Saturday, October 5, 2013

Jim Rogers’ 5 Best & Worst Regions for Commodity Investing

“One word: Angola.”

In what seems like a play on the classically awkward “plastics” scene from The Graduate, commodities guru Jim Rogers counts Angola as a top pick for commodities investors.

Rogers tells The Daily Ticker that in addition to Asia (a seemingly perennial favorite), there are great opportunities in Africa, as well one big one in South America.

“I said to my wife, ‘let’s move to Angola — we could live like kings,'” the genteel and bow-tied Rogers, author of “Street Smarts: Adventures on the Road and in the Markets,” told the website on Monday. “She said, ‘you move to Angola; I don’t want to live like a queen in Angola’…but you could!”

He includes one big surprise (or maybe not, given his commodity bent).

Read on for his picks for the best and worst commodity spots around the globe:

Luanda, Angola's capital cityAngola: The website cites Bloomberg stats in noting Africa’s second-biggest oil producer has been looking to boost foreign investment after almost three decades of civil war that ended in 2002. For would-be investors, the country has plans for the start of stock exchange trading in 2016, with a futures and commodities market in 2017. The economy, it notes, grew 7.4% in 2012. The downside, according to the Ticker? The cost of living is described as “astronomical by expat standards."

The site adds: "Money is subject to strict government controls, and decades of war means infrastructure and arable land are lacking.” Marketplace in Mekele, EthiopiaEthiopia: It’s come a long way since Live Aid, and famed 1930s dictator Haile Selassie, deified by Rastafarians everywhere, would be proud. The Financial Times notes the African country, once known for its closed economy and squabbles with neighboring Eritrea, has become an enticing prospect for investors.

“Members of Ethiopia’s diaspora are moving back and leading the way along with Chinese investors," the Ticler says. "They’re trading coffee and investing in health care and manufacturing.” House in Uruguay (Photo: AP)Uruguay: No, it’s not Brazil or Argentina, but their much smaller neighbor. The website says living in Uruguay will cost you 30% to 40% less than living in the U.S.  

“And if you do relocate or invest, the U.S. State Department reports Uruguay’s government has traditionally seen the importance of foreign investment, recognizing and enforcing property rights and contracts," the Ticker says.

It also noted that the strategist Jeremy Grantham recently named Uruguay a good place to invest in farmland in an interview with The Wall Street Journal.

Jets flying over Lower Manhattan. (Photo: AP)United States: He’s not in a New York state of mind (and doesn't think much of other points west).

“I fly into New York and I say, ‘Gosh, it’s just not as exciting as it used to be. Unfortunately, the dynamic and the energy is in Asia, not America, for the most part now, whether we like it or not.” European Union flags (Photo: AP)Europe: He also doesn’t buy into Europe’s long-term prospects, no matter what other pundits might say about northern Europe versus southern Europe, rebounds, recessions and other such talk.

“Most of Europe, while exciting at the moment, is in decline,” he said, before conceding, “It depends on where in Europe. There are countries in Europe that are still reasonably exciting.” 


Check out these stories on ThinkAdvisor:

Tesla (TSLA) Recovers After Fire Fears Extinguished

NEW YORK (TheStreet) -- Telsa (TSLA) shares partly recovered from losses throughout the week after CEO Elon Musk eased fears on automobile safety. On Thursday, shares  plunged more than 12% since the beginning of the week, the dual effect of a rare analyst downgrade and a viral video of a Tesla car on fire which brought into question battery flammability.

On the company blog, Musk wrote, "The combustion energy of our battery pack is only 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan."

The footage, posted to YouTube on Wednesday, showed a Tesla Model S on fire, the result of a collision with a metal object on a Washington State highway.

On Tuesday, Tesla was downgraded to "neutral" by Robert Baird, with a price target of $187, citing execution risks. In other Tesla-related news, the Palo Alto, Calif.-based automaker is in discussions with Samsung for the supply of battery technology to its line of environmental vehicles, reports Reuters. A Tesla spokesperson confirms the company is meeting with several firms to determine the best battery technology compatible with current and future Tesla models. Shares of Tesla Motors Inc stock were up today by $7.67 (4.43%) as of the close of trading. By the end of trading, 14.33 million shares changed hands compared to its average daily volume of 10.55 million shares. The stock ranged in price between $172.65 to $181.18 after opening the day at $176.40 as compared to the previous trading day's close of $173.31. Overall, Tesla Motors Inc led the S&P 500 which was up 0.71%.  TheStreet Ratings team rates Tesla Motors Inc as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: "We rate Tesla Motors Inc (TSLA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins." Highlights from the analysis by TheStreet Ratings Team goes as follows: The gross profit margin for Tesla Motors Inc is currently lower than what is desirable, coming in at 30.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.52% is significantly below that of the industry average. The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Automobiles industry and the overall market, Tesla Motors Inc's return on equity significantly trails that of both the industry average and the S&P 500. Tesla Motors Inc reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Tesla Motors Inc reported poor results of -$3.70 vs. -$2.52 in the prior year. This year, the market expects an improvement in earnings ($0.59 vs. -$3.70). The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 71.1% when compared to the same quarter one year prior, rising from -$105.6 million to -$30.5 million. This stock has increased by 584.96% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in TSLA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months. You can view the full analysis from the report here: TSLA Ratings Report Written by Keris Alison Lahiff.

Friday, October 4, 2013

Morgan Stanley suffers big client asset loss in 3Q as advisers split

morgan stanley, ubs, merrill lynch, wells fargo, wirehouse, attrition, clients Bloomberg

Morgan Stanley Wealth Management, the nation's largest brokerage by adviser head count, lost $8.4 billion in client assets during the third quarter, as some of its major producers took their business to competing firms.

In the three-month period ended Sept. 30, the average assets under management of advisers who moved also jumped nearly 25% from the previous year, to $402.2 million, according to preliminary data from InvestmentNews' Advisers on the Move database.

The breakdown of Morgan Stanley's reported 3Q adviser exits.

The IN database on adviser movement is not exhaustive, as firms only report a portion of the advisers they recruit and none disclose advisers who leave. Generally speaking, the moves of advisers with small books of businesses are not tracked by the data, and advisers do not necessarily take all of their business to the new firm.

But the data indicate continued recruiting challenges for Morgan Stanley, which completed its acquisition of Citigroup Inc.'s Smith Barney unit earlier this year. Morgan's wealth management division lost a net 11 adviser teams in the third quarter, the most of any firm tracked by IN.

Four of the 10 largest departures from Morgan Stanley in the third quarter were to other wirehouses. Three teams managing $7.9 billion in assets moved to UBS Financial Services Inc., while a $1 billion team in the New York area switched to Wells Fargo Advisors LLC.

Morgan Stanley had 16,321 advisers and $1.8 trillion in assets at the end of the second quarter, according to the company's regulatory filings, making it the largest wirehouse by advisers and the second largest by assets.

“In my case, it was a personal choice,” said Elaina S. Spilove, who oversaw $2.5 billion in assets at Morgan before moving to UBS. “I'd rather be one of 7,000 than one of 17,000; much more hands-on management.”

Christine Jockle, a spokeswoman for Morgan Stanley Wealth Management, said the firm's attrition is at a near-historic lows and average revenue at an all-time high. She said the IN data does not include the number of advisers who joined the firm who did not want to disclose their data publicly. She declined to elaborate on how the firm calculates attrition or to provide an overall number of unreported assets that have come into the firm.

Morgan did add some major advisers last quarter. Robert Finan and Anthony LaFonte, who managed $400 million, left Bank of America Merrill Lynch to join the firm in Red Bank, N.J., and Scott Siegel moved his New York City-based SKOC team, which! managed $1.5 billion, from J.P. Morgan Securities LLC.

But high-profile losses, particularly $4.8 billion adviser John F. Rasweiler's moving to UBS in Florham Park, N.J., appeared to offset Morgan's recruitment successes last quarter.

“They are a firm under siege,” said Danny Sarch, an industry recruiter who has been critical of Morgan Stanley. “The smaller, non-wirehouses have preyed on them very successfully.”

Danny Sarch asks where is the next generation of adviser going to come from?

Robert Alpert moved his namesake firm, which includes three other advisers, to a Woodbury, N.Y., branch of Wells Fargo Advisors last week after being affiliated with Morgan Stanley since its 2009 merger with his previous firm, Smith Barney.

He said Morgan's increased fees were a burden for his smaller and intermediate-sized clients.

“We felt that, philosophically, the client was not being put first,” Mr. Alpert said.

