Friday, August 31, 2012

Industrial IPOs: Luxfer, GSE

NEW YORK (TheStreet -- Traders like Dennis Gartman and TheStreet's Research Director Stephanie Link have been talking up the industrial sector lately and coincidentally there are two industrial companies going public this week.

Luxfer Holdings (LSFR), based in Salford England, is seeking to raise $150.5 million through the sale of 10.8 million shares for between $13 and $15 each.

See if (GSE) is traded within the Action Alerts PLUS portfolio by Cramer and Link

The company's Elektron division focuses on specialty materials based on metals like magnesium and rare earth minerals. The business makes flame-resistant magnesium alloys and other products with applications for the automobile, aerospace and defense industries. Luxfer also makes gas cylinders used by a variety of industries, mainly health care. IPO Desktop President Francis Gaskins thinks Luxfer is "attractively priced" and believes it's "relatively safe" for investors to consider the IPO. "If LSFR breaks the IPO price then it might be a good trade in a week or so," said Gaskins. Sales rose 27% to $385 million for the nine months ended in September 2011 vs. a total of $302 million in the same period a year earlier. The contribution of the two businesses is just about even. The negative for Luxfer is that it faces competition from cheaper Chinese products and an excess capacity in the U.S. medical cylinder market. The proceeds from the offering will be used to repay debt and purchase an insurance plan for the company's pension. The other industrial company set to debut this week is Houston-based GSE Holding (GSE). GSE, which makes synthetic linings for hillsides used in solid waste and oil containment, is seeking to raise $126 million through the sale of 9 million shares priced between $13 and $15 each. IPO Desktop's Gaskins advises avoiding GSE, which has been owned by private equity firm CHS Capital since 2004. "It is a business with a low gross margin business and high interest payments," he said. Gaskins also believes the business may not be able to be profitable on a sustained basis and seems overvalued.GSE reported a $1.9 million profit for the first nine months of 2011, but prior to that it had been a loss maker since 2008. On a positive note, GSE has worked with some big mining names like Barrick Gold(ABX) and Newmont Mining(NEM) as well as solid waste behemoth Waste Management(WM). GSE plans to use the IPO's proceeds to repay debt and untangle itself from CHS Capital. GSE is selling 53% of the company in a deal, a percentage that is unusually high and could be a sign of future weakness. -- >To follow the writer on Twitter, go to>To submit a news tip, send an email to:

>To order reprints of this article, click here: Reprints

Three Resolutions for a Profitable New Year

It's coming.

Or, I should say, "he's" coming.

Warren Buffett? No.

Bill Gross? No.

I am referring to Dick Clark.

He's on his way. He will be hosting, again, the annual ball-drop on Times Square -- for the 435th year -- in just a few short weeks.


And you know what that means.

It's time to set some New Year's resolutions.

From an investment standpoint -- the "macro" view -- I always find myself wondering the degree to which these annual promises are harmful to companies like cigarette maker Altria (NYSE: MO), booze purveyor Diageo (NYSE: DEO) and houses of goodness and calories like Starbucks (Nasdaq: SBUX) or Coca-Cola (NYSE: KO). Happily, most New Year's resolutions are resolutely abandoned until Lent, and any promises made then last only six weeks, hardly enough time to scuttle any fragile recovery that has emerged.

The other investment perspective, the micro, that is, "you," introduces several other resolution possibilities. Will this be the year you finally learn to read a balance sheet? The annum in which you actually read those proxy statements and vote in shareholder elections? The year in which you decide to seek the best returns possible and subscribe to my Government-Driven Investing newsletter?

Shameless, I know. Just shameless.

Here are three other suggestions that you might want to consider. All are relatively painless. All will help you build your portfolio.

One: Resolve to invest in small amounts.

I've been meaning to write a piece about how procrastination is the biggest sin among investors, but I haven't gotten around to it. [Pause for laughter.]

But it's true. Far too many investors wait until they have enough money to invest. That's like waiting until you have enough money to have children. No matter how much you have, it will never be enough.

And yet it is possible, cost-effective and even easy to invest modest sums. The easiest way to do this is through dividend reinvestment or direct stock purchase plans. These plans, sponsored by the companies themselves and administered by the transfer agent charged with looking after the company's ownership, carry extremely low fees and allow participants to invest as little as $50 at a time. Most public companies make these plans available.

There are two ways to use them.

The first is to allocate a recurring monthly withdrawal from a checking account. On a given day each month, the plan scoops a set amount from your checking account and uses it to buy shares of stock. (Sometimes fractions of shares, so all of your money is put to use.) This method of investing is called dollar-cost averaging. The idea is that you buy throughout the year, buying some shares at a low price and others at a slightly higher price. This reduces the risk that you will mistime the market and buy at the wrong moment.

The other way to use these plans is to open the account with the small required investment, typically about $250, sometimes lower, sometimes higher, and then wait to buy until the shares hit your target price. When they do, you invest the money you have ostensibly been setting aside each month. If it rises above your buy price, you let your shares sit and wait to buy additional stock when favorable circumstances present themselves.

Either way, a direct stock purchase plan or dividend reinvestment plan (DRIP) is a long-term investment of the tortoise school. If you agree that slow and steady wins the race, then this might be a good resolution for you to consider. (The DRIP strategy has certainly paid off for my boss Paul Tracy. He's now pulling in about $85 a day in dividends alone -- well on his way to $100 a day. See what other "daily paycheck" tricks he's using to get there.) You can check out a variety of these plans at and at Bank of New York-Mellon.

Two: Resolve to take profits.

My friend and StreetAuthority colleague Amy Calistri started playing poker to improve her sell-side discipline. In other words, she picked up the game to learn when to fold 'em. (She became one of the best poker writers in the business in the process and has, in fact, just published a book about one of her big-winning cronies.)

Now, I'm not necessarily suggesting you need to take up poker like Amy did, but learning how to deal with losses is the critical difference between a good investor and a great investor. It's also the difference between a rich investor and a poor one.

In the upcoming year, resolve to invest with the words of Sun Tzu's "The Art of War" in mind: "Every battle is won or lost before it is ever fought." To that end, you need to develop a mental strategy for victory and an exit plan in case of defeat. Wise investors set price targets and sell stocks that hit them. They take profits off the table and reallocate them to the next opportunity. Rinse and repeat.

On the flip side, smart traders don't hang onto losers because they're too proud or afraid to admit a mistake. Don't marry your stocks and vow to be faithful for richer or poorer. That's a great way to run a marriage but a lousy way to manage a portfolio. If your stocks hit your sell price, then get rid of them. Simple as that. Then deal yourself another hand.

This year, don't buy any stock with an indefinite future. Knowing where you're going is the surest way to get there.

Three: Resolve to rebalance your portfolio.

Investors who survived the collapse in 2008 have seen some of their wealth return in 2009. That doesn't mean, however, that their portfolios are in good shape.

As 2010 dawns, resolve to take a serious look at your holdings with an eye toward your risk tolerance and your time horizon. Are you overweight growth-oriented equities and short income-producing stocks? Should you be oriented toward aggressive growth to the degree that you are? Where will your portfolio be in five years given its current makeup?

It's worthwhile to seek diversity across a number of industries and to further manage your risk by allocating assets to different geographic regions. Most investors are far too concentrated in dollars. Most investors are far too heavily allocated to equities.

The good news is that these are easy fixes. Foreign markets and corporate bonds are more accessible and easier to invest in than ever before using exchange-traded funds. (You can always stay up to date on the ETF space by checking out the research from Nathan Slaughter, the editor of diversification, and at far lower cost than other alternatives, like mutual funds.

