Tuesday, July 31, 2012

Rosetta Stone Passes This Key Test

There's no foolproof way to know the future for Rosetta Stone (NYSE: RST  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Rosetta Stone do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Rosetta Stone sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Rosetta Stone's latest average DSO stands at 53.9 days, and the end-of-quarter figure is 50.4 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Rosetta Stone look like it might miss it numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, Rosetta Stone's year-over-year revenue grew 5.4%, and its AR dropped 24.2%. That looks OK. End-of-quarter DSO decreased 28% from the prior-year quarter. It was down 7.5% versus the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

  • Add Rosetta Stone to My Watchlist.

How to Profit From Volatility in 2012

Early January is the time for stock market predictions, and analysts and pundits everywhere have dusted off their crystal balls in a futile attempt to peer into the future and determine what 2012 will bring.

Of course, none of these people have a clue about where the stock market will stand one year from today because, unfortunately, no one can predict the future.

However, one prediction is safe to make: that a very likely feature of 2012 will be ongoing volatility in global stock markets. We�ve already seen volatility on the first day of trading of the new year with an impressive post-holiday pop that took the Dow Jones Industrial Average back to its highest level since last summer.

Taking a look back at 2011, most investors would agree that the volatility was nearly unbearable and that the year was one of the most unsatisfying in market history.

Click to Enlarge A look at the chart for 2011 of the S&P 500 paints a clear picture of the volatility and sideways nature of the market. With high to low swings of 25% or more and seemingly daily swings of 1% to 3%, volatility was the name of the game as price swings reached levels not seen since the 1930s.

But through it all, the S&P 500 remained virtually unchanged — and, in fact, 2011�s �movement� was the smallest seen since 1970. So, with intense volatility going nowhere, what is an investor to do?

My answer is, �If the markets are volatile, why not trade volatility?�

The CBOE Volatility Index, or VIX — also known as the �fear indicator� — uses the implied volatility of S&P 500 Index options and is an index of the market�s forward looking view of volatility for the next 30 days.

This indicator is widely viewed as a way to measure market risk and forecast future movements. Some observers say that when the VIX is low, market risk is low and stock prices are likely to trend higher. This camp also says that when the VIX is high, lower stock prices are ahead as fear is the dominating force in the market.

On the other hand, contrarians say to �sell the greed, buy the fear,� and so when the VIX is low, contrarians would be anticipating declines in prices ahead — and when it�s high, they would be expecting a reversion to the mean and lower prices ahead.

Whatever happens in 2012, I�m certain there are going to be opportunities to trade volatility in both rising and falling volatility environments as the major indices go through their regular gyrations. Therefore, two of my favorite ETNs for 2012 likely will be those that track �long� and �short� directional moves in the VIX.

Click to EnlargeFor rising VIX environments, the iPath S&P 500 VIX Short Term Futures ETN (NYSE:VXX) is a popular, liquid and widely traded ETN designed to rise in price as the VIX rises.

In the chart, you can see how the volatility ETF is, well, volatile, and moves inversely to the major U.S. indices.

For declining volatility environments, VelocityShares Daily Inverse VIX Short Term ETN (NYSE:XIV) is designed to rise in price as the VIX declines.

Click to Enlarge More aggressive investors can consider VelocityShares Daily 2X Short Term ETN (NYSE:TVIX), which offers a double-leveraged position for trading volatility.

So on the long side, ETNs exist to seek profits when volatility is rising, and the inverse ETN can offer potential when VIX is in decline. For cash accounts, one also can short the VIX ETNs, and aggressive options traders also have opportunities in these widely traded vehicles.

While these ETNs can offer potential profit opportunities, you must educate yourself before trading these volatile instruments. These are not perfect vehicles — they come with tracking error and can expose you to wide swings of both profits and losses. Therefore, you must do research on the ETNs themselves before treading into these waters.

Disclosure: Wall Street Sector Selector currently holds a position in XIV. Wall Street Sector Selector actively trades a wide range of exchange-traded funds and positions may change at any time.

A Compelling Case for Investing in the Ratings Agencies

The major credit ratings agencies continue to be caught in the crossfire of finger pointing that has occurred since the housing bubble burst and fanned the flames of a major credit crisis in late 2008. There has been much talk of increasing regulation of these firms, and very recently the Senate passed reforms on the ratings firms as part of financial services reform legislation.

But this is no reason for investors to stay away from the ratings agencies. In fact, somewhat stringent regulations and continued attacks on the ratings agencies could actually turn out to be extremely positive for new investors. The business model of the agencies should remain impressively profitable. Additionally, negative sentiment has sent share prices to very depressed levels that now easily account for any downside risk to cash flow and earnings.


The first thing to point out is that the ratings agencies did indeed miss signs of the bubble. Recent testimony from the Financial Crisis Inquiry Commission (FCIC) in Washington detailed that more than 80% of the residential mortgage backed securities (RMBS) rated "AAA" by Moody's (NYSE: MCO) in 2006 and 2007 were subsequently downgraded to junk status. Furthermore, both Moody's and Standard and Poor's parent McGraw Hill (NYSE: MHP) lost objectivity and provided favorable ratings in their structured products groups to boost growth and capitalize on the frenzy to issue mortgages.

After all, housing prices had never fallen dramatically in the history of the United States, so how could they fall, even after an +89% run-up in only seven years?

The problem with singling out the ratings agencies is that the vast majority of market participants missed signs that housing had become a bubble. The problem with bubbles is that they eventually burst and it's never clear why or how, which is precisely what John Kenneth Galbraith mused in his aptly-named stock market bubble recollection, The Great Crash of 1929.

In other words, everyone was at fault, including homebuilders, Fannie Mae, Freddie Mac, and those who purchased homes under the expectation that they could sell them a short time later for a big profit. As such, laying a disproportionate amount of blame on the ratings agencies just doesn't make sense.

At about 11 times earnings, shares of both Moody's and McGraw Hill have taken a big hit and are now undervalued. The multiple the market is placing on their depressed earnings should eventually return to their averages of closer to 15 times earnings. Better yet, earnings should continue to recover as they have during the past year and the shares could see +50% upside from current levels. With profit growth going forward, investors should expect consistent share price gains for many years to come.

McGraw Hill is the safer bet because it operates many businesses not related to credit ratings or structured finance products. Last year, its Standard & Poor's financial services segment accounted for only 44% of sales, though it did make up 73% of total operating profits. However, the credit markets portion of financial services only made up 30% of total sales last year and sales have already stabilized after an extremely challenging 2008. McGraw Hill also operates sizeable education and information & media segments that continue to do just fine and provide stability as S&P regains its footing.

Moody's has been hit harder than McGraw Hill because it is a pure play on credit ratings and the related research and analytical tools it provides for clients. Despite the near-term challenges to its sales and business prospects, net margins remain impressive at more than 23%. Overall, despite its current woes, Moody's generates way more capital than it needs and buys back large amounts of stock to further bolster earnings.

In recent testimony to the FCIC, legendary value investor Warren Buffett defended the management team of Moody's and pointed out that the entire public was duped during the greatest bubble he's ever seen. In his words, very few people could have predicted the housing bubble and the fantastic manner in which it burst. Berkshire Hathaway's (NYSE: BRK-B) stake in Moody's has suffered, but it continues to be the largest shareholder in the company.

Stocks extend the rally

NEW YORK (CNNMoney) -- U.S. stocks ended mixed Wednesday, one day after a big advance, as declines in bank stocks vied with strength in the technology sector.

The Dow Jones industrial average (INDU) rose 16 points, or 0.1%, to end at 13,194. The S&P 500 (SPX) lost 2 point, or 0.1% to 1,394. The Nasdaq (COMP) edged up 1 point, or less than 0.1%, to 3,041.

Stocks surged late Tuesday as investors cheered news that most U.S. banks passed the Federal Reserve's latest round of stress tests. But the tone was more cautious Wednesday as investors punished banks that came up short in the test and rewarded those that passed.

"After the surprise good news from stress tests yesterday, it's not a surprise to see a bit of a pull back today," said Kate Warne, chief investment strategist with Edward Jones.

While the financial sector was weak, shares of big technology companies helped support the market.

Shares of Apple (AAPL, Fortune 500), for example, hit an all-time high Wednesday -- moving closer to $600. The tech darling was boosted by upbeat comments from Wall Street analysts.

Overall, analysts say stocks are poised to continue heading higher, as the U.S. economy strengthens and Europe makes progress on its debt problems.

Early Wednesday, European finance ministers formally approved a second package of bailout loans for Greece worth €39.4 billion.

Bull market has legs

"Everything is clicking right now," said Dan Greenhaus, chief global strategist at BTIG. "The path of least resistance is higher."

Stocks rallied Tuesday after the Fed issued a more upbeat assessment of the economy, and solid retail sales data offset worries about rising gas prices.