In a statement, Ms. Jockle said Morgan Stanley's former advisers, “who always forget to mention the big checks they took to leave,” will put their spin on events.

Morgan Stanley on Oct. 18 will announce its third-quarter earnings, which will give a broader picture of their overall recruitment levels.

10 Best Penny Stocks To Watch For 2014

Bank of America Merrill Lynch, the nation's largest wirehouse by assets, gained seven large teams last quarter, but the size of the four teams who left the firm in the same quarter caused a net loss of some $555 million in client assets, according to the data.

In one major deal, the $500 million Guth-Fordyce team in New Haven, Conn., left Merrill for Snowden Capital Advisors LLC, a firm launched last year by two former Merrill executives.

Wells Fargo, the third largest brokerage, netted three advisers and $1.5 billion in new assets.

UBS, the smallest of the four wirehouses by assets and advisers, gained! $6.8 bil! lion in assets despite adviser head counts remaining stable. Those gains were driven by attracting three big teams from Morgan Stanley: Mr. Rasweiler; Ms. Spilove, in Princeton, N.J., who focuses on institutional clients; and the husband-and-wife duo of Bruce and Bernadette Lanser, who managed $600 million in Milwaukee. The total between those three teams is $7.9 billion.

The strong asset totals are based on a strategic choice by UBS to focus its recruitment efforts on wealthier advisers, an executive from the brokerage said.

“One of the criteria that we look at is that the [financial adviser] has a significant portion of their book in high-net-worth and ultrahigh-net-worth clients,” said Paul Santucci, head of national sales for UBS. “We focus on the best [financial advisers] in their respective marketplaces.”

UBS is the fourth-largest wirehouse

Top Bank Stocks For 2014

European stocks rose to their highest level in 3 1/2 months as Chinese economic data beat estimates and the U.S. offered to defer an attack on Syria if it complied with a Russian proposal to give up chemical weapons.

PSA Peugeot (UG) Citroen climbed to a 17-month high after saying it won�� cut prices for the Peugeot brand. Glencore Xstrata Plc advanced 2.3 percent after raising its estimate for financial gains from its merger with Xstrata Plc. Neste Oil Oyj surged to a five-year high after upgrading its full-year forecast. GlaxoSmithKline Plc slid 2.5 percent as new U.S. guidelines opened the door for generic versions of its Advair drug.

The Stoxx Europe 600 Index rallied 1.3 percent to 309.8 at the close of trading in London, its highest level since May 22. The gauge has surged 11 percent this year as central banks around the world maintained stimulus measures and the global economy showed signs of recovery.

��here is a change in sentiment and we think markets can go further until the end of the year,��Herbert Perus, who helps oversee about $36 billion as head of equities at Raiffeisen Capital Management in Vienna, said by telephone. ��yria is not as big a problem anymore. The possibility of a military strike seems low now.��

Top Bank Stocks For 2014: Goldman Sachs Group Inc.(The)

The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, restructurings, and spin-offs; and underwriting securities, loans and other financial instruments, and derivative transactions. The company?s Institutional Client Services segment provides client execution activities, such as fixed income, currency, and commodities client execution related to making markets in interest rate products, credit products, mortgages, currencies, and commodities; and equities related to making markets in equity products, as well as commissions and fees from executing and clearing institutional client transactions on stock, options, and fu tures exchanges. This segment also engages in the securities services business providing financing, securities lending, and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds, and foundations. Its Investing and Lending segment invests in debt securities, loans, public and private equity securities, real estate, consolidated investment entities, and power generation facilities. This segment also involves in the origination of loans to provide financing to clients. The company?s Investment Management segment provides investment management services and investment products to institutional and individual clients. This segment also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. In addition, it provides global investment research services. The company was founded in 1869 and is headquartered in New York, New York.

Top Bank Stocks For 2014: Commonwealth Bank of Australia (CBA.AX)

Commonwealth Bank of Australia (the Bank) is engaged in the provision of a range of banking and financial products and services to retail, small business, corporate and institutional clients. The Bank is a provider of integrated financial services, including retail, business and institutional banking, superannuation, life insurance, general insurance, funds management, broking services and finance company activities. Its operating segments include Retail Banking Services, Business and Private Banking, Institutional Banking and Markets, Wealth Management, New Zealand, Bankwest and Other. Its retail banking services include home loans, consumer finance, retail deposits and distribution. Its business and private banking include corporate financial services, regional and agribusiness banking, local business banking, private bank and equities and margin lending. The Bank and its subsidiaries ceased to be a substantial holder in Ten Network Holdings Limited, as of September 12, 2012.

Top Bank Companies To Watch For 2014: State Street Corporation(STT)

State Street Corporation, a financial holding company, provides various financial products and services to institutional investors worldwide. The company?s Investment Servicing business line provides products and services, including custody, product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; foreign exchange, brokerage, and other trading services; securities finance; deposit and short-term investment facilities; loan and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk, and compliance analytics. This segment also offers shareholder services, which comprise mutual fund and collective investment fund shareholder accounting. Its Investment Management business line provides a range of investment management, investment research, and other related services, such as securities finance; and strategies for managing passive and active financ ial assets, such as enhanced indexing and hedge fund strategies for U.S. and global equities and fixed-income securities. The company serves mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments, and investment managers. State Street Corporation was founded in 1832 and is headquartered in Boston, Massachusetts.

Advisors' Opinion:
  • [By Tim Higgins]

    Harris Associates LP, State Street Corp. (STT) and Berkshire Hathaway Inc. (BRK/B) led purchases of General Motors Co. (GM) last quarter as the U.S. government continued selling shares and GM rejoined the Standard & Poor�� 500 Index.

Top Bank Stocks For 2014: Canadian Imperial Bank of Commerce(CM)

Canadian Imperial Bank of Commerce provides various financial products, services, and advice to individual, small business, commercial, corporate, and institutional clients in Canada and internationally. The company offers retail markets services comprising personal banking, business banking, and wealth management services, as well as investment management services to retail and institutional clients. It also provides wholesale banking services, including credit, capital markets, investment banking, merchant banking, and research products and services to government, institutional, corporate, and retail clients. The company provides its services through its branch network, automated bank machines, mobile banking, and online banking site. As of June 3, 2011, it operated approximately 1,100 branches and 4,000 automated bank machines in Canada. The company was founded in 1867 and is headquartered in Toronto, Canada.

Advisors' Opinion:
  • [By John Reese, Founder and CEO, And Validea Capital Management]

    As you might imagine, the portfolio will tread into areas of the market others ignore, because of its contrarian bent. Right now, its holdings include some very unloved firms, including several financials, emerging market stocks, and much-maligned BP. Here's a look at five of the stock in our Dreman portfolio:

    Canadian Imperial Bank of Commerce (CM)

    BP Plc (BP)

    Telecom Argentina SA (TEO)

    China Mobile Limited (CHL)

    Vale SA (VALE)

    Subscribe to Validea here��/P>

Top Bank Stocks For 2014: Banco Bradesco SA (BBD)

Banco Bradesco S.A. (the Bank), incorporated on November 5, 1943, is commercial bank. The Bank offers a range of banking and financial products and services in Brazil and abroad to individuals, large, midsized and small companies and local and international corporations and institutions. It operates in two segments: the banking, and the insurance, pension and capitalization bonds. Its products and services encompass banking operations, such as loans and advances and deposittaking, credit card issuance, purchasing consortiums, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services. The main services it offers through Bradesco Expresso are receipt and submission of account applications; receipt and submission of account applications; Social Security National Service (INSS) benefit payments; checking and savings account deposits, and receipt of consumption bills, bank charges and taxes. In May, 2011, the Bank acquired Banco do Estado do Rio de Janeiro S.A. (BERJ).


The Banking segment includes deposit-taking with clients, including checking accounts, savings accounts and time deposits; loans and advances (individuals and companies, real estate financing, microcredit, onlending BNDES funds, rural credit, leasing, among others); credit cards, debit cards and pre-paid cards; management of receipts and payments; asset management; services related to capital markets and investment banking activities; intermediation and trading services; custody, depositary and controllership services; international banking services, and purchasing consortiums.

The Bank offers a variety of deposit products and services to our customers through its branches, including Non-interest bearing checking accounts, such as Easy Account, Click Account, Academic Account and Cell Phone Bonus Account; traditional savings accounts; time deposits, and deposits from financial institutions. As of December 31, 2011, it had 43.4 million savings a! ccounts. It offers its customers certain additional services, such as identified deposits and real-time banking transfers. Its loans and advances to customers, consumer credit, corporate and agricultural-sector loans, totaled R$263.5 billion as of December 31, 2011.

