Two Tech Giants Lead the Dow's Gains

Whether Ben Bernanke and the Federal Reserve are backing off tapering plans or not, investors took his speech yesterday evening as a bullish sign for stocks. Bernanke said short-term rates would remain near 0% until unemployment reaches 6.5% and would likely remain low after that, given the slow increase in jobs domestically. None of this was really new news, but sometimes the market needs to be coddled and told that everything will be all right -- and that's exactly what Bernanke did yesterday. Late in today's trading session, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 1.1%, and the S&P 500 (SNPINDEX: ^GSPC  ) has gained 1.4%. 

PC stocks helped drive those gains after IDC said global PC sales fell 11.4% in the second quarter. That was slightly better than expectations and a 13.9% decline in the first quarter. This doesn't mean PC sales are booming, but it may be a sign that the PC market is starting to stabilize. Shares of Intel (NASDAQ: INTC  ) were the biggest beneficiary of the news, jumping 3.1% today on hope that this will give the company more time to execute its plan to get into the mobile-chip business. 

Microsoft (NASDAQ: MSFT  ) is up 3% today after CEO Steve Ballmer announced a reorganization of the company that will allow it to innovate "with greater speed, efficiency, and capability." The company is trying to become more than a software company, integrating devices and services into its offerings as well. Microsoft "will pull together disparate engineering efforts today into a set of our high-value activities," according to Ballmer, making Microsoft a more focused and functional organization.  

It will take years to tell whether the reorganization will pay dividends to shareholders, but this could be a sign that Microsoft is struggling to find its way in the new tech world. It survived for years as a software maker, but it's been forced to get into the device business, and it is struggling to market these products to consumers who have plenty of options.

It's an uphill battle for Microsoft but with only a handful of companies with the size to compete in the new tech world it has a fighter's chance to win the war. Find out who may be a better bet in "Who Will Win the War Between the 5 Biggest Tech Stocks," The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

Why PVH's Earnings May Not Be So Hot

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 PVH (NYSE: PVH  ) , 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, PVH generated $235.9 million cash while it booked net income of $318.3 million. That means it turned 3.6% of its revenue into FCF. That sounds OK. However, FCF is less than net income. Ideally, we'd like to see the opposite.

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 PVH 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 26.4% of operating cash flow coming from questionable sources, PVH investors should take a closer look at the underlying numbers. 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 16.8% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 47.9% 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.

Selling to fickle consumers is a tough business for PVH or anyone else in the space. But some companies are better equipped to face the future than others. In a new report, we'll give you the rundown on three companies that are setting themselves up to dominate retail. 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 PVH to My Watchlist.

S&P 500 Has Best 3-Day Rally Since January on Economy

U.S. stocks rose, sending the Standard & Poor's 500 Index to its biggest three-day rally since January, on better-than-estimated economic data and assurances on stimulus efforts from Federal Reserve officials.

Nine of 10 industries in the S&P 500 (SPX) advanced. JPMorgan Chase & Co. and Citigroup Inc. gained more than 1.2 percent as financial companies rallied. An S&P index that tracks homebuilders surged 2.9 percent as D.R. Horton Inc. and Lennar Corp. increased at least 3.8 percent. Time Warner Cable Inc. jumped 4.4 percent as billionaire John Malone was said to be exploring scenarios for how Charter Communications Inc. could acquire the company.

The S&P 500 advanced 0.6 percent to 1,613.20 at 4 p.m. in New York. The Dow Jones Industrial Average rose 114.35 points, or 0.8 percent, to 15,024.49. Almost 6.2 billion shares changed hands on U.S. exchanges, 4.4 percent below the three-month average.

"The data continues to show that the economy is growing at a very slow pace and that unemployment is improving at a very slow pace," Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, said in a phone interview. The firm manages about $650 million. "It means the likelihood that the Federal Reserve changing course on its monetary policy this year is very low, and that further solidifies the case that last week's correction was emotionally driven and an overreaction."

The S&P 500 has rallied 2.6 percent over the past three days, the most since Jan. 4 and paring its decline for June to 1.1 percent. The index dropped more than 5 percent from May 21 through June 24 as the Fed said it may reduce its bond purchases if the economy and labor market improve as forecast.

Bull Market

Central bank stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging as much as 147 percent from its March 2009 low. Despite this month's decline, the S&P 500 is up 2.8 percent for the quarter and has soared 13 percent for 2013.

Consumer spending in the U.S. rebounded in May following the largest drop in more than three years. Household purchases, which account for about 70 percent of the economy, rose 0.3 percent after a 0.3 percent decline the prior month, Commerce Department figures showed today in Washington. Incomes advanced 0.5 percent, more than projected.

More Americans signed contracts in May to buy previously owned homes than at any time in more than six years. Claims for unemployment benefits decreased by 9,000 to 346,000 last week, indicating employers are slowing the pace of firings.

Fed Speakers

Fed Bank of New York President William C. Dudley said in New York today that the central bank may prolong its asset-purchase program if the economy's performance fails to meet its forecasts. Fed Governor Jerome Powell said in Washington that asset purchases may be scaled back later this year if growth holds up, and any such trimming depends on economic data rather than the calendar.

The comments came a day after Fed Bank of Richmond President Jeffrey Lacker said he expects the U.S. expansion to remain "sluggish" for "a couple more years."

Data yesterday showed gross domestic product expanded at a slower-than-forecast 1.8 percent annualized rate in the first quarter, fueling speculation the Fed will maintain the pace of quantitative easing.

Volatility Index

The Chicago Board Options Exchange Volatility Index, or VIX, retreated 2 percent to 16.86. The benchmark gauge for U.S. stock options surged to the highest level since Dec. 28 last week. The index has fallen 11 percent this week.

Financial and phone companies advanced more than 0.9 percent to lead gains among S&P 500 industries. The Morgan Stanley Cyclical Index of stocks whose earnings are most tied to economic growth increased 1.1 percent. Hewlett-Packard Co. climbed 3.2 percent to $24.77. Boeing Co., the world's largest planemaker, rallied 2.4 percent to $103.15.

An S&P index of homebuilders jumped 2.9 percent for a third day of gains, as 10 of 11 members advanced following the report on existing-home sales. D.R. Horton jumped 3.8 percent to $21.71. Lennar surged 3.8 percent to $37.38.

Financial stocks jumped 1.3 percent as a group. JPMorgan climbed 1.2 percent to $53.15. Citigroup added 1.4 percent to $48.28. American Express Co. rose 1.7 percent to $75.12.

Time Warner Cable surged 4.4 percent to $108.22. Malone's Liberty Media Corp., which owns 27 percent of Charter Communications, is working on how to structure an offer with enough cash to win over Time Warner Cable investors, according to people familiar with the discussions. Time Warner Cable isn't interested in a deal and doesn't think Liberty and Charter can come up with an offer that's attractive, according to people familiar with management's thinking.

ConAgra Soars

ConAgra Foods Inc. (CAG) added 5.1 percent to $35.04. The maker of Chef Boyardee pasta and Pam cooking spray reported quarterly profit that topped analysts estimates as acquisitions drove sales in its consumer foods unit.

Paychex Inc. (PAYX) dropped 3.7 percent to $36.60. The payrolls manager reported fourth-quarter earnings per share of 34 cents, below the average analyst estimate for profit of 37 cents. Revenue in the period was $585.3 million, missing the $586.2 million average projection.

Investors should expect about $13 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the second quarter, Ramon Verastegui, a derivatives strategist at Societe Generale SA in New York, wrote in a June 25 note.

Bond Funds

The S&P 500 has outperformed government bonds since the end of March with a total return of 2.7 percent through yesterday compared with a 5.1 percent loss for 10-year Treasuries, according to data compiled by Bloomberg and Bank of America Merrill Lynch.

U.S.-listed bond mutual funds and exchange-traded funds saw record monthly redemptions of $61.7 billion through June 24, according to TrimTabs Investment Research, amid concern the Fed may scale back its unprecedented stimulus. Mutual funds that invest in U.S. stocks had $463 million in outflows in the five days that ended with the Fed's policy statement on June 19, according to data from the Investment Company Institute released today. Redemptions since May 16 total $7.3 billion.