March Stock Mania - Cast your vote

Companies: The financial sector was in focus after the Fed said a majority of the nation's largest banks would be able to weather another deep recession. Four banks, though, have more work to do.

Citibank (C, Fortune 500) and Metlife (MET, Fortune 500) were among the banks that would likely need to raise more capital in the event of a severe financial shock or economic downturn, according to the Fed. Shares of both banks fell sharply.

JPMorgan (JPM, Fortune 500) shares gained after the bank announced plans Tuesday to hike its dividend and buy back stock.

Goldman exec calls firm 'toxic'

Shares of Goldman Sachs (GS, Fortune 500) were also under pressure Wednesday. A Goldman executive has resigned in a very public manner -- calling the firm "toxic" and disrespectful of its clients in a scathing op-ed piece published in Wednesday's New York Times.

Despite the weakness in bank stocks, Bank of America (BAC, Fortune 500) shares rose 3%. American Express (AXP, Fortune 500) was also strong.

In the tech sector, shares of semiconductor companies rose after LSI Corp. (LSI) reported strong quarterly results and issued an upbeat outlook for the current quarter.

Economy: The U.S. current account deficit for the fourth quarter widened to $124.1 billion, the Commerce Department said. The deficit was expected to stand at $113.8 billion, according to a survey of analysts by Briefing.com.

Trade tensions with China were in the spotlight Tuesday, as President Obama announced that the United States, Japan and Western European countries would file a trade complaint against China over export restrictions on rare earth minerals.

World markets: European stocks closed mixed. The DAX (DAX) in Germany added 1.2% and France's CAC 40 (CAC40) rose 0.4%, while Britain's FTSE 100 (UKX) fell 0.2%.

Asian markets also ended mixed. Japan's Nikkei (N225) rose 1.5%, closing above 10,000 for the first time in seven months.

Meanwhile, the Shanghai Composite (SHCOMP) declined 2.6% and the Hang Seng (HSI) in Hong Kong shed 0.2% after Chinese Premier Wen Jiabao said China will not ease its housing industry curbs.

Currencies and commodities: The dollar weakened against the British pound, but rose versus the euro and the Japanese yen.

Oil for April delivery slipped $1.28 to end at $105.43 a barrel.

Gold futures for April delivery fell $51.30 to settle at $1,642.90 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.27% from 2.11% late Tuesday.  

5 Semiconductor Stocks Trading Near Highs On Strong Short Covering

Looking for stocks surrounded by positive market sentiment? For ideas on how to start your search, we ran a screen you may be interested in.

We began by compiling a list of stocks from the semiconductor industry in the tech sector. We screened for those stocks trading within 10% of their 52-week highs, as well as seeing significant decreases in shares shorted month-over-month.

?Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.?


Your browser does not support iframes.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks will break through to new highs? Use this list as a starting point for your own analysis.

1. KLA-Tencor Corporation (KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The company is trading 6.62% below its 52-week high. Shares shorted have decreased from 9.18M to 5.94M over the last month, a decrease which represents about 1.95% of the company's float of 166.20M shares.

2. Novellus Systems, Inc. (NVLS): Develops, manufactures, sells, and supports equipment used in the fabrication of integrated circuits. The company is trading 6.91% below its 52-week high. Shares shorted have decreased from 6.67M to 5.70M over the last month, a decrease which represents about 1.54% of the company's float of 62.91M shares.

3. Power Integrations Inc. (POWI): Designs, develops, manufactures, and markets proprietary, high-voltage, analog, and mixed-signal integrated circuits in the United States and internationally. The company is trading 10.00% below its 52-week high. Shares shorted have decreased from 3.61M to 3.10M over the last month, a decrease which represents about 1.86% of the company's float of 27.42M shares.

4. NetLogic Microsystems Inc. (NETL): Engages in the design, development, and sale of processors and integrated circuits. The company is trading 0.12% below its 52-week high. Shares shorted have decreased from 4.23M to 3.45M over the last month, a decrease which represents about 1.19% of the company's float of 65.40M shares.

5. Silicon Laboratories Inc. (SLAB): Engages in the design and development of analog-intensive and mixed-signal integrated circuits. The company is trading 7.24% below its 52-week high. Shares shorted have decreased from 6.14M to 3.74M over the last month, a decrease which represents about 6.55% of the company's float of 36.65M shares.

*Short data sourced from Yahoo Finance, all other data sourced from Finviz.

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

3 Reasons Why This Tech Stock is WAY Overpriced

Lately, when I look at the price levels of a lot of headline tech stocks, the Prince song "1999" comes to mind. And like the lyrics from that 1982 smash hit, these stocks certainly are partying "... like it's 1999."

Rarely, are pop stars visionaries. Indeed, tech stocks partied hard in 1999, and they were subsequently punished thereafter. The subsequent,hangover has lasted more than a decade... until now.

The names of these high-flying tech stocks have been beaten into investors heads by the financial media on a daily basis: Google (Nasdaq: GOOG), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX), VM Ware (NYSE: VMW), and of course, Apple (Nasdaq: AAPL). Prices and investor behavior are eerily reminding of those dizzy times.


Another name that's drawn my attention (or ire) is Salesforce.com (NYSE: CRM). The company provides on-demand customer relationship management (CRM) solutions that include soup-to-nuts, scalable, integrated enterprise software, and even cloud services for global blue-chip customers like Avis, Dow Jones Newswire, USA Today, Nokia, and others.

Building a high-quality customer list has helped Salesforce grow revenue by 46% annually during the past five years, from $497 million in 2007 to $1.65 billion last year. For 2012, analysts, with ambitious guidance from company management, project revenue to come in at nearly $3 billion . Most interesting, however, is that with the stock trading near a lofty $142 a share, Salesforce.com has a market cap of more than $19 billion.

We've seen this movie before and the ending ain't good...

I can think of more than a dozen reasons why you shouldn't buy Salesforce.com at these levels. However, I'll share the three most obvious...

1. Excessive optimism.
Former Fed Chairman Alan Greenspan called it "irrational exuberance." Grandmothers call it "counting your chickens before they hatch."

The language in research reports covering Salesforce.com is incredibly bullish. A recent report published by Credit Suisse referred to the company as "...an unstoppable force." Company management has provided revenue guidance in a range of $2.92 billion to $2.95 billion, outstripping analyst consensus estimates of around $2.78 billion -- eerily reminiscent of late 1990s, tech-company braggadocio. Whatever happened to "under promise and over deliver?"

2. Valuation rationalization
Salesforce.com's metrics are clearly stretched out and, more often than not, obsessive fans of a certain stock will justify its price and argue why it can and will climb higher.

The most concerning piece of analysis I've noticed in analyst reports covering the stock is emphasis on bookings or contracts that the company has signed, but for which it has yet to actually be paid. Granted, 2012 bookings are projected to come in at $1.09 billion, a 57% increase compared with last year's bookings of $696 million. That's a significant increase, but these numbers haven't even flowed to the top line yet, much less the all important bottom line.

There is value in the pipeline to be sure; however, the company lost $0.09 a share last year. That's a non-existent trailing price-to-earnings (P/E) ratio. The forward P/E is around 70.

Shares trade at a 210% premium to their sector peer group. The first downward guidance from either the company or analysts, and the market will, as always, show that, among other things, it's a voting machine.

3. No moat
The old Warren Buffett tenet of investing in a business with a deep moat (i.e. high barriers of entry) applies here.

Yes, Salesforce.com has a lot of buzz and a decent brand name in the CRM software business. But it's a software business. Theoretically, a college dropout who can write code could build a better mousetrap in their garage.

There are more realistically priced (and underpriced) and proven alternatives in this sector.

Oracle Corp. (Nasdaq: ORCL): One of the greatest legacy enterprise software firms in the business. Shares trade near $30, with a forward P/E of less than 12 times earnings. That's not bad, considering the forward P/E for the S&P 500 is around 13.

SAP Ag (NYSE: SAP): A global leader in the enterprise space for decades, SAP shares trade at about $68, have a forward P/E of 19, which, while a little more than the S&P's average multiple, is still much cheaper than Salesforce's earnings multiple (assuming it even earns money at all this year).

Automatic Data Processing (NYSE: ADP): This company is truly a legend in the information processing world. From payroll to financial services platforms, ADP is a go-to name for small firms and global powerhouses alike. At about $54 a share, a forward P/E of 18 and a historically-rising dividend with shares currently yielding a little less than 3%, ADP is a stalwart name that fits well in any portfolio.

Risks to consider: Salesforce.com shares are clearly overextended and are where the most obvious risk lies. However, investing in a more sensible alternative exposes a portfolio to the risks inherent to the enterprise software business. While the U.S. economy continues to show marked improvement, it's still tenuous. The best way to play defense against these variables is to stick with higher quality names.

