Monday, December 31, 2012

Lennar: Homebuilder builds value

The homebuilding business is improving and Lennar (LEN) is leading the way higher. As such, we are selecting the firm as our latest "Editor's Choice" stock.

We've consider the stock the top play in the homebuilding sector for a few months now, as it recovered to multi-year highs faster than its peers.

The company is back to being one of the strongest stocks in the market thanks to a terrific quarterly report; sales and earnings both beat expectations, and management offered many encouraging words in its conference call.

Notably, despite persistent worries of a new down leg in housing prices because of huge "shadow" inventories, the reality is that consumers are beginning to fear missing out on the incredible affordability (low prices plus low interest rates).
In addition, inventories in many markets are extremely lean. Of course, the top brass was careful to point out that the recovery is regionalized, with some markets doing great and others still in the dumps.

Still the overall trend is clear -- its up.� And analysts and institutional investors are beginning to come around to that fact.

Analysts now see Lennar's earnings totaling 87 cents per share this year and $1.37 in 2012, and we think that could be very conservative if the economy picks up steam and interest rates remain low. As such, we like it.

Technically, LEN was the first homebuilder to hit multi-year highs, and it actually trended higher into early May, even as the market was sagging.

It eventually succumbed to the pressure of the market, but the bigger picture shows a stock that ran from $12 to $30, and could only pull back to $23.50 before perking up again.

More recently, LEN burst to new highs following earnings on a big pickup n volume; while it won't be straight up from here, it's clear that the path of least resistance is up. We rate the stock a buy between on weakness to the $28.50- $30.50 area.

Related articles:
  • Home Depot: Major improvement?
  • Sun Communities: Bright prospects
  • Mortgage buys: Ellie Mae & PennyMac
  • Turnaround pro checks into hotel stocks

FAS and Leveraged ETF Call Spreads

I have been getting a lot of communication from people who believe the market may be approaching a break out and they want to make money on the upside or downside depending on their belief. I like to use a strategy called a LEAP Call Spread (my name for it) or a LEAP Put Spread to significantly reduce my risk of capital and also allow me to get exposure to whatever direction I believe an ETF or stock may be heading. For this article, I am going to use a Bull LEAP Call Spread and follow up with another article to show the inverse trade.

Some of the high volume leveraged ETFs, like FAZ, FAS, QID, QLD, DIG, DUG, SSO and SRS (just to name a few) are very exciting to investors, who see them like companies in the 1990's, or as a "get rich quick" investment vehicle. I have had many calls to my shows from people who talk about the excitement of owning an investment that could any day skyrocket in value and make them a big return. I don't like most leveraged ETFs, unless you are very good at predicting short-term market direction and can afford to lose all of your money (not too many fall into that category). I have seen a lot of people lose money in leveraged ETFs, so be careful.

LEAPS (Long Term Equity AnticiPation Security) are just longer term options. I like to use options that will expire in 12 months or more for this strategy. Warning: Remember, options are time-sensitive and have an expiration date. Predicting how fast a market will change direction is very difficult, so I want time on my side. I will use FAS and long-term options for a great example of how to put this strategy in play.

At the time of this writing, FAS was trading at $28.89 per share. If I purchase 500 shares of FAS, I will spend $14,445 plus the cost of a commission to buy it. My total risk is the cost of the investment plus commission and my potential profit is unlimited because we have no idea how high FAS could go in a market break out.

For my LEAP call spread, I will purchase the January 2012 Call with a $30 strike price for $7 and I will sell the January 2012 Call with a $40 strike price for $3.80. Remember, options are done in contracts and each contract is equal to 100 shares. If I want to control 500 shares, I need to purchase or sell 5 contracts. Therefore, I will purchase 5 contracts of the $30 strike for $700 per contract x 5 contracts = $3,500. I will then sell 5 contracts of the $40 strike for $380 per contract x 5 contracts =$1,900. In other words, I paid from my account $3,500 for the $30 options I purchased. I then received into my account $1,900 for the options I sold at a price of $40. My total investment at this point is $3,500 minus $1,900 = $1,600.

I have created what traders call a "trade-off". I have greatly reduced my risk of capital from $14,445 with a straight purchase of 500 shares of FAS to just $1,600 with my Bull LEAP Call Spread. This may sound great, but I have also capped my max profit at $10 per share. In other words, the maximum I can make on this trade is the difference between the $30 purchase price and the $40 sell price. Then again, if I risked just $1,600 and make back my max profit of $5,000, I get a return of more than 200% on my money. Not bad.

I like this trade with leveraged ETFs and high-flying stocks because it allows me to participate when I believe a short-term change may be in place, yet my risk of loss is greatly reduced.

I am going to follow this article up with one that will explain when to put this trade on, when to get out of this trade and how to play the reverse side of the trade when you believe the market is going down. Never forget that knowing when to put on a strategy and when to get out is equally important to knowing the strategy itself. Good luck with all your trades.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Kodak Finalizes Tender Offer

Eastman Kodak Company (EK) announced the expiration and final results of its tender offer to purchase up to $200 million of its outstanding 7.25% Senior Notes due 2013. The tender offer was made pursuant to an offer to purchase on February 3, 2010. The tender offer expired on March 9, 2010.

Holders of 2013 notes who validly tendered their 2013 Notes will receive $950 per $1,000 principal amount of 2013 notes accepted in the tender offer. Holders of 2013 Notes who validly tender their 2013 notes after the early tender date and at or before the expiration date will be eligible to receive $910 per $1,000 principal amount of 2013 notes accepted.

Recently, Kodak completed the private placement of $500 million in senior secured notes due 2018 and the repurchase of notes from private equity firm, Kohlberg Kravis & Roberts. Kodak intends to fund the repurchase of the 2013 notes in the tender offer from the net proceeds of the private placement and, to the extent necessary, cash on hand.

Kodak has a strong balance sheet with net cash of $833 million at the end of December 2009. Moreover, the company has announced plans to implement a targeted cost reduction program (the 2009 Program) to resize itself in view of the current economic environment. The program, along with new product launches and numerous expansion programs will enable the company to grow despite the difficult environment.

However, Kodak operates in a highly competitive market, and encounters aggressive price competition for all of its products and services from numerous companies globally. Based on its international distribution, Kodak is subject to foreign currency risks, changes in interest rates and commodities costs, which are volatile in nature.

As part of the business strategy, Kodak frequently engages in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures and outsourcing. The company may face integration and other risks related to these transactions, which in turn will have a material adverse impact on its profitability.

Sunday, December 30, 2012

Retail Analysts Became More Bullish During Q4

By Angus Robertson

An Alacra Pulse analysis of upgrade and downgrade activity shows a bullish trend over the last three months of 2010 among sell-side and independent analysts following the North American Retail Industry.

In the fourth quarter, upgrades of retail companies slightly exceeded downgrades, but breaking the data down by month shows a strongly improving trend over the three months. In October, there were only two thirds as many upgrades as downgrades, while in November there were a few more upgrades than downgrades and in December there were 1.36 upgrades for every downgrade.

No doubt the expectations of strong Holiday spending contributed to the December upgrades.Bloomberg reported last week that Retail stocks in the S&P 500 had climbed 26 percent, the second-biggest gain among 24 industries after autos and auto parts since September 2008. U.S. retailers’ 2010 holiday sales surged the most in five years as shoppers snapped up clothing and jewelry, according to MasterCard Advisors’ SpendingPulse.

However, as evidenced by Best Buy (BBY), sales in some areas did not live up to the high expectations, so we may see a slowing or reversal of this trend in the first quarter. Best Buy was downgraded by three analysts in December, after receiving four upgrades in the quarter.

US retail sales rose slightly less than expected in December, but sales for all of 2010 reversed two years of contraction, posting the biggest gain in more than a decade. The biggest increase took place in the online and mail-order segment. Sales jumped 2.6% for the biggest increase in almost three years, MarketWatch reports.

Sales at building-supply and gardening stores rose 2.0%, while pharmacies and personal-care stores registered a 1.6% increase — the best performance since before the recession. Also, sales increased 1.0% at furniture and home stores.

Department stores recorded the biggest decline as sales fell 1.9%. Other categories to post monthly declines in sales included electronics, appliances, clothing, groceries and liquor.

Below we a take a closer look at the companies with the highest levels of analyst recommendation activity during the quarter, those with five or more upgrades or downgrades:

Most Upgraded Retailers:

Abercrombie & Fitch (ANF) received six upgrades in the quarter, all of them coming in December. There were two downgrades of the apparel retailer earlier in the quarter, though one was later reversed. As Trefis notes, Abercrombie recorded strong December sales and has largely avoiding discounting.

Costco Wholesale (COST) saw six upgrades, all in December, and one downgrade in October. Zacks notesthat the warehouse club posted healthy sales data for the five-week period ended January 2.

Target Corp (TGT) had five upgrades, all in December, and no downgrades during the quarter. Target has already received an upgrade this year, with Goldman Sachs last week boosting it to a Buy and raising its price target to $62 from $57.

Analysts this week welcomed Target’s plan to expand in Canada through the acquisition and rebranding of Zellers stores. Wall Street Strategies analyst Brian Sozzi said “The opportunity is quite sizable for Target. They’re going in there with proven sites. It could move the needle, absolutely.”

The Home Depot (HD) recorded five upgrades starting in November. There were two downgrades in October, but one was reversed in December. The company has beaten rival Lowe’s to the punch in introducing an iPhone app, reflecting its embrace of technology.Colin McGranahan, an analyst at Sanford C. Bernstein says “Over the long run, consumers are going to be a lot more comfortable using their smartphones on a real-time basis researching outside or inside the store.”