"The flows coming out of fixed income need to go somewhere," Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. "Money market funds don't offer anything, bonds are less attractive, so U.S. domestic equities on a relative scale look like the most attractive asset going forward."

3 Biotech Stocks That Could Double by Next Summer

Babe Ruth wasn't afraid to swing for the fences. That's how he became Major League Baseball's home run king for decades. If you're a Babe Ruth-style investor, you don't mind to swing for the fences sometimes, either.

Probably any investor would say that buying a stock that doubles in a year would certainly qualify as a home run. Few sectors provide as many opportunities for this kind of rapid increase as biotech. With this in mind, here are three biotech stocks that have a reasonable chance to double by next summer.

1. Amarin (NASDAQ: AMRN  )
Amarin's stock has dropped like a sinking fastball over the past year. Shares are down more than 60% since last summer and around 30% year-to-date. The steep decline stems largely from Amarin tackling commercialization of Vascepa on its own. At least at first glance, the odds that shares could double by next summer seem slim at best.

What looking at the stock's chart doesn't reveal, though, is that Amarin expects a huge decision by the Food and Drug Administration by Dec. 20. The FDA will determine whether the company's highly concentrated fish oil drug Vascepa can be marketed for treating patients with high triglyceride levels between 200 mg/dL and 499 mg/dL.

Amarin already won regulatory approval for selling Vascepa for super-high triglyceride levels of 500 mg/dL and above. However, the potential market size that would open up if the FDA grants approval in December is 10 times the size of the company's market available currently. The average analysts' price target for Amarin, according to Thomson/First Call, is $16.50 -- more than triple the stock's price now.

2. Achillion Pharmaceuticals (NASDAQ: ACHN  )
Achillion recently experienced a delay in the game that it had hoped to play. The FDA placed a clinical hold on hepatitis C drug sovaprevir after patients in a phase 1 drug-drug interaction study with the drug combined with ritonavir-boosted atazanavir were found to have elevated liver enzyme levels. Shares dropped 25% in one day as a result.

This delay doesn't mean that Achillion can't still emerge as a winner, though. There remains a distinct possibility that the elevated liver enzyme levels stemmed from the combination of the drugs, as opposed to being caused by sovaprevir itself. The issue hasn't been experienced with any other trials involving sovaprevir thus far.

If the safety concerns with the drug are ultimately found to be overblown, Achillion should bounce back in a major way. The company also has other hep-C drugs in development that present future catalysts. The median analysts' price target for Achillion is $12 per share. That's not quite double the current price, but it's not too far off.

3. Navidea Biopharmaceuticals (NYSEMKT: NAVB  )
Some investors were likely befuddled by Navidea's stock action earlier this year. The company received FDA approval in March for Lymphoseek, its radiopharmaceutical agent used for imaging lymph nodes in patients with breast cancer or melanoma. That was great news, but shares dropped quickly and still haven't returned to previous levels.

This market reaction doesn't mean that Lymphoseek lacks solid potential. It does. The product should appeal to oncologists. Navidea has a tight relationship with Cardinal Health (NYSE: CAH  ) , which has exclusive U.S. distribution rights for Lymphoseek. Cardinal operates the largest nuclear pharmacy network in the nation with 140 pharmacies.

That market potential seems likely to expand in the relatively near future. Navidea submitted for European approval last December, which I expect the company will obtain. The company is also looking to expand use of the diagnostic agent to other forms of cancer, with a supplemental New Drug Application planned for later this year for use of Lymphoseek with head and neck cancer patients.

One-year price targets for Navidea go as high as $9 per share with an average target of $5. At the stock's current price, shares would need to rise somewhat higher than that average level to double. However, if the more optimistic analysts are right, doubling is doable.

Taking a swing
Do these three stocks truly have a shot at doubling by next summer? I think they do. However, know that events must unfold just right for it to happen for any of them. Negative regulatory decisions, unresolvable safety issues, and a whole host of other issues could result in any of these biotech stocks falling significantly within the next year rather than going up.

What's true in baseball is true in investing: The greater the possibility of reward, the greater the risk. After all, Babe Ruth wasn't just the home run leader. He was the strikeout leader, too. Swinging for the fences means you often swing and miss. But sometimes, it's worth taking a swing anyway.

Biotech presents plenty of home run opportunities, but the game of investing is won largely by consistently hitting plenty of singles. One great way to get those base hits is to find high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

Dow May Pause Ahead of FOMC Minutes

LONDON -- The major U.S. indexes look set to open flat today: Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average (DJINDICES: ^DJI  ) may open up by a nominal four points this morning, while the S&P 500 (SNPINDEX: ^GSPC  ) may open half a point lower.

European markets slipped this morning following downbeat overnight data from China, where exports unexpectedly dropped by 3.1% in June while imports fell by 0.7%. That's the biggest monthly drop in exports since 2009, and it has raised fears that following a recent crackdown on manufacturers who were artificially inflating their export figures, an underlying decline in Chinese industrial activity is now becoming visible. In the eurozone, France and the Netherlands both reported a fall in industrial output in May, and although Italian industrial output edged up by 0.1% in May, analysts had expected a bigger increase. As of 7 a.m. EDT, the FTSE 100 is down by 0.33%, France's CAC 40 is down 0.37%, and Italy's FTSE MIB is down 0.78%.

U.S. investors are also likely to pay close attention to the latest data from China, but the latest Federal Open Market Committee meeting minutes, which are due at 2 p.m. EDT today, may have a bigger impact. Investors will look carefully at the minutes for any further clues as to the FOMC's collective view on the timing and speed with which the Fed should begin to taper its bond-buying program. Today's other main economic report is May's wholesale inventories, due at 10 a.m. EDT.

In corporate news, Family Dollar Stores (NYSE: FDO  ) reported third-quarter earnings of $1.05, beating analyst expectations of $1.05. Same-store sales rose 2.9% last quarter, and the company expects same-store sales to rise another 2% in the current quarter. Family Dollar's profit margin shrank slightly as customers shifted toward lower-margin everyday staples. Shares in Family Dollar are up 2.4% in premarket trading.

Fastenal is also expected to report before markets open. Yum! Brands is expected to report second-quarter earnings of $0.54 per share after the closing bell tonight, according to consensus forecasts, while Chevron is due to update the markets with its second-quarter production output later today.

Hewlett-Packard stock may be actively traded today. The tech giant's share price is up by 2.7% in premarket trading this morning, possibly helped by a broker upgrade yesterday. Cliffs Natural Resources is 4.5% higher in premarket trading; Cliffs' shares closed up 2.7% yesterday following news that the firm's president and CEO, Joseph Carrabba, is to stand down.

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.

Prediction: This Company Could Save Millions Of Lives... And Make You A Fortune

Let's be realistic. You're NOT going to get rich in a hurry by investing in mainstream blue-chip stocks. The S&P 500 is a handy benchmark and a good proxy for the U.S. economy, but it's not going to make anyone rich unless you have decades to invest.

If you want to truly soar above the market, you have to dedicate at least part of your portfolio to serious big-game hunting.

With that in mind, my team and I just released a report on my boldest predictions for 2014. (On Wednesday, I told you about one prediction.) These are ideas that you won't hear about in the mainstream financial press until it's too late.

In the past, my previous predictions have returned thousands of dollars to subscribers of my newsletter Game-Changing Stocks. Here's a brief look at a few of the triple-digit winners...

 

But my ideas for 2014 are some of the most exciting to date. In fact, I had such a hard time limiting myself to just 11 "game-changing" ideas that I had to leave some off the list.

 

I want to share one of these ideas with you today. Just because it didn't make the cut this year doesn't mean there isn't serious investment potential here.

 

In fact, I think patient investors could easily make a killing in the market with this idea.

 

But first, let me give you a little background so you fully understand the potential.

 

The world has a serious water shortage problem. The sad story is that at least a billion people lack adequate access to even minimal quantities of drinkable water, according to the United Nations.

 

And this is not the melodramatic carping of environmentalists. It's much more than that.

 

 

Some 2.8 billion people -- 44% of humanity -- live in areas of high water stress as defined by the Organisation for Economic Co-operation and Development.

 

Things aren't forecast to get any better. In fact, the future looks downright bleak. The World Bank says 3 billion people will live in areas with severe water shortages in the next 25 years, many of them in Africa, the Middle East and South Asia.