The Chinese Economy: Boom or Bust?

As the Rational Investor, I’ve often commented on the remarkable resiliency of the United States economy. When faced with adversity, the American worker has the ability to work harder and more productively to carry us out of any decline in growth.

There is a good reason why most recessions only last a short period of time. We simply refuse to lose.

Well, if you think the American worker is determined, what does that make the Chinese worker?

In Robert Hsu’s China Strategy, Mr. Hsu notes observations of the Chinese worker in a recent trip to China. As he puts it the Chinese are determined to succeed, and there is an intense desire to improve their standard of living.

How else do you explain workers happily hammering away on a construction project at midnight or the waitress gladly serving away for the 50-cent tip? The implication is that they will do whatever it takes to make things happen.

In China, making things happen has resulted in double-digit growth over the last several years with little sign of slowing significantly. Even this year, a down year by their standards, growth is expected to come in at 9 or 10%!

Has the China Boom Gone Bust?

Despite this, stocks in China are down some 40% this year. Does that mean the China boom is over?

I highly doubt it, especially if you consider that the Chinese stock market had exploded higher in the last few years.

It is far more likely that the decline in Chinese stocks is mostly a correction. Call it a little profit-taking and nothing more. The fact that China’s economy is still expanding should provide a floor on valuations.

Capitalize on the Correction

The credit crisis in the United States provided the impetus for the selling. There is no sign that a recession in America will bring down the global economy. The headline may sound frightening, but the facts suggest that the world economy is doing fine.

That being the case, wise investors would do well to capitalize on the correction by buying shares. One of my favorite Chinese plays at the moment is China Mobile (CHN).

3G wireless will be huge in China, and CHN is positioned to obtain exclusivity of the technology until a foothold can be built. That provided CHN a huge opportunity that may include being the exclusive 3G provider during the Olympics.

At its peak in November of 2007, CHN traded for more than $50 per share. Today shares are below $35. That’s a healthy discount for a company that has the potential to grow at a very high rate.

Cell phone use in China is on the rise and not slowing. Even if the global economy slows, CHN should do well with the implementation of 3G technology.

At the end of the day, the Chinese civilian will do what it takes to ensure that its economy continues to grow. Buying into that growth makes Rational sense to me. I would view the current state as a pause with super-sized gains to follow.

Join China Strategyrisk-free today, and I’ll bring you the latest news and developments from China. I’ll tell you how to profit from this extraordinary opportunity and which companies and industries to avoid. Be among the first to know which companies to buy and when by joining China Strategy today. Don’t miss out!

Monday, July 30, 2012

Jobless Claims Fall to 18-Month Low

WASHINGTON, March 25 (Reuters) - "The number of U.S. workers filing new applications for unemployment insurance fell sharply last week, while the number of those on continued benefits was the lowest since December 2008, a government report showedon Thursday.

The decline in initial claims last week pushed them into a range that analysts reckon signals labor market stability. The labor market has lagged the economy's recovery from its worst downturn since the 1930s, but payrolls are expected to grow this month as the government steps up hiring for the 2010 census.

The four-week moving average of new claims, which irons out week-to-week volatility, fell 11,000 to 453,750."

The "Miracle Material" That Will Change the World

A radical new material made from a single carbon atom will soon have a pervasive impact on the U.S. economy - and the entire human race.

Stronger than steel and lighter than a feather, this high-tech medium will shape virtually every part of our daily lives by the end of this decade.

The possible uses are almost limitless.

No wonder the two scientists who discovered this substance won the Nobel Prize in physics last year. That alone should tell you something.

It often takes decades for scientific breakthroughs like this to bag the world's biggest award. But these two Russians won it for a substance discovered just seven years ago.

The material that I'm talking about is called "graphene." And you might have guessed, graphene is related to the graphite used in pencils.

Graphene: The Miracle MaterialIf you've never before heard of graphene, don't worry - most investors haven't.

In fact, most investors have never seen anything quite like this new miracle material.

But it won't be long before you're benefiting from its potential.

Even as you read this, researchers and scientists are looking for ways to transform this discovery into the Next Big Thing.

Indeed, my Pentagon sources say military leaders want to learn how graphene will lead to victory on the battlefields of the future. Tech leaders such as International Business Machines Corp. (NYSE: IBM), Intel Corp. (Nasdaq: INTC) and Samsung Electronics Co. Ltd. hope graphene will be the foundation of the next generation of cutting-edge products.

And we can already see how graphene will spawn a true revolution in wireless communications.

We'll soon be able to launch satellites that are the size of skyscrapers - but that weigh less than your patio barbecue grill.

You'll download hi-def video to your smartphone in nanoseconds. If you want to know who'll win the current marketplace smartphone brawl, watch who makes the best use of graphene.

Then there's biotech.

Thanks to graphene, doctors will be able to use high doses of new drugs that are lethal to cancer cells - without getting you sick or harming healthy cells.

They'll use the substance to make synthetic blood. We'll no longer have to fret about whether supplies are infected by a deadly virus, or waste precious minutes matching rare blood types.

Graphene could serve as a miracle panacea for an aging America.

Though we're already living longer and fuller lives, the reality is that millions of us still face age-related health problems. But thanks to a scientist at Wayne State University, doctors may someday be able to combat Alzheimer's by inserting graphene electrodes into a patient's brain.

While current devices last only a few months, the Wayne State researcher believes his implants will last as long as five years - improving the quality of life for millions.

Other graphene implants will target spinal cord injuries, and even blindness.

Just three weeks ago, researchers at the U.S. Air Force Research Laboratory in Ohio said a form of graphene could be used to grow human tissue. The ramifications are huge: Lab-grown human hearts that can last, disease-free, for a hundred years may one day help children with birth defects or adults with heart disease.

The Air Force team at Wright-Patterson Air Force Base listed a wide range of other uses. These include making a new class of drugs, as well as growing organisms that can yield bio-green energy.
Meantime, graphene will make the U.S. military even more effective. Our soldiers will use "invisibility cloaks" to make tanks and jeeps "disappear" from enemy view.

Last month, researchers at the University of Texas at Dallas used carbon nanotubes to hide objects in plain sight. Funded by the Pentagon, the scientists found that bending light in certain ways created the "mirage" that objects weren't really there.

Given those insights, just think what graphene can do for computing. By the end of this decade you'll have the power of 10,000 mainframes in the palm of your hand.

Last year, scientists at the Rensselaer Institute in Troy, NY, cleared a big hurdle in nanoelectronics. The researchers proved they could transform ultra-thin sheets of graphene into tiny transistors, forming the basis of the computers and solid-state nanocircuits of the future.

Even your revolutionary flat-screen TV could become obsolete - thanks to a graphene-based LED screen that's as thin as Saran Wrap. But think of the benefits: You'll be able to roll up your giant TV, take it to a friend's house, and hang it on the wall to watch the Super Bowl.

Remaining Challenges Will Keep it InterestingNaturally, there are still problems to be solved, and obstacles to be hurdled before graphene can become a household name. To this point, for instance, researchers haven't figured out an easy way to use graphene as the basis for robust electrical devices.

But I am confident we'll solve this problem.

How can I be so sure? Last September, a team in the United Kingdom discovered that graphene could yield "perfect" solar cells. Turns out these panels absorb a much wider range of light than existing panels, greatly improving the payoff from the sun.

And that's not all. This same group of researchers found that graphene could have a radical impact on computing and communications. The reason: The material outperforms silicon for semiconductors and can be tailored for systems that use light rather - than electricity - to relay voice, video and data. My money's on this team. The reason I feel this way: This U.K.-based research team includes the two Nobel laureates I mentioned earlier.

If any one can visualize the potential power of graphene, it's these two guys.

And if anyone knows about the "Era of Radical Change," it's Money Morning.

Stay tuned for our next installment - and our next look at the profit opportunities of the future. [Bio Note: A Pulitzer-Prize nominee and published author, Michael Robinson is a journalist, investing expert and high-tech visionary with more than 30 years of experience. A veteran stock-picker, Robinson is best-known for selecting a group of tech-related rare earth stocks that had cumulative profits of 250% in just 16 months. During his time in the Silicon Valley region, Robinson has also profiled defense companies for Defense Media Network and Signal Magazine. His other articles have appeared in The New York Times, American Enterprise, National Real Estate Investor and The Wall Street Journal. In this new Money Morning feature "The Era of Radical Change," Robinson will introduce readers to over-the-horizon investment opportunities.]

QCOM: Raymond James, Goldman Cut Targets; Jefferies Sees Slowing Smartphones

More sobering words this morning for the outlook on smartphones, and for wireless chip maker Qualcomm (QCOM), in particular.

Jefferies & Co.’s Peter Misek writes that his “checks” suggest “an unexpected slowdown in smartphone sales” along with a “further deterioration in PC demand.”