Walgreen (WAG) had five upgrades spread evenly over the quarter, and one downgrade. The drugstore company was upgraded to Conviction Buy last week byGoldman Sachs, The firm said focus on existing assets is yielding stronger margin and expense control outcomes at Walgreen.

Zumiez (ZUMZ) had five upgrades, all in November or December and one downgrade in early October. The specialty retailer reported same-store sales growth of 9.2% for the five-week period ending January 1, As Zacks notes, this is a substantial jump from an increase of 0.3% in the year-ago period, though a slower pace than in previous months. Wedbush last week downgraded the company to Underperform in anticipation of decelerating comparable store trends.

Most Downgraded Retailers

Aeropostale (ARO) saw nine downgrades, all in December, with no upgrades in the quarter. What’s more, the clothing retailer has seen two more downgrades this month, to Underperform by Jefferies and Wells Fargo, while Piper Jaffray has cuts its price target. Wells Fargo expects “Q4 to be the first down comp and EPS quarter since 2007.”

BigLots (BIG) had 5 downgrades and no upgrades. ButZackslast week upgraded the closeout discounter to Neutral from Underperform. Despite lackluster comparable sales, Zack says the closeout format provides an edge over traditional discount retailers.

JC Penney (JCP) saw five downgrades in November and no upgrades during the quarter, and has already been downgraded by Morgan Stanley this quarter despite healthy sales results for the five-week period ended January 1.

Sources: Alacra Pulse, American Banking News, Bloomberg, CanadaEast, Financial Post, MArketWatch, Reuters, StreetInsider, Trefis, Zacks.

The Highest-Growth Travel Stocks

Why are investors willing to pay only 10 times earnings for some stocks, but 20, 50, even 100 times earnings for others?

The short answer: growth. Companies that can grow their earnings meaningfully could make lofty current P/E ratios look cheap in hindsight.

Of course, any company can promise a rosy, growth-rich future. Figuring out which companies can actually deliver is far trickier. In this series, I take the first step by identifying companies that have put up the best growth track records in their respective sectors.

Below, I've listed the top sales growers in hotels, resorts, and cruise lines over the last five years. Here's how to interpret each data column.

  • Five-year sales growth: I rank each company's sales growth, to capture its pure trailing expansion without regard to the vagaries of earnings.
  • Five-year EPS growth: Since sales growth means nothing if it doesn't ultimately fall to the bottom line, I've also included each company's five-year trailing EPS growth rate.
  • Five-year analyst estimates: This column shows us how much EPS growth analysts expect over the next five years. Just keep in mind that analysts tend to grossly overestimate a company's prospects.
  • Five-year ROIC range: Return on invested capital basically shows you how efficiently a company is converting its debt and equity into profits. We want companies that can do a lot with a little. By looking at the five-year range, we can start to gauge both the power and the consistency of a company's profit engine.


5-Year Sales Growth

5-Year EPS Growth

5-Year Analyst Estimates

5-Year ROIC Range

Home Inns & Hotels Management (Nasdaq: HMIN  ) 51.0% 31.6% 20.8% 2.3% / 10.1% (Nasdaq: CTRP  ) 37.8% 32.4% 25.5% 11.8% / 19.9%
eLong (Nasdaq: LONG  ) 15.2% NM N/A (1.5%) / 2.1%
Royal Caribbean Cruises (NYSE: RCL  ) 7.4% (0.9%) 15.0% 2.7% / 4.6%
InterContinental Hotels (NYSE: IHG  ) 7.1% (0.7%) 13.9% 13.4% / 25.2%
Orient-Express Hotels (NYSE: OEH  ) 6.2% NM (3.4%) 0.6% / 3.8%
Carnival Corporation (NYSE: CCL  ) 5.9% (1.5%) 12.0% 4.3% / 6.3%

Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; EPS growth that is NM results from losses during the period. N/A = not applicable; analyst estimates that are N/A result from lack of analyst coverage.

Use the table above as a first step to help you generate ideas for your own further research. Once you identify stocks worth a closer look, the following three steps will help you further assess their growth prospects:

  • Carefully study the table for possible danger signs, such as high sales growth but low EPS growth, analyst growth expectations significantly trailing past growth, and low ROIC figures. Then follow the trail.
  • Find out how the company achieved its prior growth: organically, or via acquisition? Can it sustain that previous growth?
  • Pay attention to how management plans to implement its growth plans. Does its strategy seem prudent and plausible to you?

Remember: The more profitable, efficient, and predictable growth a company can achieve, the more we investors should be willing to pay.

Learn more about any of the stocks that interest you by adding them to our My Watchlist tool. You'll get access to all the latest Motley Fool analysis, organized by company.

Top Stocks For 2011-12-4-2

Chart Industries Inc. (Nasdaq:GTLS) announced that the Company will present at the Dahlman Rose & Co. Ultimate Oil Services & Drilling Conference on Wednesday, November 30, 2011 at 3:40 p.m. ET. Sam Thomas, Chairman, President and Chief Executive Officer and Michael Biehl, Executive Vice President, Chief Financial Officer and Treasurer, will participate in the conference, which is taking place on November 29th and 30th in New York City.

Chart Industries, Inc. manufactures and supplies engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gases in the United States, the Czech Republic, China, and internationally.

Cleantech Transit Inc (CLNO)

Cleantech Transit Inc. was founded to capitalize on technology advances and manufacturing opportunities in the growing clean energy public transportation sector. Cleantech Transit Inc has expanded its focus to invest directly in specific green projects that could maximize shareholder value. Recognizing the many economic and operational advances of converting wood waste into renewable sources of energy, Cleantech Transit Inc. has selected to invest in Phoenix Energy. This project could benefit the Company’s manufacturing clients worldwide.

Biofuel is made from agricultural crops developed in the different parts of the United States and other countries as well. Increased utilization of biofuel can generate new markets for American products. A number of jobs can also be produced especially in rural communities. As a result, it can keep the money circulating all the way through the domestic economy. Moreover, it promotes American energy independence just by generating a percentage of fuel at home.

Cleantech Transit, Inc. (CLNO) is pleased to announce it has met its funding requirement to secure the Company’s ability to earn in 25% of the 500KW Merced Project.

Biomass includes a variety of versatile renewable fuel sources derived from organic plant and animal material, such as wood, crops, landfill gas, solid waste, and alcohol fuels. These locally produced resources can be used to generate electricity, provide heat, and develop alternative transportation fuels.

For more information about CLNO, visit

Raven Industries Inc. (Nasdaq:RAVN) announced third quarter results for the three months ended October 31, 2011. For the third quarter, sales increased 9 percent to $93.3 million, from a record $85.8 million in the same period a year ago. The largest sales increase was reported by the Applied Technology Division, with continued sales growth in Engineered Films. Third quarter net income decreased 4 percent to $11.4 million, or $0.63 per diluted share, compared with $11.8 million, or $0.65 per share, during the same period a year ago.

Raven Industries, Inc., together with its subsidiaries, manufactures various products for industrial, agricultural, construction, and military/aerospace markets, primarily in North America.

Fiserv, Inc. (Nasdaq:FISV) announced that it has named Bruce Hopkins to the newly created post of general manager of Processing Solutions for its Card Services division. He will report to Kevin Gregoire, president of Card Services at Fiserv. In his new role, Hopkins will lead Card Services in supporting debit, credit and risk products and services, and manage the service delivery and payment processing functions.

Fiserv, Inc. and its subsidiaries provide various financial services technology solutions. Its solutions include electronic commerce systems and services, such as transaction processing, electronic bill payment and presentment, business process outsourcing, document distribution services, and software and systems solutions.

Thursday’s biggest gaining and declining stocks

NEW YORK (MarketWatch) � Shares of the following companies made notable moves in Thursday�s U.S. stock market:


3D Systems Corp.�s DDD � shares jumped 11.3% after the manufacturer of 3-D printers forecast 2012 revenue that topped Wall Street�s expectations.

Angie�s List Inc�s. ANGI � shares rose 7% after the consumer-reviews website late Wednesday reported fourth-quarter projected first-quarter revenue that topped analysts� expectations.

Denbury Resources Inc.�s DNR � shares rose 5.5% after the oil producer reported a fourth-quarter profit that topped estimates.

Exterran Holdings Inc.�s EXH � shares advanced more than 19%.

MetroPCS Communications Inc.�s PCS � shares climbed almost 14% after the wireless operator reported improved fourth-quarter earnings and revenue.

QEP Resources Inc.�s QEP � rallied almost 8% a day after the oil-and-gas developer reported quarterly revenue that beat expectations.

Sears Holdings Corp.�s SHLD �shares gained nearly 19% after the retail-store operator said it would spin off some stores and sell others to raise cash.

Smart Balance Inc.�s SMBL � shares leapt 22% after the maker of lower-cholesterol cheese and butter reported fourth-quarter earnings that topped market expectations.

Vivus Inc. VVUS � shares shot 77.5% higher after a regulatory panel recommended Vivus� weight-loss pill Qnexa be approved. Orexigen Therapeutics Inc. OREX �, which is also seeking regulatory approval for its weight-loss drug, also rose 14%.


First Solar Inc.�s FSLR �shares retreated 8% after Germany said it would cut solar power incentives a month earlier than anticipated. Others solar companies were also hit, with Trina Solar Ltd. TSL � sliding 11.6%, Suntech Power Holdings Co. STP �off 8.3% and Renesola Ltd. SOL � dropping almost 6%.