High Yield Debt? Think Loans, Not Bonds

High yield bonds have been a big winner for investors who “kept the faith” and held onto their portfolios through the financial crisis. But what’s an investor to do now, when financial writers, economists and commentators are all pointing out – quite correctly – the danger of owning fixed-rate bonds when interest rates, eventually, are sure to rise?

Traditionally the classic investment choice has been presented as bonds vs. stocks. But this is a false choice. Investors should really be asking about debt vs. stocks. Corporate debt, once we remove the interest rate bet that is an inherent element of a fixed rate bond, is a very attractive asset for long-term investors seeking steady returns. When you combine corporate debt with floating, adjustable rates (the opposite of the fixed rate bet) so your coupon grows as interest rates rise (unlike bonds whose value drops) then you have an instrument that (1) pays a steady predictable return, and (2) acts as a hedge against rising inflation and interest rates.

Such an investment would achieve many of the purposes for which investors own stocks, and in an uncertain period where economic, political and fiscal uncertainties make the outlook for equities unpredictable, might be far less volatile.

Of course, there is such an instrument, which hedge funds and institutional investors have known about for years. It’s a corporate loan, often referred to as “senior secured floating-rate corporate debt.”

Bonds: Debt With “Interest Rate Bet Attached”

When we buy a bond, we are making two very distinct investment bets: We are betting that the company will pay the principal and interest on its debt (the credit bet), and that interest rates will stay the same or go down (the interest rate bet).

During periods of dramatic shifts in interest rates – like the last 30 years, when long-term bond rates fell from the mid-teens to just above 2%, boosting bond prices substantially – the return on the embedded interest rate bet can overshadow the return on the credit bet. But with interest rates hovering just above zero, thoughtful bondholders know that they face a highly skewed risk/reward outlook in the future, with the embedded interest rate bet more likely to be a millstone than a bonus in the years ahead.

But corporate debt does not have to mean bonds, with their embedded interest rate bet. Corporate loans – senior, secured, floating-rate debt instruments issued by the same cohort of companies that issue high-yield bonds – are (1) a safer, more effective way to invest in corporate credit than high-yield bonds, and (2) an investment that will actually benefit from rising interest rates because of their adjustable rate coupons, instead of losing value as bonds do when rates rise.

Loans vs. Bonds: Big Difference in Credit Risk and Protection

Many financial writers lump high-yield bonds and senior, secured loans together in describing their credit profile and risk of loss. While both are issued by non-investment grade companies (i.e. firms rated double-B-plus and below, which includes the great majority of all rated companies), they are quite different in terms of investor protections and likelihood of repayment in bankruptcy:

  • Bonds are unsecured, and in many cases, legally subordinated to other senior debt
  • Loans are senior obligations, and almost always secured by collateral (the assets – tangible and intangible – of the borrowing company)
  • When a company defaults and goes into bankruptcy, secured lenders are often paid in full, with an average repayment of about 70%, and corresponding loss of 30% (i.e. 100% minus the 70% average repayment)
  • Bondholders don’t do as well, being further behind in the queue and having no collateral, so their average recovery is about 40%, which means their average loss is 60% (or worse if the bond is “subordinated” and even further behind in the queue than merely being “unsecured”).

This difference in loss severity between loans and bonds makes a big difference in the amount of credit loss suffered by a portfolio of high-yield bonds versus a portfolio of loans. A simple example will demonstrate this. Suppose there are two portfolios, one with senior secured loans, the other with high-yield bonds, and each experiences defaults of 4% of the instruments (i.e. loans or bonds, respectively) in their portfolios. Applying the historical averages cited above, the loan portfolio suffers an average loss of 30% on each of its defaulted loans, so its overall portfolio loss is:

4% X 30% = 1.2%

The bond portfolio suffers an average loss of 60% on each of its defaulted bonds, so its overall portfolio credit loss is:

4% X 60% = 2.4%

This analysis actually understates the loan portfolio’s advantage because loans, besides having the advantage of higher repayments in bankruptcy, actually experience default at a slightly lower rate as well. That’s because some companies that run into financial difficulty will husband their limited cash flow by continuing to service their senior secured loans, even while defaulting on their junior debt (bonds, etc.).

Comparing Returns: Bonds vs. Loans

Any comparison of returns of high-yield bond portfolios and loan portfolios should be net of credit losses. This means taking the gross return each portfolio is paid for taking credit risk and reducing it by the amount of credit losses, as described above. But before we can do that, we have to strip out, from the bond portfolio return, the portion of the coupon that is attributable NOT to taking credit risk, but to the “interest rate bet” that is an integral part of the instrument.

This is simple to do. Assume a 10-year high-yield bond with a coupon of, say, 8%. We know that the 8% coupon compensates the investor for both the risk (1) of the borrower defaulting in payment and (2) that interest rates will rise over 10 years and reduce the market value of the bond.

We also know that an investor who wants to take a “pure” risk of interest rates rising over 10 years, stripped of any credit risk, can purchase a 10-year US treasury bond and earn about 2.5% more than they would if they bought a 3-month Treasury bill. So if we subtract the 2.5% 10-year interest rate risk premium from the 8% coupon, we get 5.5%, the amount the high-yield investor is being paid for taking the pure credit risk of the borrower defaulting.

Loans currently have coupons ranging in the 6% to 7% range, which comprises a “spread” usually between 400 and 500 basis points, plus a base rate of 3 month LIBOR (the “London Inter-Bank Offered Rate” an inter-bank money market rate). Since 3 month LIBOR, like other short-term rates, is currently hovering slightly above zero, new loans are being written with minimum LIBOR “floors” of 1.5% to 2%, to ensure a minimum coupon. Older loans traded in the secondary market are discounted to offset their lack of a minimal LIBOR floor.

So we see that loans, having no inherent interest rate bet to dilute their coupon, provide yields of 6% and higher, whereas bonds, once we subtract the 2.5% interest rate bet premium, often yield less than that. When we subtract credit losses, which as discussed earlier are generally twice as high for high-yield bonds than for loans, the advantage for loans becomes even greater.

This is a simplified version of an analysis with a lot of variables. But the basic advantage of loans holds at all levels of default – it increases the higher the default rate – and as the yield curve steepens and the “cost” of the interest rate bet increases. The point isn’t to “prove” that loan funds are a better investment than high-yield bond funds. (The author is an avid investor in both.) It is rather to encourage investors to move beyond the “bond vs. stock” paradigm and to analyze more carefully the advantages of corporate debt generally, especially the floating rate variety, at a time when we’re coming off a once-in-a-lifetime 30-year interest rate decline, and facing a future that might be very different. What loans offer – a basic return, net of interest cost, in the range of 5% or slightly more, plus the additional yield pick-up when and if interest rates and inflation rise – strikes me as awfully “equity-like,” albeit without much of the angst and volatility that typically accompanies equity investments.

Investing in floating rate debt is easier than ever. Most of the vehicles for doing so efficiently are closed end funds and load-bearing open-end funds. (Fidelity has one of the few no-load funds in the floating-rate loan space. For a list of closed-end funds, click here and screen for “senior loan” funds; note the wide variation in fees and premium/discounts.)

Disclosure: Author owns Eaton Vance and Fidelity floating-rate loan funds, and a number of Fidelity, Vanguard, Pimco and Third Avenue high-yield bond funds.

Bernanke on the Doom Loop

By Peter Boone and Simon Johnson

Senator David Vitter submitted one of my questions to Federal Reserve Chairman Ben Bernanke, as part of his reconfirmation hearings, and received the following reply in writing (as already published in the WSJ on-line).