Component orders for phones are being cut, he writes:

Based on our checks with the Asian mobile phone supply chain, we believe Samsung, Huawei, and ZTE have cut component orders by 5% to 10%. We believe HTC also cut orders by 10% to 15% and RIM and Nokia cut orders by 15% to 20%. We believe the impact from these order cuts will be realized in Q3 (Sep). Refer to Exhibit 9 for our revised Handset Model which incorporates our estimates for 2013.

Over to Tavis McCourt of Raymond James, who reiterates an Outperform rating on shares of Qualcomm, but cuts his price target to $69 from $73.

McCourt cut his September EPS estimate to 86 cents from $1.03, below the Street consensus of 90 cents, though he thinks Qualcomm’s outlook for this quarter, at 83 cents to 89 cents a share in non-GAAP profit, is realistic. He’s sticking with an 87 cents estimate, in line with the Street.

For the full fiscal year ending in September, McCourt now models $18.92 billion in revenue and $3.07 per share in profit, down from $19.39 billion and $3.23.

Probably, the wireless industry will see little to no growth at all in this quarter and the September quarter, before snapping back in the fourth quarter of the year. That is the result of multiple factors, including Apple‘s (AAPL) now outsized impact on the smartphone business:

As calendar 2Q12 has progressed, it has become more clear that normal seasonal trends in the wireless handset industry are unlikely this year. We believe this is likely due to pent up demand for the iPhone 5 in developed markets as well as relatively weak economic trends globally. Due to Apple�s much larger influence on global handset trends vs. previous years, LTE supply issues pushing out industry volumes, and generally weak growth in emerging markets, we expect 2Q and 3Q handset volumes could be flattish from 1Q levels.

Qualcomm shares today are up 4 cents at $56.54.

Update:� Goldman Sachs’s Simona Jankowski also cut her target on Qualcomm, to $71 from $76, while reiterating a Buy rating, citing “soft” handset demand, and offering similar reasons:

Negative datapoints over the last couple of weeks,�including preannouncements from RIM, HTC, and�Nokia, and weaker shipments at Huawei and ZTE,�point to weaker handset demand, in particular in�Europe. That�s not surprising, as our analysis shows�that handset growth is 80% correlated to global�GDP. The macro weakness has been compounded�by the pause ahead of the iPhone launch, and a�tougher stance on subsidies and upgrade cycles by�carriers in N. America and Europe.

Jankowski sees Qualcomm turning in $3.75 in EPS this year, and $4.24 next year, down from $3.77 and $4.42.

Thursday Preview: New Billionaires Are Doing Great, How About You?

218 new billionaires averaged $500M in gains last year - how are YOU doing?

That’s right, the new Forbes list is out where we celebrate the top .000014%!

Thanks to an unprecedented concentration of wealth, the World’s supply of Billionaires jumped 27% in 2009 and the 1,011 people in the club accumulated an AVERAGE of $500M more Dollars EACH! Isn’t that great? That’s $505Bn, or 65% of America’s TARP spending handed over to 1,011 people who are, according to Forbes (The Capitalist’s Tool), clearly better than us.

They sure are doing better than us as America’s 450 Billionaires added $225Bn to their bank accounts (and that’s AFTER taxes) and the saddest thing is that amount is INCLUDED in the $1.6Tn bounce of US Total Net Worth we had after losing 18% of it in 2008. A lot of positive economic statistics are skewed by our top 1%, but even the top 1% is blown away by the top 450 (0.00014%) who are sitting on $3.6Tn of our nation’s total household wealth - 8% or 27M times more than the average citizen. Wow, I guess they are better than you - better in fact than 307,000,000 of you!

As I mentioned in "The Dooh Nibor Economy (that’s "Robin Hood" backwards)," America has become a real wealth-building machine that funnels every last cent off the bottom of the pyramid and sends it straight to the top. Those of us standing near enough to the top (the top 10%) are lucky enough to pick up enough table scraps to make us 1,000 times better than you - our bottom 90% "friends" and that is just great for walking around town but you must pity us because even we are embarrased to show up in our shoddy Armani suits when we are invited to hob-nob with the top 1% in their custom-tailored suits who don’t look at labels but at the thread-count of your sleeve.

Even those "masters of our universe" cower in the presence of that top .00014%, who are, by definition, 26,999 times better than they are! So don’t go thinking the people in the top 10% have it so easy - we have a whole different set of problems to deal with. You only need to make $150,000 a year to join the top 10% club - we have to make over $2M to crack the top 1% and $2M doesn’t even pay 1/10th of the MONTHLY interest on the assets on our top 450.

So congratulations to the Forbes winners, especially from the 462,000 of us that got pink slips last week as the primary driver of wealth in 2009 was corporate cost cutting and increased productivity (and government hand-outs), which allowed those at the top to make more while giving back less than at any point since the roaring 20’s. Ah, those were the days….

25% of Americans feel this country is heading in the right direction according to the latest Rasmussen Report, and that’s a poll of people who still have homes - and phone service. 71% believe this nation is on the wrong track despite the 70% jump in the markets, and I know that comes as a surprise to many of you who had a great year, but a lot of people aren’t in the markets and all this wealth building of the past 12 months has sadly passed them by. This is the highest level of pessimism in the last 14 months and that INCLUDES last March’s market crash. The American dream is becoming just a dream as only 48% of the people surveyed believe it is possible for a person to work his or her way out of poverty, and again, don’t forget they are polling more people like you and me than they are people who are actually impoverished.

Perhaps they are concerned because unemployment was up in 30 states in January with California (12.5%), South Carolina (12.6%), Florida (11.9%), North Carolina (11.1%) and Georgia (10.4%) posting new post-Depression records. Michigan’s unemployment rate is still the nation’s highest, at 14.3%, followed by Nevada, with 13% and Rhode Island at 12.7%. When one out of 10 people you know can’t find work - it’s hard to get all excited for survey questions, isn’t it?

While I am sure all these unemployed people are sitting at home and consuming as many commodities as possible, Anthony Scaramucci of Skybridge Capital has a different theory: "I don’t think inflation will hit the nation without real wage growth, and we’re not seeing wage growth. Also we’ve got excess global capacity in manufacturing." He points to global excess manufacturing and a very crowded trade as drivers that are likely to take gold and other commodities lower, and we welcome Anthony to our little club of naysayers - one of us, one of us, you are welcome, one of us!

February’s 15% jump in commodity prices sent China’s inflation to a 16-month high as consumer prices rose 2.7% in February. This figure was not unjustified as Industrial Production is up 20.7% but, like Americans, the Chinese still aren’t working, and increased productivity over there shows up as a plus to our GDP, not theirs.

That’s right, US productivity is a measure of how many dollars worth of GDP we create per US job, so firing US workers and outsourcing the labor is a FABULOUS way for companies (and the top 1%) to fatten their wallets while giving the government exciting productivity numbers to point to. Remember when 60 Minutes used to be outraged by this kind of stuff? Oh yeah, they are now owned by Billionare Sumner Redstone. Ah Capitalism, ultimately you muzzle all dissent…

Where were we? Oh yes, China - so, even worse for China was Producer Prices for February were up 5.4% in Feburary - that’s a 2.7% gap (ie. loss) that could not be passed along to the consumers, possibly because, like their American cousins, they are out of money. Both the Hang Seng and the Shanghai remained flat for the AMAZING 4th consectutive day while the Nikkei gained 1% as commodities pulled back on fears that China may further tighten down to combat inflation.

Europe WAS doing OK until they saw our jobs numbers and now (9:15) they are down about half a point just ahead of the US open. While most of the EU leaders keep saying "remain calm, all is well," Greek hospitals, airports and schools were shut and police scuffled with protesters as unions staged the second general strike this year against government budget cuts. Greek bonds declined and stocks fell as the strike disrupted public services and forced the cancelation of all 479 flights from Athens International Airport. Bus and subway drivers, doctors, journalists and teachers walked off the jobs to protest 4.8 billion euros ($6.5 billion) of wage cuts and tax increases announced by Prime Minister George Papandreou March 3rd.

“The measures taken so far are unjust, demanding sacrifices from workers that aren’t being demanded from the employers, businessmen and bankers that created this crisis,” said Stathis Anestis, spokesman for the GSEE union. The union said 90% of the union's 2 million members adhered to the strike. Iceland’s people already voted not to bail out their own banks and the Greek people are also looking for a plan that doesn’t place the burden so squarely on the workers. It will be interesting to see how this plays out because, as I’ve said, Spain, Italy and Turkey are on deck.