 

This water shortage has sent companies scrambling to come up with solutions to at least help get through this problem. For example, Monsanto (NYSE: MON), the world leader in agricultural products, is developing an entire line of seeds that produces plants that can thrive in low-water conditions.

 

No one knows the state of the world's water resources better than Monsanto, whose seeds are planted in every nation where man cultivates crops. And if Monsanto is betting its future revenues on low-water crops, then even the most skeptical observer ought to concede that water must be a pressing issue.

 

All this is a bit strange given that there is literally water everywhere. We're not running out of the stuff -- we have the exact amount of water we've always had. But as water usage has changed, the clean drinking water that communities survive on is becoming increasingly scarce.

 

Though most of the world is covered with water, only 1% of it is suitable for consumption.

 

Still, seawater is the inevitable solution to the world's shortages. Though potentially lethal if gulped down, seawater is perfectly potable when the compounds known collectively as "salts" are removed.

 

The fact is, we've got the water. The only question is whether we're willing to spend the money. Any water shortage can be solved tomorrow with a process known as reverse osmosis desalination, which basically means shooting water at extremely high pressure through a series of filters to remove the salt.

 

The only problem is that it's pricey. And unless the plant is built with an ingenious little piece of equipment, the clean water it produces is probably going to be too expensive.

 

Here's the kicker: This piece of equipment -- called a pressure exchanger -- is basically controlled by one company: Energy Recovery (Nasdaq: ERII).

 

Energy Recovery manufactures a device that captures the energy from a high-pressure stream of water and recycles it so as to decrease the pump workload -- think of it as the second peddler on a tandem bicycle who makes the uphill climbs half as steep.

 

By capturing that energy, a plant's overall energy bill can be reduced by up to 60%, according to Energy Recovery's regulatory filings.

 

Build a desalination plant without Energy Recovery's patented equipment, and your power bill might be $10 million a year. Install the devices, and the electricity costs could drop to $4 million. For cost-conscious operators like regional water utilities, the decision is a no-brainer.

 

As I say in my recently released report, I wouldn't invest more than 10% of your portfolio in these game-changing ideas. But, sometimes, that's all you need to move the needle on your returns.

 

Energy Recovery definitely has the potential to do major things in the future. And should be on anyone's radar who is looking for a 'game-changer' for their portfolio.

But, like I said, my other predictions for 2014 may be some of my best ideas yet. They all have the potential to lead you to a triple-digit winner. To find out what my 11 predictions for 2014 are, click here.  

The King Is Dead: HP Loses the PC Crown to Lenovo

It's that time of year again. With June now in the rearview mirror, market researchers Gartner and IDC have now released their respective estimates on PC unit shipments in the second quarter, which will subsequently be followed by their digits on the smartphone and tablet markets.

The two companies may use different methodologies and have slightly different figures, but they agree on one thing: Hewlett-Packard (NYSE: HPQ  ) is no longer the top PC vendor in the world by unit volumes. That title has now been transferred to Chinese OEM Lenovo. All 5 of the top vendors declined; Lenovo just declined the least.

Dell (NASDAQ: DELL  ) remains the No. 3 player, but still lags its domestic rival by a fair amount. IDC says Dell's enterprise PC segment performed well, thanks in part to a transition within the enterprise from Windows XP to Windows 7. That's a shift that HP is looking forward to as well.

Vendor

Q2 2013 Shipments

Q2 2013 Market Share

Growth (YOY)

Lenovo	12.6 million	16.7%	(1.4%)
HP	12.4 million	16.4%	(7.7%)
Dell	9.2 million	12.2%	(4.2%)
Acer	6.2 million	8.2%	(32.6%)
ASUS	4.6 million	6.1%	(21.1%)
Total Market	75.6 million	100%	(11.4%)

Source: IDC. YOY = year over year.

Acer and ASUS got hit particularly hard, with year-over-year drops well into the double digits. Both OEMs have historically enjoyed strong positions in the low end, which is being eaten alive by tablets. Their high-end Ultrabooks aren't picking up the slack.

The overall market remains soft, with worldwide shipments falling 11.4% to 75.6 million, according to IDC. That's a sequential improvement from the 14% drop that the market saw in the first quarter. IDC was quick to blame Microsoft (NASDAQ: MSFT  ) Windows 8 for the weakness in Q1, saying it was "clear" that the new platform "slowed the market." IDC still thinks that the market is "struggling with the transition," but a wider range of Windows 8 models in the U.S. definitely helped this time around as OEMs test different form factors.

Gartner, on the other hand, disagrees. The researcher thinks blaming Windows 8 is "unfounded," since it doesn't properly explain the PC's sustained decline, nor does it explain Apple's performance.

This actually isn't the first time that HP has lost the crown to Lenovo. In Q3 2012, Gartner said Lenovo had come out on top, but IDC still pegged HP as the No. 1 vendor, as the two researchers had slightly different estimates. This time, there's now consensus that HP is no longer the PC king.

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 by the five kings of tech. Click here to keep reading.

IBM to Acquire Another Cloud Solutions Provider

IBM (NYSE: IBM  ) has signed a definitive agreement to purchase privately held, virtual management provider CSL International, IBM announced today. The acquisition of Israel-based CSL International comes on the heels of yesterday's announcement that IBM had finalized its purchase of cloud infrastructure company SoftLayer Technologies.

According to IBM, CSL International's solutions will be integrated with its existing zEnterprise System, a mainframe platform to help enterprises "reshape the IT experience for their customers." Dallas-based SoftLayer will become a part of IBM's new cloud services division and be offered in conjunction with IBM's SmartCloud product suite. The SoftLayer deal was announced June 4.

Regarding the CSL International deal, Greg Lotko, IBM business line executive, System z, commented, "As clients create smarter computing environments, they are looking for ways to manage IT costs and complexity without sacrificing security or the ability to scale."

James Comfort, cloud services division General Manager for IBM, said of the SoftLayer closing, "With SoftLayer in IBM's portfolio, it will be easier and faster for organizations to adopt game-changing cloud services."

Financial terms were not disclosed for either transaction. The acquisition of CSL is expected to close in the third quarter.

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Top Companies To Invest In Right Now

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

What: Shares of Sangamo Biosciences (NASDAQ: SGMO  ) , a clinical stage biopharmaceutical company focused on developing zinc finger DNA-binding proteins, rose as much as 11% after the company reported its first-quarter results.

So what: Although Sangamo has no drugs currently approved by the Food and Drug Administration, it still generated $4.6 million in revenue primarily due to a collaboration it signed with Shire last year. Net loss per share also shrank modestly to $0.13 from a loss per share of $0.14 in the year-ago period. Both figures easily surpassed the $3.8 million in revenue and $0.17 per-share loss expected by analysts. In addition, Sangamo is forecasting full-year revenue of $20 million to $24 million, more or less in line with the $20.7 million currently estimated by Wall Street.

Top Companies To Invest In Right Now: Commerzbank Ak.dm50(CZB.L)

Commerzbank Aktiengesellschaft provides banking and financial services to private and corporate customers primarily in Germany, rest of Europe, the United States, and Asia. It accepts savings deposits and time deposits; and offers current accounts, as well as wealth management services, such as asset management and advisory services. The company also provides various services, including payments, flexible financing solutions, interest rate and currency management products, professional investment advisory services, and investment banking solutions primarily to small and mid-sized customers, the public sector, and institutional clients; and trade finance-related services. Its corporate banking products and services comprise financing, cash management, asset management, international business, and risk management, as well as online banking and market information services. In addition, the company offers asset based finance products and services consisting of asset management and leasing; real estate finance for investors and developers; ship financing; and public finance. Further, it provides cash services, trade services, banking products, and market products. Additionally, the company engages in the trading and sale of equity and commodity-related financial products; trading and sale of interest rate, credit, and currency instruments; and provision of arrangement and advisory services for securitisation solutions, and mergers and acquisitions, as well as for equity, debt, and hybrid instruments. It operates approximately 1,200 branches in Germany. The company was founded in 1870 and is headquartered in Frankfurt am Main, Germany.