Q. Simon Johnson, Massachusetts Institute of Technology and blogger: Andrew Haldane, head of financial stability at the Bank of England, argues that the relationship between the banking system and the government (in the U.K. and the U.S.) creates a “doom loop” in which there are repeated boom-bust-bailout cycles that tend to get cost the taxpayer more and pose greater threat to the macro economy over time. What can be done to break this loop?

A. The “doom loop” that Andrew Haldane describes is a consequence of the problem of moral hazard in which the existence of explicit government backstops (such as deposit insurance or liquidity facilities) or of presumed government support leads firms to take on more risk or rely on less robust funding than they would otherwise. A new regulatory structure should address this problem. A. (continued) In particular, a stronger financial regulatory structure would include: a consolidated supervisory framework for all financial institutions that may pose significant risk to the financial system; consideration in this framework of the risks that an entity may pose, either through its own actions or through interactions with other firms or markets, to the broader financial system; a systemic risk oversight council to identify, and coordinate responses to, emerging risks to financial stability; and a new special resolution process that would allow the government to wind down in an orderly way a failing systemically important nonbank financial institution (the disorderly failure of which would otherwise threaten the entire financial system), while also imposing losses on the firm’s shareholders and creditors. The imposition of losses would reduce the costs to taxpayers should a failure occur.

This answer misses the central issue. Haldane’s argument (and our point) includes “time inconsistency” – i.e., you promise no bailouts today but, when faced with an awful crash, you provide a massive set of bailouts. There is nothing in Mr. Bernanke’s statements, here or elsewhere, that addresses this concern.

His hope is that current proposed changes in regulation will make a crash less likely. This is a strange assertion, given current market conditions: e.g., the Credit Default Swap (CDS) spread for Bank of America (BAC) now hovers just 100 basis points above that of the US government, despite BoA having a very risky balance sheet. Creditors apparently believe they will not face losses – and the same is true for people lending to all our big banks. This is exactly the kind of thinking that produces reckless lending (and borrowing). Will Bernanke really disappoint them in our next crash?

Until markets price ”small enough to fail” risk into our biggest banks, the time inconsistency problem is alive and well - and threatening.

The Fed’s continuing refusal to confront this point directly – even as other major central banks shift their public positions (and more are moving in private) – is alarming and disconcerting. The Fed is falling far behind. This will have much broader consequences for its credibility and independence down the road.

How My "20% Solution" Could Make You a Millionaire

Do you want to become a millionaire? This is obviously a rhetorical question... the majority of us would love it. But what's your plan for achieving this goal?

If your plan is to make this sort of wealth in the stock market, then what's your strategy? Blue-chip stocks, index funds, or are you an income investor who wants to watch your dividend "paychecks" (as my colleague Amy Calistri would say) roll in by the truck load?

  All of these strategies are great. There's nothing wrong with them, besides they'll probably make you money in the long run.

But I doubt they'll make you a millionaire... at least in time for you to enjoy it.

They're not going to give you those "knocked-out-of-the-park" returns you've heard about since you first learned of the stock market.

No, I'm convinced that if your goal is to reach a seven-figure bank account, then you need to follow something I like to call the "20% solution."

The idea behind it is simple. If your goal is to become a millionaire in the market, then you need to dedicate a portion of your portfolio to swing for the fences.

Let me explain...

I'm a father of a daughter who's in private school, will go to college and who will need cars, trips and someday, a wedding.

For her and the rest of my family, I've allocated 80% of my portfolio to safe and reliable assets. The kind I know will allow me to meet my comfort level and feel confident knowing I can adequately provide for my family.

But the other 20%? That's different.

This portion is dedicated to the "game-changers." These are the types of stocks that have the potential to move the needle on not only the balance of my account, but on the life I live.

You see, most investors are stuck in the slow lane, passively accepting the market's returns and failing to use equities as the supercharging force they can be.

While it's important to have the bulk (80%) of your portfolio tied to dependable assets, I think a portion -- the other 20% -- needs to go toward investments with the potential to knock the cover off the ball.

Here's how the 20% solution works...

I'll start this example with a modest amount to show you how it works. Assume you start with a $25,000 portfolio that tracks the broader market. The average annual return from 2001 through 2010 for the S&P 500 was a measly 3.0%. This means $25,000 turned into $33,597.91 during 10 years.

But these numbers can change dramatically when you add in the potential for just a few big winners.

Let's say you invest 80% of your $25,000 portfolio, or $20,000, in the broader market to achieve that 3% return. Then you allocate the remaining 20%, or $5,000, to a collection of "game-changing" picks -- stocks with the potential to snag major gains.

If that part of the portfolio averages 30% a year, then the initial $5,000 would grow into $68,929.25 after 10 years.

Add in the $20,000 and its market return, which would have grown to $26,878.33, and you'd have gotten a pretty nice nest egg of $95,807.58 -- roughly triple the first portfolio, all thanks to where you put just 20% of your money.

(Note: You'll notice this return isn't $1 million, but the results are fully scalable. You can simply start with more capital to reach your goal.)

I've made the comparison in the chart to the right. Would you rather have Column A, or would you rather end up with Column B, which uses the 20% solution?

I think the answer is obvious…

Now you may be asking, if the 20% solution seems to work so well, why not dedicate 50% or 100% of your portfolio to it?

Simple answer: It's always important to be diversified, and putting all of one's eggs into a single basket is never a good idea, no matter how spectacular the potential for returns.

I can sleep at night knowing most of my money -- the majority of my equity portfolio -- is invested so as to expose it only to general broad-market risk. Only a small percentage is allocated to game-changing plays with return potential that could move the needle on the overall portfolio.

The fact is, if you pick a few winners over time with a small subset of your portfolio, it can make an enormous difference. And 20% can do the trick nicely: it's enough to make a difference, but not enough to keep you up at night.

Don't get me wrong though, I'm not guaranteeing my system will make you a millionaire. There are no guarantees when it comes to investing.

> What I'm saying is this: The results of a portfolio with room for big winners can be dramatically different from those that stick to cash, fixed-income or even the returns available in the broad market.

And if your goal is to eventually become a millionaire from the market, then I can't think of any better route.

Thursday, August 30, 2012

Investment Made Easy – Present Value Annuity Calculator

Dealing with numbers and making a sense of it can be a grueling task. Not to mention unnecessary since you already have a lot on your plate. With the ton of concerns that you need to deal with everyday, a headache computation is the last thing you need. The good news is you don’t have to tear yourself apart, just deal with placing your money on the right investment.

The present value annuity calculator is an online tool that helps you assess an investment by laying it on a series of payments that will be paid over a period of time. In addition, it calculates using today’s present dollar value so it will be easier for you to assess a particular investment’s worth. It can compute the numbers to determine the current worth, the expected value and the future worth of a financial investment.

Step 1: The first thing you need to do is to key in the numbers for the following items:

1. Annual payment or the dollar amount that is to be paid on a yearly basis
2. Annual interest rate or the percentage obtained from the annual payment, what is expected to be collected from the investment
3. Payment period or the number of years when the annuity is expected to be collected

Step 2: Go to the present value annuity calculator, a link is usually available to click on.

Step 3: Decide. Given the numbers, the present worth and an investments expected future worth, you are then equipped with the knowledge to decide where to put your money on.