The Bank�� loan portfolio consists of short-term loans, vehicle financings and overdraft loans on checking accounts. It also provides revolving credit facilities and traditional term loans. As of December 31, 2011, it had outstanding advances, vehicle financings, consumer loans and revolving credit totaling R$58.0 billion, or 22.0% of its portfolio of loans and advances. Banco Bradesco Financiamentos (Bradesco Financiamentos) offers direct-to-consumer credit and leasing for the acquisition of vehicles and payroll-deductible loans to the public and private sectors 'in Brazil. Supported by BF Promotora de Vendas Ltda. (BF Promotora), and using the Bradesco Financiamentos brand, the Bank operates through its network of correspondents in Brazil, consisting of retailers and dealers selling light vehicles, trucks and motorcycles, to offer financing and/or leasing for vehicles. Through Bradesco Promotora brand, it offer payroll-deductible loans to social security retirees and pensioners, public-sector employees, military personnel and private-sector companies sponsoring plans, and other aggregated products (insurance, capitalization bonds, cards, purchasing consortiums, and others).

As of December 31, 2011, the Bank had 63,156 outstanding real estate loans. As of December 31, 2011, the aggregate outstanding amount of its real estate loans amounted to R$15.9 billion, representing 6% of its portfolio of loans and advances. As of December 31, 2011, it had 69,491 microcredit loans outstanding, totaling R$62.8 million. Its BNDES onlending portfolio totaled R$35.4 billion as of December 31, 2011.

The Bank provides traditional loans for the ongoing needs of its corporate customers. It had R$85.8 billion of outstand! ing other! local commercial loans, accounting for 32.5% of its portfolio of loans and advances as of December 31, 2011. It offers a range of loans to its Brazilian corporate customers, including short-term loans of 29 days or less; guaranteed checking accounts and corporate overdraft loans; discounting trade receivables, promissory notes, checks, credit card and supplier receivables, and a number of other receivables; financing for purchase and sale of goods and services; corporate real estate financing, and investment lines for acquisition of assets and machinery. As of December 31, 2011, the Bank had R$11 billion in outstanding rural loans, representing 4.2% of its portfolio of loans and advances. The Bank conducts its leasing operations through its primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.

The Bank offers electronic solutions for receipt and payment management solutions, which include collection and payment services and online resource management enabling its customers to pay suppliers, salaries, and taxes and other levies to governmental or public entities. The global cash management concept provides solutions for multinationals in Brazil and/or domestic companies operating abroad. It manages third-party assets through mutual funds; individual and corporate investment portfolios; pension funds, including assets guaranteeing the technical provisions of Bradesco Vida e Previdencia, and insurance companies, including assets guaranteeing the technical provisions of Bradesco Seguros.

The Bank�� subsidiaries Bradesco S.A. CTVM and Agora S.A. CTVM (or Bradesco Corretora and Agora Corretora, respectively) trade stocks, options, stock lending, public offerings and forwards. They also offer a range of products, such as Brazilian government securities (under the Tesouro Direto program), BM&F trading, investor clubs and investment funds.

The Bank offers a range of international services, such as foreign exchange transactions, foreign tr! ade finan! ce, lines of credit and banking. As of December 31, 2011, its international banking services included New York City, a branch and Bradesco Securities Inc., its subsidiary brokerage firm, or Bradesco Securities United States, and its subsidiary Bradesco North America LLC, or Bradesco North America; London, Bradesco Securities U.K., its subsidiary, or Bradesco Securities U.K.; Cayman Islands, two Bradesco branches and its subsidiary, Cidade Capital Markets Ltd., or Cidade Capital Markets; Argentina, Banco Bradesco Argentina S.A., its subsidiary, or Bradesco Argentina; Banco Bradesco Luxemburgo S.A. its subsidiary, or Bradesco Europe; Japan, Bradesco Services Co. Ltd., its subsidiary, or Bradesco Services Japan; in Hong Kong, its subsidiary Bradesco Trade Services Ltd, or Bradesco Trade, and in Mexico, its subsidiary Ibi Services, Sociedad de Responsabilidad Limitada, or Ibi Mexico.

The Bank�� Brazilian foreign-trade related business consists of export and import finance. In addition to import and export finance, its customers have access to a range of services and foreign exchange products, such as purchasing and selling travelers checks and foreign currency paper money; cross border money transfers; advance payment for exports; accounts abroad in foreign currency; cash holding in other countries; collecting import and export receivables; repaid cards with foreign currency (individual), and structured foreign currency transactions through its foreign units.

Insurance, pension plans and capitalization bonds

The Bank offers insurance products through a number of different entities, which it refers to collectively as Grupo Bradesco Seguros. It offers life, personal accident and random events insurance through its subsidiary Bradesco Vida e Previdencia. It offers health insurance policies through Bradesco Saude and its subsidiaries for small, medium or large companies. It provides automobile, property/casualty and liability products through its subsidiary Bradesco Auto! /RE. It a! lso offers certain automobile, health, and property/casualty insurance products directly through its Website.

Top Bank Stocks For 2014: First Commonwealth Financial Corporation(FCF)

First Commonwealth Financial Corporation operates as the holding company for First Commonwealth Bank that provides consumer and commercial banking services to individuals and small and mid-sized businesses in central and western Pennsylvania. The company offers personal checking accounts, interest-earning checking accounts, savings accounts, health savings accounts, insured money market accounts, debit cards, investment certificates, fixed and variable rate certificates of deposit, and IRA accounts. It also provides secured and unsecured installment loans, construction and mortgage loans, safe deposit facilities, credit lines with overdraft checking protection, and student loans, as well as Internet and telephone banking, and automated teller machine services. In addition, the company offers commercial banking services, including commercial lending, small and high-volume business checking accounts, on-line account management services, ACH origination, payroll direct deposi t, commercial cash management services, and repurchase agreements. Further, it provides various trust and asset management services, as well as a complement of auto, home, business, and term life insurance. Additionally, the company offers annuities, mutual funds, stock, and bond brokerage services through an arrangement with a broker-dealer and insurance brokers. It operates 115 community banking offices in western Pennsylvania and 2 loan production offices in downtown Pittsburgh and State College, Pennsylvania. The company was founded in 1982 and is headquartered in Indiana, Pennsylvania.

Advisors' Opinion:
  • [By Ray Merola]

    Global recession notwithstanding, International Paper has re-imagined itself as a strong cash generator. I focus upon Free-Cash-Flow (FCF), thereby subtracting routine capital expenditures from Operating Cash. What remains is what Warren Buffett refers to as "Owner Earnings," or what is left over after a company has handled all aspects of running and maintaining its business.

  • [By Paul McWilliams]

    Trailing 12-month free cash flow (FCF) was $1.58 per fully diluted share, versus Cree's reported non-GAAP earnings of $1.32, and net cash per fully diluted share increased by $2.06 year-over-year.

Top Bank Stocks For 2014: Federal National Mortgage Association (FNMA.OB)

Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by the United States Congress to support liquidity and stability in the secondary mortgage market, where mortgage-related assets are purchased and sold. The Company�� activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage-related securities in the secondary market for its mortgage portfolio. Fannie Mae operates in three business segments: Single-Family business, Multifamily Business (formerly Housing and Community Development (HCD)) and Capital Markets group. Its Single-Family Credit Guaranty and Multifamily businesses work with its lender customers to purchase and securitize mortgage loans customers deliver to the Company into Fannie Mae MBS.

The Company obtains funds to suppo rt its business activities by issuing a variety of debt securities in the domestic and international capital markets. Fannie Mae acquires funds to purchase mortgage-related assets for its mortgage portfolio by issuing a variety of debt securities in the domestic and international capital markets. It also makes other investments. Fannie Mae conducts its business in the United States residential mortgage market and the global securities market. It conducts business in the United States residential mortgage market and the global securities market. During the year ended December 31, 2011, the Company��

Single-Family Business

Single-Family business includes mortgage securitizations, mortgage acquisitions, credit risk management and credit loss management. Single-Family business works with the Company�� lender customers to provide funds to the mortgage market by securitizing single-family mortgage loans into Fannie Mae MBS. Its Single-Family business also works with its Capital Markets group to facilitate th! e! purchase of single-family mortgage loans for the Company�� mortgage portfolio. Fannie Mae�� Single-Family business prices and manages the credit risk on its single-family guaranty book of business, which consists of single-family mortgage loans underlying Fannie Mae MBS and single-family loans held in its mortgage portfolio. Single-Family business and Capital Markets group securitize and purchase primarily single-family fixed-rate or adjustable-rate, first lien mortgage loans, or mortgage-related securities backed by these types of loans.