Top Companies To Invest In Right Now: Nile Therapeutics Inc. (NLTX)

Nile Therapeutics, Inc., a development stage biopharmaceutical company, develops pharmaceutical products for the treatment of cardiovascular and renal diseases. Its lead product candidate include Cenderitide, a chimeric natriuretic peptide that has completed Phase I clinical trial for the treatment of patients following admission for acutely decompensated heart failure. The company also develops CU-NP, a natriuretic peptide, which is in pre-clinical studies for the treatment of cardiovascular and renal diseases. Nile Therapeutics, Inc. was founded in 2005 and is based in San Mateo, California.

Hot Energy Companies To Buy Right Now: SL Industries Inc. (SLI)

SL Industries, Inc., through its subsidiaries, engages in the design, manufacture, and marketing of power electronics, motion control, power protection, and specialized communication equipment in the United States and internationally. The company offers power conversion products for use in customer�s specific equipment under the SL Power Electronics, Condor, and Ault brand names to the original equipment manufacturers (OEMs) of medical, industrial/instrumentation, military, and information technology equipment. It also provides custom power conditioning and distribution units for custom electrical subsystems for OEMs of medical imaging, medical treatment, military aerospace, semiconductor, solar, and advanced simulation systems under the Teal brand name; and power quality products, including three-phase AC reactors, DC link chokes, and a series of harmonic, RFI/EMI, and motor protection filters used in industrial plants, natural resource harvesting sites and facilities, a nd commercial buildings to protect equipment from power surges under the MTE brand name. In addition, the company offers high power density precision motors that are used in military and commercial aerospace, oil and gas, and medical and industrial product applications; and communication and power protection products/systems that are used to protect electric utility transmission lines and apparatus, as well as products and systems used in rail and highway industries. SL Industries, Inc. was founded in 1956 and is based in Mount Laurel, New Jersey.

Top Companies To Invest In Right Now: Section Rouge Media Inc. (SRO.V)

Section Rouge M茅dia inc. does not have significant operations. Previously, the company engaged in editing newspapers and magazines. The company was incorporated in 1996 and is based in Longueuil, Canada.

What Does This Contract Win Mean for iRobot?

U.S. Stocks Rise as Jobs Growth Tops Economist Forecasts

U.S. stocks rose, sending the Standard & Poor's 500 Index to the biggest rally in three weeks, after government data showed the nation added more jobs than forecast last month.

Lincoln National Corp. climbed 5.4 percent, leading a rally among life insurers as bond yields surged on bets the Federal Reserve will begin to reduce its asset buying. KeyCorp advanced as Wells Fargo & Co. said regional banks benefit more than larger rivals from new rules on capital. Tesla Motors Inc. added 4.2 percent after saying it received enough orders to double the number of electric cars in Hong Kong. Homebuilders slumped amid concern rising interest rates may curtail a housing recovery.

The S&P 500 gained 1 percent, the most since June 13, to 1,631.89 at 4 p.m. in New York. The index advanced 1.6 percent for the week. The Dow Jones Industrial Average added 147.29 points, or 1 percent, to 15,135.84. About 4.95 billion shares changed hands, 24 percent below the three-month average. U.S. markets were closed yesterday for the Independence Day holiday.

"The jobs report is pretty strong. It's a good number for equities because it's supportive for earnings growth, which is what we need," Matthew Peron, head of active equities at Northern Trust Corp. in Chicago, said by telephone. His firm manages about $810 billion. "We have to digest the backup in yields, we have to see how far do they go and get used to that level of rates."

Payrolls rose by 195,000 workers for a second straight month, the Labor Department reported today in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6 percent, while hourly earnings in the year ended in June advanced by the most since July 2011.

Fed Stimulus

Economic growth amid monetary stimulus from the Federal Reserve has helped send the S&P 500 (SPX) up 141 percent from its bear-market low in 2009, including a 14 percent rally so far this year. The index has slipped 2.2 percent from its last record on May 21 after Fed Chairman Ben S. Bernanke said the central bank could begin to reduce bond purchases should the employment market show sustainable growth.

"Part of this focus on the Fed easing is that they haven't been enthusiastic about the underlying economics," said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. "If investors can be reassured about that, then it opens the door to a more sustainable rally."

Equities rose earlier today as European Central Bank President Mario Draghi predicted that interest rates will remain low for an extended period of time. Draghi said yesterday that key interest rates will remain at their current levels or lower for as long as necessary. The Bank of England signaled that it will leave interest rates at a record low for longer than investors had expected.

Earnings Season

Alcoa Inc. will unofficially start the second-quarter earnings season as the biggest U.S. aluminum producer will report results after the market closes on July 8.

Profits for S&P 500 stocks probably grew 1.8 percent, according to analyst estimates compiled by Bloomberg. That's down from a projected increase of 6.2 percent at the beginning of the quarter. Earnings are forecast to jump 5.5 percent for the third quarter and 11 percent for the final three months of this year, the data show.

"We know this is not going to be a terrific earnings season," Northern Trust's Peron said. "The focus will be on guidance - are we going to get improvement as the year continues, which is in expectation? The criticism of the market has been that it has been supported by Fed actions and now this is the time for that hand-off to happen."

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, slipped 8.1 percent today to 14.89, the lowest level since May 30. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has since fallen 27 percent.

Nine of 10 S&P 500 main industries gained as financial, industrial and health-care companies rose more than 1.3 percent. JPMorgan Chase & Co. (JPM) added 2.3 percent to $53.99 and Bank of America Corp. advanced 1.8 percent to $13.06.

Lincoln, the life insurer with more than $200 billion in assets, climbed 5.4 percent to $38.98. Higher interest rates can boost profits for life insurers, which invest premiums from clients in bonds and other assets to back future payouts. MetLife Inc., the largest U.S. life insurer, gained 2.7 percent to $47.52.

Regional Banks

Regional lenders rose as KeyCorp, Ohio's second-largest bank, jumped 5 percent to $12. Smaller banks face less onerous risk weightings for residential mortgages under the Basel Committee on Banking Supervision's latest set of global standards, Wells Fargo analyst Matthew Burnell wrote in a note. The capital rules are scheduled to be decided next week.

SunTrust Banks Inc. advanced 4.2 percent to $34.31, while Zions Bancorporation increased 4.3 percent to $30.97.

Tesla Motors Inc. added 4.2 percent to a record $120.09 after saying it received hundreds of orders for its new Model S sedan, enough to double the number of electric cars on Hong Kong's streets. The company, headed by billionaire Chief Executive Officer Elon Musk, has forecast it will sell 21,000 units of the Model S globally this year, with deliveries to Europe and Asia beginning in the second half.

Zoetis Inc., the animal-health company spun off from Pfizer Inc., gained 3 percent to $30.17. Bank of America boosted the stock's rating to buy.

Homebuilders Sink

An S&P index of homebuilders fell 3.4 percent to the lowest level since December as Treasury yields rose to the highest level in almost two years. All its 11 members retreated. Toll Brothers Inc. dropped 3 percent to $31.52 while Lennar Corp. slipped 4 percent to $33.93.

A Bloomberg index of real estate investment trusts that buy mortgage debt tumbled 3.9 percent for the biggest retreat since October 2011. Annaly Capital Management Inc., the largest of the companies, plunged 5.1 percent to $11.51 and American Capital Agency Corp., the second biggest, slumped 5.3 percent to $20.76.

Gold producers declined as the metal's price plunged 3.1 percent. Barrick Gold Corp., the world's largest miner of the precious metal, sank 6.3 percent to $13.76. Newmont Mining Corp. fell 4.3 percent to $27.78 for the biggest loss in the S&P 500.

Dell Inc. erased 2.1 percent to $13.03. Michael Dell and Silver Lake Management LLC won't sweeten their $24.4 billion offer to take the personal-computer maker private, people with direct knowledge of the situation said.

Keep An Eye On EV Energy Partners (But Don't Dive In)

Over the past few years, government bonds have produced almost zero income for investors. This has led to many people searching high and low for income opportunities. High-yield bonds (though recently falling out of favor) and dividend factories have benefited greatly from this search. MLPs fall into this category, as distribution yields have grown. One such MLP, EV Energy Partners (EVEP), is currently yielding over 8%, which is why it landed high on the list of stock screens. After careful analysis, it is easy to realize there is more to this company than a great yield can tell us.