Learn more about present value annuity, please visiting

Social Media Biz Briefs – Flock Web Browser Shut Down

It’s a technology heavy Wednesday in the social media business as Twitter-app creator UberMedia looks to build its own microblogging network to take on the house of Tweets. Social network web browser Flock is shutting down, but may be reborn as a powerful new Zynga portal. Finally, Disney (NYSE: DIS) and its Playdom site sees its traffic one-upped by Germany’s Wooga.

UberMedia Preparing Twitter Rival: If you’ve had luck joining them, it’s time to try your hand at beating them. That’s the thinking at UberMedia at least. According to a Wednesday report from CNN, the app developer and Web-services company best known for its Twitter-related offerings is looking to open its own social network to directly compete with Twitter. Twidroyd, Echofon and UberSocial are among UberMedia’s more popular products and those apps have a significant following amongst Twitter users. Market research firm Sysomos found that UberMedia’s software generated 11.5% of all tweets in a single day in March, or almost 7.5 of the 65 million average daily tweets. UberMedia’s alternative would differentiate itself by offering messages longer than the 140 characters afforded by Twitter.

Social Networking Web Browser Flock Shuts Down: After six years, Flock Inc. has shut down the Flock web browser, with all support ending on Apr. 26 according to USA Today. For those unfamiliar, Flock differentiated itself from browsers like Microsoft (NASDAQ: MSFT) Internet Explorer by integrating as many different social tools into its interface as possible. The most recent version of Flock supported Google (NASDAQ: GOOG) properties YouTube and Gmail, Yahoo! (NASDAQ: YHOO) email service, News Corp. (NASDAQ: NWS) social media also-ran MySpace, as well as independent heavyweights Twitter and Facebook. Flock is recommending that users switch to the Google Chrome or Mozilla Firefox web browsers. The shutdown of Flock comes three months after social games developer Zynga (Farmville, Mafia Wars) acquired the company for an undisclosed amount. Canny investors should keep a close eye on Zynga’s next move. A Zynga web browser devoted to both social networking tools as well as the companies profitable gaming properties could sweeten the IPO the company has suggested is coming in the next couple of years.

Wooga Passes Disney’s Playgom in App Charts: The privately-owned Berlin-based social network game developer Wooga has surged past Disney (NYSE: DIS) Playdom according to Appdata. The company is now in fourth place behind Zynga, Electronic Arts (NASDAQ: ERTS), and a California-based Facebook game maker CrowdStar. Wooga’s games including Monster World and Diamond Dash have earned the company 20 million monthly users. While ERTS and DIS have been purchasing numerous social game developers in an effort to improve their standings in the market, Wooga has yet to be a target for acquisition. The company raised $5 million in funding from Balderton Capital in November 2009 but has not pursued a second round. Given its growing traffic, investors can expect to see increased scrutiny on the company throughout the remainder of 2011.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at�@ajohnagnello and�become a fan of�InvestorPlace on Facebook.

A Bullish Case For Travelzoo

Travelzoo (TZOO) posted this a 52 week low of $20.68, which is almost 80% less than its 52 week high of $103.80 back in April. Then today it gained more than 16%.

The stock had been on a constant downtrend, with little gains along the way, ever since the end of April. The stock lost a significant amount of value in late April-early May as investors took profits after gains from a solid earnings report. Profit taking along with strong insider selling caused the stock to drop by large margins. Then the company missed Q2 earning expectations in July and it's been mostly a disaster ever since, for long-term investors.

I personally would have never thought the stock would have reached these levels. But then again, I did not expect a 16% loss in the major indices over the last 3 months. The markets have been rough for TZOO but I believe as earnings approach the bad fortunes of this stock are about to change.

Investors sold the stock after Q2 because revenue was slightly lower than expectations, EPS missed by $0.08, and costs were higher. Yet even with a missed quarter the company still increased revenue by 33.70% and grew income by 51.50%. It's difficult to find a problem with numbers such as this, and then you remember that the company has no debt, additional assets, and is expanding into a new market at 1 in every 3 days, then I believe it makes an especially difficult case to prove that TZOO is a fading company.

The loss of TZOO was a result of an overvalued stock as it was trading near $100. There was no reason for a company such as this to be trading with a market cap of more than $1 billion since it's yet to post $40 million in revenue for a single quarter. The stock now has a market cap of $400 million, and I believe it's appropriate for the company's level of growth. If the company were to post a solid earnings report in Q3 and have a net income for the last 12 months it would still be trading much higher than earnings.

I am a fan of TZOO and I believe the company's deals are second to none, with the company growing, and growing very fast. What investors must remember is that it takes time to hire employees, develop a region, and then profit from the region. Investors must have patience and with 27 new regions in Q2 and similar numbers in Q1 I believe the company should be seeing large profits in the near future. Also, Travelzoo is a global company that offers complex deals. The company is not offering $5 off at your local mom and pop shop, the company offers large deals that usually involve several companies working together on one deal. And the company's emphasis in Europe and the Asia/Pacific region has been a success and will produce a large volume of subscribers over time.

Investors should be patient and view TZOO as a long term hold. The company has potential, and I believe that over the next 12 months the stock will easily double from the morning price as revenue and earnings continue to rise, and the market improves. When a company grows at the level of TZOO the stock rises, investors were dealt a bad hand full of unfortunate events that acted as a domino effect to the stock. Yet I believe that at $24 the stock offers a limited amount of risk and a high reward that will pay off for investors sooner rather than later.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TZOO over the next 72 hours.

Investing 101: 10 Stocks with Insider Buying and Short Covering

When it comes to investing, are you a follower of the bullish activities of others? How about the activities of company insiders and short-sellers?

If so, the following list of 10 stocks may be of interest to you. Each company on our list has experienced significant levels of insider buying and short covering from short-sellers. Furthermore, all names have market caps over $300 million.

If you're curious why these are strong indicators of bullish sentiment, take a moment to review the following before analyzing the final list below.

Short-selling is an investment technique that allows an investor to make money when the value of a stock falls. Short-sellers, however, lose money when the share price rises. Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short-selling. Thus, in general, short-sellers are more sophisticated than the average investor.

In general: When there is an INCREASE in short-selling, short-sellers seem to think the names will DROP in value. When there is a DECREASE in short-selling, short-sellers seem to think the names will RISE in value. All of the names on this list have experienced a decrease in short selling.

Insider buying: Many analysts follow insider buying trends because, after all, insiders know more about their companies than anyone else. Their investment activity is closely monitored and can tell us a lot about where they feel the business is heading.

Insider buying is represented as a percentage of the share float. Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels. Inversely, insider selling serves as a negative indicator. All of the names on our list have experienced insider buying.

Market capitalization (market cap): Market capitalization, commonly referred to as market cap, is the total market value of a company's outstanding shares. It can be thought of as a measure of company's size. It can be calculated by multiplying the number of shares by the current price of the shares. Companies with higher market cap are considered to have more trustworthy information because they have greater histories of profitability and data.

Insiders and short-sellers think these names are profitable investments. Do you? (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Eben Esterhuizen, CFA:

1. Carmike Cinemas (Nasdaq: CKEC  ) : Operates as a motion picture exhibitors in the United States. Shares shorted have decreased from 1.50M to 1.08M over the last month, a change that represents about 4.80% of the company's float of 8.75M shares. Over the last six months, insiders were net buyers of 4,523 shares, which represents about 0.05% of the company's 8.75M share float.

2. Conns (Nasdaq: CONN  ) : Operates as a specialty retailer of home appliances, consumer electronics, home office equipment, lawn and garden products, mattresses, and furniture in the United States. Shares shorted have decreased from 3.75M to 3.51M over the last month, a change that represents about 1.68% of the company's float of 14.25M shares. Over the last six months, insiders were net buyers of 20,000 shares, which represents about 0.14% of the company's 14.25M share float.