GrafTech International Ltd.�s GTI �shares slid 14% after the maker of graphite electrodes used in steel production projected 2012 earnings below analysts� estimates.

Hewlett-Packard Co.�s HPQ �shares declined 6.5% after the computer maker reported a steep drop in quarterly earnings and projected second-quarter profit beneath expectations. Read more about H-P results

Polypore International Inc.�s PPO �shares fell more than 11% after the battery-technology provider late Wednesday offered cautionary comments on its first quarter.

Safeway Inc.�s SWY �shares slid 7.6% after the grocery-store operator reported lower net income in the fourth quarter.

Noble: Why This Driller Is Close to My Heart

For companies like Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), 2008 set a high-water mark for earnings that won't be easily surpassed. Last year saw these oil service companies' pre-tax earnings drop 43% and 47%, respectively. For Noble (NYSE: NE), however, the only place you'll find a high-water mark is on the hull of one of its offshore drilling rigs.

The offshore drilling contractor notched a new record in 2009, with pre-tax earnings lifting 5% to $2 billion for the year. The fourth quarter capped off this fine year with contract drilling margins riding high at 70%, and rig utilization at 83%. Per-share net income came in at $1.72, which was well ahead of analyst expectations.

Importantly, Noble's accounting earnings are backed up by solid cash generation; in this case, $2.1 billion for the year. Of that amount, $1.4 billion was directed to capital expenditures, while the rest either fattened up the company's already pristine balance sheet or was returned to shareholders through buybacks and dividends.

The performance here has been rock-solid, and I'm not surprised to hear the CEO express frustration with the share price. The stock sports a trailing price-to-earnings ratio of 6.55, which would suggest that Noble is poised on the precipice of a cyclical downturn. If 2009 couldn't usher one in, it's hard to see how 2010 could do so.

One industry forecast has capital spending rising by 12% this year, with a 16% bump in spending by national oil companies (NOCs) like Petrobras (NYSE: PBR) and Saudi Aramco. Between the reasonably strong oil price and the ongoing success of explorers like BP and Anadarko Petroleum (NYSE: APC), it's hard to see Noble or peers like Ensco (NYSE: ESV) and Transocean (NYSE: RIG) having anything other than a pretty solid year ahead.

Noble repurchased $187 million of shares at an average price of $34 last year. While the shares are by no means expensive today, the mid-$30 level would be a fantastic point to fill out a position in this regal driller. The shares tend to be more volatile than the results here, so I wouldn't be at all surprised to see such prices offered up later this year.

Disclosure: Author doesn't have a position in any company mentioned.

Discover Excellent Rental car Deals On-line

By : Kuantum11221508/RentCarYogyakarta

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Searching Web sites for reasonable Auto Renting

There are many web pages that have attractive delivers on their rental cars rent car yogyakarta. With regard to options beginning with the sort of car, the actual use of rent-out, the actual price- there are lots of deals that individuals can make from as outlined by their particular requirement. Many on-line rental-car websites get lower price price plans that offer the clientele bonuses and also savings pertaining to hiring a car; many also have a discount rear supply when absolutely free themes may claim lower price on the cost spent. On-line car hiring websites team up while using main car hiring organizations and offer the actual guests to be able to simply click attractive discounts and luxuriate in an excellent trip. Other websites signal a similar effort together with travel internet sites and offer special deals which allow visitors to book their particular travel itinerary with the car rent car yogyakarta.

Looking at On-line Prices to get the best Deal

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If not sure regarding the functioning and also prices explained simply by such sites, it is best that this user logs to the recognized site of an leasing firm and also selects a car about use by means of immediate implies. You might lose out on many of the attractive discounts, however no less than selecting certain to have gone through the correct channel and also failed to shell out extra in concealed surcharges rent car yogyakarta. While reserving accommodations car online, the buyer must be alert to the actual terma s and conditions attached to the offer; recheck and ensure all the info regarding the leasing before you decide to select the ‘reserve’ switch. Last but not least, have a very Bon Trip!

For almost any support about Car rental Queensland, check out the details available online; these will help you discover how to get the Car rental!

Saturday, December 29, 2012

Will Kraft Foods Help You Retire Rich?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Among the companies that make essential products that millions of people use every day, Kraft Foods (NYSE: KFT  ) appears near the top of the list. With a wide variety of food products ranging from its signature macaroni and cheese to a big line of snack crackers, Kraft commands a lot of pantry space. But with the company planning to break itself into two companies, will the sum of the parts be greater than the whole? Below, we'll revisit how Kraft Foods does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

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


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $68.3 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 0.54 Pass
Worst loss in past five years no greater than 20% (14.6%) Pass
Valuation Normalized P/E < 18 20.72 Fail
Dividends Current yield > 2% 3% Pass
5-year dividend growth > 10% 3.9% Fail
Streak of dividend increases >= 10 years 0 years Fail
Payout ratio < 75% 57.9% Pass
Total score 6 out of 10

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

Since we looked at Kraft Foods last year, the company has kept the same score. The company will look a lot different next year, though, with big ramifications for both Kraft and its competitors.

Kraft has put in strong stock performance over the past year, with a gain of about 20%. Much of the gain has come from the company's plans to break itself into two separately traded companies. Kraft plans to spin off its North American grocery business, hanging onto its current snack and candy businesses.

The split will let each business focus on competing more strongly in their respective industries. For the snack business, rivals Diamond Foods (Nasdaq: DMND  ) and now Kellogg (NYSE: K  ) have tried to make strategic acquisitions to boost their presence in the international snack market. Kraft's split not only hits back at Kellogg and Diamond, but also tries to challenge PepsiCo's (NYSE: PEP  ) emerging-markets strategy. Meanwhile, the U.S. grocery business will be a more mature but arguably less exciting segment that should nevertheless appeal to income-hungry investors.

For retirees and other conservative investors, the big question is whether Kraft after the split will continue to build its strong brand name and good reputation. If it doesn't, then Kraft may no longer be the right stock for retirement investors to rely on for long-term success.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- click here and read it today.

Add Kraft Foods to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Touring The Muni Bond ETF Universe

Innovation has become a common occurrence in the ETF industry in recent years, transforming the product lineup from a collection of blunt instruments into an arsenal of more than 1,400 investing tools. Among those products are a growing number of precise, targeted tools that allow investors an unprecedented level of granularity when building a portfolio. This is certainly the case in the muni bond ETF space, where more than a dozen ETFs slice and dice the market to deliver unique blends of risk and return potential [see our Ready To Retire ETFdb Portfolio].

By far the most popular muni bond ETF is the iShares S&P National Municipal Bond Fund (MUB), which has nearly $3 billion in assets and casts a wide net across this corner of the fixed income market. But for investors looking to utilize more precise tools to access muni bonds, there are a number of other options out there as well:�

Short Term Munis

For investors looking to access muni bonds but concerned about interest rate risk, focusing on shorter duration securities is the obvious move. The Market Vectors Short Municipal Bond Index ETF (SMB) offers an efficient way to access these types of securities; this fund has an average modified duration of only about three years. Of course, avoiding interest rate risk comes at the expense of expected yield; SMB has a 12-month yield of only about 1.84% [see also Bond ETFs For Every Objective].

Long Term Munis

At the opposite end of the maturity spectrum is the Market Vectors Long Municipal Bond Index ETF (MLN), which concentrates its portfolio on longer-dated securities. MLN’s average modified duration is closer to 14 years, meaning that this fund will be much more sensitive to interest rate changes. MLN also comes with a much more attractive yield profile; this ETF has a 12-month yield of about 4.3%.

Build America Bonds

Build America Bonds are an interesting remnant of the American Reinvestment and Recovery Act of 2009; though the program that facilitated the issue of these bonds was short lived, ETFs holding these securities figure to be around for quite a while. Though generally issued by state and local governments, Build America Bonds are different from traditional munis in that interest earned is not tax deductible. Rather, the Treasury effectively subsidizes a portion of the interest payments made by the issuers, meaning that these bonds were able to be issued with attractive yields that wouldn’t place a huge burden on the issuers [see also Five ETFs George Washington Probably Would Have Liked].

Build America Bond ETFs represent a way to capture a meaningful yield without concentrating risk in any municipality:

  • PowerShares Build America Bond Fund (BAB)
  • SPDR Nuveen Barclays Capital Build America Bond ETF (BABS)
  • PIMCO Build America Bond Strategy Fund (BABZ)
High Yield Munis

Though most muni bonds have relatively strong credit ratings due to the ability of issuers to raise funds through tax increases, there are segments of this asset class that feature elevated credit risk. Along with that additional risk, of course, comes higher yields.�High yield munis often include debt issued by hospitals in connection with a local municipality, as well as industrial revenue bonds. Effective yields on ETFs targeting these muni bonds can approach 9% for those in the top tax bracket:

  • Market Vectors High Yield Municipal Index ETF (HYD)
  • SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB)
Target Date Munis

Most muni bond ETFs are designed to operate indefinitely, using any proceeds from maturities to purchase longer-dated funds. But iShares offers a lineup of muni bond ETFs that deliver a cash flow experience similar to individual bonds. These funds concentrate on muni bonds maturing in a certain year, meaning that the interest rate risk component gradually declines as the maturity date approaches. And as the target date approaches and the underlying bonds mature, these ETFs will gradually convert to cash that will ultimately be distributed to shareholders [see also Wide World Of Muni Bond ETFs]:

  • 2012 S&P AMT-Free Municipal Series (MUAA)
  • 2013 S&P AMT-Free Municipal Series (MUAB)
  • 2014 S&P AMT-Free Municipal Series (MUAC)
  • 2015 S&P AMT-Free Municipal Series (MUAD)
  • 2016 S&P AMT-Free Municipal Series (MUAE)
  • 2017 S&P AMT-Free Municipal Series (MUAF)
Pre-Refunded Munis

The Market Vectors Pre-Refunded Municipal Index ETF (PRB) is one of the more unique bond ETFs on the market. This fund holds municipal bonds that are pre-refunded and escrowed-to-maturity–meaning that they are backed by obligations issued or guaranteed by the U.S. government.