When looking for an investment that will produce income, one of the major factors in the decision is the historical trend of the distribution. Is the payout ratio stable or is there risk? Does the distribution grow over time or does it stay flat?

click to enlarge images

Source: here

Over the past 5 years, EVEP has increased LP distributions at a constant rate of $0.016 a year or .52%. While this growth rate is anemic at best, its predictability allows us to gain insight into the actual present value of this stock.

We can apply a Discounted Cash Flow (DCF) model to try to establish the intrinsic value of the position. While this model is powerful, it is entirely driven by assumptions, which can be wrong, sometimes by a great deal. Knowing (we are assuming certainty that this rate will continue) the future cash distributions of EVEP allows us to reach a target price for the stock. At a cost of capital of 5.9% and 20 years of distributions, we come to a target price of $38.

Cost of Capital Calculation
Risk Free Rate	2.67%
20 Year S&P Return	6.70%
Beta	0.8
Cost of Capital	5.89%

This represents a 9% premium over the current market price, which isn't bad for an assumed risk-less investment. (We will cover large flaws in this assumption later.) At other costs of capital and distribution timeframes, we see different results.

As enticing as a 9% return is (which in this market would be underperforming by a great deal), we do not believe this to be the real potential of the stock. Our assumptions were very basic when deriving the target price of $38. There is much more to consider when analyzing a security, even one that has historically produced predictable cash flows.

Firstly, as government yields come back from their near-zero levels, the cost of capital will increase along with it. The opportunity cost of capital invested in this MLP will increase greatly as the risk-free rate comes up. As the cost of capital increases, the present value of future cash flows drops substantially. At only an 8% cost of capital, the NPV of EVEP distributions drops below the current market price, which means to keep up, the growth rate of distributions would need to increase greatly.

Secondly, we made the assumption that the distributions will continue for another 20 years. The average lifespan of an S&P 500 company is approximately 15 years (BBC.co.uk). EVEP began in 2006, which makes it 7 years old. If it lasts as long as the average S&P company, it means there are only 8 years of distributions left, which translates to a DCF of $20 or a 43% discount to today's price. If it lasts 15 years from today, the NPV of the distributions is only $31 or an 11% discount. For it to last 20 years from today it will have to almost double the average S&P company.

Finally, we must consider whether EVEP can continue a dividend at all. To maintain its current growth rate, EVEP would need to grow its cash reserves immediately. In 201! 2 and the! first part of 2013, EVEP has financed its distributions through issuance of stock and debt. While this has allowed them to maintain their distribution stability, they are becoming more financially unstable. In order to start unwinding debt while maintaining distributions, EVEP will have to grow its cash organically through operations. Net income has decreased over the past three years, even as revenues have increased. This is largely due to management's inability to contain operating expenses, which may be a sign that EVEP will have to restructure soon, which could destabilize the distributions.

EV Energy Partners' predictability and high yield make for a cautiously interesting investment opportunity. We do not believe now is the time to invest; however, we are looking for signs of a turnaround in the next year or so. Potential acquisition agreements and an already decent balance sheet could make it easier for an EVEP turnaround than other MLPs in the same position. While I will not be initiating a position in the near future, this high yielding investment is one to watch closely for some positive changes.

Source: Keep An Eye On EV Energy Partners (But Don't Dive In)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

Don't Get Too Worked Up Over Tidewater's Earnings

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 Tidewater (NYSE: TDW  ) , 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, Tidewater burned $226.6 million cash while it booked net income of $150.8 million. That means it burned through all its revenue and more. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

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 Tidewater 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 0.4% of operating cash flow, Tidewater's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 8.9% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures. Tidewater investors may also want to keep an eye on accounts receivable, because the TTM change is 3.6 times greater than the average swing over the past 5 fiscal years.

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.

Is Tidewater the right energy stock for you? Read about a handful of timely, profit-producing plays on expensive crude in "3 Stocks for $100 Oil." 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 Tidewater to My Watchlist.

3 Tech Stocks That Ignored the Fed and Moved Higher

Why FedEx Is Poised to Keep Poppin'

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, express delivery gorilla FedEx (NYSE: FDX  ) has earned a respected four-star ranking.

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

FedEx facts

Headquarters (founded)	Memphis, Tenn. (1971)
Market Cap	$31.7 billion
Industry	Air freight and logistics
Trailing-12-Month Revenue	$44.3 billion
Management	Founder/Chairman/CEO Frederick Smith CFO Alan Graf
Return on Equity (average, past 3 years)	11.1%
Cash/Debt	$4.9 billion / $3.0 billion
Dividend Yield	0.6%
Competitors	DHL International TNT Express United Parcel Service

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

On CAPS, 91% of the 2,339 members who have rated FedEx believe the stock will outperform the S&P 500 going forward.

Just last week, one of those Fools, TMFGemHunter, succinctly summed up the bull case for our community:

FedEx is aggressively restructuring its trademark Express business in order to better match capacity to demand for priority shipments. At the same time, it is growing its FedEx Ground business rapidly, gaining share vis-a-vis competitors. The company is driving its cost structure down and will reap a big payoff when global GDP growth starts to increase. EPS could approximately double in the next 4 years.

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

With the U.S. relying on the rest of the world for such a large percentage of our goods, many investors are ready for the end of the "made in China" era. Well, it may be here. Read all about the biggest industry disrupters since the personal computer in 3 Stocks to Own for the New Industrial Revolution. Just click here to learn more.

Best Airline Companies To Buy Right Now

Canadian stocks fell for a fourth day, the longest streak in two months, after data showed U.S. jobs and factory orders rose less than forecast and investors weighed the U.S. Federal Reserve�� stimulus plans.

BCE Inc. (BCE) dropped 1.3 percent to a February low, after Macquarie Group Ltd. said that phone shares are vulnerable amid increased regulation. Canadian Pacific Railway Ltd. (CP) lost 4.4 percent to extend losses to a fourth day after its largest shareholder said it will sell part of its stake. WestJet Airlines Ltd. slid 2.3 percent after a measure of customers on its flights declined. A gauge of real estate investment trust fell for a seventh day, the longest streak in three years.

The Standard & Poor��/TSX Composite Index (SPTSX) fell 1.2 percent to 12,443.65 at 4 p.m. in Toronto. The index has lost 2.4 percent in the past four days and closed at a one-month low. Trading volume was 13 percent higher than the 30-day average.

Best Airline Companies To Buy Right Now: JetBlue Airways Corporation(JBLU)

JetBlue Airways Corporation provides passenger air transportation services in the United States. As of December 31, 2011, it operated approximately 700 daily flights to 70 destinations in 22 states, Puerto Rico, and Mexico; and 12 countries in the Caribbean and Latin America through a fleet of 120 Airbus A320 aircraft and 49 EMBRAER 190 aircraft. The company, through its subsidiary, LiveTV, LLC, provides in-flight entertainment, voice communication, and data connectivity systems and services for commercial and general aviation aircraft, including live in-seat satellite television, digital satellite radio, wireless aircraft data link service, and cabin surveillance systems. JetBlue Airways Corporation was founded in 1998 and is based in Forest Hills, New York.

Best Airline Companies To Buy Right Now: Copa Holdings SA (CPA)

Copa Holdings, S.A. (Copa Holdings), incorporated on May 06, 1998, is a Latin American provider of airline passenger and cargo service through its two principal operating subsidiaries, Copa Airlines and Copa Colombia. Copa Airlines operates from its position in the Republic of Panama, and Copa Colombia provides service within Colombia and international flights from various cities in Colombia to Panama, Venezuela, Ecuador, Mexico, Cuba, Guatemala and Costa Rica, complemented with service within Colombia. As of December 31, 2012, the Company operated a fleet of 83 aircraft with an average age of 5.13 years; consisting of 57 modern Boeing 737-Next Generation aircraft and 26 Embraer 190 aircraft. . As of December 31, 2012, the Company offers approximately 334 daily scheduled flights among 64 destinations in 29 countries in North, Central and South America and the Caribbean, mainly from its Panama City Hub.

Copa provides passengers with access to flights to more than 150 other destinations through codeshare arrangements with UAL pursuant to which each airline places its name and flight designation code on the other�� flights. As of December 31, 2012, Copa had firm orders, including purchase and lease commitments, for 35 additional Boeing 737-Next Generation aircraft. Copa also has options for an additional 14 Boeing 737-Next Generation aircraft.