3. Opko Health (NYSE: OPK  ) : Engages in the discovery, development, and commercialization of novel and proprietary technologies primarily in the United States, Chile, and Mexico. Shares shorted have decreased from 12.31M to 10.13M over the last month, a change that represents about 1.60% of the company's float of 136.01M shares. Over the last six months, insiders were net buyers of 6,854,500 shares, which represents about 5.04% of the company's 136.01M share float.

4. Echo Global Logistics (Nasdaq: ECHO  ) : Provides technology enabled transportation and supply chain management services in the United States. Shares shorted have decreased from 2.67M to 2.50M over the last month, a change that represents about 1.58% of the company's float of 10.73M shares. Over the last six months, insiders were net buyers of 202,262 shares, which represents about 1.89% of the company's 10.73M share float.

5. Collective Brands (NYSE: PSS  ) : Engages in the wholesale and retail of footwear and related accessories worldwide. Shares shorted have decreased from 20.33M to 19.53M over the last month, a change that represents about 1.45% of the company's float of 55.24M shares. Over the last six months, insiders were net buyers of 20,139 shares, which represents about 0.04% of the company's 55.24M share float.

6. Pacific Sunwear of California (Nasdaq: PSUN  ) : Operates as a retailer rooted in the action sports, fashion, and music influences of the California lifestyle. Shares shorted have decreased from 8.61M to 8.13M over the last month, a change that represents about 1.34% of the company's float of 35.86M shares. Over the last six months, insiders were net buyers of 10,327,071 shares, which represents about 28.8% of the company's 35.86M share float.

7. Pinnacle Financial Partners (Nasdaq: PNFP  ) : Operates as the bank holding company for Pinnacle National Bank, which provides commercial banking services to individuals, small-to medium-sized businesses, and professional entities in Tennessee. Shares shorted have decreased from 5.19M to 4.78M over the last month, a change that represents about 1.31% of the company's float of 31.39M shares. Over the last six months, insiders were net buyers of 13,882 shares, which represents about 0.04% of the company's 31.39M share float.

8. Synthesis Energy Systems (Nasdaq: SYMX  ) : Operates as a global energy and gasification technology company that provides products and solutions to the energy and chemicals industries. Shares shorted have decreased from 195.77K to 160.08K over the last month, a change that represents about 1.23% of the company's float of 2.89M shares. Over the last six months, insiders were net buyers of 10,000 shares, which represents about 0.35% of the company's 2.89M share float.

9. American Superconductor (Nasdaq: AMSC  ) : Provides wind turbine designs and electrical control systems primarily in North America, Europe, and the Asia-Pacific. Shares shorted have decreased from 9.11M to 8.66M over the last month, a change that represents about 1.22% of the company's float of 37.03M shares. Over the last six months, insiders were net buyers of 1,508,478 shares, which represents about 4.07% of the company's 37.03M share float.

10. Procera Networks (NYSE: PKT  ) : Provides network traffic awareness, analysis, and control solutions for broadband service providers. Shares shorted have decreased from 872.03K to 795.77K over the last month, a change that represents about 1.20% of the company's float of 6.34M shares. Over the last six months, insiders were net buyers of 3,000 shares, which represents about 0.05% of the company's 6.34M share float.

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

Your browser does not support iframes.

Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data from Yahoo! Finance. Institutional data sourced from Fidelity.

TIP: Is There a Better Inflation-Proof Bond ETF?

Earlier this month, InvestmentNews released a list of the ten ETFs financial advisors researched the most in 2009. The list, which was based on information provided by Morningstar, included several traditional inflation hedges, such as the SPDR Gold Trust (GLD) and iShares COMEX Gold Trust (IAU), as well as the broad-based PowerShares DB Commodity Fund (DBC). And in the top spot was the Barclays TIPS Bond Fund (TIP), which invests in inflation-protected securities issued by the U.S. Treasury.

TIP has seen its popularity surge over the last year, taking in nearly $9 billion in cash in 2009. This trend has continued in 2010; fund has already seen inflows of more than $1.5 billion through the first two months of the year. Clearly, investors are concerned about inflation. And clearly, many think they’ve found the solution in the form of inflation-protected bonds. But those investors who are counting on TIP to protect their portfolio may be set up for a colossal disappointment.

TIP certainly isn’t a flawed product. Far from it, in fact. It accomplishes its stated objective–tracking the performance of the Barclays Capital U.S. Treasury Inflation Protected Securities Index–with impressive efficiency. The expense ratio of 20 basis points is one of the lowest for any fixed income ETF. But investors terrified over the prospect of a spike in inflation who think they’ve found a Holy Grail might have a false sense of security. TIPS are a good place to start, but they have some inherent limitations–particularly within the exchange-traded structure–that may diminish their ability to protect against inflation.

The Case for Inflation Protection

For the last 25 years, inflation has been moderate, generally hovering between 1% and 4%. But the U.S. has experienced surges in inflation before, most recently during the late 1970s and early 1980s when CPI peaked above 15%. While economists are divided over exactly what causes inflation and hyperinflation, many academic studies have uncovered a strong link between CPI and money supply. In the wake of massive injections of liquidity to the financial systems in the U.S. and around the world, many investors believe that higher inflation is inevitable and that hyperinflation is entirely possible. Wary of the ramifications for traditional stock and bond portfolios when the bill for the recent stimulus plans comes due, investors have begun seeking out protection.

Treasury Inflation-Protected Securities (TIPS) are debt issued by the U.S. government. Unlike most Treasuries, the principal of TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, the noteholder is paid the adjusted principal or the original principal, whichever is greater. TIPS make interest payments twice per year. Because the interest rate is applied to an adjusted principal amount, the interest payments made will rise and fall with inflation.

So conceptually, the appeal of holding these bonds in an inflationary (or hyperinflationary) environment is easy to grasp. TIP is a good start for investors anxious over the prospect of runaway inflation, but for several reasons it might not be the silver bullet some investors think it is:

3. TIPS Have Never Been Tested

While it’s obviously impossible to extract individual investor motives with any precision, it seems likely that a fair number of investors in TIP aren’t worried about inflation that tests the high end of the Fed’s “comfort zone,” but rather about hyperinflation reminiscent of 1973 or 1981 that breaks into double digits. TIPS were first introduced in 1997, meaning that they have endured a relatively stable CPI trajectory since their inception and have never been tested in a high in a true high-inflation environment.

The fact that TIPS have a relatively short history obviously isn’t sufficient reason to steer clear. But it’s certainly worth noting. Perhaps greater cause for concern is the correlation of TIPS to inflation in recent years. The following table displays the quarterly correlation of various asset class returns to U.S. inflation between January 2002 and March 2009 (click to enlarge image):

This doesn’t mean that inflation isn’t a driver of TIPS performance, but rather that these securities are impacted more significantly by other factors, including changes in interest rates. “The moves in TIPS have little to do with the actual fluctuations in the CPI,” wrote Dave Nadig recently. “That’s not because they’re broken; it’s simply that movements in the bond market have historically dwarfed movements in CPI.”

2. TIP Includes Long-Term Bonds

This statement is an obvious one, but it’s also one to which that many investors likely haven’t given enough thought. When considering the underlying holdings of TIP–inflation protected bonds–it’s easy to focus on the first two words, without considering the ramifications of the third. In a recent article for Index Universe, Matt Hougan suspected that some investors may not know what they’re getting themselves into. “What they don’t realize is that the Federal Reserve will likely raise interest rates well before significant inflation is captured in the official CPI,” writes Hougan. “That means TIPS investors will likely feel the pain of rising rates before they feel any benefit from CPI-related inflation adjustments.”