Meanwhile, Tim Geithner headed over to Europe to do his real job - protecting the interests of Hedge Funds - as he "warned" European Commission that its proposals for more restrictive regulation of alternative fund managers "could affect cross-border investment." The proposed European law will govern the managers of hedge funds, private equity and venture capital funds in Europe. It’s being discussed this morning by the European Union ambassadors. If they agree it’s ready, the proposal will move on to the finance ministers' meeting next Tuesday. The proposed law is meant to have three objectives: investor protection; control of risks to the financial system; and transparency of the operations of fund managers.

The big fight is over the so-called third-country rules which will govern the activities, including fund raising, of funds from countries outside the European Union. Bruised from the financial crisis and the sales of fraudulent funds to European investors by Bernard Madoff, France and Germany are determined to put in place a highly restrictive regime that outsiders say would make it impossible for third-country funds to raise money in some, if not all, countries of the EU.

It looks like we have a bit of a sell-off this morning and I predicted yesterday in Member Chat that we’d hit 10,400 by tomorrow, so I hope I’m right as we still have a bearish short-term stance, but we will continue to watch our technicals and play the hand that’s dealt.

Another Setback For Natural Gas?

I typically dislike any bill that comes out of Congress regardless of its contents unless it is abolishing a government program, agency or the current tax code. I am especially annoyed by bills that they feel compelled to attach those catchy names to so ignorant people, that is all of us in their mind, will know what they think we should know about the bill and nothing more.

This is the case with the New Alternative Transportation to Give Americans Solutions Act (NAT GAS). This bill was designed to encourage primarily transportation companies to convert their fleets from primarily diesel to the use of natural gas as a primary fuel. The bill allowed for tax credits of up to $65,000 per vehicle purchased. It also contained tax credits of up to $100,000 for service stations to buy the necessary equipment to allow for natural gas fueling. These credits were to help cover the increased cost of a compressed natural gas (CNG) or liquefied natural gas (LNG) vehicles. On March 13, 2012, the Senate voted 51-47 in favor of the amendment, however the threshold of 60 "yes" votes for inclusion was not met and therefore, the amendment was rejected.

It cannot be argued that the purpose of the bill was to initiate the conversion of trucks serving America over to CNG or LNG vehicles. That is already happening. However, many of these vehicles are fueled at privately owned fueling stations for local travel. What we are really talking about here is creating fueling demand in order for the private sector to be confident making major investments in infrastructure. While there are natural gas trucks on the road now, the fueling demand is not great enough to create a nationwide infrastructure to support cross-country travel. Currently there are less than 500 public natural gas fueling stations across the nation. This has been a major impediment for the transportation industry to make the switch to natural gas as a source of fuel.

T. Boone Pickens has been leading through his Pickens Plan to help move the United States away from foreign oil largely by the use of natural gas, but also through the use of wind and solar energy where it makes sense. He has been very vocal about his support for the NAT GAS Act that recently failed in the Senate.

On February 28, 2012, the Wall Street Journal (WSJ), owned by News Corporation (NWS), published an opinion piece claiming that Mr. Pickens is pushing for subsidies for the production and purchase of vehicles that use natural gas for transportation. According to the WSJ piece, Mr. Pickens wants to hit taxpayers with a bill to help the transportation industry make the switch to natural gas at a cost of $5 billion. The WSJ goes even farther to say that the cost to taxpayers could reach $100 billion.

To support its point the WSJ pointed out that "there were no subsidies for Henry Ford to build the Model T." Well that may be true, but the WSJ fails to point out is that when Henry Ford established Ford Motor Company (F) in 1903 and when in 1908 the first Model T hit the road, income taxes in their present form did not exist. The WSJ further defends its point stating that there were "no tax incentives for gas stations in every town in America". I will take the WSJ at its word that there were never any tax incentives for gas stations, but the interstate highway system certainly increased demand and paved the way for private investment to build in every town.

Lastly, the WSJ refers to these tax credits as subsidies. I believe the terminology is wrong. A subsidy is when a government grants or directly makes payments to an organization or person. On the other hand, a tax credit is a tax cut and just decreases the revenue received by the government from an organization or person. It may seem like semantics, but it very important to realize that this is not a spending bill, but rather a tax cut. What you call it just depends on what side of the issue you stand.

On March 7, 2012, Boone fired back with a response to the aforementioned WSJ opinion piece. Mr. Pickens made it clear that this country must reduce its dependence on OPEC oil and move to natural gas. On that point, I agree. Mr. Pickens goes on to point out what the WSJ piece missed is that in the Senate version of the bill (S. 1863), the tax credit is fully paid for by the same organizations benefiting from the credit through a surcharge and "it will not cost taxpayers a dime." This is where I part ways with Mr. Pickens and the NAT GAS Act. It is this notion that a tax credit must somehow be paid for with another tax or fee. If this is truly a tax credit, it should be the responsibility of the government to cut actual spending in order to pay for the decreased revenue. It is important to remember that a tax credit does not cost the taxpayer a dime. It only decreases the revenue taken in by the government.

Many will argue that Mr. Pickens has only one end game in mind by promoting the NAT GAS Act and that is financial gain. Mr. Pickens does own a substantial stake in Clean Energy Fuels Corporation (CLNE) which certainly stands to benefit. You can learn more about CLNE in my previous article Industries And Stocks That Could Benefit From Low Natural Gas Prices. While financial gain may have certainly been his motivation in the past, at nearly 84 years old, it is most likely secondary. This is more likely about legacy and winning one for America.

I honestly would have believed just a few weeks ago that the current low natural gas prices and rising oil prices would be the pressure Congress needed to get this bill passed. There is little doubt that low prices will be the primary catalyst to drive the switch to natural gas over time even without a bill from Congress. However, knowing that the politicians will want to take credit for America's energy independence, I see another version of this bill finding its way to the floor of Congress again in the near future.

While the rejection of the bill will certainly not speed up the process of converting to natural gas, there are still ongoing private efforts to make the switch. The previously mentioned CLNE, which is the largest CNG and LNG fueling station operator in the United States, will certainly benefit from ongoing efforts to reduce the dependency on diesel and gasoline.

Natural gas producer Chesapeake Energy (CHK) already has a vested interest in CLNE and has recently struck a deal with General Electric (GE) to collaborate in the development of the infrastructure to facilitate the conversion to natural gas as a transportation fuel. These partnerships that CKE is developing may give it an advantage over other producers such as Cabot Oil and Gas (COG). However, given the current status of the tax credits, all of the producers will feel the pain of over-supply in the near-term.

If the cost of diesel continues to move higher, long-haul truckers and other providers of transportation will be looking for ways to cut fuel expense with or without a tax credit from Congress. If the price gap encourages these operators to make earlier equipment purchases, the beneficiaries of this action will be engine manufacturers like Cummins, Inc. (CMI) or Westport Innovations, Inc. (WPRT). In addition truck manufacturers like Navistar International Corporation (NAV), PACCAR, Inc. (PCAR) and Volvo AB (VOLVY.PK) should also see some upside.

While the passage of the NAT GAS Act would have certainly made the short-term investment prospects of the benefactors more appealing, the over-supply of natural gas and low prices still make the long-term investment prospects interesting.

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

Are the Earnings at ICU Medical Hiding Something?

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized.

Is the current inventory situation at ICU Medical (Nasdaq: ICUI  ) out of line? To figure that out, start by comparing the company's figures to those from peers and competitors:


TTM Revenue Growth

TTM Inventory Growth

�ICU Medical 8.1% (0.6%)
�CareFusion 6.0% (1.8%)
�Becton, Dickinson 6.2% 8.7%
�Merit Medical Systems 23.5% 14.1%

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. TTM = trailing 12 months.

How is ICU Medical doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue increased 8.1%, and inventory decreased 0.6%. Over the sequential quarterly period, the trend looks healthy. Revenue dropped 1.7%, and inventory dropped 12.2%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at ICU Medical? I chart the details below for both quarterly and 12-month periods.

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

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, work-in-progress inventory was the fastest-growing segment, up 41%. On a sequential-quarter basis, each segment of inventory decreased. With inventory segments moving opposite directions for the periods we're considering, this one is a toss-up.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of the inventory story at your favorite companies, just use the handy links below to add companies to your free watchlist, and we'll deliver our latest coverage right to your inbox.

  • Add ICU Medical to My Watchlist.
  • Add CareFusion to My Watchlist.
  • Add Becton, Dickinson to My Watchlist.
  • Add Merit Medical Systems to My Watchlist.

R.R. Donnelley & Sons Has At Least 60% Upside Potential

R.R. Donnelley & Sons (RRD) is a prominent player in the traditional media and printing services. Established in 1864, the Chicago-headquartered company provides pre-media, logistics and business process outsourcing products worldwide. It recently announced a multi-year, multi-million contract with Office Depot to provide a range of production and related services. The contract is expected to benefit both companies. RRD was able to increase its earnings at a double-digit rate in the last 5 years. However, the stock was a disappointment, and is trading well-below its pre-crises valuation.