When an issuer of a municipal bond, such as a state or local government, has enough cash to satisfy an obligation but isn’t able to call a series of bonds, they may elect to pre-refund those securities. That generally involves purchasing Treasuries and placing them in an escrow account, and then using the interest proceeds from the Treasuries to meet their obligations on the municipal debt. The result is a security that is essentially safe as Treasuries and tax-free. Once the municipal bonds come due, the issuer can sell the Treasuries and pay off investors with the proceeds.

Not surprisingly, PRB features relatively low yields; the 30 day SEC yield is only about 40 basis points.

Actively Managed Munis

For investors who would prefer to have an experienced manager guiding their positions in munis, there are a couple of actively managed ETFs out there that combine the benefits of the exchange-traded structure with municipal bond exposure:

  • Columbia Intermediate Municipal Bond Strategy Fund (GMMB)
  • PIMCO Intermediate Municipal Bond Strategy Fund (MUNI)
Variable Rate Demand Obligations (VRDOs)

VRDOs are an interesting type of security that offers very little in the way of risk. VRDOs are floating rate bonds that deliver tax-exempt income to investors. If investors want to redeem VRDOs, they can do so by selling back to investment dealers at par plus accrued interest. Most VRDOs include some source of liquidity support, such as a letter of credit of standby bond purchase agreement provided by a large financial institution. As such, VRDOs feature both very low interest rate risk and minimal credit risk.

There are a couple of ETFs that offer exposure to VRDOs:

  • PowerShares VRDO Tax-Free Weekly Portfolio (PVI)
  • SPDR S&P VRDO Municipal Bond ETF (VRD)

Should Johnson & Johnson Split Up?

Our health care roundtable gathers the Motley Fool's top health care analysts to�discuss the sector's biggest stories in a free flowing and highly opinionated format.�

In this portion of the discussion, the Fool's health care team tackles the recent big pharma trend of spinning off whole divisions, like Abbott Labs' (NYSE: ABT  ) plans for pharmaceutical-focused AbbVie. Would �conglomerate Johnson & Johnson (NYSE: JNJ  ) benefit from shedding a little extra weight and spinning off a company or two?

In the world of health care, companies simply don't come any bigger than Johnson & Johnson. Many own the stock, but few understand its story. Offering everything from baby powder to biologics, critics think the company has spread itself too thin, becoming nothing more than a bloated corporate whale. Is this true, or is J&J a well-diversified giant that's perfect for your portfolio? Make sure you understand the full story behind the stock, along with its key opportunities and risks, by checking out our brand new premium report on Johnson & Johnson. To claim your copy simply click here now for instant access.

Netflix: Cable Deal Might Boost Margin, Cut Churn, Says Barclays

Barclays Capital‘s Anthony DiClemente today reiterated an Overweight rating on shares of Netflix (NFLX), posing the question of whether the company is turning into the equivalent of a cable network, referring to an article yesterdayby Yinka Adegoke and Lisa Richwine of Reuters that claimed the company has had meetings in recent weeks with U.S. cable operators about carrying Netflix’s streaming video service.

DiClemente writes that a deal with operators “could help NFLX increase its subscriber base substantially, lower subscriber acquisition costs, and enhance overall company profitability longer-term.”

Probably, the average revenue from each incremental subscriber would be lower through such a deal, he writes, given that Netflix would likely have to continue to offer the retail $7.99 per month subscription. Taking out a 50% share for the operators, Netflix would make just $4 to $5� a month.

But the cost savings would mean Netflix’s pre-tax profit could be higher than it is now, more like the 35% Ebitda margin that HBO currently enjoys.

Also, much like HBO is used as a promotional tool to retain video subscribers, we believe NFLX could serve a similar purpose, reducing subscriber churn.

Last year, Netflix’s Ebitda margin was just 13.7%, and it is expected to fall to just 1% this year, by DiClemente’s estimate.

Netflix would, however, need to beef up its content offerings:

If NFLX is going to more closely resemble a cable network, we believe it will need to acquire more exclusive content and also push more into the development of original programs to stay competitive.


Apple Slips: New iPad Has LTE, �Retina Display�; iPad 2 Now $399

Glu Mobile Can Make It On Its Own

A couple of weeks ago, I took a position in handheld gaming developer Glu Mobile (GLUU) at $4/share. Two items of note caused it to heat up in a hurry, and it closed at $4.85 today. The first item that contributed to the liftoff is a recent initiation of coverage by Needham & Company with an $8 price target. The second catalyst is the speculation that Glu Mobile may be an acquisition candidate by a larger organization. Both Bloomberg and Seeking Alpha contributor Chris Katje posted articles the last few days on this subject that got the stock off the launchpad.

My take is that this small cap company can make it on its own, and, in the long run, I'll be better off if it doesn't get absorbed by one of the more established players in the gaming sector like Electronic Arts (EA), or, Activision Blizzard (ATVI). I believe I may have hit pay dirt by purchasing the stock at a reduced level, and, it has the potential to make me significant money. Hear me out and see if you agree.

If you aren't familiar with Glu Mobile, they are one of the few pure-plays in the nascent mobile video game industry. They specialize in psychotronic titles such as Contract Killer Zombies, Blood & Gore, Frontline Commander and Big Time Gangsta. All of these games are made specifically for smartphones and tablets. Although they've been an established organization for ten years developing games for the PC and platforms like the XBOX (MSFT), they've recently changed their business model to concentrate primarily on mobile devices. In fact, 75% of revenues were derived from the handheld universe in their latest quarter.

One thing I like about Glu Mobile is that they are an international organization with development studios on four continents, according to the latest 10-K. These studios, based in San Francisco, California; Kirkland, Washington; Toronto, Canada; Sao Paulo, Brazil; Moscow, Russia; and Beijing, China, have the ability to design games to suit the needs of each region. In addition, with acquisition of rival Griptonite last year, they will now be positioned in India in the second quarter of 2012 without paying material additional consideration.

With a total of 1.75 billion smartphones projected to be activated worldwide by 2016, Glu's international exposure gives them home-court advantage in the major population centers. Another thing I really like about the company is that not only do their applications run on all of the major handheld operating systems like Android (GOOG), iOS (AAPL), Microsoft's Windows Phone and Research in Motion's (RIMM) Blackberry, but they have the potential to be utilized on large screen HDTV's in the home in the next few years.

CEO Niccolo de Masi discusses this in the Q4 conference call: " The good news for Glu is that we already invest in big canvas sizes and high resolution art for all of our Q4 2011 titles onwards. So games like Blood & Glory and Frontline Commando, it would also not only hypothetically work well if Apple introduced something for a living room, but it would work well if taken in places like the Mac store which has even bigger screens than tablets. So, we are thinking of course about long-term futures...".

Glu's new business model is a freemium one. If you aren't familiar with this concept, you probably aren't alone because it's fairly new. The 10-K says: Freemium games are, "downloadable without an initial charge, but which enable a variety of additional content features to be accessed for a fee or otherwise monetized through various advertising and offer techniques.".

"A recent survey by Park Associates found that while only 5 to 10 percent of the player base of social and free-to-play games regularly pays out of pocket, those who do pay are generous. The average Facebook gamer who spends money on games spends about $29 per month, according to the report. And those who pay for virtual goods and upgrades in free-to-play games average about $21 per month. And that adds up quickly when your player base is in the millions.", reports Chris Morris in USA Today.

In December 2011, Glu had approximately 2.9 million daily active users and 31.4 million monthly active users of their games on Apple's App Store, the Google Play Store and other platforms such as Facebook, Amazon's Appstore and Google Chrome. As of December 31, 2011, they had 176.1 million cumulative installs of their games on these platforms, including 44.7 million installs during the fourth quarter of 2011. Although it's a small universe, it will only get bigger.

Before we crunch the numbers, let's quickly take a look at recent research by Superdata:

  • Mobile gaming will represent a $7.5 billion worldwide market by 2015E, tripling from $2.7 billion today.
  • Asia currently the largest market for mobile gaming, with revenues forecasted to total $3.2 billion by 2015E.
  • Freemium accounts for 55% of all mobile game revenues, compared to 6% ad revenue.

Financial facts that stood out to me from the last conference call are that they finished 2011 debt free with a net cash balance of $32 million, and, they expect to break even on an adjusted EBITIDA basis once their new product cycle from their acquisitions is fully active in Q4 2012. Glu Mobile is also the number one seller of gaming apps on the Android platform. Android was the top smartphone operating system in 2011 with 48% market share, compared to Apple's iOS with 19%.

When we examine the econometrics supplied by Yahoo Finance, we see that Glu is slated to lose money this fiscal year which ends in December. However, for 2013, they are projected to earn $.18/share according to average analysts consensus. This would give us a forward P/E Ratio of 27. Sales look even better. Glu is slated to take in $87 million this year, and, $123 million in 2013. A growth of 43%. If they create a blockbuster title like Rovio's Angry Birds, then these figures will be much higher. When you take into consideration they are expected to grow earnings at 30% on a compound annual growth basis for the next 5 years, the stock doesn't look too pricey, especially if estimates prove to be conservative.