TIP has an effective duration of 3.9, and about 25% of the fund’s holdings have at least 15 years remaining to maturity. As such, TIP is potentially vulnerable to rate hikes–much more so than short-term bond ETFs (SHV, for example, has an effective duration under 0.4). If inflation and interest rates head higher in unison, TIP may play the part of the second of the Three Little Pigs in the hyperinflation tale–it’s nice the house isn’t made of straw, but the end result might not be much different.

1. TIP Reacts to Market Expectations

By purchasing a single inflation-protected security from the U.S. government and holding it to maturity, an investor can guarantee himself or herself a real return above changes in the Consumer Price Index. That’s a surefire way to protect against inflation. But TIP isn’t a single security; rather it’s a fund comprised of about 30 different notes. And the price and yield of TIP are determined not by the prevailing level of inflation, but by supply and demand among investors. As such, it’s important to note that TIP is often impacted more by investor expectations of CPI than it is of actual CPI.

The last year serves as a perfect example. Over this period–a period of extremely low inflation–TIP has delivered a return of about 9%. The iShares Barclays 3-7 Year Treasury Bond Fund (IEI), which maintains comparable duration and maturity to TIP, gained less than 1% over the same period, a performance gap of more than 8%.

Demand for TIPS has surged over the last year, resulting in a significant run-up in the price of TIP. This example provides anecdotal support for the numbers presented in the table above, and highlights some of the complexities that may arise when investing in TIPS through an ETF.

CPI: A Better Inflation-Proof ETF?

Historically, investors have turned to a variety of securities to hedge against inflation, including short-term bonds, gold, and other commodities now available through ETFs (See Beyond TIP: 10 ETFs To Protect Against Inflation). But recent innovation in the ETF industry has expanded the options for combating inflation beyond traditional “plain vanilla” asset classes traditionally used by investors. One relatively new offering is the IQ CPI Inflation Hedged ETF (CPI), a fund that seeks to provide a hedge against inflation by providing a real return above the rate of inflation as measured by the Consumer Price Index.

CPI is designed to track the performance of the IQ CPI Inflation Hedged Index, a rules-based benchmark that utilizes the monthly change in the Consumer Price Index on a rolling 12-month basis to determine holdings.

The index underlying CPI is designed to achieve exposure to asset classes whose returns incorporate inflation expectations, based on the premise that capital markets tend to be forward-looking in nature and anticipate economic developments (including changes in inflation).

Currently, CPI’s holdings are dominated by short-term bonds (through SHV and BIL), but the fund has the latitude to invest in a variety of asset classes, including domestic and international equities, currencies, commodities, and real estate. While the fund’s core position will generally include a significant allocation to short-term bonds, the establishment of satellite positions in other assets creates the opportunity to generate real return in excess of inflation.

CPI is a relatively new fund, meaning that similar to TIP, it’s never been tested during a period of hyperinflation. But the more active approach to beating inflation is based on mountains of historical data, correlation analyses, and some sound yet simple investment principles.

If you’re really concerned about inflation, CPI might be worth a closer look.

Disclosure: No positions at time of writing.

3 Oil And Gas Stocks With Rocketing Production By 2013, 1 To Avoid

Kodiak Oil & Gas (KOG) is one oil and gas stock that has been on the rise ever since the huge drop in crude oil prices in October 2011 that so negatively affected the business as a whole. With many great things going for Kodiak, it is no wonder the company has been doing comparatively well when placed next to other companies for analysis. Kodiak increased both profit and production exponentially over the course of two years. Yet, I believe Kodiak has seen its rise and will begin to slow down. The opportunities it offers investors going forward will fall short of its peers.

With Kodiak's recent growth and profits, I think we will possibly see some incremental short-term gains as long as the bottom does not fall out. Overall, the stock has begun to settle. In the case of these smaller oil companies, bad times can be totally detrimental. So keep that in mind that if you are considering a new position in the stock, as it can backfire greatly. Competition is fierce in the markets in which Kodiak completes, but the company has a stellar management team led by Lynn Peterson, who has successfully helped lead other entities through oil and gas booms and busts in the 1980s and 1990s. The company has been developing its reserves at this point, but I believe Kodiak has already run its course and will flatten out.

SandRidge Energy (SD) has had quite a different past two years, as it took a major dip in August 2011 and just cannot see light at the end of the low stock price tunnel. One of the problems associated with SandRidge is that it is widely ignored among many investors, but others find it a quality investment. The biggest problem that SandRidge seems to be facing is the same as many other natural gas/ oil companies: It is just too tied up in the natural gas aspect of the business. Of course, right now, companies are set to lose money and stock value as long as they are overly invested in the natural gas industry. Now, this is definitely a short-term hurt that is not going to be a good stock choice over the next few months, or even years. With that said, expect this to be a great long-term stock.

As I stated earlier, eventually natural gas is going to come back, and this time will only be accelerated as more and more companies forgo the product in favor of other resources. Some investors see this as an opportunity. Part of their strategy is to take advantage of companies leaving natural gas by investing in the companies that are still highly invested in it. So I would definitely suggest following the example of some famous investors such as Jeff Gundlach, and as natural gas prices rise so will the stocks for the companies that produce natural gas. CEO Tom Ward is a veteran from Chesapeake Energy (CHK), who led the company as COO through its ascent in the late 1990s through 2006. He is using Sandridge as a vehicle for similar, explosive growth. The company's $200 million in cash should be sufficient for capital requirements on deck, including its acquisition of Dynamic Offshore.

Halcon Resources (HK) is another great example of a company that has a hand in both natural gas and crude oil, but should you consider it as a viable investment? As of now, the company is seeing a price that it has not seen since 2007. It is poised to continue its growth, and there is one primary reason for this surge. The company, like many others, is focusing its effects on location with the recent major decrease in natural gas prices. This of course seems to be pretty standard across the board with companies that are into both, but as far as investing in all of them, I definitely do not suggest this. Even politicians are saying the same thing that the companies are, and of course, they are being backed by said companies. In reality, though, the real long-term cash is going to be in companies that stick with natural gas and continue to expand their operations as every other company leaves in droves.

I know that I have said it time and time again, but if you fully give up on natural gas right now, you will regret it later because now is the absolute perfect time to buy. Of course, there are some other developments that are going to make the price of natural gas rise, such as General Motor's (GM) new natural gas truck. This is just the first step to a major overhaul that I see coming when the people get tired of paying $4 or more per gallon of gasoline, and they move onto something else. What side of the fence will you be on when this occurs? The company's CEO, Floyd Wilson, has an engineering background that is somewhat unusual but very valuable for field operations, and he also led Hugoton (before it merged with Chesapeake) and PetroHawk.

A company that investors should focus on as being a potential in for short-term gain is Triangle Petroleum (TPLM). As of now, its stock is way up compared to the last few months, and for good reason. The company is investing in drilling in the Bakken shale and attaining some decent gains from the drilling. I definitely anticipate a rise in its stock because the company is working on creating more wells to get that precious oil out of the ground. This enhanced production through use of more wells will allow the company to boost its next-quarter ratings to encourage more investors. To put it plainly, Triangle has the opportunity here to ride the Bakken oil all the way to the bank. As far as the long run for the company, I could see the stock rising over the next year due to natural gas and WTI (and localized oil) prices, even if there will be less consumption. CEO Dr. Peter Hill has a strong background in operations and exploration with a multiyear background at BP (BP) and Harvest Natural. Thus, get into the company while crude prices are high and you will see high returns.