As of the time of writing, R.R. Donnelley stock was trading at $13.23 with a 52-week range of $11.25 - $21.34. It has a market cap of $2.5 billion. Trailing twelve month [ttm] P/E ratio is 11.6, and forward P/E ratio is 7.4. P/B, P/S, and P/CF ratios stand at 1.4, 0.3 and 3.6, respectively. Operating margin is 4.4%, and net profit margin is 2.2%. The company has some serious debt issues. Debt/equity ratio is 1.9, but this is still lower than the industry average. R.R. Donnelley offers a nifty yield of 7.8%, fully supported by both its earnings and free cash flow.

R.R. Donnelley has a 3-star rating from Morningstar. Out of 2 analysts covering the company, 1 has a buy, and 1 has an outperform rating. Wall Street has diverse opinions on R.R. Donnelley's future. Average five-year annualized growth forecast estimate is 10%. This is a reasonable estimate, given the double-digit growth rate in the past 5 years.

What is the fair value of R.R. Donnelley given the forecast estimates? We can estimate R.R. Donnelley's fair value using discounted earnings plus equity model as follows.

Discounted Earnings Plus Equity Model

This model is primarily used for estimating the returns from long-term projects. It is also frequently used to price fair-valued IPOs. The methodology is based on discounting the present value of the future earnings to the current period:

V = E0 + E1 /(1+r) + E2 /(1+r)2 + E3/(1+r)3 + E4/(1+r)4 + E5/(1+r)5 + Disposal Value

V = E0 + E0 (1+g)/(1+r) + E0(1+g)2/(1+r)2 + … + E0(1+g)5/(1+r)5 + E0(1+g)5/[r(1+r)5]

The earnings after the last period act as a perpetuity that creates regular earnings:

Disposal Value = D = E0(1+g)5/[r(1+r)5] = E5 / r

While this formula might look scary for many of us, it easily calculates the fair value of a stock. All we need is the current-period earnings, earnings growth estimate and the discount rate. To be as objective as possible, I use Morningstar data for my growth estimates. You can set these parameters as you wish, according to your own diligence.


Historically, the average return of the DJI has been around 11% (including dividends). Therefore, I will use 11% as my discount rate. In order to smooth the results, I will also take the average of ttm EPS along with the mean EPS estimate for the next year.

E0 = EPS = ($1.18 + $1.74) / 2 = $1.46

Wall Street holds diversified opinions on the company's future. While analysts tend to impose subjective opinions on their estimates, the average analyst estimate is a good starting point. Average five-year growth forecast is 10%. Book value per share is $9.61. The rest is as follows:

Fair Value Estimator

V (t=0)



V (t=1)

E0 (1+g)/(1+r)


V (t=2)



V (t=3)



V (t=4)



V (t=5)



Disposal Value



Book Value



Fair Value Range

Lower Boundary


Upper Boundary


Minimum Potential


Maximum Potential


Intel Ups Dividend a Third Time in 18 Months

Shares of Intel (INTC) are down 4 cents at $27.86, after the company this morning said it will up its quarterly dividend by 7%, from 21 cents to 22.5 cents per share per quarter, starting with the payout that begins in the third quarter.

CEO Paul Otellini remarked, “2012 is expected to be another year of record revenues for Intel, with strong demand in our core business and significant progress in smartphones and other new growth areas.”

Otellini noted the dividend has gone up three times in 18 months — it was raised to 21 cents in Q3 of last year, and before that rose to 18 cents from 15.75 cent in Q1.

Sunday, July 29, 2012

European Stocks Slip Again

LONDON—Most European stock markets erased early gains to close lower, as investors were once again disappointed that an agreement on a second Greek rescue had yet to materialize.

The Stoxx Europe 600 index lost 0.2% Wednesday to end at 263.01. Although the index has fallen for three consecutive days, the combined losses have been a modest 0.6%.

Greece remained the center of attention as investors kept watch out for a deal on additional austerity measures, a prerequisite for finalizing the bailout deal.

Sentiment was underpinned for much of the day on suggestions that the European Central Bank is willing to exchange its holdings in Greek government bonds with the European Financial Stability Facility at a discounted price, which would allow Greece to tap the first tranche of its second bailout. But the modest gains evaporated into the closing bell on concerns that the ECB hadn't yet decided on whether it would contribute to a Greek debt restructuring deal.

The ECB talk nonetheless boosted banking shares. In Lisbon, Banco Espirito Santo surged 13% and Banco Comercial Português jumped 5.1%. Commerzbank leapt 7.6% in Frankfurt while Crédit Agricole rose 3% in Paris. UniCredit gained 2.2% and Banca Popolare di Milano advanced 2.3%, both in Milan.

Among major national benchmarks, the U.K. FTSE 100 index shed 0.2% to 5875.93, and Germany's DAX 30 index eased 0.1% to 6748.76. Both notched their third consecutive loss. The CAC 40 index fell fractionally to 3410.00.

  • Stock Market Hits Pause
  • Concession Smooths Way Toward a Greek Debt Deal

Mining stocks dropped. BHP Billiton lost 2.3% after reporting a 5.5% decrease in first-half profit due to rising costs, production disruptions and falling commodity prices. Glencore International, which announced its merger with Xstrata on Tuesday, fell 2%, while Xstrata edged down 0.2%.

Reckitt Benckiser gained 2.9% after reporting a 26% profit increase for the fourth quarter.

Wind-turbine maker Vestas Wind Systems sank 14% after reporting a loss for 2011 and indicating it may not be profitable in 2012 either.

Belgian telecom carrier Mobistar lost 9% after it reported a decline in fourth-quarter profit and forecast a drop in revenue for 2012.

Sanofi dropped 1.7% after warning that 2012 earnings would fall as new generic competition hits revenues.

Statoil added 1.3% after reporting solid earnings boosted by rising oil prices.

In the currency markets, the euro was trading at $1.3239 from $1.3261 late Tuesday, as investors awaited some concrete news on Greece. The U.K. pound traded at $1.5801 from $1.5898. The dollar was at €76.90 from €76.77.

Among commodities, light, sweet crude for March delivery was up 20 cents, at $98.61 a barrel, on the New York Mercantile Exchange. Gold for March delivery was down $13.30, to $1,733.80 a troy ounce on the Comex division of Nymex.

—Michele Maatouk contributed to this article.

Equities Update: Marking Time

4:21 PM, Jan 7, 2010 --

  • NYSE up 16.13 (0.2%) to 7,393.83.
  • DJIA up 33.18 (0.3%) to 10,607.
  • S&P 500 up 4.5 (0.4%) to 1,142.
  • Nasdaq down 1 (0.1%) to 2,300.


  • Hang Seng down 0.66%
  • Nikkei down 0.46%
  • FTSE down 0.066%


(+) BAC gets analyst upgrade.

(+) BZH is active; prices shares but gains with broader sector on Lennar (LEN) results.

(+) LEN posts year-over-year gain in new orders, swings to Q4 profit

(+) ONT gets increased bid from Google (GOOG).

(+) VVUS reports positive Qnexa study.

(+) SHLD guides for Q4 EPS beat.

(+) TJX hikes earnings view after Dec. sales results.

(+) BBBY continues evening climb that followed earnings, guidance beat.

(+) PLCE gains after comparable sales figures.


(-) GPS swings to positive Dec. sales.

(-) AA gets analyst downgrade.

(-) GME down after issuing disappointing holiday results.

(-) JCP says Dec. same-store sales down 3.8%.


Stocks end a mixed and choppy session mostly higher ahead of Friday's much-anticipated December jobs report. Gains for GE (GE) were enough to give the blue-chip DJIA a late boost, finishing up 0.3%. The Nasdaq ends down 0.1%. The S&P 500 ends up 0.4%.

Stock investors are eyeing a firming dollar and the likely market-moving December jobs report due Friday morning.

Ahead of that report, the government reported a slight rise in weekly claims for unemployment benefits Thursday, though the increase was less than expected and comes after two weeks of steep declines.

December retail sales reports were mostly better than expected and retail stocks gained.

Homebuilder Lennar (LEN) jumped sharply after it said orders rose during its fiscal fourth quarter for the first time in more than three years. Buyers were taking advantage of lower prices and federal tax credits. The company also reported a profit as it benefited from an income tax adjustment.

The dollar gained as China interest-rate jitters depressed global currencies. Gold fell for the first session in five.

Crude oil futures ended 0.6% lower Thursday, breaking a 10-session winning streak. February crude finished at $82.66 a barrel, down 52 cents, or 0.6%. Natural gas for February delivery settled at $5.806 per million British thermal units, off 20 cents, or 3.4%.

A Shocking Look at How the Population Trend Will Alter Life as We Know it

“Nothing like this magnitude or tempo of population change had ever previously been witnessed in the history of our species...”