Although Glu shares could fetch a premium if they are absorbed by a larger rival, I believe it would be short sighted by the board of directors to approve such a move. I am very impressed by CEO Niccolo de Masi and think he has done a great job with the turn around strategy. My money is on him and his team. I didn't invest in Glu for a quick 50% gain (which I will probably get if they are bought out), I invested in the company because I think they can generate a healthy profit for not only my portfolio, but for the company in the next five years.

Disclosure: I am long GLUU.

Is PetSmart an Option Trader’s Best Friend?

If you have a pet, you know how tight the bond can be between owners and their domesticated furry (or feathered, or finned) friends. The same can be true of traders and their trading plans. The closer a trader embraces and adheres to his or her successful trading plan, the more the bond grows between them.

Here is one trade idea that embraces both the love of pets and the love of a potential profitable set-up that could align with your trading plan.

The Trade Idea: Long Call

The trade:�Buy the PetSmart Inc. (NASDAQ:PETM) April 55-strike calls for $2.75 or less ($275 per contract). PETM is currently trading at $57.01.

The strategy: Buying a long call is probably the most basic of all option strategies and profits as the stock advances. Maximum profit is theoretically unlimited because PETM can continue to rise. The maximum loss, on the other hand, is just the premium of $2.75 if PETM finishes below $55 at April expiration.

Breakeven is at $57.75 at expiration (the strike price plus the premium paid). If PETM is trading above this level when the options expire, the call will be profitable. This is a move of roughly 1.2% from current levels.� ���

The rationale: PETM is the largest specialty pet retailer and plans on expanding even more in the future. The company recently announced earnings and its profit has grown by double digits for the last eight quarters. PETM officials forecasted a current-year profit of $3.02 to $3.16 a share and 70 cents to 74 cents in the first quarter. This outlook was more than most analysts� forecasts. Last Thursday, PETM announced plans to pay a 14-cent dividend per share to shareholders of record at the close of business on April 27, 2012. �

Technically, the stock has been in a solid uptrend since October of 2011. This past week the stock pulled back from its all-time high and looks like it is setting up a picturesque buy scenario on a bull-market pullback.

Trade Management

If the stock can climb through Friday�s high � which was $57.59 � it might take flight like a bird in one of its stores. If the stock drops below a support level of $56.50, this trade idea has probably gone to the dogs!

As of this writing, John Kmiecik does not own any shares mentioned here.�


Nvidia Too Cheap, Cramer Says; Weisel Also Remains Bullish

Nvidia (NVDA) shares are trading higher on a pair of endorsements for the graphics chips company.

  • Last night on Mad Money, Jim Cramer asserted that the stock looks way too cheap, particularly if you back out the company’s $3 a share in cash. On the segment, he spoke with CEO Jen-Hsun Huang, who asserted that the concerns over Europe now afflicting the tech sector will pass, and that fundamentals at the company are strong. Huang said the company will continue to focus on a three-pronged strategy, with visual computing, parallel computing and mobile computing.
  • Thomas Weisel Partners analyst Kevin Cassidy this morning repeated his Overweight rating on the stock, noting that the shares this year have “severely underperformed” the broader market and the semiconductor sector. But he thinks the company will continue to benefit from increased IT spending, traction in new markets, increased notebook GPU adoption and eventually a a ramp of the tablet market served by the company’s Tegra chips. He repeats his $23 price target, and advises building positions on any pullback. “In our view, NVDA is in the early stages of a new product cycle across all market segments and all these new products are accretive to current gross margin levels,” he writes.

NVDA is up 28 cents, or 2.4%, to $12.05.

How Goldman Sachs Shocked the Market Today

Goldman Sachs (NYSE: GS  ) beat earnings today, helping lift the KBW Bank Index (INDEX: ^BKX  ) , the Dow (INDEX: ^DJI  ) , and the rest of the market.

The previous earnings reports from Citigroup and JPMorgan over the past week were not well-received, but today Goldman is up more than 6% as I write this.

Citi and JPMorgan are also up sharply today, but so are Bank of America (NYSE: BAC  ) and Morgan Stanley (NYSE: MS  ) , which report tomorrow.

But let's be clear on the news. Goldman's $1.84 EPS beat earnings estimates that had been lowered by analysts in the run-up to reporting (all the way down to $1.24). And the numbers versus last year's fourth quarter are anemic: Net revenue dropped 30% and earnings dropped 58%.

Goldman's compensation was also down. Over the whole year, its compensation and benefits pool dropped from $15.4 billion to $12.2 billion. Some of this was due to reducing its workforce by 7%, but there was also a drop in pay per employee. The pool equates to $367,000 per employee this year versus $431,000 last year.

So what we see is an earnings beat with lowered expectations. On Wall Street, where you eat what you kill, there's been less big game to share. We'll see tomorrow whether the expectations for Bank of America and Morgan Stanley were lowered enough to please the market.

In the meantime, if you're looking for a much less complex bank that has some of the best operational numbers I've ever seen, check out our brand new free report: "The Stocks Only the Smartest Investors Are Buying." I invite you to take a free copy to find out the name of the small bank I believe Warren Buffett would be interested in if he could still invest in small banks.

Apple: William Blair Unfazed as iPhone Slips at Verizon

William Blair’s Anil Doradla today reiterates an Outperform rating on shares of Apple (AAPL), writing that he is not concerned the company’s iPhone will lose its rank as the top smartphone in North America, even though there is slippage appearing, in particular at Verizon Communications (VZ)

Although the iPhone is overall still the best-selling device across North American carriers, writes Doradla, “our checks highlight initial signs of Apple�s momentum under pressure, particularly at Verizon, which we believe is from the operator aggressively marketing competing 4G devices,” referring to the volume of sales for the phone as of the June quarter, based on his “checks.”

Since Apple�s iPhone launch in North America, we believe this was the first quarter where the iPhone was not the best-selling smartphone at a North American mobile operator (where it was available). While Apple continued to maintain its top position at AT&T and Sprint, Motorola�s Droid RAZR MAXX was the best- selling smartphone at Verizon. Our checks also indicate that at this stage consumers are not pausing in front of the iPhone launch as it is not influencing their purchasing decisions (but we expect it to start impacting over the next couple of months). Despite the “increased competitive landscape from 4G devices (and the iPhone 4S is not 4G),” Doradia is “not worried” as the next iPhone model, a true 4G phone, “will be an important catalyst for the company,” he believes.

Samsung Electronics (005930KS) had the third spot behind the iPhone at Verizon with the “Galaxy Nexus” unit, according to Doradla’s checks.

Apple shares today are up $6.04, or 1%, at $586.36.

Matrix Service Beats Estimates on Top and Bottom Lines

Matrix Service (Nasdaq: MTRX  ) reported earnings on Feb. 9. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q2), Matrix Service beat expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew, and GAAP earnings per share increased significantly.

Margins grew across the board.

Revenue details
Matrix Service logged revenue of $201 million. The five analysts polled by S&P Capital IQ predicted sales of $184.5 million on the same basis. GAAP reported sales were 15% higher than the prior-year quarter's $175.3 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.27. The five earnings estimates compiled by S&P Capital IQ predicted $0.26 per share. GAAP EPS of $0.27 for Q2 were 35% higher than the prior-year quarter's $0.20 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 11.5%, 20 basis points better than the prior-year quarter. Operating margin was 5.6%, 70 basis points better than the prior-year quarter. Net margin was 3.5%, 50 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $174.6 million. On the bottom line, the average EPS estimate is $0.21.

Next year's average estimate for revenue is $742.6 million. The average EPS estimate is $0.89.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 234 members rating the stock outperform and 10 members rating it underperform. Among 80 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 80 give Matrix Service a green thumbs-up, and give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Matrix Service is outperform, with an average price target of $14.50.

Is Matrix Service 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.

  • Add Matrix Service to My Watchlist.

Friday, December 28, 2012

What Nu Skin Does With Its Cash

In the quest to find great investments, most investors focus on earnings to gauge a company's financial strength. This is a good start, but earnings can be misleading and incomplete. To get a clearer understanding of a company's ability to earn money and reward you, the shareholder, it's often better to focus on cash flow. In this series, we tear apart a company's cash flow statement to see how much money is truly being earned, and more importantly, what management is doing with that cash.

Step on up, Nu Skin (NYSE: NUS  ) .

The first step in analyzing cash flow is to look at net income. Nu Skin's net income over the last five years has been impressive:






Normalized Net Income $162 million $130 million $95 million $63 million $55 million

Source: S&P Capital IQ.

Next, we add back in a few non-cash expenses like the depreciation of assets, and adjust net income for changes in inventory, accounts receivable, and accounts payable -- changes in cash levels that reflect a company either paying its bills, or being paid by customers. This yields a figure called cash from operating activities -- the amount of cash a company generates from doing everyday business.

From there, we subtract capital expenditures, or the amount a company spends acquiring or fixing physical assets. This yields one version of a figure called free cash flow, or the true amount of cash a company has left over for its investors after doing business:






Free Cash Flow $183 million $134 million $114 million $87 million $26 million

Source: S&P Capital IQ.

Now we know how much cash Nu Skin is really pulling in each year. Next question: What is it doing with that cash?

There are two ways a company can use free cash flow to directly reward shareholders: dividends and share repurchases. Cash not returned to shareholders can be stashed in the bank, used to invest in other companies and assets, or to pay off debt.

