusted net income rose 40%), so it's safe to say Stratasys is still doing just fine as it stands.

3D Systems, on the other hand, would seem a more likely suitor until we note it has already developed a number of a relatively affordable consumer-focused printers with its Cube printer line. In fact, just last month, 3D Systems reminded us that Staples is not only selling one version of its Cube printers online, but will also soon carry the nifty-looking devices in its bricks-and-mortar stores.

Given the relative redundancy, then, and short of simply purchasing MakerBot to shutter its operations, I'm no longer convinced such an acquisition would make sense for 3D Systems, either.

Amazon's next revolution
In fact, that yet another reason I think Amazon is a front-runner to acquire MakerBot, especially when we consider that this week's recent acquisition talks supposedly arose from conversations with venture capitalists.

What's more, like so many acquisitions before it, MakerBot could also serve nicely to complement Amazon's existing operations.

MakerBot's already huge Thingiverse design library, for example, could be integrated into Amazon's core website, thereby giving it unprecedented reach and bolstering more interest in 3-D printing than ever before.

Amazon could also use MakerBot to sell electronic designs for many of its existing products, allowing MakerBot owners to simply print the items out at home instead of waiting for them to be shipped. In the future, as 3-D printing solutions continue to improve and evolve, the number of possible printable products will only continue to rise.

But what do you think? Would Amazon be better off spending its money elsewhere? Is there another company you think is more likely to purchase MakerBot?

By all means, share your thoughts in the comments section below.

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