-Nicholas Eberstadt 

The population trend currently unfolding in the United States has experts anxious about our fate.

Contrary to what you may believe, birthrates are declining. Demographic researchers have looked at the fertility rate – the number of children born to an average woman in the course of a lifetime – across the globe and that number has actually fallen almost rather dramatically since 1960. Then that number was approximately 4.9 and now it sets closer to 2.6.

According to demographers, that trend in declining birthrates is the most significant factor in the world's present-day population trend.

Although it is widely accepted that a growing population is the number one threat to the planet, there are actually a number of problems associated with what demographers are calling “shrinking societies.” Approximately 50% of everyone in the entire world lives in a country where the fertility rate is below the replacement level of 2.1

What does that mean for our future?

The main issue to consider is retirement programs. With elderly Americans living longer than ever and a sharp decline in the number of children whom will be working in a few years time, it will be much more difficult for the government to fund existing retirement programs.

Overall, the entire developed world is living longer and aging faster, which gives experts cause to believe that America's global position could change entirely....

In an attempt to best predict the fate of America within the next 20-50 years, strategists look at the demographic challenges currently facing China in an attempt to plan for our own uncertain future.

According to Bloomberg:

China’s rise over the last generation has been stunning, but straight-line projections of its future power and influence ignore that its birthrate is 30 percent below the replacement rate.

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.

Taking a closer look into how social relationship dynamics and corroding family networking contributes to China's overall economy, Eberstadt argues that America may benefit from making some “new friends and allies in the world.” Americans evolving relationship with India is promising, but Eberstadt also worries about India's “appalling education deficit.”

Regardless of what's going on across the globe today and tomorrow, Eberstadt suggests that foreign-policy leaders make sure to dedicate more time to more closely studying these gradual population changes. Whether we like it or not, it will impede on the way of life as we know it and the more unprepared we are for it, the greater the financial burden will become...

The following video that lays out the population issue in a pretty cool way:


LPL’s Next Step After IPO? Deleveraging and Allocating Capital


Coming out of the quite period occasioned by LPL Financial’s going public, CEO Mark Casady (left) and CFO Robert Moore painted a picture of a very well-capitalized company with plenty of free cash flow to devote to deleveraging the company’s debt while also planning to increase by 50% its technology spending in 2011.

In an interview Thursday in New York, Casady noted that LPL has long had ‘shareholders’ of various sorts before going public as the largest independent broker-dealer last fall, and that he felt confident that the key to continued success since going public was to “focus on the right thing” for its public and private equity shareholders, while serving its independent BD rep “customers” by aligning those different constituencies’ needs.

“We’ve grown profits by 20%” over the past few years, he said, suggesting that profitability could increase by that same margin in the next few years. Casady said the company could consider instituting dividends or stock buybacks over the next few years “because we have the capital,” but said that  “if we have $250 million in free cash flow,” the company could devote a quarter of that amount, or $50 million, to investing in the business, which he characterized as continuing a “circle” under which adding high-producing reps to its advisor workforce would grow the top line, helping deliver the profits to help feed that cash flow for its private equity owners and its public shareholders, all while benefiting its affiliated registered reps, many of whom, he noted, were dually registered.

CFO Robert Moore said in the interview that “deleveraging is a priority for us,” but not “too far” so as to imperil its BBB credit rating, while producing the “same amount of earnings.”

As for recruiting, Casady said going public has “helped because of the transparency.” Since the IPO, he said it had become easier for its affiliated advisors to “explain who LPL is to the end clients.” It’s been company policy to “not focus on the stock price,” while Moore said the advisor stock option plan that the company has had in place for several years “will continue to be used,” not upfront as a recruiting lure, but as a reward of sorts for larger producers.

Casady said that part of its reward for advisors of long standing with LPL before going puclic was that there was a “zero cost basis” for the stock options that were awarded to advisors in 2005, pointing out that LPL’s stock is now trading at $30/share. “Eight percent of our advisors have ownership” now, said Casady, while stressing that LPL’s strategy was “more about scale than going public.” Part of the reason for going public in 2010, agreed Casady and Moore, was to provide to its then shareholders, especially its advisors, the benefit of the lower capital gains tax then existing under the Bush-era tax cuts, since extended under the compromise worked out at year's end between President Obama and Congressional Republicans.

Casady trumpeted the fact that “we lose only 3% of revenue” from its advisors each year, which he said was half of what the company lost in rep production when it was much smaller.

“There’s something to scale,” he said, mentioning the 34 business development consultants that LPL has on staff, in addition to “the best distribution agreements in America” with investment product providers.

As for future growth, Moore said that “planning assumptions of adding 400 advisors a year” was accurate, and that while LPL had grown profitability by


20% over the past few years, “an adjusted EPS growth of 20% over the next five years” was also attainable.

“We had to get to scale,” recalls Casady, but not for “size alone,” though he noted that LPL is now in fifth place in revenues and third in advisor headcount among all broker-dealers.

As for the SEC activity in the same week the interview was held regarding an SRO for RIAs and a fiduciary standard for all advice givers, Casady said “we’ve been advocates for a fiduciary standard,” though he added that “we think there should be exemptions” from that standard, such as when a wirehouse offers an IPO.

He said he was “disappointed” specifically in the SEC’s Wednesday night recommendation on an SRO for advisors, and expressed hope that “logic would prevail” and that Congress can be “persuaded to do something intelligent” with the SEC’s three options for regulating advisors moving forward.

He did sound a warning, however, with another provision of Dodd-Frank: that advisors with less than $100 million in assets under management would be moved to state supervision rather than being regulated by the SEC. He worries that there may become a new “dark corner of the industry” on the horizon where “fraud on the small scale” could be pepetrated by advisors operating under state jurisdiction.

Summer Travel Plans Could Benefit Cedar Fair

A recent article by Hugo Martin of the Los Angeles Times titled "Fewer Americans plan summer trips to Europe" begins:

With airfares to Europe on the rise, it looks like Americans are planning to rediscover the good ol' U.S.A. this summer.

The article cites statistics by the travel web site kayak.com showing that searches during January for summer airfares to Hawaii, Las Vegas, Los Angeles and San Francisco are all up by double digit percentages compared to 2011, while searches for airfares to London were down 40% and Rome down 65%. If this is a good barometer for summer travel plans, it indicates that more families will be staying closer to home this summer and that could be a boon to Cedar Fair, LP (FUN).

Cedar Fair is a limited partnership (LP) that owns and operates 17 amusement parks with several in Ohio and California. They include Knotts Berry Farm, located not far from Disneyland (DIS), Dorney Park in Eastern Pennsylvania and others in Canada, Virginia, Minnesota and elsewhere. Cedar Fair also owns five hotels and several water parks. As an LP, Cedar Fair pays a "distribution" rather than a dividend and reports earnings on a Form K1 rather than a 1099.

Cedar Fair has a highly seasonal business with all its parks (except Knotts Berry Farm) closed from Halloween through the end of March. Investors can expect to see small numbers when the LP reports first quarter earnings on May 3rd. It should be noted that the LP has reinstated an even quarterly payout. It is a sizable distribution of $0.40 per quarter and at the current unit price of about $31, and the yield is a little more than 5%. Management is also expecting to pay out a distribution of at least $2 in 2013.

Cedar Fair is in a recession resistant industry. The parks draw on local populations, and when families cut back on expensive vacations, they still find a way to make day trips for a relatively inexpensive family outing. Will rising gas prices be an issue? Perhaps, although some analysts believe we will see the highest prices before Memorial Day, and AAA has reported that prices have declined for the past three weeks.

Is History Repeating Itself?

Apollo (APO) tried to purchase Cedar Fair at a below market price of $11.50 per unit in late 2010. Q Investments stepped in and gathered support to defeat the takeover. Since then, Cedar Fair has tripled in value and a new management team is in place.

Apollo is at it again, trying to take over Great Wolf Resorts (WOLF) at a discounted price. Fortunately for Wolf shareholders, KSL Capital Partners has entered into a bidding war over Wolf and the offers keep rising.


The current yield and management's statements about aggressively increasing the payout are certainly attractive in a low interest rate environment. However, it should also be noted that Cedar Fair comes with a high level of debt and may be considered too risky for conservative investors.

Disclosure: I am long FUN, DIS.

Nothing Like Uncertainty to Boost Gold Prices

A snap shot of the year as captured by the above chart, shows that we have in first place silver, followed by gold, which is closely followed by the gold producers and in fourth spot, heading the wrong way, the US dollar. Despite the stated strong dollar policy, the reality is that the United States dollar is in free fall.

(Click to enlarge)

As things stand we have the sequel to quantitative easing about to darken our doorway in early November when the Federal Reserve will announce their intentions, which they have already trailed, so all we need to know is just how much will be allocated for this purpose. Then we have the Obama administration losing its popularity and facing the mid term elections also in early November. The results of which may well throw up a few new faces who just might have something to say about how things are being run and the wisdom of printing more money. We wont know until the results come in and we get some indication of where the power lies and just how vocal and influential these people will be.