The Company competes with Avianca-Taca, American Airlines, Delta Air Lines, American Airlines and LAN Group.

Advisors' Opinion:

• [By Kathy Kristof]

  Headquarters: Panama City, Panama
  
  52-Week High: $85.25
  
  52-Week Low: $57.03
  
  Annual Sales: $1.8 bill.
  
  Projected Earnings Growth: 18% annually over the next five years 
  
  
  U.S. airlines have to scratch and claw for every penny of profit they earn. Not so for Panama City-based Copa Holdings, says Bob McAdoo, airline analyst with Imperial Capital, a Los Angeles investment firm. With a hub in the Southern Hemisphere’s cross-roads, Copa has few direct rivals. That has allowed Copa to charge premium prices for its flights and register operating profit margins of 15% to 20% year after year. As economies in Brazil and the rest of Latin America continue to expand, Copa is likely to benefit because it gives travelers the most convenient way to hop around the hemisphere. 
  
  Copa’s big advantage lies in the setup of Panama City’s airport, explains McAdoo. Panama knows that it’s a crossroads, so it treats connecting passengers as though they’re hopping on a domestic flight – no trip through customs unless you leave the airport. That saves time, and potentially the need to get a visa for a country you’re just passing through, making the airport the ideal hub for business travelers in a hurry.

Hot Warren Buffett Companies To Watch In Right Now: United Continental Holdings Inc.(UAL)

United Continental Holdings, Inc., through its subsidiaries, engages in the provision of passenger and cargo air transportation services. As of February 24, 2011, it operated a total of approximately 5,675 flights a day to 372 airports on 6 continents from their hubs in Chicago, Cleveland, Denver, Guam, Houston, Los Angeles, New York, San Francisco, and Tokyo, as well as in Washington, D.C. The company was formerly known as UAL Corporation and changed its name to United Continental Holdings, Inc. on October 1, 2010. United Continental Holdings, Inc. was founded in 1934 and is headquartered in Chicago, Illinois.

Advisors' Opinion:

• [By Admin]  

  United Continental Holdings provides passenger and cargo air transportation services. UAL recently traded at $17.3 and lost 15.8% during the past 12 months. The stock has a market cap of $5.7 billion, P/E ratio of 12.5 and forward P/E ratio of 3.5. The stock has total debt/equity ratio of 7 and Beta of 1.04.

Best Airline Companies To Buy Right Now: Latam Airlines Group SA (LFL)

LAN Airlines S.A. (LAN), incorporated in 1983, is the international and domestic passenger airline in Latin America and the cargo operator in the region. As of February 9, 2012, LAN and its affiliates provided domestic and international passenger services in Chile, Peru, Ecuador, Argentina and Colombia and cargo operations through the use of belly space on its passenger flights and cargo freighter aircraft through its cargo airlines in Chile, Brazil, Colombia and Mexico. LAN and its affiliates offered passenger flights to 15 destinations in Chile, 59 destinations in other South American countries, 15 destinations in other Latin American countries and the Caribbean, five destinations in the United States, two destinations in Europe and four destinations in the South Pacific and, through various codeshare agreements, service to 25 additional destinations in North America, 16 additional destinations in Europe, 27 additional destinations in Latin America and the Caribbean (including Mexico), and two destinations in Asia, as of February 9, 2012. LAN and its affiliates provide cargo service to all of their passenger destinations and to 20 additional destinations served only by freighter aircraft. LAN also offers other services, such as ground handling, courier, logistics and maintenance. LAN and its affiliates operated a fleet, with 135 passenger aircraft and 14 cargo aircraft as of December 31, 2011. On February 15, 2011, Lan Pax Group S.A., subsidiary of Lan Airlines S.A. acquired 100% of Colombian society AEROASIS S.A.

LAN is primarily involved in the transportation of passengers and cargo. Its operations are carried out principally by Lan Airlines and also by a number of different subsidiaries. As of February 28, 2011, in the passenger business the Company operated through six main airlines: Lan Airlines, Transporte Aereo S.A. (which does business under the name Lan Express), Lan Peru S.A. (Lan Peru), Aerolane Lineas Aereas Nacionales del Ecuador S.A. (Lan Ecuador), Lan Argentina S.A. (Lan ! Argentina, previously Aero 2000 S.A.) and the Aerovias de Integracion Regional, Aires S.A. (Aires). As of February 28, 2011, the Company held a 99.9% interest in Lan Express through direct and indirect interests, a 70.0% interest in Lan Peru through direct and indirect interests, a 71.9% indirect interest in Lan Ecuador, a 99.0% indirect interest in Lan Argentina and a 94.99% indirect interest in Aires (a Colombian entity which was acquired on November 26, 2010). Its cargo operations are carried out by a number of companies, including Lan Airlines and Lan Cargo. As of February 28, 2011, the Company held a 69.2% interest in Aero Transportes Mas de Carga S.A. de C.V. (MasAir), through direct and indirect participations, a 73.3% interest in ABSA through direct and indirect participations, and a 90.0% interest in LANCO through direct and indirect participations. In the cargo business, the Company markets itself primarily under the Lan Cargo brand. In addition to its air transportation activities, the Company provides a series of ancillary services. It offers handling services, courier services and logistics, small package and express door-to-door services through Lan Airlines and various subsidiaries.

Passenger Operations

As of February 28, 2011, the Company operated passenger airlines in Chile, Peru, Ecuador, Argentina and Colombia. As of February 28, 2011, our passenger operations were performed through airlines in Chile, Peru, Ecuador, Argentina and Colombia where we operate both domestic and international services. As of February 28, 2011, the Company�� network consisted of 15 destinations in Chile, 14 destinations in Peru, four destinations in Ecuador, 14 destinations in Argentina, 24 destinations in Colombia, 14 destinations in other Latin American countries and the Caribbean, five destinations in the United States, one destination in Canada, three destinations in Europe and four destinations in the South Pacific. Within Latin America, it has routes to and from Argentina, B! olivia, B! razil, Chile, Colombia, Cuba, the Dominican Republic, Ecuador, Mexico, Peru, Uruguay and Venezuela. The Company also flies to a variety of international destinations outside Latin America, including Auckland, Fort Lauderdale, Frankfurt, Los Angeles, Madrid, Miami, Mount Pleasant (Falkland Islands), New York, Toronto, Papeete (Tahiti), Paris, San Francisco, and Sydney. In addition, as of February 28, 2011, through its various code-share agreements, the Company offered service to 25 additional destinations in North America, 16 additional destinations in Europe, 25 additional destinations in Latin America and the Caribbean (including Mexico), and two destinations in Asia. As of February 28, 2011, the Company operated scheduled international services from Chile, Peru, Ecuador and Argentina through Lan Airlines; Lan Express in Chile; Lan Peru in Peru; Lan Ecuador in Ecuador; Lan Argentina in Argentina and Aires in Colombia. Its international network combines the Company�� Chilean, Peruvian, Ecuadorian, Argentinean and Colombian affiliates. It provides long-haul services out of its four main hubs in Santiago, Lima, Guayaquil and Buenos Aires. It also provides regional services from Chile, Peru, Ecuador and Argentina.

Cargo Operations

The Company�� cargo business operates on the same network used by the passenger airlines business, which is supplemented by freighter-only operations. The Company carries cargo for a variety of customers, including other international air carriers, freight-forwarding companies, export oriented companies and individual consumers. As of February 28, 2011, the Company operated a fleet of 140 aircraft, comprised of 126 passenger aircraft and 14 cargo aircraft.

The Company competes with UPS, FedEx, Centurion, Transportes Aereos Mercantiles Panamericanos S.A., Polar Air, Cargolux, Lufthansa Cargo, Martinair and Air France-KLM.

Best Airline Companies To Buy Right Now: Delta Air Lines Inc (DAL)

Delta Air Lines, Inc. (Delta) provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company�� route network gives it a presence in every domestic and international market. Delta�� route network is centered around the hub system it operate at airports in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. Each of these hub operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub to domestic and international cities and to other hubs. The Company�� network is supported by a fleet of aircraft that is varied in terms of size and capabilities.