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

Has Aflac Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Aflac (NYSE: AFL  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

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


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 8.2% Fail
1-Year Revenue Growth > 12% 7.1% Fail
Margins Gross Margin > 35% 25.1% Fail
Net Margin > 15% 8.6% Fail
Balance Sheet Debt to Equity < 50% 33.0% Pass
Current Ratio > 1.3 0.42 Fail
Opportunities Return on Equity > 15% 15.6% Pass
Valuation Normalized P/E < 20 11.79 Pass
Dividends Current Yield > 2% 3.0% Pass
5-Year Dividend Growth > 10% 19.1% Pass
Total Score 5 out of 10

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

Aflac's score of five is the same it earned when we looked at Aflac last year. A lot has happened to the insurance company, but its financial numbers look quite similar.

Aflac's spokesduck is popular in the U.S., but what many investors don't realize is that Aflac is a truly global company. Aflac gets more than three-quarters of its revenue from Japan.

Moreover, Aflac distinguishes itself from health insurers like UnitedHealth (NYSE: UNH  ) and WellPoint (NYSE: WLP  ) by focusing on supplemental products rather than core health coverage. That not only gives the company different exposure to risk but also opens new opportunities, especially as health-care reform both in the U.S. and abroad leads to a shifting landscape for what's covered and what isn't under traditional health insurance policies.

But Aflac's international reach has also left it exposed to risks. Although the Japanese earthquake and tsunami didn't hurt it as much as peer MetLife (NYSE: MET  ) , which carried more property risk, Aflac still took a hit along with Prudential (NYSE: PRU  ) because of their health-care coverage. Moreover, Aflac's holdings of European sovereign debt have thrown a wrench into its finances going forward -- although the company survived and thrived after a similar scare two years ago.

Just like fellow insurers like Markel (NYSE: MKL  ) , Aflac makes money from the float between when it receives premiums and when it has to pay out claims. Its long-term investment success has allowed the company to increase its dividends every year for nearly three decades.

With CEO Dan Amos at the helm, Aflac has consistently gotten through difficult times in the past. With the right strategy going forward, Aflac should be able to start marching upward toward perfection in the near future.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Aflac to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Top Stocks For 7/28/2012-11

Fossil, Inc. (Nasdaq:FOSL) announced that the Company will be presenting at the Bank of America Merrill Lynch 2011 Consumer Conference to be held at The New York Palace Hotel in New York, NY on Wednesday, March 9, 2011 at 2:40 pm ET. Kosta Kartsotis, Chairman and Chief Executive Officer and Mike Kovar, EVP and Chief Financial Officer, will host the presentation.

Fossil, Inc. designs, develops, markets, and distributes fashion accessories worldwide. It offers a line of fashion watches under its proprietary brands, such as FOSSIL, MICHELE, RELIC, and ZODIAC; and through licensed brands, including ADIDAS, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, MARC BY MARC JACOBS, and MICHAEL Michael Kors.

Biomass is biological material from living, or recently living organisms, such as wood, waste, (hydrogen) gas, and alcohol fuels.

Biomass is commonly plant matter grown to generate electricity or produce heat. In this sense, living biomass can also be included, as plants can also generate electricity while still alive.

The most conventional way in which biomass is used, however, still relies on direct incineration. Forest residues, for example (such as dead trees, branches and tree stumps), yard clippings, wood chips and garbage are often used for this. However, biomass also includes plant or animal matter used for production of fibers or chemicals. Biomass may also include biodegradable wastes that can be burnt as fuel. It excludes such organic materials as fossil fuels, which have been transformed by geological processes into substances such as coal or petroleum.

Cleantech Transit Inc. (OTC.BB:CLNO) announced recently that funding to be provided to Phoenix Energy for the commercialization of a 500 Kilowatt biomass gasification plant should be eligible to apply for a renewable energy cash back incentive program offered by the U.S. Federal Government. If it concludes its planned investment in Phoenix Energy, under Section 1603 of the American Reinvestment and Recovery Act, Cleantech Transit will be entitled to receive its pro-rata share of 30% cash grant payments. Once the final interconnect process and application are complete the grant should be received within 60 days. The 5-year grant vesting period, means all parties must remain owner of record for that length of time, underscoring Cleantech and its partners� commitment to this project and the host community.

The U.S. Treasury�s cash grant program was created to provide funding, in lieu of tax credits, for the development of clean energy projects and clean tech jobs nationwide. The Merced facility has already employed several individuals, both for the construction phase and subsequent plant operations once in service.

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

For more information, visit

Sirona Dental Systems Inc. (Nasdaq:SIRO) announced that Simone Blank, Executive Vice President and Chief Financial Officer, will present at the Barclays Capital 2011 Global Healthcare Conference on Tuesday, March 15th at the Lowes Miami Hotel in Miami, FL. The presentation will be webcast live and available following the conference at

Sirona Dental Systems, Inc., together with its subsidiaries, manufactures and sells dental equipment for dentists worldwide. The company provides a range of products in four primary areas: dental CAD/CAM systems, imaging systems, treatment centers, and instruments.

Adobe Systems Inc. (Nasdaq:ADBE) announced the availability of Adobe Cold Fusion Builder 2 software for public beta, enabling ColdFusion developers worldwide to test the new features and functionality that will be made available in the final release of ColdFusion Builder 2. Using ColdFusion Builder 2 beta, users can develop, test, and deploy applications in less time, customize their work environment to improve workflow, and expand functionality with extensions built with CFML. When combined with Adobe ColdFusion 9 and the Adobe Flash Platform, developers can utilize a comprehensive set of tools, services and runtimes, for creating rich Internet applications.

Adobe Systems Incorporated operates as a diversified software company in the Americas, Europe, the Middle East, Africa, and Asia. It offers a line of creative, business, Web, and mobile software and services used by creative professionals, knowledge workers, consumers, original equipment manufacturers, developers, and enterprises.

5 Reasons to Worry About Next Week

It may be a new year, but we're still lugging around many of the same old problems.

There's fiscal uncertainty in Europe. Investors don't trust some corporations. Tim Tebow has backed his way into the playoffs.

Well, there's nothing we can do about Tebowmania beyond letting itself play out this weekend, but there is something we can do about calling out the companies that aren't carrying their weight if we want stocks to come back strong in 2012.

There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.


Latest Quarter EPS (estimated)

Year-Ago Quarter EPS

My Watchlist

Alcoa (NYSE: AA  ) $0.01 $0.21 Add
Schnitzer Steel (Nasdaq: SCHN  ) $0.23 $0.64 Add
SMSC (Nasdaq: SMSC  ) $0.33 $0.52 Add
Zep (NYSE: ZEP  ) $0.16 $0.27 Add
JPMorgan Chase (NYSE: JPM  ) $0.93 $1.12 Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Alcoa.

The aluminum giant revealed plans yesterday to scale back its smelting capacity by 12%. Alcoa will get there by closing an aluminum smelter in Tennessee, trimming operations at a Texas facility, and making a few global moves.

Cutting costs in order to cope with weak aluminum prices is a painful strategy, but the financials bear out the problem. Three months ago, Wall Street figured that Alcoa's bottom line would match the $0.21 a share it earned a year earlier. The pros have been slashing their estimates, and now Alcoa will be lucky if it's even profitable.

Schnitzer Steel Industries recycles ferrous and nonferrous scrap metal. Things seemed to be going well last year. There was one quarter that found 78% of Schnitzer's ferrous sales volume exported to buyers in China, South Korea, Turkey, and elsewhere. Healthy overseas demand was good enough to result in double-digit sequential gains in revenue and operating income.