We also have the unfolding sub prime mess which throws into question home ownership and puts a question mark above property investment, placing both buyers and sellers into the doldrums as the situation stagnates while ownership issues are resolved. Housing is not only an important part of the economy it weighs heavily on the minds of home owners who are now wondering if they do actually have the correct paperwork in place and can clearly demonstrate that the roof over them is in fact theirs. The only certainty we can see here is that the lawyers will very busy. Enough said.

Looking at the external forces that come into play the biggest by far is the stance that foreign governments are taking by disparately trying to maintain parity will dollar in order not to lose their competitive edge. And so the race to bottom continues with the competitive advantage being won and lost on a momentary basis as the other countries try to fall into line by making similar devaluations.

Over on Wall Street the "DD" phrase is being played down, however we do have the possibility that we could experience a Double Dip recession as the recovery, in the western world at least, remains fragile with robustness still a long way off.

So just where are the winners? The answer is to look no further than the precious metals sector where both silver and gold prices have been on a tear and look set to become turbo charged. Its also true that the other commodities have also sprung into life, but that’s a discussion for another day.

Please read what we have to say with a pinch of salt as we are not in the 5% to 15% of our portfolio allocated to the gold and silver group, apart from a little cash, we are fully loaded with physical gold and silver, their associated stocks and tranches of options contracts. These opportunities do not come along everyday and we are hitting it as hard as we can, a strategy that is not for the majority of investors.

Below we have the chart for gold prices where we can see a stupendous rally which started a little over two months ago adding $200/oz, driven by strong fundamentals and a weakening US Dollar. Also note that the technical indicators are at the top of their ranges, in particular the RSI, which could remain there for some time to come, as in this instance we expect the fundamentals to overcome the technical analysis and drive gold prices ever higher.

Taking a quick look at silver and we can see that over recent times silver prices are outperforming gold prices which adds a little spice to the world of precious metals. Since the end of August silver prices have gained a staggering $6.00/oz, which should come as no surprise as the gold/silver ratio has been out of kilter for some time.

However, there is now a yawning gap opening up between the price and the 200dma which is now about 33% above that of the 200dma, but it can go to 50% plus before we get a breather. Although the indicators suggest a breather is due, as with gold we expect them to remain on the side for some time yet. With the occasional shallow pull back we expect silver prices to climb all the way to the end of the year.

Finally we have the US dollar, which as we write has just fallen through the "77" level on the US dollar Index, next stop could be as low as "72" where it will need to find a few friends in order to stop the rot.

Disclosure: Author long GLD and SLW

Top Stocks For 7/28/2012-7

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Wednesday March 31, 2010

DrStockPick.com Stock Report!

CRWE, Crown Equity Holdings, Inc., CRWE.OB

CRWE has established itself as a top tier consulting firm with a diversified portfolio of services assisting the needs of private and public companies. While well established as a conduit for taking private companies public, CRWE has expanded their list of products and services to include providing investor relations, public relations, market awareness as well as complete advertising campaign solutions for their clients in the public sector.

2009 -2010 has been very exciting for CRWE. Starting around the 2nd half of 2009, CRWE experienced an unprecedented surge in growth and expansion adding it�s many divisions while also ramping up production in their IT department adding additional full time staff enabling them to extend their reach globally.

Brief overview of the CRWE internet advertising and marketing services:

CRWE is a company utilizing today�s technology and global network structure to advertise, promote and market public companies.

CRWE has a huge internet footprint with two separate IT divisions (engineers and programmers) that are constantly involved in the R&D of IT and network technology to improve and assist in their advertising and marketing endeavors besides managing their in house server infrastructure of over 2000 websites, blogs and thousands of third party blogs and websites.

CRWE�s team of software engineers are in the process of upgrading CRWE�s website infrastructure while CRWE�s programmers are developing and maintaining financial news websites in all the major countries with established and accredited stock exchanges. i.e. United States, Argentina, Australia, Brazil, Canada, China, France, French-Canada, Germany, Hong Kong, India, Ireland, Italy, Japan, Korea, Mexico, New Zealand, Singapore, Spain, Taiwan and the UK.

The goal for 2010 is to have all CRWE�s clients press releases, articles and news content published in every major financial country�s native language.

Partial list of CRWE�s Primary financial websites.

  • BestOtc.com
  • CRWEFinance.com
  • CRWENewswire.com
  • CRWEPicks.com
  • CRWESelect.com
  • CRWEWallstreet.com
  • DoubleInStocks.com
  • DrStockpick.com
  • PennyOmega.com
  • PennyOtcStock.com
  • PennyToBuck.com
  • Stock-PR.com
  • StockHotTips.com

CRWE Publishing Division:

CRWE has numerous content contributors distributing news and articles to the staff of editors who manage CRWE�s primary websites. Those primary websites publish to thousands of in house and third party websites. The editors, after optimizing the content then publish to a multitude of media channels.

CRWE revenue stream has gone through significant upward trends as reported in 8K filing found at Yahoo!Finance.

CRWE was very excited to report that revenue for the year 2009 totaled $659,907 compared to $29,190 during 2008. Net income after taxes in 2009 was $93,927 compared to a net loss of $316,131 in 2008 with working capital increasing by $542,341 in 2009.

Complete press release here: Crown Equity Holdings, Inc. Files Form 8K, Financial Statement

Additional Key Statistics: Through December 31 2009

Valuation Measures



Market Cap5.83M
Enterprise Value5.67M
Trailing P/E80.00

Financial Highlights



Profit Margin14.23%
Operating Margin9.56%
Return On Assets14.98%
Return on Equity329.51%
Qtrly Revenue Growth
Gross Profit657.10K

All info referrenced at Yahoo!Finance.

Looking at the 1 year chart it seems that CRWE has been staying out of the trading spotlight especially when referring to the very aggressive financial growth the company has experienced as stated above. The last year has seen a 52 week price range of .02-.23 with CRWE hitting it�s highs in Dec 2009 and Jan 2010. CRWE could be considered a value to investors at its current price of $0.08 cents.

Can CRWE keep up it�s growth and revenue or at least sustain it�s business in the black which could boost their stock price up? It seems like CRWE and it�s subsidiaries have obtained a high degree of momentum that�s going to carry them to the next few levels. We�ll have to see if and when investors take notice.

Forward Looking Statements: This release contains certain forward-looking statements. Investors are cautioned that certain statements in this release are �forward looking statements� and involve both known and unknown risks, uncertainties and other factors. Such uncertainties include, among others, certain risks associated with the operation of the company described above. The Company�s actual results could differ materially from expected results.

Saturday, July 28, 2012

Million-dollar Donors Account For Most of Super PAC Money

As few as four dozen donors and families could sway the election this fall. Who are these people? They’re the ones who have given at least $1 million to a super PAC thus far.

So far, $308 million has been raised by super PACs in this election cycle. Of that money, $130 million comes from donors giving $1 million or more, which is about 40% of the total given. This is even more pronounced on the GOP side, where nearly half of the $228 million raised by Republican-affiliated super PACs has come from $1 million-plus donations.

Who are the most generous givers right now? It probably comes as no surprise, given the way Barack Obama’s super PAC has lagged behind Mitt Romney’s, that they are all Republican supporters. Currently leading the way are Sheldon and Miriam Adelson of the Las Vegas Sands Corp. (NYSE:LVS) with a $34.75 million donation, Contran Corporation’s Harold and Annette Simmons with a $17.2 million donation from them and Contran, Houston home builder Bob Perry with a $10.35 million donation, and PayPal (now an eBay�(NASDAQ:EBAY) subsidiary) co-founder Peter Thiel with a $3.6 million donation.

In fact, the largest Democratic super PAC donor now is Chicago newspaper and radio station owner Fred Eychaner, who has given a relatively paltry $2.65 million. Also giving $2 million or more are writer and philanthropist Amy Goldman ($2.25 million), Dreamworks chief executive and co-founder Jeffrey Katzenberg ($2 million), and hedge fund manager James Simons ($2 million).

So if you’re wondering why Romney’s super PAC has been outgunning Obama’s so far, the fact that just two of the top 13 super PAC donors are Democrats is a pretty good clue.

For a complete list of the top super PAC donors and the amount of money they gave, check out this�Washington Post�article.

– Benjamin Nanamaker, InvestorPlace Money & Politics Editor�

The opinions contained in this column are solely those of the writer.

Want to share your own views on money, politics and the 2012 elections? Drop us a line at letters@investorplace.com and we might reprint your views in our InvestorPolitics blog! Please include your name, city and state of residence. All letters submitted to this address will be considered for publication.