The Company securitizes or purchases loans insured by Federal Housing Administration (FHA), loans guaranteed by the Department of Veterans Affairs (VA), and loans guaranteed by the Rural Development Housing and Community Facilities Program of the Department of Agriculture, manufactured housing loans, reverse mortgage loans, multifamily mortgage loans, subordinate lien mortgage loans and other mortgage-related securities. I ts Single-Family business securitizes single-family mortgage loans and issues single-class Fannie Mae MBS. Fannie Mae�� Single-Family business securitizes loans solely in lender swap transactions, in which lenders deliver pools of mortgage loans to the Company, which are placed immediately in a trust, in exchange for Fannie Mae MBS backed by these loans. Generally, the servicing of the mortgage loans held in its mortgage portfolio or that backs its Fannie Mae MBS is performed by mortgage servicers on the Company�� behalf. Lenders who sell single-family mortgage loans to Fannie Mae service these loans for the Company. For loans it owns or guarantees, the lender or servicer must obtain its approval before selling servicing rights to another servicer.

Fannie Mae�� mortgage servicers collect and deliver principal and interest payments, administer escrow accounts, monitor and report delinquencies, perform default prevention activities, evaluate transfers of own ership interests, respond to requests for partial releas! es o! f s! ecurit! y, and handle proceeds from casualty and condemnation losses. Its mortgage servicers are the primary point of contact for borrowers and perform implementation of its homeownership assistance initiatives, negotiation of workouts of troubled loans, and loss mitigation activities. Mortgage servicers also inspect and preserve properties and process foreclosures and bankruptcies.

Multifamily Mortgage Business

Multifamily business works with the Company�� lender customers to provide funds to the mortgage market by securitizing multifamily mortgage loans into Fannie Mae MBS. Through its Multifamily business, Fannie Mae provides liquidity and support to the United States multifamily housing market principally by purchasing or securitizing loans that finance multifamily rental housing properties. It also provides some limited debt financing for other acquisition, development, construction and rehabilitation activity related to projects that complement this business. Fannie Mae�� Multifamily business also works with its Capital Markets group to facilitate the purchase and securitization of multifamily mortgage loans and securities for Fannie Mae�� portfolio, as well as to facilitate portfolio securitization and resecuritization activities.

The Company�� multifamily guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS and multifamily loans and securities held in Fannie Mae�� mortgage portfolio. Revenues for Fannie Mae�� Multifamily business are derived from a variety of sources, including guaranty fees received as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS and on the multifamily mortgage loans held in its portfolio and on other mortgage-related securities; transaction fees associated with the multifamily business, and other bond credit enhancement related fees. As with the servicing of single-family mortgages, multifamily mortgage servicing is performed by the ! lenders !! who sell ! the mortgages to the Company. Fannie Mae�� Multifamily business is organized and operated as an integrated commercial real estate finance business.

Capital Markets

Capital Markets group's primary business activities include mortgage and other investments, mortgage securitizations, structured mortgage securitizations and other customer services, and interest rate risk management. Capital Markets group manages the Company�� investment activity in mortgage-related assets and other interest-earning, non-mortgage investments. It funds its investments primarily through proceeds the Company receives from the issuance of debt securities in the domestic and international capital markets. Its business activity is focused on making short-term use of its balance sheet rather than long-term investments. Activities Fannie Mae is undertaking to provide liquidity to the mortgage market include whole loan conduit, early funding, real estate mortgage investment c onduit (REMICs) and other structured securitizations and dollar roll transactions. Whole loan conduit activities include its purchase of both single-family and multifamily loans principally for the purpose of securitizing them. During the year ended December 31, 2010, it was engaged in dollar roll activity. A dollar roll transaction is a commitment to purchase a mortgage-related security with a concurrent agreement to re-sell a similar security at a later date or vice versa.

Fannie Mae�� Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through both portfolio securitizations and structured securitizations involving third party assets. Its Capital Markets group creates single-class and multi-class Fannie Mae MBS from mortgage-related assets held in its mortgage portfolio. Fannie Mae�� Capital Markets group may sell these Fannie Mae MBS into the secondary market or may retain the Fannie Mae MBS in its investment portf olio. The Company�� Capital Markets group cr! eates sin! gle-c! lass and ! multi-class structured Fannie Mae MBS, for its lender customers or securities dealer customers, in exchange for a transaction fee. The Company�� Capital Markets group provides its lender customers and their affiliates with services that include offering to purchase a range of mortgage assets, including non-standard mortgage loan products; segregating customer portfolios to obtain optimal pricing for their mortgage loans, and assisting customers with hedging their mortgage business.

Although the Company�� Capital Markets group�� business activities are focused on short-term financing and investing, revenue from its Capital Markets group is derived primarily from the difference, or spread, between the interests it earns on its mortgage and non-mortgage investments and the interest it incurs on the debt the Company issues to fund these assets. Its Capital Markets revenues are primarily derived from the Company�� mortgage asset portfolio. Capital Markets gro up funds its investments primarily through the issuance of a variety of debt securities in a range of maturities in the domestic and international capital markets. Investors in the Company�� debt securities include commercial bank portfolios and trust departments, investment fund managers, insurance companies, pension funds, state and local governments, and central banks.

The Company competes with Freddie Mac, FHA and Ginnie Mae.

Top Bank Stocks For 2014: U.S. Bancorp(USB)

U.S. Bancorp, a financial services holding company, provides various banking and financial services in the United States. It generates various deposit products, including checking accounts, savings accounts, money market savings, and time certificates of deposit accounts. The company originates a portfolio of loans comprising commercial loans and lease financing; commercial real estate; residential mortgage; and retail loans consisting of credit cards, retail leasing, home equity and second mortgages, and other retail loans. It also offers wholesale lending, equipment finance, small-ticket leasing, depository, treasury management, capital markets, foreign exchange, and international trade services to middle market, large corporate, commercial real estate, and public sector clients. In addition, U.S. Bancorp provides telebanking and automated teller machine (ATM) services, as well as cash management services. The company, through other subsidiaries, provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, and custody and fund services; and payment services, including consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, and merchant processing. U.S. Bancorp primarily serves individuals, estates, foundations, business corporations, and charitable organizations. It operates a network of approximately 3,031 banking offices and 5,310 ATMs. The company was founded in 1863 and is headquartered in Minneapolis, Minnesota.

Advisors' Opinion:
  • [By Jessica Alling]

    US Bancorp (NYSE: USB  ) is looking beyond check deposits, with the hopes of developing voice recognition software for its mobile app -- upping the convenience factor yet again. But USB isn't thinking only of the customers, as the bank has initiated a 50-cent fee for each mobile check deposit. This new fee would be a big boon for the banks (as long as customers don't revolt), since the average cost of processing a check via mobile apps is only 10 cents, according to Javelin Strategy & Research, a California-based company that rates banks on their mobile apps.

Thursday, October 3, 2013

The Financial Crisis in Paulson, Fuld, Geithner and Dimon's Own Words

NEW YORK (TheStreet) -- Five years ago on Sunday, Sept. 14, investment bank Lehman Brothers filed for bankruptcy, a turning point in the 2008 financial crisis that caused tumult in esoteric credit markets to accelerate into a cascading global financial panic.

What began as a Wall Street-oriented catastrophe eventually reached all corners of the global economy. The U.S. fell into the sharpest recession since the Great Depression. In Europe, nations teetered on the brink of bankruptcy.

Millions of Americans lost their jobs and unemployment rates remain at historic highs in many developed market economies. The 2008 crisis has also spawned an overhaul of the global financial system as regulators work to ensure that future banking industry panics don't imperil ordinary citizens.