Here's how much Nu Skin has returned to shareholders in recent years:






Dividends $37 million $31 million $29 million $28 million $27 million
Share Repurchases $67 million $59 million $21 million $6 million $71 million
Total Returned to Shareholders $104 million $90 million $50 million $34 million $98 million

Source: S&P Capital IQ.�

As you can see, the company has repurchased a decent amount of its own stock. That's caused shares outstanding to fall:






Shares Outstanding (millions) 62 62 63 64 65

Source: S&P Capital IQ.

Now, companies tend to be fairly poor at repurchasing their own shares, buying feverishly when shares are expensive and backing away when they're cheap. Does Nu Skin fall into this trap? Let's take a look:

Source: S&P Capital IQ.

Not too bad. Nu Skin's buybacks have gradually ramped up in recent years as its share price rose, but that was likely due to an increase in free cash flow, not a rise in management exuberance. Given reasonable valuations, these buybacks have likely been a good deal for shareholders.

Finally, I like to look at how dividends have added to total shareholder returns:

Source: S&P Capital IQ.

Shares returned 149% over the last five years, which increases to 180% with dividends reinvested -- a nice boost to top off already high performance.

To gauge how well a company is doing, keep an eye on the cash. How much a company earns is not as important as how much cash is actually coming in the door, and how much cash is coming in the door isn't as important as what management actually does with that cash. Remember, you, the shareholder, own the company. Are you happy with the way management has used Nu Skin's cash? Sound off in the comment section below.

  • Add Nu Skin to�My Watchlist.

These Stocks Stumbled Out of the Gate

The market started the new year off with a bang, but not everyone went along for the ride. Even though your stock took a nosedive, don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit.


CAPS Rating (out of 5)

Tuesday's Change

Williams (NYSE: WMB  ) **** (18.8%)
AMR (NYSE: AMR  ) * (18.3%)
Universal Display (Nasdaq: PANL  ) *** (11.1%)

The markets jumped 180 points yesterday, or 1.5%, so stocks that went down by even larger percentages are pretty big deals.

That's going to leave a mark
Only if you weren't paying attention were you surprised by the near 19% plunge in Williams' stock. That's because the oil and gas pipeline and transport specialist spun off its ownership in WPX Energy, and for every three shares of Williams you owned, you ought to have received one share of WPX. The decline in the former parent's shares is almost the same as the value of the new shares, so you really didn't lose a thing but rather gained the exploration and production business of Williams.

Now investors will decide whether they want to own the E&P play. Oftentimes the new stock is dumped because investors either didn't want the new type of business, in this case preferring the remaining toll-collecting pipeline operations to the riskier exploration venture, or the small number of shares they now hold in it are not so attractive and they'd rather have the cash. In any case, it could be an attractive special situation for those who wish to delve more deeply into whether WXP will be a profitable entity on its own.

Last year, TMFDeej thought Williams made a good break-up candidate to unlock significant shareholder value, and now that it has, MajorBob04 finds economic trends backing bigger gains: "Demand for oil, and the prices, continues to grow, even with slow economic growth. If the European crisis is resolved more quickly, prices will skyrocket and companies like Williams will benefit immensely."

Add Williams to your watchlist to see whether there's additional value to be found in its stock.

Investors grounded
The sound you heard was the last of the investors in American Airlines parent AMR running for the exit. With the New York Stock Exchange delisting the stock before the market opens tomorrow, everyone was squeezing through the emergency exit to get to the tarmac before there was nothing of value left.

Of course, they had taken a big risk by hanging on to (or buying into) the stock after it declared bankruptcy at the end of November. United Continental (NYSE: UAL  ) -- back when it was just United -- previously used bankruptcy to shed debt and cut its labor costs. American had avoided doing the same but said it could no longer afford to stay solvent if major concessions weren't made.

There's no reason to put AMR on your watchlist, but you can add United to see whether it will benefit from its rival's troubles.

Get on the bus
Moving from CRTs to LCDs marked a major upheaval in the television market, but with the switch almost complete, the folks at NPD DisplaySearch expect industry growth to increase at a modest 2% to 4% rate. Certainly not a house-afire result, but considering the slack performance in 2011, this is a hopeful note.

Not that there won't still be upheavals. RealD was devastated by the news that partner Samsung was exiting the 3-D TV market. In turn, Sony just dumped a bucket of cold water on Samsung by leaving the joint venture it has with it to produce LCD screens. And of course, Corning (NYSE: GLW  ) doused everyone with dour notes about demand for its Gorilla Glass that's used in everything from TV screens to tablet computers.

So it shouldn't be so surprising that analysts aren't all that excited about the prospects for Universal Display. Considering it has an important agreement with Samsung, all the changes underfoot have caused Wall Street to dial back its expectations for what it will mean to the OLED-screen technologist.

Although 91% of the CAPS All-Stars weighing in on Universal Display still see it outperforming the market, there does appear to be a turn in the tide of sentiment against it. CAPS member pchop123 still sees it having further to fall, and TMFCandyMountain doesn't think it can live up to the hype.

Add Universal Display to your watchlist, and tell us in the comments section below or on the Universal Display CAPS page whether you think there's still a clear opportunity for growth here.

Ready for a resurrection
Just because your stock has taken a beating, that doesn't mean it's going to roll over and die. Markets are�known for overreacting. Balance out the extremes by having a mix of stocks, funds, and ETFs that will help you maximize your retirement savings. You can find them in The Motley Fool's brand new report, "The Shocking Can't-Miss Truth About Your Retirement." This is a special free report that you can access right now --�it's free.

Stocks: the Federal Reserve, Europe dominate

NEW YORK (CNNMoney) -- Once again investors will be looking overseas for any signals out of Europe on the fate of the eurozone and the euro.

There are no specific plans for official meetings following this week's summit where the majority of eurozone members reached a deal for a new intergovernmental treaty.

Still as the region waits for six countries to hold parliamentary votes, and following Britain's rejection of the deal, investors remain tense about the likelihood of a deal passing.

"It's going to be another week of: 'Merkel said this. Sarkozy said that'," said Sam Ginzburg, head of capital markets trading at First New York Securities. "That's what is going to be driving trading until there's some sort of resolution in Europe and people start trading on fundamentals."

News of a new deal out of Europe precipitated a rally in stocks Friday. The Dow Jones industrial average (INDU) added 187 points, or 1.6%. The S&P 500 (SPX) jumped 21 points, or 1.7%. The Nasdaq (COMP) rose 50 points, or 1.9%.

Europe debt saga far from over

Beyond Europe, investors will be closely following announcements after the Federal Reserve's Open Market Committee meeting on Tuesday to see if the central bank might consider intervening to help the market. The Fed isn't expected to follow the European Central Bank's lead and cut rates.

"We're not expecting any new policy changes or surprises out of the Fed next week," said Matt Rubin, director of investment strategy at Neuberger Berman. "If there's any hint of quantitative easing, it would drive the markets higher."

Meanwhile, investors will continue to monitor economic data to see whether the U.S. consumer and manufacturing sectors can continue to show signs of life.

On Tuesday, the Commerce Department will release November's retail sales, excluding autos, which are expected to rise 0.6% after a 0.5% increase in October.

On Thursday, the Labor Department will release its Producer Price Index, which measures wholesale inflation, is expected to come in 0.2% after falling 0.3% in October.

Three major corporations will report earnings next week. Best Buy (BBY, Fortune 500) will report before the open Tuesday. FedEx' (FDX, Fortune 500)s quarterly reports is due out before the bell Thursday, and RIMM (RIMM) will report after the bell.

The wrong stock market lookahead was published earlier on Sunday. 

Citigroup ($C) Shocks the Street; Posts Earnings of $4.4 Billion for First Quarter

By Michael Bogan
Contributing Writer

Citigroup Inc. (NYSE: C) posted strong first-quarter fiscal results, providing more evidence that the big money center banks may have weathered the credit crisis storm.

The troubled bank said it earned $4.4 billion for the fiscal 2010 first quarter, compared with a loss of $696 million for the equivalent quarter last year. That is the the biggest profit for the bank since the second quarter of 2007.

The company cited proprietary trading of stocks, bonds and other securities for its surprise performance during the quarter. Citigroup, the largest bank affected by the financial crisis, said losses from outstanding loans declined during the quarter, allowing the bank to also reduce its loan loss provisions account.

Citigroup reported a 15 cents per share profit on revenue of $25.4 billion, easily surpassing the mean analysts’ estimate of a small loss, according to Thomson Reuters.

Total reserves to cover loan losses fell 22 percent, or $2.4 billion, a two-year low. Credit losses fell 15 percent to $8.4 billion, compared with nearly $10 billion for the fourth quarter of 2009. Improvements were reported for nearly all loan categories.

The company said it generated $8 billion in securities, banking operation and proprietary trading revenue, compared with $4.7 billion for the fourth quarter of 2009.

Citigroup’s lifeline from the Troubled Asset Relief Program (TARP) will be cut, as the company has paid back $20 billion of the $45 billion infusion from TARP during the credit crisis, with the remaining $25 billion of the government’s stake set to convert to securities and sold.

“All of us at Citi recognize that we would not be where we are without the assistance of American taxpayers,”Citigroup CEO Vikram Pandit said following the earnings release.

Citi’s surprise showing come on the heels of two similar results from its brethren banks, Bank of America Corporation and JPMorgan Chase & Company. Hopes of sustainable profits among the big banks were given a boost from Citi’s excellent results.

Pandit warned, however, that the company remains cautious “given the uncertain economic recovery and high unemployment in the U.S.”