Delta has bilateral and multilateral marketing alliances with foreign airlines to improve its access to international markets. These arrangements can include code-sharing, reciprocal frequent flyer program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co-location, and other marketing agreements. Its international code-sharing agreements enable it to market and sell seats to an expanded number of international destinations. The Company has international codeshare arrangements with Aeromexico, Air France, Air Nigeria, Alitalia, Aeroflot, China Airlines, China Eastern, China Southern, CSA Czech Airlines, KLM Royal Dutch Airlines, Korean Air, Olympic Air, Royal Air Maroc, VRG Linhas Aereas (operating as GOL), Vietnam Airlines, Virgin Australia and WestJet Airlines.

In addition to the Company�� marketing alliance agreements with individual foreign airlines, it is a member of the SkyTeam airline alliance. Delta also has frequent flyer and reciprocal lounge agreements with Hawaiian Airlines, and codesharing agreements with American Eagle Airlines (American Eagle) and Hawaiian Airlines. It has air service agreements with multiple do! mestic regional air carriers that feed traffic to its route system by serving passengers primarily in small-and medium-sized cities.

Through the Company�� regional carrier program, it has contractual arrangements with 10 regional carriers to operate regional jet and, in certain cases, turbo-prop aircraft using its DL designator code. In addition to Delta�� wholly owned subsidiary, Comair, it has contractual arrangements with ExpressJet Airlines, Inc. and SkyWest Airlines, Inc., both subsidiaries of SkyWest, Inc.; Chautauqua Airlines, Inc. and Shuttle America Corporation, both subsidiaries of Republic Airways Holdings, Inc.; Pinnacle Airlines, Inc. and Mesaba Aviation, Inc. (Mesaba), both subsidiaries of Pinnacle Airlines Corp. (Pinnacle); Compass Airlines, Inc. (Compass) and GoJet Airlines, LLC, both subsidiaries of Trans States Holdings, Inc. (Trans States), and American Eagle.

The Company�� SkyMiles program allows program members to earn mileage for travel awards by flying on Delta, Delta�� regional carriers and other participating airlines. Mileage credit may also be earned by using certain services offered by program participants, such as credit card companies, hotels and car rental agencies. In addition, individuals and companies may purchase mileage credits. The Company reserves the right to terminate the program with six months advance notice, and to change the program�� terms and conditions at any time without notice.

SkyMiles program mileage credits can be redeemed for air travel on Delta and participating airlines, for membership in the Company�� Delta Sky Clubs and for other program participant awards. Mileage credits are subject to certain transfer restrictions and travel awards are subject to capacity controlled seating. During the year ended December 31, 2011, program members redeemed more than 275 billion miles in the SkyMiles program for more than 12 million award redemptions. During 2011, 8.2% of revenue miles flown on Delta were from a! ward trav! el.

The Company generates cargo revenues in domestic and international markets through the use of cargo space on regularly scheduled passenger aircraft. Delta is a member of SkyTeam Cargo, an airline cargo alliance. SkyTeam Cargo offers a network spanning six continents and provides customers an international product line.

The Company has several other businesses arising from its airline operations, including aircraft maintenance, repair and overhaul (MRO); staffing services for third parties; vacation wholesale operations, and its private jet operations. Delta�� MRO operation, known as Delta TechOps, is an airline MRO in North America. In addition to providing maintenance and engineering support for its fleet of approximately 775 aircraft, Delta TechOps serves more than 150 aviation and airline customers. Its staffing services business, Delta Global Services, provides staffing services, professional security, training services and aviation solutions to approximately 150 customers. The Company�� vacation wholesale business, MLT Vacations, is the provider of vacation packages in the United States. Its private jet operations, Delta Private Jets, provides aircraft charters, aircraft management and programs allowing members to purchase flight time by the hour.

The Company competes with SkyTeam, United Air Lines, Continental Airlines, Lufthansa German Airlines, Air Canada, American Airlines, British Airways and Qantas.

Why Derma Sciences's Earnings May Not Be So Hot

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 Derma Sciences (Nasdaq: DSCI  ) , 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, Derma Sciences burned $14.4 million cash while it booked a net loss of $15.8 million. That means it burned through all its revenue and more. 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 Derma Sciences 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 9.7% of operating cash flow, Derma Sciences's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost. Overall, the biggest drag on FCF also came from other operating activities (which can include deferred income taxes, pension charges, and other one-off items) which represented 14.8% 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.

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

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Best Blue Chip Companies For 2014

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is a gold mine for long-term investors. It's particularly juicy if you're looking for high-quality income stocks, as these proven blue chips tend to deliver both high yields and reliable dividend growth. But there are stragglers in every herd, including this elite collection. Let me point out the three worst dividend stocks on the Dow today.

AA Dividend data by YCharts.

Bank of America (NYSE: BAC  ) is a horrible income stock right now, any way you slice it. No other Dow stock even comes close to its feeble 0.3% yield. Annual payouts have plunged 97% over the last decade, and regulators keep a heavy foot on B of A's throat to prevent the troubled bank from over-stretching its financial reserves. That financial crisis in 2008 wrought devastation on Bank of America's dividend appeal.

Best Blue Chip Companies For 2014: International Business Machines Corporation(IBM)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. Its Global Technology Services segment provides IT infrastructure and business process services, including strategic outsourcing, process, integrated technology, and maintenance services, as well as technology-based support services. The company?s Global Business Services segment offers consulting and systems integration, and application management services. Its Software segment offers middleware and operating systems software, such as WebSphere software to integrate and manage business processes; information management software for database and enterprise content management, information integration, data warehousing, business analytics and intelligence, performance management, and predictive analytics; Tivoli software for identity management, data security, storage management, and datacenter automation; Lotus software for collaboration, messaging, and so cial networking; rational software to support software development for IT and embedded systems; business intelligence software, which provides querying and forecasting tools; SPSS predictive analytics software to predict outcomes and act on that insight; and operating systems software. Its Systems and Technology segment provides computing and storage solutions, including servers, disk and tape storage systems and software, point-of-sale retail systems, and microelectronics. The company?s Global Financing segment provides lease and loan financing to end users and internal clients; commercial financing to dealers and remarketers of IT products; and remanufacturing and remarketing services. It serves financial services, public, industrial, distribution, communications, and general business sectors. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. IBM was founded in 1910 and is based in Armonk, New York.

Advisors' Opinion:

• [By Jim Cramer]

  When this company talked about lofty EPS for 2015, initially the street was skeptical especially after IBM reported a blah quarter soon after the expectations were laid out. I now think the company has $20 earnings per share capabilities out three years and that $13 is doable for 2011. You keep the multiple the same and you get a $169 stock. I think it does just that. This one's cheap, way too cheap and it will be cheap next year, too, but on a bigger earnings base which is how it can get to my price target.

• [By Paul]

  IBM. Emerging markets are a big growth driver for this computer systems and software provider. Not only that, Resendes says, IBM has "a bullet-proof balance sheet that will allow it to weather the current storm and position it for superior growth and profitability in the long term." He thinks the stock, which recently traded at $93, is worth $120 a share: ''There are some obvious companies that offer much bigger discounts, but you have to incorporate the safety factor. You're getting a premium company here that's a good spot to be in within the tech space."

• [By Peter Hughes]

  International Business Machines (IBM) -- our aggressive pick for the year -- is one of the world's most dominant technology companies, with annual revenues of $105 billion and net income of $16 billion.

• [By Louis Navellier]

  IBM (NYSE:IBM) is an international IT company made famous by its line of personal computers and various IT services. A year-to-date gain of 18% shows IBM stock has a lot to offer.

Best Blue Chip Companies For 2014: Apple Inc.(AAPL)

Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells third-party Mac, iPhone, iPad, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and other accessories and peripherals through its online and retail stores; and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative markets. As of September 25, 2010, it had 317 retail stores, including 233 stores in the United States and 84 stores internationally. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

Advisors' Opinion:

• [By Kevin M. O'Brien]

  Apple Inc. (AAPL) will reach $500.00/share at some point in 2012. I view Apple as trading at an extreme discount right now. I am expecting to see a run-up in price ahead of the company's next earnings call on January 17, 2012. I am also expecting that this earnings release is going to be absolutely fantastic. It would be a wise choice to block out all the negative rumors and sentiment surrounding Apple right now. This is a stock that is so attractively priced right now that it will not stay at this level for very long. Check back with me after January 17th next year.