Five years ago, a handful of extraordinarily powerful bankers were racing to save the financial system after sowing the seeds of collapse. Bankers such as Richard S. Fuld of Lehman Brothers, John Mack of Morgan Stanley (MS) and John Thain of Merrill Lynch were working around the clock to save their firms. Government officials such as New York Federal Reserve President Timothy Geithner, Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke meanwhile, were in the process of hatching was the biggest rescue -- or bailout -- in Wall Street's history. In a definitive New Yorker recount of the crisis, James Stewart called the crescendo of panic that began on Sept. 12, 2008, the Eight Days of the Financial Crisis. As Stewart concluded, there was a point during the economic tumult when unbridled fear conquered reason. Depending on one's views some acted decisively and heroically to curtail the panic. Others wonder why more bankers weren't prosecuted. There is also still widespread unease with the size of Wall Street's bailout and an ensuing concentration of wealth among the nation's economic elite not seen since the Gilded Age. TheStreet combed audio files made available by the Senate-appointed Financial Crisis Inquiry Commission for perspectives from key players in the financial crisis. The FCIC's work stands as a definitive account of what brought the global economy to near collapse. Disclosures made by the Federal Reserve under the Freedom of Information Act also show the alarming scope of Wall Street's bailout. Transcripts still to be released by the Fed may yet shed more light on the crisis. Here are recounts of the crisis from Jamie Dimon, Richard S. Fuld, Tim Geithner, Lloyd Blankfein, Ken Lewis, Warren Buffett and David Einhorn. They recall issues such as the bailout of Bear Stearns, the failure of Lehman, the rescue of Merrill Lynch, and the near-collapse of AIG. God, Country, Lehman -- Written by Antoine Gara in New York. Follow @antoinegara

Tesla Motors Inc Tanks As Window Dressing Over

Hot Undervalued Companies For 2014

Tesla Motors Inc (NASDAQ: TSLA) is dropping fast. This is a direct result of window dressing at the end of the third quarter pushing the stock up far too high and far too fast. I wrote an article a few days ago explaining this very thing and why TSLA was jumping higher and also why you should expect a collapse after the start of the new quarter. 

The bottom line is this simple fact. Fund managers buy the best stocks at the end of the quarter so they can fool their investors into thinking they owned them all quarter. This causes a big pop in stocks like Tesla and other best performers. The issue comes into play with this is excessive buying which will cease at the onset of the new quarter. When that new quarter starts, the stock has no more bidders and will fall quickly. This can be seen today on Tesla. The stock is trading at $185.65, -7.35 (-3.81%).

Use this to your advantage in the future. Short the biggest movers at the start of the new quarter. Look for a solid pull back and profit. 

Gareth Soloway

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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Wednesday, October 2, 2013

What Are Frontier Markets?

Top Biotech Stocks For 2014

Frontier markets refer to equity markets in small nations that are at an earlier stage of economic and political development than larger and more mature emerging markets. In other words, think of frontier markets as the smaller siblings of emerging markets. Frontier equity markets typically have modest market capitalization, limited investability and liquidity, and few market information sources. On the positive side, they generally possess favorable demographics and good long-term growth prospects. As these markets probably constitute the last frontier of investing in an increasingly interlinked global economy, investors should be aware of their risks and rewards, and the options available to invest in them.

Characteristics of Frontier Markets

The term "frontier markets" is widely attributed to the International Finance Corporation (IFC), which coined it in 1992 to refer to a subset of emerging markets. Standard & Poor's bought the IFC Emerging Markets Database in 2000 and subsequently established a frontier index in 2007.

As of September 2013, frontier indices had been established by four major providers – Standard & Poor's, MSCI, Russell Investments and FTSE. The number of frontier markets in these indices ranges from 25 in the MSCI index to 41 in the Russell Frontier Index. These frontier markets are generally concentrated in Eastern Europe, Africa, the Middle East, South America and Asia. The biggest frontier markets are Kuwait, Qatar, the United Arab Emirates (UAE), Nigeria, Argentina and Kazakhstan.

The criteria for inclusion in a frontier markets index are not rigid. The starting point in evaluating a nation for inclusion, of course, is that it should not already be a component of one of the numerous emerging market or developed market indices. Assuming that a nation is not, most index providers evaluate parameters such as its economic d! evelopment, market accessibility, liquidity and foreign investment restrictions. Overseas investor interest is also considered, since there is no point in going to the effort and expense of including a nation in a frontier markets index if there is little interest in it as an investment destination.

Emerging to Frontier (and Vice Versa)

The subjectivity involved in classifying a market as a "frontier," rather than an emerging, market means that there are occasional inconsistencies in classification among the different index providers. For example, Pakistan is classified as a frontier market by S&P, MSCI and Russell, but is regarded as an emerging market by FTSE.

There is also some degree of migration between the frontier and emerging markets as their economic fortunes change. As an example, in 2009 MSCI re-classified the status of three countries from emerging market to frontier market – Jordan, Pakistan and Argentina. Morocco will be moved from the list of emerging markets to frontier markets in November 2013.

Movement from the ranks of frontier markets to emerging markets is also possible, as evidenced by the fact that Qatar and UAE will be making this transition in May 2014.

Sector Similarities, Economic Disparities

The biggest sector in any frontier market index by far is banking/financials, which generally accounts for more than 50% of the index. Other sectors with double-digit weights are industrials and telecoms. Sectors such as health care, utilities and consumer discretionary – which form a substantial portion of the benchmark index in bigger economies – typically have minimal representation in frontier market indices.

Despite the large number of Middle East nations and OPEC producers included in frontier markets, energy companies do not find much representation in these indices. This is because most of the big oil and gas companies in these nations are sovereign entities that are largely or wholly owned by the government, so they a! re not op! en to investment by the general public.

Another point worth noting is that since frontier markets include a number of prosperous nations, there is a great deal of disparity between the constituents of a frontier index. As an example, Qatar, with its huge energy reserves and rapid growth rate in recent years, had per-capita gross national income of $81,300 and a population of less than 2 million in 2011, according to the World Bank. In comparison, Bangladesh had per-capita income of $1,910 and a population of 153 million in 2011.

Comparing Frontier Market Indices

Here's a basic comparison of the four main frontier market indices (as of September 2013):

S&P Frontier BMI (Broad Market Index) Number of countries – 36

Number of companies – 556

Top five countries – Kuwait, Qatar, Nigeria, UAE, Argentina

Top three sectors – Financials (53.9%), industrials, consumer staples

MSCI Frontier Markets Index Number of countries – 25

Number of companies – 141

Top five countries – Kuwait, Qatar, Nigeria, UAE, Pakistan

Top three sectors – Financials (53.1%), telecom services, industrials

FTSE Frontier 50 Index Number of countries – 26

Number of companies – 50

Top five countries – Qatar, Nigeria, Argentina, Kenya, Oman

Top three sectors – Banks (51%), industrials, telecom

Russell Frontier Index Number of countries – 41

Number of companies – Not known

Top five countries – Kuwait, Nigeria, Qatar, Argentina, Pakistan

Top three sectors – Financial services, energy, utilities

Why Frontier Markets are Important

Frontier markets are worthy of considering for a number of reasons:

Growth potential due to demographics: While frontier market economies have a combined population of 2 billion people – or about 30% of the global population – they account for only 6% of the world's nominal GDP and just 0.4% of global market capitalization. The population of those living in frontier markets is relatively young, with 60% under 30 years of age and an average age of 30.2 years, a decade less than the 40.5 average age of the 1 billion living in developed nations. Labor costs in most frontier markets are also low compared with costs in other nations. This demographic advantage, combined with a debt-to-GDP that is much lower than in the developed world, means that frontier markets have better long-term growth prospects. In 2011, for instance, frontier markets posted an average GDP growth rate of 4.9%, three times faster than the 1.6% growth rate recorded by the 10 largest advanced economies, according to the World Bank. Frontier markets may improve portfolio diversification: While increasing global economy integration means that most developed and emerging markets move in sync with one another, frontier markets have a lower degree of correlation with them. As a result, frontier markets may be effective in improving a portfolio's diversification. Above-average returns: As of Sept. 25, 2013, eight of the 10 best-performing equity markets for the year were frontier markets, with an average gain of 41.5% in U.S.-dollar terms. While these are not typical returns, as they can gyrate wildly from one year to the next, a patient investor with a long-term investment horizon may be able to generate significant returns from frontier markets over time. How to Invest in Frontier Markets

Exchange traded funds (ETFs) offer by far the best way to invest in frontier markets. A summary of some of the leading ETFs follows (data as of Sept. 27, 2013):

iShares MSCI Frontier 100 (NYSE:FM): Tracks the MSCI Frontier Markets 100 Index. Top geographic allocations – Kuwait, Qatar, UAE, Nigeria and Pakistan

Top sector allocations – Banks, telecoms, oil and gas, real estate

Total assets = US$301 million

Guggenheim Frontier Markets (NYSE:FRN): Seeks investment results that correspond to the price and yield performance of the Bank of New York Mellon New Frontier DR Index. This index, in turn, tracks the performance of depositary receipts in ADR or GDR form for companies from countries defined as the frontier market in the LSE, NYSE, NYSE Amex and Nasdaq. Top geographic allocations – Chile, Colombia, Argentina, Egypt and Nigeria

Top sector allocations – Banks, oil and gas, electric utilities, food

Total assets = US$94 million.