“Realistically, we do not expect our performance to follow an invariable trend-line upward,” he said. “Longer-term, however, the prospects for Citi are clear and bright.”

Thursday, December 27, 2012

Insiders Are Spending A Fortune On These 11 Stocks

Every time the market swoons, the level of insider buying picks up sharply. It's the natural reflex company officers and directors have in a bid to defend their stock. Trouble is, these folks don't have the greatest track records. If the market falls further, then their stocks often perform poorly. And if the market rebounds, then their stocks simply rise in tandem with the rest of the pack.

Instead, I like to watch the actions of insiders when markets are moving sideways or are on an upswing. That's when insiders give a much clearer signal that shares hold value.

To be sure, insider buying appears to be at a lull since the market has been surging. The volume of daily and weekly filings has been fairly low in 2012. But the stocks that are seeing fresh insider buying surely deserve a close look right now. The 11 stocks in the table below have been the beneficiary of at least $400,000 of fresh buying since the start of the year.

Although this list almost exclusively involves officers who actually work at the company in question, I've also included Wendy's (NYSE: WEN) in this table, even though some of the biggest buying came from its major shareholders (who must register their moves with the SEC just as company officers do). The reason I bring this up is because I've recently written about the intriguing turnaround potential for this fast-food operator, and it's a bullish sign that the company's key investors are showing a $100 million vote of confidence in new CEO Emil Brolick.

I usually caution that turnarounds can be slow to take shape, because they involve upfront investments in the business that investors tend to dislike. But if Wendy's management can make tangible progress and shares continue to languish at current levels, then it will be interesting to see what shareholder Nelson Peltz will do. His investment firm, Trian Fund, already owned 23% of Wendy's at the end of 2011, and this stake has now bumped up to 27%. It's curious to note that in June 2011, Peltz announced that an unnamed third-party had approached him about taking Wendy's private. Nothing seems to have come out of that overture, perhaps because the two parties disagreed on a buyout price.

Perhaps Peltz was just blowing smoke. But it's clear that shares are sharply undervalued in relation to McDonald's (NYSE: MCD), and would post major gains if the wide spread between the two firms' operating metrics ever narrowed.

Unilife (Nasdaq: UNIS)

This company is at the opposite end of the spectrum from Wendy's. The medical device maker was listed on the Australian stock exchange back in 2002 and was cross-listed on the Nasdaq beginning in February 2010. Shares got off to a rousing start then, doubling in value on their second day of U.S. trading to almost $18, but it's been downhill ever since, with shares now trading below $4.

Unilife sells safety syringes that can be pre-filled by drug manufacturers or to hospitals that order them un-filled. These syringes' needles automatically retract after usage, eliminating the chance of unnecessary spikes for health care professionals. Getting Food and Drug Administration approval for a pre-loaded syringe is a cumbersome process, as each drug/syringe pairing needs to be approved. The company already has a licensing and supply agreement with Sanofi-Aventis (NYSE: SFY), with more expected to follow. Sanofi has spent $40 million to help Unilife refine its technology and is expected to pay Unilife $5 for each syringe.

The share price sell-off comes as investors grew impatient for the Sanofi relationship to start ramping up. Analysts once said Unlife would be in the midst of a major revenue upturn by now, but recent quarterly results have shown minimal revenue. This should normally tell investors to simply move on to other ideas -- yet in this instance, a fresh look for upside is merited.

First, the Sanofi relationship appears stalled but not broken. Sales may only hit $10 million to $15 million in the current fiscal year that ends this June, but analysts expect to see sales finally start to build in fiscal 2013. The current consensus forecast of $69 million in fiscal 2013 sales is likely a stretch. Investors would be cheered if Unilife had just $30 million or $40 million in sales, as this would at least imply a better sales ramp to come.

Second, CEO Alan Shortall has spent nearly $1 million acquiring stock on the open market in the past seven weeks. He has a clear read into discussions that Unilife is holding with current and potential partners and would be foolish to pony up this kind of money if the company's 2012 prospects were dim.

Risks to Consider: Unilife is clearly a high-risk play, but investors seem to have abandoned this still-promising medical device firm. Also, when looking at the entire list above for further investment ideas, remember that insiders may know their own businesses very well, but are not always great stock pickers. So use their moves only as a basis for further research.

As long as the market stays aloft, keep an eye on insider filings. In an environment where bargains are getting harder to come by, stocks bought by insiders may provide one of the few areas for further upside.

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

U.S. Authorities Probe Tulsa Shootings

Federal authorities have joined an escalating investigation into a series of shootings in Tulsa, Okla., in which three African Americans were killed and two others were wounded in the span of roughly an hour.

The shootings, in which the five victims were shot in four separate incidents within a few miles of one another in Tulsa's north side shortly after 1 a.m. Friday, have unnerved the city's African American community, which last year commemorated the 90th anniversary of the Tulsa Race Riot of 1921.

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Close Associated Press

Tulsa Chief of Police Chuck Jordan, left, and Mayor Dewey Bartlett

Tulsa Police Capt. Jonathan Brooks cautioned that authorities are still piecing together the limited evidence and are not yet certain that a single person was responsible for all the shootings. Some witnesses, including one of the victims, said they had seen a white man in a pickup truck who might be the shooter.

But authorities have assembled a task force of about 25 investigators to assist in the probe, including city homicide detectives, the U.S. Marshals Service and the Federal Bureau of Investigation. They have also stepped up patrols in the affected neighborhoods to reassure frightened residents.

"The only direct witness is one of the victims, and he is uncertain whether the shooter was alone or had an accomplice," Captain Brooks said in an interview. "But the one thing we know for certain is that they were in an older white pickup, the driver is believed to be white, and a similar truck was also seen around the other locations at the times of those shootings."

The police identified the three dead as a woman, Dannaer Fields, 49, and two men, Bobby Clark, 54, and William Allen, 31, whose body was not found until 8 am Friday, the police said.

The names of the two wounded victims have not been released. Both are in critical condition but expected to survive, the police said.

The shootings were the worst in recent memory for Tulsa, the 46th-largest city in America with a population of about 392,000. Like many other cities, it has struggled with budget problems in the aftermath of the recession and had to lay off roughly 11% of its police force early in 2010.

"I can't think of a time when we had so many shootings in such a short time frame," Captain Brooks said.

FBI Special Agent Clay Simmonds said federal authorities were assisting the probe in light of the early description of the suspect, but noted that it was not yet clear based on the sketchy evidence that a federal hate crime or civil rights offense had occurred.

The police are still awaiting the results of forensic evidence to determine whether the same weapon was involved in all the shootings.

"We're just in the initial phases of assisting the Tulsa P.D. in trying to figure out what happened," Mr. Simmonds said.

Tulsans of all races came together last year to commemorate one of the ugliest events in Oklahoma history, the Tulsa Race Riot, which resulted in the deaths of dozens of residents of the city's then-prospering black community. From May 31 to June 1, 1921, fires burned more than 1,000 residences in 35 city blocks.

On Saturday, politicians and community leaders were trying to reassure residents of Tulsa's predominantly black north side that authorities had the Friday shootings under control, while at the same time asking anyone with even a scintilla of first-hand information to come forward and help them find whoever was responsible.

"This is an event that is unprecedented in our recent history, and it is certainly one that ... we want to bring to an end very quickly," Tulsa Mayor Dewey Bartlett told CNN. "The only thing in common is the randomness."

Write to Miguel Bustillo at

A Bond Allocation For Your Dividend Growth Portfolio

This article should be useful to anyone constructing or reviewing a fixed-income portfolio. It describes the basic asset classes, provides selection criteria for bond funds, examines several selections closely and contains comprehensive resources concerning alternatives.

My dividend growth portfolio is 65% of my asset allocation. Here we're looking at the other 35%, the fixed-income portion. While I am a strong advocate of dividend growth investing to provide increasing income that will outpace inflation, I believe it is advantageous to own a balanced portfolio of stocks and bonds. This article demonstrates how various stock and bond allocations affect risk and reward. It describes measurements used in bond fund selection, including duration, and different measures of yield. The summary asks questions to assist you in determining your best course of action.

The Equity Portion of Your Portfolio

When you buy a stock, you become a part owner of a corporation. Investopedia's definition states:

In terms of investment strategies, equity (stock) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.

Usually the rights of ownership include participation in the election of the Board of Directors, participation by voting on key issues at annual meetings, and a proportional share in the dividends paid by the company. In addition, you enjoy the benefits of the increasing wealth of the company, including increased share prices.

Check out my stock portfolio article, "Constructing Your 2012 Dividend Growth Portfolio, Dependable Yield With Managed Risk And Volatility."

Fixed Income Securities

When you purchase a bond, you become a lender to the corporation or to the government issuing the bond. They owe you the amount of the bond payable to you at maturity and pay you interest in the meantime. If you do not wish to hold a bond to maturity you can sell it the secondary market. As a creditor, you have a higher claim on the assets of the company than the stockholders have, but do not share in the profits of the company. You get the agreed upon interest, a steady stream of equal payments, usually paid to you twice a year. There is generally less risk in owning bonds than in owning stocks, but this comes at the cost of a lower return.

Why own bonds? Bonds produce a reliable and even flow of fixed income. A typical investment portfolio has a mix of stocks and bonds. Bonds are the more conservative of the two assets; that is, they are much less volatile and there is less risk of a fast loss of capital. In addition, bonds often move in the opposite direction of stocks. One asset class moves up, the other moves down. Stocks, however, usually produce higher returns over the long run.