• [By Michael Fowlkes]

  Tech-giant Apple (AAPL) has seen its shares take a serious beating in recent months, but we believe the selloff has just about reached its end. The underlying fundamentals remain strong and we expect to see several new products next year. The concerns that have led to the recent sell off are real, but at the same time not as material as some would like you to believe. A big concern is theslowing of its earnings growth. Last year it had 100% earnings growth, but that has dropped to 23% this year.

  You need to ask yourself, considering Apple’s size, is a 23% jump in earnings growth really a bad thing? Apple has become a victim of its own success, and is having a hard time keeping up with its past successes. This does not mean the company is in trouble, it just means that investors need to have a more realistic view of the company’s business. Once the current panic subsides, we believe investors will come back to the stock, and realize that it is a great value with its current P/E of just 12.

• [By Smith]

  Temporarily becoming the most valuable company in the world last week, Apple has not been hurt very much by the recent bear market. In fact, for a great read about Apple’s story, consider taking a look at this article. With household names like iPad and iPhone, we all know that Apple is valuable … but the question is how valuable?Answering a question like that isn’t easy, but we believe the answer is up – way up. In fact, when compared to Google (GOOG)’s valuation metrics, this isn’t even that unreasonable. Apple’s price to earnings, price/earnings to growth, and price to sales ratios are 14.91, 0.61, and 3.45 respectively. Google’s numbers in these same categories are 20.34, 0.84, and 5.45 – all much higher. While competitors like Hewlett-Packard (HPQ) and Research in Motion (RIMM) may be a bargain for those hunting sub-8 price to earnings ratios, AAPL is still a good place to be. The most recent news affecting Apple has been Steve Jobs’s crazy new plans for company headquarters, but needless to say this will not have a huge impact on AAPL stock price. What will though is whether the company can keep up its knack for fresh technology that consumers love. While some may call this blind faith, we see it as an investment opportunity.The best time to buy AAPL stock is before their next biggest thing is announced – and that time is right now.

• [By Stephen Quickel]

   Can Apple Inc. (AAPL) return to the $700 level? Whether its does or not, I suspect that the stock will be one of the outstanding comeback stories during the year ahead. 
  
  Indeed, even if it rebounds to $600 or so, that's a 20% gain. Most investors would settle for that. And chances are it will do much better over time, given Apple's knack for coming up with new products.
  
  Short sellers have cleaned up since they began bum-rapping Apple in late 2012. Three observations are appropriate: 

  1. The short positions, while rising rapidly early in the fall, never amounted to more than a few percent of the outstanding shares at their peak.
  2. The stock was probably overdue for correction, having zoomed 9-fold since March 2009.
  3. The consensus of 50-plus Wall Street analysts covering AAPL still calls for 20%-plus a year earnings growth going forward, with a target price of $762.

  Apple, in case you hadn't noticed, is selling iPads and iPhones at record levels while its stock has been under attack, in just about every corner of the world.

Top 10 Warren Buffett Companies To Buy For 2014: Chevron Corporation(CVX)

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The Upstream segment involves in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in the refining of crude oil into petroleum products; marketing of crude oil and refined products primarily under the Chevron, Texaco, and Caltex brand names; transportation of crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacture and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It a lso produces and markets coal and molybdenum; and holds interests in 13 power assets with a total operating capacity of approximately 3,100 megawatts, as well as involves in cash management and debt financing activities, insurance operations, real estate activities, energy services, and alternative fuels and technology business. Chevron Corporation has a joint venture agreement with China National Petroleum Corporation. The company was formerly known as ChevronTexaco Corp. and changed its name to Chevron Corporation in May 2005. Chevron Corporation was founded in 1879 and is based in San Ramon, California.

Advisors' Opinion:

• [By Louis Navellier]

  Chevron (NYSE:CVX) provides support to its subsidiaries in the following fields: petroleum operations, chemicals operations, mining operations, power generation and energy services. While many stocks on the NYSE have underperformed in 2011, Chevron stock is up 8% year to date.

• [By Goodwin]

  Chevron (CVX-N94.663.183.48%) is the world's second-largest energy company, after fellow Dow component Exxon Mobil (XOM-N73.951.121.54%).

  But, analysts favour Chevron's stock, which receives positive reviews from 76 per cent of researchers in coverage. In contrast, Exxon receives positive reviews from 42 per cent of analysts, ranking third-worst in the Dow. Chevron is scheduled to report fourth-quarter results on Jan. 28. Its third-quarter adjusted earnings tally of $1.87 (reflecting 8.7 per cent year-over-year growth) missed the consensus forecast of $2.15 by 13 per cent, sending shares down modestly. The sales figure, at $49-billion, missed by 1.9 per cent. Chevron has integrated global operations and sells at a peer discount.

  Its stock trades at a trailing earnings multiple of 11, a forward earnings multiple of 8.9, a book value multiple of 1.8, a sales multiple of 1 and a cash flow multiple of 6.2, 43 per cent, 52 per cent, 58 per cent, 67 per cent and 32 per cent discounts to oil-and-gas industry averages. Based on forward earnings, Chevron is the fourth cheapest Dow stock. It also pays a 72-cent quarterly dividend, translating to a 3.1 per cent dividend yield, seventh highest in the Dow. It has boosted the payout 7.9 per cent a year, on average, over a three-year span and 10 per cent a year, on average, over a five-year span. Chevron has $15-billion of cash, compared to $11-billion of debt.

  Bullish Scenario: Macquarie expects Chevron's stock to rise 21 per cent to $114 in 12 months.

  Bearish Scenario: JPMorgan, despite rating Chevron “overweight”, has a $90 target.

Best Blue Chip Companies For 2014: Visa Inc.(V)

Visa Inc., a payments technology company, engages in the operation of retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. The company owns and operates VisaNet, a global processing platform that provides transaction processing services. It also offers a range of payments platforms, which enable credit, charge, deferred debit, debit, and prepaid payments, as well as cash access for consumers, businesses, and government entities. The company provides its payment platforms under the Visa, Visa Electron, PLUS, and Interlink brand names. In addition, it offers value-added services, including risk management, issuer processing, loyalty, dispute management, value-added information, and CyberSource-branded services. The company is headquartered in San Francisco, California.

Advisors' Opinion:

• [By Robert Holmes]

  Company Profile: Visa is the global credit card company.

  Share Price: $95.69 (Dec. 6)

  2011 Return: 36%

  Investment Thesis: "Visa is well-positioned to continue to capitalize on the electronic payments secular growth trend," William Blair analysts write of Visa, noting that secular growth of electronic payments is expected to average 10% to 12% globally over the next several years.

  The analysts also say that Visa also enjoys very high incremental margins, which contributes to the company's attractive margin profile (59% in fiscal 2011) and strong free cash flow.

  "Visa has a strong balance sheet and generates strong cash flow," the analysts write. "Visa had about $4.1 billion of cash and investments, $2.9 billion of litigation reserves, and no debt on its balance sheet as of Sept. 30, 2011. Guidance calls for more than $4 billion of free cash flow in fiscal 2012."

• [By Charles Sizemore]

  One of the “big picture” economic themes that I expect to play out over 2011 and beyond is the secular shift to a global cashless society.?Though the process is well on its way in the U.S. and Europe, roughly 40% of all transactions are still made with cash and paper checks according to Barron’s.

  This means that even in “boring” developed markets, there is ample room for growth in electronic payments. And there is no better company to benefit from this trend than credit card giant Visa (NYSE: V).

• [By Ed Carson]

  The holiday season was hit or miss for many retailers, but indicators are that consumers were using plastic. Visa shares have risen steadily for the past seven months, with a strong 6% gain so far in 2013. Even in America, consumers continue to shift more from cash and checks to credit and debit cards. Overseas, consumers are adopting plastic, while some are bypassing cards and going straight to mobile payments. Visa wants to make sure it's part of that mobile solution.

  Visa earnings growth has decelerated for the past two quarters from 30% to 24% to 21%. Revenue growth in the latest quarter picked up to 15%, matching the best gains of the past two years.