PowerShares MENA Frontier Countries Portfolio (Nasdaq:PMNA): Seeks investment results that correspond to performance of the Nasdaq OMX Middle East North Africa (MENA) index. Top geographic allocations – Kuwait, UAE, Egypt, Qatar and Bahrain

Top sector allocations – Banks, real estate, telecoms, venture capital

Total assets = US$14 million.

Risks of Frontier Markets

Liquidity – Liquidity can be an issue for most markets during turbulent times, and especially for frontier markets due to their thin trading volumes. This lack of volume may result in limited liquidity and wide bid-ask spreads in volatile markets. Geopolitical and political risks – Many frontier markets are located in unstable areas, and as a result, geopolitical risk is a real concern. Political change is another issue that should be considered, since a change of government may be accompanied by significant unrest and instability. Inflation – This is a constant threat in some frontier markets, and it may erode investment returns substantially over the long term. Lack of transparency – Most frontier markets suffer from a lack of transparency and have inadequate information sources. Currency risk – The steep decline in some emerging market currencies like the Indian rupee in 2013 highlights the risk posed by investing overseas. While currency risk is a definite issue for frontier markets, it is less so for the Middle East nations such as Qatar and the UAE that peg their local currencies to the U.S. dollar. Conclusion

Despite their obvious risks, frontier markets offer investors the advantages of above-average returns driven by favorable demographics, as well as portfolio diversification. As these markets probably constitute the last frontier of investing in an increasingly interlinked global economy, investors should be aware of their risks and rewards, and the options available to invest in them.

Wall Street's Concerns on Apple Are Misplaced

NEW YORK (TheStreet) -- Apple (AAPL) shares took their worst beating in a while Monday, dropping 3.2% to $450.12 on concerns that the company didn't announce pre-order sales for the 5c. Those concerns, however, are misguided.

This is the first time that Apple has released two phones at the same time, having announced the iPhone 5c and 5s at an event in Cupertino, Calif., last week. Traditionally, Apple announces only one phone so this is a big change for the company. As such, I wouldn't expect to hear pre-order numbers from Apple until next week, when the 5s finally goes on sale (customers can pre-order it online starting at 12:01 a.m. Friday).

In a press release, Apple today announced that the iPhone 5s and iPhone 5c will be available to customers on Friday, September 20 at 8:00 a.m. local time at Apple retail stores in addition to the pre-ordering online. Both phones will be available in the US, Australia, Canada, China, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK.

Pre-orders for the 5c went live on Friday on both Apple's Web site and carrier's Web sites. Sprint (S) already said delivery for the yellow version of the 16 GB version of the 5c is pushed back because of heavy demand. However, CNBC's Jon Fortt tweeted that Apple may announce a 5c pre-order figure Tuesday, though he wasn't sure one would come. If we get an iPhone 5c preorder tally from $AAPL -- and I'm not sure we will -- it will come Tuesday morning @CNBC— Jon Fortt (@jonfortt) September 14, 2013 If Apple doesn't announce something by next Monday, the first full weekend that both phones are available, then it becomes a different issue. Since announcing both phones on Sept. 10, Apple shares have dropped sharply, losing 9.7% in market cap. Much of that was caused by several downgrades on the stock, following concerns that the iPhone 5c was priced too high for emerging markets, particularly China. Also of concern to Wall Street and analysts was the lack of announcement between Apple and China Mobile (CHL), though Apple has been granted a license for China Mobile's network. AAPL ChartAAPL data by YCharts

As far as actual figures go for the new iPhones, until Apple announces something it's just conjecture and speculation. Citi has said it expects Apple sold 2.2 million iPhone 5c devices this past weekend. Citi analyst Glen Yeung rates Apple shares "neutral."

This comes as Citi cut its growth estimates for the global smartphone market. For 2013, it expects 1.13 billion smartphones to ship, growing at 51% year over year. However, for 2014 Citi now expects 25% year-over-year growth for smartphones, down from a prior view of 27% growth. For 2015, Citi expects 14% growth in smartphones, down from a prior view of 21% growth, citing smartphone saturation in developed markets.

One thing that is certain is that one of Apple's Chinese carrier partners, China Unicom (CHU), announced more than 100,000 reservations were taken for the iPhone 5s and 5c, despite no subsidies being announced for the phones.

The markets will continue to speculate, as they usually do, until Apple announces something official. --Written by Chris Ciaccia in New York >Contact by Email. Follow @Chris_Ciaccia

Tuesday, October 1, 2013

Video Exploring Compelling Investment Themes in an Atypical Market - Royce Funds Commentary

The current market rally has provided fewer buying opportunities for value investors such as ourselves. Portfolio Manager and Principal Chip Skinner discusses areas of the market that he believes are providing attractive opportunities, companies that exemplify the themes he's been developing, and three stocks that have enjoyed some success so far in 2013.

Do you think the current small-cap bull market can keep going or are you expecting a correction?While a rising market is encouraging from a performance perspective, a pullback at some point would logically make sense. There seems to be a rush to risk assets, particularly now that investors have watched certain market segments do quite well on an absolute basis over the last couple of years, so I think we're about due for a correction given that there are still a lot of unknowns with regard to the federal budget and related matters.

We've gotten sort of a head-fake from the Federal Reserve on tapering. We still have some level of global political tension. But I do feel sure that interest rates are heading higher over the longer term. So while a correction or even periodic corrections will occur, long-term, I remain very bullish on small-cap stocks.

What sectors and industries have you been looking at most closely lately?One theme I've been exploring over the last year or so is "Machine to Machine" (M2M) technology, also known as the "Internet of Things."

Much of this technology involves placing a sensor or other piece of technology on one piece of equipment to capture information that can be relayed through a wireless or wired network to a computer that translates what's gathered into meaningful data.

This data can then be analyzed to make appliances and other things run more efficiently and effectively. Gartner, a leading information technology consultant, thinks this area can grow at a 23% compound annual growth rate through 2016.

This data can then be analyzed to make appliances and other things run more efficie! ntly and effectively. Gartner, a leading information technology consultant, thinks this area can grow at a 23% compound annual growth rate through 2016.

Through M2M technologies, businesses can make a lot of manual functions more automated, and most would benefit from the ability to save time and labor not just on manual data input and measurement, which is often on a delayed batch basis, but also on inventory reporting, maintenance and parts replacement on heavy equipment, meter readings, etc.There are many factors driving this theme, but the biggest—and perhaps most evident—is the pervasiveness of communication networks. Another important driver is cost-reduction opportunities.

Through M2M technologies, businesses can make a lot of manual functions more automated, and most would benefit from the ability to save time and labor not just on manual data input and measurement, which is often on a delayed batch basis, but also on inventory reporting, maintenance and parts replacement on heavy equipment, meter readings, etc.

There's also a service element whereby companies can build stronger customer relationships. With more precise, real-time information, they can quickly detect changes in consumer trends and monitor customer behavior or usage more effectively.

Can you give us a couple of examples of companies that are taking advantage of M2M technology?Sure—we've had an investment in Pason Systems (PSI) for almost 10 years now. Based in Canada, Pason has created an entire business model around M2M by automating certain oil well drilling functions and production data so that it can tell when something's going haywire. It also has a number of additional applications that it's selling, including a sensor that attaches near the drill bit to help navigate where an operator should be drilling. The company has penetrated the U.S. in a big way, and now it's looking to expand internationally.

Sierra Wireless, which is a position I first bought in January and have been buildin! g in Royc! e Value Plus Fund's portfolio since then, is now a pure play M2M company after having sold its laptop wireless device business to NETGEAR earlier this year.

The company has a well-respected management team, a lot of cash on its balance sheet, and sensor and communication technology. The company is now eager to make an acquisition to create a complete solution—Sierra still needs an enterprise side dashboard side for its collection analysis and interpretation of data, and that's what it's on the hunt for.

Are there any other themes that you've been developing?I think the enterprise software area is pretty interesting right now, particularly cloud-oriented companies and software businesses that either help track assets or reduce corporate expenses. Tangoe is a leader in the telecom expense management space—both wired and wireless. The company helps enterprises track and manage mobile devices of all types.