Young investors allocate their investable assets into stock; the reasoning is that the ups and downs even out over a lifetime of investing. Older investors usually move toward a heavier bond weighting, as their time to recover from fickle markets is shorter. A traditional way of figuring how much an investor should allocate to stocks is to subtract his or her age from 100. The resulting number is the amount, as a percentage of total investable assets, which goes into stocks. For example, a 20 year old would have 80% in stocks, 20% in bonds, while a 50 year old would have 50% in each. A 70 year old would only have 30% in stocks and 70% in bonds. There are many variations on this theme, using 120 instead of 100 as the base to subtract from, or in concert with consideration of age, determination of the risk tolerance of the investor. For the risk averse, bonds are a traditional haven.

Stock and bond returns for the 20-year period leading up to the Great Recession are shown below. While stocks had some years with dramatic gains, up to 37.0%, there were also dramatic losses. Meanwhile, bonds plugged along at a more even pace. The conventional wisdom during that era and continuing today is that the best of both worlds is available with a mixture of stocks and bonds, risk and age adjusted. An annual rebalancing to the target allocation effectively applies gains from the in-favor asset class to purchase the other class at a cyclically lower price.

Click to enlarge all images.

I have always owned bonds in my total portfolio because of the stability and for the steady income stream. The dampening effect that bonds, and bond funds, have on the total volatility of my investments is significant. I like the knowledge that if the stock market has a 20% correction, my total portfolio is likely to go down much less than that. Of course, there are degrees of risk and reward in both stocks and bonds; a prudent selection of securities is always necessary. In addition, there are times when there are great opportunities in equities, and lesser opportunities in bonds. This is one of those times. I should note that my 65% stock, 35% bond portfolio is the inverse of the traditional ratio for a person of retirement age.

There is no right or wrong allocation. Mine is suitable for my risk tolerance, my understanding of interest rate movements and inflation, and is weighted toward stocks. My belief is that with current low bond yields, many attributes of bonds can be found in blue-chip dividend-paying stocks. However, I do not advocate holding over 80% in either asset class.

On its investment site, Vanguard, a leading fund company, makes tools available to help you assess risk and select your mix of stock and bonds. The images below show the expected risks and returns of a 100% stock portfolio, a balanced portfolio of 60% stocks and 40% bonds, and a 100% bond portfolio.

The expectation is for a 5.6% average return when one is 100% invested in bonds, based on the past 86 years of market history. Your worst year might be an 8.1% loss, and you will be up 73 out of 86 years. On the other hand, if you invest 100% in stocks you might expect to average a 9.9% return, over time. However, in the worst year in the period you could be down as much as 43%. In addition, you may expect to have a loss in almost one out of three years with 100% in stock.

Most investors, over the past 25 years or so, have chosen to invest in a mix of stocks and bonds. For the bond investor, a 20% allocation to stocks increases the average return to 6.3% and gives added protection against inflation. For the stock investor, an allocation of 80% in stocks and 20% in bonds adds a great stabilizing effect to the portfolio, which still provides a 9.4% return.

Holdings of Bonds and Bond Funds

The bonds (individual bonds and bond funds) I own were chosen over time, and during that time interest rates declined but now are at an extreme low and will certainly rise. Therefore, there was one attribute I took careful notice of when selecting these fixed-income investments. That is duration. The Investopedia definition states:

The duration indicator addresses a security's change in value corresponding to interest rate changes. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. If interest rates rise 1% a bond with a duration of 5 years will decline 5% in value. If a bond has a duration of 2, if will lose 2% of its value.

Even the highest rated bonds and bond funds are not risk free. Investors need to be aware of two main risks that can affect a bond's investment value: credit risk (default) and interest rate risk. Interest rate changes are primarily due to the actions of the central bank. S&P, Moody's and Fitch rate the credit risk of bond issuers. Fund companies publish the percentage of their holdings that are in each category: AAA, AA, A, BBB, BB, and so on.

The yield is also a critical measurement. Fund sites and reporting services are inconsistent in the way they calculate and report yields. Unfortunately, there is no single source for end-of-month 30-day SEC yields. The SEC yields given in this article are from the funds' websites as of June 6, 2012. Shown also are the yields as reported by Morningstar, which are quoted in trailing returns. SEC yields are more forward-looking, as they focus on only the last 30 days. However, I do not believe that you can expect to receive over 7% on TIPS, as shown below. Short time periods do not always reflect longer ones or trends.

The Treasury Inflation Protected Securities Bond Fund (TIP) seeks results that correspond generally to the price and yield performance of the inflation-protected sector of the United States Treasury market as defined by the Barclays Capital U.S. Treasury Inflation Protected Securities Index (the Index). The Index includes all publicly issued, the United States Treasury inflation-protected securities that have at least one year remaining to maturity, are rated investment grade and have $250 million or more of outstanding face value. The Fund generally invests at least 90% of its assets in the bonds of the Index. As inflation increases, the bonds pay a higher dividend.

The Templeton Global Bond Fund (TEGBX) is arguably the best in class, especially if one can tolerate a couple of recent bad years. It holds top positions for five-year and 10-year performance, outpacing all rivals. After a difficult 2011, it appears as if it's back on track. Morningstar currently rates this as a four-star fund and gives it its Gold Shield. Lipper rates it as a five, its highest rating.

The Fund seeks current income and capital appreciation by investing at least 80% of its net assets in bonds of governments and government agencies located anywhere in the world. The fund manager says, "We search the world for investment opportunities in currencies, interest rates and sovereign credit that can offer attractive potential returns and additional portfolio diversification." Michael Hasenstab, PhD, joined Franklin Templeton in 1995 and has managed the fund since 2001.

The fund has moved to shorter duration bonds, and has avoided the European crisis for the most part. They have significant investments in South Korea, Indonesia, Mexico and Poland. The Fund provides an excellent yield; however, the expense ratio is 1.30%. I have held this for many years and am very satisfied with the strategy and the performance. A five-year chart from U.S. News follows. Below that are alternate international bond fund offerings (source: Minyanville).

The Vanguard Investment Grade Short Term Bond Fund (VFSUX) was introduced in 1982. I have held it in my IRA since 1986. I use it like a money market fund to hold temporary and short-term cash, and have no cash position otherwise. Transfer of funds to other accounts and redemption is easily done online or by phone. In addition, a check writing option is available.

This fund gives investors exposure investment-grade bonds with short-term maturities and a short average duration. Although short-term bond funds tend to have a higher yield than money market funds, the tradeoff is share price fluctuates. Additionally, increases in interest rates can cause the prices of the bonds in the portfolio, and the fund's share price, to decrease. Because the duration is relatively short, fluctuations due to interest rate changes are small.

The Admiral version of the fund has a $50,000 minimum. The Investors version (VFSIX) has a minimum of only $3,000 and the only difference is an annual expense cost of 0.21% instead of the incredibly low 0.11% of the Admiral version.

The Vanguard GNMA Fund (VFIJX) offers the safety of U.S. government backed securities, a respectable yield, short duration and incredibly low expenses.

This bond fund specializes in government mortgage-backed securities, primarily GNMA securities, backed by the full faith and credit of the U.S. government. When mortgage refinance activity is high, the yield on the fund is likely to decrease. Investors with a medium-term time horizon and a goal of monthly income may wish to consider the fund. Like the Short Term Bond Fund, there are both Admiral and Investor shares.

Individual Bonds

A popular and efficient way of investing in bonds is to create a ladder with different maturities. In recent years, I have chosen to buy bond funds instead. I still own bonds that mature in 2015 and 2016, and it is my intention to hold them to maturity. The average rate of interest is 5.5%.

High-Yield Bonds

As the old saying goes, "More money has been lost chasing high yield than at the point of a gun." For those who wish to assume more risk in hopes for higher returns, the SPDR Barclays Capital High Yield Bond ETF (JNK) is one choice and the other is the iShares iBoxx High Yield Corp Bond (HYG). Yields are in the 7% area and durations around five years. An alternative might be PowerShares Fundamental High Yield Corp. Bond (PHB), which has a yield of 5.5% and duration of four years. The distinguishing factor is that it holds no bonds lower than those rated B. I have no investments in this category.

Preferred Stock Fund (PFF)

Preferred stock is a fixed income investment and often grouped with bond holdings. The iShares S&P U.S. Preferred Stock Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P U.S. Preferred Stock Index. About 24% of the holdings are in the banking sector; other financial stocks account for 46%. The fund is a stable source of dividends.

Additional ETF Resources

Bond holdings from different sectors of the bond universe add diversification and reduce the volatility of the total bond portfolio. Here are some additional ETF choices in various categories of bond funds.


Fixed-income holdings supplement a dividend growth portfolio to provide a dependable retirement income with stability and lowered risk of capital loss. As interest rates are expected to rise, you may wish to underweight bonds while keeping the durations short. A bond allocation is important, but dividend growth stocks remain the primary engine to power your retirement.

Some advocate a current position of 100% stocks, others believe that a move to shorter durations or a flight from bonds based on rising interest rates is premature. Differences of opinion are healthy in investing; they provide an opportunity for clearer articulation of beliefs and stimulus for deeper analysis and reflection. I am interested in reader comments on allocations and expected interest rate increases.

Questions to Ask to Determine Your Course of Action

  • How much will you allocate to stocks, and how much to bonds?
  • How much of this will be international debt?
  • How many bond funds do you need to own?
  • How much credit risk are you willing to assume?
  • How much market risk/interest rate risk do you want to take?
  • How much yield are you willing to give up for added safety?

We all struggle with these questions.

Disclosure: I am long TIP, PFF. I also hold TEGBX, VFSUX, VFIJX, which are mutual funds.