With the introduction of laptops and smart phones, corporate intranet security and access have become more complicated, particularly with all the different mobile phone vendors and telecom plans a company's employees typically have.

Historically, most companies have not tried to manage this process. Tangoe (TNGO) helps companies consolidate and renegotiate contracts by using the buying power that's already there to help companies better manage this end of their business.

A second company that makes enterprise software is SciQuest (SQI), which provides procurements and spending management software on a subscription basis. Unlike one of its chief competitors, which targets everyday supply purchases made by big companies, SciQuest provides automated purchasing to a different segment by focusing on universities, hospitals, local and state governments, etc.

While some might say these areas are the weakest segments a company can target, SciQuest would contend that these are highly cost-conscious entities, which to me is a pretty compelling argument.

More recently, I! 've been ! looking at alternative energy. As the U.S. moves toward energy independence, I believe there are a lot of opportunities in solar, geothermal, and natural gas.

There are two companies that I'm gradually easing into at the moment; one is in the process of becoming a pure play lithium producer and one takes an interesting approach to power generation.

Can you discuss three stocks that have been successful this year? What did you initially like about them and what helped them turn around?Methode Electronics (MEI) is an automotive component supplier, with automotive customers accounting for about 60% of its revenues. The company classifies the other 40% of its revenues as non-auto, which includes home appliance touch screens and sensors.

To say it had a rough go in the last 10 years is an understatement, especially during the downturn for the automotive industry. However, the company was able to develop a center console product that includes a touchscreen which acts as an interface for navigation systems, entertainment, etc.

Methode first got this console into Ford vehicles, and about two quarters ago it started a very large rollout with GM for their trucks and SUVs. The ramp-up has gone better than expected, and the stock has been beating expectations. It was sort of forgotten by other investors for a while, but it's got an interesting product that looks like it's got some legs.

Immersion Corporation, which manufactures and licenses technology that enhances digital devices with touch interaction, has a lot of intellectual property around haptics, which is technically defined as tactile feedback or the vibration or other physical response a user gets when pressing buttons on an electronic device.

The technology is being adopted in cell phones and gaming consoles, but the company also plans to enter the automotive console area. I also think we're likely to see its technology in iPads and other tablets.

The company has owned this technology for a while. When I first be! gan to bu! y this stock in April 2012, the company was spending a lot of money on litigation to defend its intellectual property.

In the last nine months, the company was able to convince Motorola Mobility, which Google now owns, to pay back royalties and to sign a new royalty agreement. Around the middle of the spring the company also signed Samsung. It looks like the dominoes are starting to fall now, which is why the stock has gone up so much since March. And at some point the legal expenses will come down. Immersion has a very high margin revenue stream, and the company has more end markets that it wants to target.

The last company I want to mention is HealthWays (HWAY), which was once a small-cap growth stock favorite. Due to increasing changes in the U.S. healthcare industry, as well as confusion around the implementation of ObamaCare, the company recently expanded its business to not just physical wellness but to social and emotional wellness, health, and nutrition.

Like its original business, which was more along the lines of disease management, HealthWays helps insurance providers, as well as governments and consumers, redesign their product offerings to provide the same or better outcomes at lower costs. Its stock became attractively cheap to us when the company announced that it had lost its largest contract, Cigna, and its operating profit predictably fell. It's since endured a decline in revenues and an even bigger decline in profits.

But more recently it's won arguably the same or more business than what it had lost with Cigna. Unfortunately for HealthWays, there are some up-front costs when bringing on large customers, and that's blunted profits. However, as the company moved past that anniversary, its revenues are starting to grow again, and I expect this will continue to improve further down the road.

How do you feel about the recovery of Royce Value Plus Fund? Are you happy with its recent performance and is it acting the way you intend?It took some time for our effo! rts to be! ar fruit in regards to the performance challenges we encountered with Royce Value Plus Fund in the second half of 2010 and in the early part of 2011.

That being said, it's becoming clearer that those efforts have resulted in improvement through solid absolute returns, better stock selection, and an emphasis on a "growth at a reasonable price" (GARP) investment approach.

By targeting robust, multi-year growth themes and focusing on what we see as quality companies benefiting from those themes, we think the Fund has done well in the current slow-growth economy.

While we have more groundwork to do with respect to performance relative to our benchmark, I firmly believe we are on the right path.

Royce Value Plus Fund (RYVPX)
Average Annual Total Returns as of Quarter-End 6/30/13 (%)

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Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Shares redeemed within 180 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at Operating expenses reflect total annual operating expenses for the Service Class as of the Fund's most current prospectus and include management fees, 12b-1 distribution and service fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses refl! ect the e! stimated amount of the fees and expenses incurred indirectly by the Fund through its investment in mutual funds, hedge funds, private equity funds, and other investment companies.

Important Disclosure Information

Chip Skinner is a portfolio manager and principal of Royce & Associates, LLC, investment advisor to The Royce Funds. He serves as portfolio manager for Royce Value Plus Fund (RVP) and serves as an assistant portfolio manager for Royce Low-Priced Stock Fund (RLP). The thoughts expressed in this piece are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

This material is not authorized for distribution unless preceded or accompanied by a currentprospectus. Please read the prospectus carefully before investing or sending money. Royce Value Plus Fund invests primarily in micro-cap, small-cap, and mid-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund's broadly diversified portfolio does not ensure a profit or guarantee against loss. The Fund may invest up to 25% of its net assets in foreign securities, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

Percentage of Fund Holdings as of 6/30/13 (%)

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U.S. Manufacturing Expands at Best Pace in 2½ Years

The Chrysler Toledo Assembly Complex As June U.S. Sales Beat EstimatesJeff Kowalsky/Bloomberg via Getty Images WASHINGTON -- U.S. factory activity expanded last month at the fastest pace in 2½ years, an encouraging sign that manufacturing could lift economic growth and hiring in the coming months. The Institute for Supply Management, a trade group of purchasing managers, said Tuesday that its manufacturing index rose in September to 56.2, the highest since April 2011. That's up from 55.7 in August and the fourth straight increase in the index. A reading above 50 indicates growth. Manufacturers added jobs last month at the fastest pace in more than a year and ramped up production. They also received new orders at a healthy pace, though slower than in August. U.S. factories are showing signs of picking up after slumping earlier this year. A modest recovery in housing and strong auto sales are pushing up demand for steel and other metals, auto parts, furniture and appliances. Economists said the strong figures suggest that the annual growth rate in the July-September quarter could be healthier than current forecasts of about 2 percent. The index has averaged 55.8 in the past three months, up from 50.2 in the April-June quarter. And the strength at factories has the potential to set the stage for even faster growth in the October-December quarter. Some analysts are forecasting growth at an annual rate of up to 3 percent. "Another stronger than expected showing," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, a forecasting firm, said. "The data unambiguously point to a pick-up in the trend in manufacturing output growth." Manufacturers also kept their stockpiles steady after cutting them for two months. Adding workers and keeping supplies on hand are signs of increased confidence and higher production ahead, economists noted. Still, the growth at factories could be offset by the partial government shutdown that began Tuesday. Late Monday, Congress and the White House couldn't agree on a spending measure to keep the government open. Bradley Holcomb, chairman of the ISM's survey committee, said that survey respondents weren't worried about a possible shutdown last month, but would likely begin to raise concerns if it lasted for long. Most economists say that a shutdown of a just a few days would have little economic impact. But if dragged on for two weeks, it could shave about 0.3 percentage points from fourth-quarter growth. Factories had been hampered by weak growth overseas that lowered demand for U.S. goods. But exports grew last month, though at a slower pace than August. Europe's economy is slowly recovering after an 18-month recession and Japan is also growing faster after two decades of stagnation. Earlier this month, the Federal Reserve said manufacturers boosted their output in August by the most in eight years. The gains were driven by a robust month at auto plants. Still, other data has been mixed. Companies placed only slightly more orders for long-lasting manufactured goods in August after a sharp fall in July. But demand for so-called core capital goods rose 1.5 percent, after falling 3.3 percent the previous month. Core capital goods are a good measure of businesses' confidence in the economy and include items that point to expansion, such as machinery and computers.

Monday, September 30, 2013

Signs Raise Threat of a Red October

The U.S. stock market is in the doldrums, with the Dow Jones Industrial Average back at May levels. Little wonder.

In the coming month, markets face four huge tests: the Washington debt crisis, the release of September employment data, third-quarter earnings releases and the Federal Reserve's next policy meeting.

All four of these horsemen could disrupt investments, and some could tank the market. Money managers hope all will be nonevents and stocks will finish the year higher. But there are no guarantees. Many people are delaying decisions, with some betting on an October market dive. Optimists might use that as a chance to buy in cheaper.

"It wouldn't surprise me that the headlines over the next three weeks are dramatic enough that you could get a selloff," says Jason Trennert, founder of Strategas Research Partners in New York, who is urging clients to buy if stocks do decline.


The Washington mess is back on the front burner. Most immediately, Republicans in Congress are threatening to shut down government by refusing to fund government operations unless Obamacare is suspended. But the government has been temporarily shut down before without major financial-market damage. So investors worry less about this than about the risk that Congress could refuse to extend the debt ceiling later in the month.

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If the debt ceiling isn't raised, the Treasury Department says, it won't be able to pay bills past mid-October.

If the U.S. defaults on its bonds, even briefly or technically, U.S. and foreign financial markets could take a dive, money managers say. Because the consequences are enormous, most expect a compromise solution.

But a last-minute patchwork solution, as in the summer of 2011, might not prevent trouble. In 2011, Standard & Poor's Ratings Services downgraded U.S. Treasury debt to AA+ from AAA, citing the government's dysfunction.

Fitch Ratings warned this past June that if there is another pitched debt-ceiling battle, it could downgrade U.S. debt. "Failure to raise the federal debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings and likely lead to a downgrade," Fitch said.

Most bond-fund bylaws allow them to continue owning Treasury bonds as before, even after two downgrades, fund managers and analysts say. But a downgrade could roil financial markets, as happened in 2011.

"We are in the midst of this ongoing dysfunction in Washington, which I think the market discounts but it is there," says Rex Macey, chief investment officer at Wilmington Trust Investment Advisors, which manages $20 billion.


With the economic recovery four years old, earnings growth has fallen into the low single digits. Many investors fear third-quarter results could be soft. That would fuel worries about how stocks will handle eventual Fed stimulus cuts.

Until now, a lot of profit gains came from cost cutting. With companies now beginning slowly to hire and boost wages, future gains will depend on boosting sales, which has been hard to do.

"You do need corporate earnings to continue to improve, and that is becoming increasingly difficult without increases in revenue growth," Mr. Trennert says. He says analysts will be paying close attention to sales forecasts in postearnings conference calls.


September job-creation and unemployment data are due from the Labor Department Friday. Job creation hasn't been strong. Unemployment has been falling, mainly because people are giving up looking.

Jobs weakness was a big reason the Fed didn't trim its $85 billion in monthly bond purchases at its September meeting. The new numbers will influence its meeting Oct. 29 and 30.

Soft job-creation would make the Fed more likely to maintain stimulus; stronger numbers would make it more likely to cut, says Mr. Macey of Wilmington Trust.

Fed Meeting

The Fed threw markets into confusion with its September decision.

Many money managers thought Fed Chairman Ben Bernanke had telegraphed plans for a stimulus cut. Mr. Bernanke said economic softness and a sharp uptick in mortgage rates made the Fed wait.

Mr. Bernanke also has suggested that a stimulus cut could depend on resolving the debt and government-spending disputes.

All of this makes the October meeting very hard to predict. Investors don't welcome the cuts, but not knowing the timetable makes it harder to invest.

With all this confusion, the Dow Friday was only 2.7% off its Sept. 18 record. One might wonder why the market is doing so well.

Many money managers expect all this uncertainty to be resolved successfully. If there are hitches, they have concluded, the Fed will bend over backward to keep the economy out of recession.

With all this support, many expect stocks to recover from any October declines. Some are so confident, they welcome declines, considering them buying opportunities.

That could mean it would take really unsettling news, like a default, to make stocks fall hard.

"If we get some volatility as we deal with the threat of a government shutdown, we would think about buying, adding to equity exposures," Mr. Macey says. "What we care about as an owner of equities is earnings: Will the economy keep getting better, will profits be stronger, and we think they will."

Top Analyst Upgrades and Downgrades: CIT, Intel, Nike, J.C.Penney and More

As a government shutdown and debt ceiling debate rage on as new (or repetitive) market risks, investors have to decide which stocks to buy and which to sell or avoid. 24/7 Wall St. reviews dozens of research reports from Wall Street analysts each morning to look for the new research ideas. Some are stocks to buy and some are stocks to sell. Here are Monday’s top analyst upgrades, downgrades and initiations seen from Wall Street research firms.

Achillion Pharmaceuticals Inc. (NASDAQ: ACHN) is getting destroyed on poor hep-C test results, and shares are down about 50%. Bank of America Merrill Lynch downgraded it to Underperform from Buy after the news.

AMC Networks Inc. (NASDAQ: AMCX) was listed in Barron’s as having yet another 20% upside this year and as a possible media takeover target.

CIT Group Inc. (NYSE: CIT) was raised to Buy from Neutral and the price target was raised to $58 from $52 (versus a $48.47 close) at Janney Capital.

Colgate-Palmolive Co. (NYSE: CL) was raised to Overweight from Equal Weight and the price target is now $68 (versus a $59.93 close) at Morgan Stanley.

Intel Corp. (NASDAQ: INTC) was maintained as Neutral but the estimates were lowered due to weak back to school and lack of a holiday cheer, according to Sterna Agee. The price target is $20, versus a $22.98 close.

International Paper Company (NYSE: IP) was downgraded to Neutral from Buy at Bank of America Merrill Lynch.

J. C. Penney Co. Inc. (NYSE: JCP) was downgraded to Hold from Buy at Maxim Group.

Marathon Oil Corp. (NYSE: MRO) was raised to Buy from Hold with a $42 price target (versus a $34.90 close) at Argus.

Marketo Inc. (NASDAQ: MKTO) was reinstated as Outperform with a $38 price target (versus a $31.49 close) at Credit Suisse.

Nike Inc. (NYSE: NKE) was started as Neutral at UBS.

RealPage Inc. (NYSE: RP) was downgraded to Underperform from Neutral with a $20 price target (versus a $23.40 close) at Credit Suisse.

Royal Dutch Shell PLC (NYSE: RDS-A) was raised to Buy from Sell with a $71 price target (versus a $65.88 close) at Goldman Sachs.

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Shire PLC (NASDAQ: SHPG) was raised to Overweight from Neutral at J.P. Morgan.

Telecom Italia SpA (NYSE: TI) was raised to Neutral from Underperform at J.P. Morgan.

Xilinx Inc. (NASDAQ: XLNX) was raised to Outperform from Sector Perform with a $55 price target (versus $a 46.54 close) at Pacific Crest.

Last week we featureed top stocks to buy trading under $10 as a Wall Street analyst montage. We now have more of those under $10 stock picks.

Sunday, September 29, 2013

Which 9 Nations Pay a Higher Minimum Wage than the U.S.?

17. WalmartAriana Lindquist/Bloomberg The latest battle over the minimum wage continues to heat up, with critics of the current wage, including me, noting that the average fast food worker in America doesn't currently make enough money to rise above the poverty line. While that's bad enough, it gets even worse when you consider that the average fast food worker already brings home $8.94 an hour -- $1.69 more than the minimum wage. To put it in context, the federal minimum wage has been trending downward since 1968, and -- adjusted for inflation -- is now lower than it was in 1956. That means that today's McDonald's employee is effectively making about a buck less an hour than a soda jerk brought home when Eisenhower was in the White House. And odds are, that worker probably isn't being offered full-time hours. But it's not all bad news: internationally, American workers fare up pretty well. Taken at face value, they're minimum wage comes in 12th in the world, ahead of Israel, South Korea, and some other industrialized countries. Granted, Australia pays its workers at least $16 per hour and Japan pays them $9.24, but -- in a global context at least, America is doing pretty well. The numbers get even narrower when one considers purchasing power parity, or PPP. Basically a measure of the goods and services that a sum of money will purchase, PPP considers how far a dollar will go. In Australia, for example, PPP shifts the minimum wage from $16 to a more measured $9.77. In a recent article, The Atlantic noted that, accounting for PPP, America's workers actually come in 10th place, behind Canada and New Zealand and ahead of Japan and Austria. Then again, the average American worker spends four times as much on health care as the average Austrian -- and roughly seven times as much as the average Japanese worker. This expense, which isn't factored into PPP, can be heavy -- and even at times devastating. Still, there's the bright side: we're number 10. Right behind New Zealand.