Well, things aren't looking so hot right now. The same analysts that were banking on Schnitzer earning $0.95 a share this quarter have whittled down their projections to a mere $0.23 a share. Maybe it'll find a commiserating partner next week in Alcoa.

The pros haven't been having a change of heart with SMSC. They've been stuck at $0.33 as their per-share target for months. The seller of silicon-based integrated circuits issued guidance four months ago calling for adjusted earnings to clock in between $0.30 a share and $0.37 a share during the period, and it has given company watchers little reason to veer from that original projection.

Zep hasn't been aiming to please lately. You have to go back six quarters to find the last time that the maker of cleaning and maintenance solutions has beaten Wall Street's bottom-line expectations.

JPMorgan Chase is the banking giant that's brave enough to report earnings before most of its financial heavyweight peers report the following week. Fellow Fool Sean Williams is bullish on the prospects of this country's major money center banks in 2012, but I'm still gun-shy.

Either way, JPMorgan is wrapping up fiscal 2011 the wrong way if we go by the 17% decline in profitability that the prognosticators are targeting.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

If five reasons to worry aren't enough, here's one more. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever so check it out now.

IRS Moves Ahead Assuming No Change in 2012

This week, the IRS released Notice 1036 (downloads as a pdf) outlining the percentage method income tax withholding tables and the Social Security withholding rate for 2012. The Notice assumes no tax deal for 2012 but does include this warning:

At the time this notice was prepared for release, Congress was discussing a possible change to the tax rate for the employee�s share of social security tax. Check for updates at

The page at is operational but fairly empty. Here�s a glimpse:





Yep. So far, there�s nothing there. But if that changes, I�ll be sure to let you know.

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.

Wednesday, August 29, 2012

Oil above $107 as jobs data lights demand hopes

SAN FRANCISCO (MarketWatch) � Crude-oil futures ended higher Friday, notching a weekly gain as better-than-expected data on U.S. employment in February lifted prospects for oil demand.

Traders also eyed developments in the Middle East following an Israeli air strike on Gaza, and digested inflation data from China that indicated the country may take measures to stimulate its economy.

Crude-oil futures for April delivery �rose 82 cents, or 0.8%, to end at $107.40 a barrel on the New York Mercantile Exchange. That was oil�s third session of gains.

Prices advanced 0.7% on the week. Futures have risen in four of the past five weeks.

Natural-gas futures lead gains amid energy futures, leaving behind a 10-year low set on Thursday.

Click to Play Greece passes key debt test

Greece has just completed details of the largest sovereign bailout in history that will restructure about $264 billion of debt. But, there could still be some fall out.

The U.S. created 227,000 jobs in February and more people found work in the prior two months than previously reported. The increase in nonfarm jobs topped 200,000 for the third straight month, which reinforces the view of an economy gathering strength as 2012 unfolds.

Economists expected an increase of 213,000 jobs, down from growth of 243,000 in January, according to Dow Jones Newswires. Read more on the jobs data.

�On this most volatile of trading days, we are set for fun and games, with nonfarm payrolls coming in slightly better than expected,� said Matt Smith, an analyst with Summit Energy, in note to clients.

Meanwhile, China, a top energy consumer, reported Friday that annual inflation fell to a 20-month low in February. The country�s National Bureau of Statistics said the consumer price index rose 3.2% compared to February 2010, falling short of the 3.4% increase forecast by economists. China consumer price rise weakens

The slowdown paves the way for China�s policy makers to use monetary policy to boost growth, which may result in greater demand for oil and other resources.

Investors parsed out the latest from Greece, where the government said Friday more than 80% of its private creditors had signed up to a debt-swap deal.

The swap was needed to prevent the country from defaulting and to secure a second bailout package from its international lenders. Read more on Greece in Europe Markets.

Simmering tensions in the Middle East played a part on oil�s gains. On Friday, a Israeli air strike killed a senior militant leader in Gaza, and as the news percolated some misinterpreted as a incident involving Iran.

The market also heard from the Organization of the Petroleum Exporting Countries, which released its monthly oil report Friday.

OPEC left its headline forecasts broadly unchanged from its previous report, as consumption growth in Asia offset weaker demand in the West. Global oil demand will continue to grow by 900,000 barrels a day this year, while the world�s need for crude is stable at 30 billion barrels a day, the group said.

The report said little about tensions between Iran and the West and identified the economic weakness in Europe as the main source of uncertainty in the oil market. Read more about the OPEC report.

Meanwhile, other energy products ended mostly higher.

April natural-gas futures �ended 5 cents higher, or 2.3%, at $2.32 per million British thermal units. On the week, however, natural gas lost 6.4%.

On Thursday, the product ended at a 10-year low after the U.S. Energy Information Administration reported a decline of 80 billion cubic feet in natural gas�s inventories for the week ended March 2. That was smaller than the market expected.

April gasoline �gained 2 cents, or 0.6%, at $3.33 a gallon. On the week, gasoline rose 1.8%.

Heating oil was the outlier, with the April contract down a penny, or 0.2%, at $3.26 per gallon. Prices gained 1.9% on the week, however.

IPO Investors Await Street Coverage on Demand Media, Nielsen Holdings

Over the next two weeks, quiet periods will expire for a diverse group of companies that successfully completed IPOs last month.

Chief among them are online media platform operator Demand Media, Inc. (DMD), the largest Internet company to go public since Google (based on market value), and consumer behavior analysis company Nielsen Holdings B.V. (NLSN), the biggest PE-backed US IPO in at least ten years. Both listed on the NYSE on January 26 and have posted double-digit returns since their public market debuts. The quiet period for each stock is set to expire on March 7. Renaissance Capital has issued objective, in-depth Pre-IPO Research on both of these companies.

Since it was created in 2006, Demand Media (DMD) has grown rapidly to become a leading online content platform operator that uses over 13,000 freelance contributors to produce massive amounts of text and video. It strategically games Google's algorithms to determine what consumers want and tailors its articles to rank highly in search results. Some have expressed doubts over the long-term sustainability of Demand Media's business model, labeling the company a low-quality "content farm" and "Google parasite." Others are more optimistic, pointing to strong traffic trends (100 million+ monthly unique visitors) and increasing monetization of legacy content as early indications of its ability to generate attractive returns on its online content. In a sign of strong demand, the company priced an upsized deal at $17, above the initial $14 to $16 range, raising $151 million. The stock surged 33% to $21.85 on the first day of trading.

The Santa Monica, CA-based company also released fourth quarter results on Wednesday, slightly exceeding the preliminary estimates given in its SEC filings. It reported a 33% increase in revenue from the year-ago period to $74 million. Net income turned positive at $1 million, while discretionary cash flow, defined by management as CFO less property and equipment expenditures, was markedly higher at $16 million (+116% YoY). Shares are currently trading at $22, 29% above the offer price.

Nielsen Holdings (NLSN) is a more mature company with roots reaching as far back as the early 1920s. The well-known brand in consumer and media research was bought out for $10.1 billion in 2006 by a group of private equity investors that included KKR, Thomas H. Lee, Blackstone and Carlyle. Nielsen's two main segments comprise "What Consumers Buy," which provides consumer purchasing measurement and analytics for companies like Coca-Cola (KO) and Kraft (KFT), and "What Consumers Watch," which offers TV, online and mobile viewership data to companies like NBC, Google (GOOG), WPP (WPPGY) and AT&T (T). Nielsen has also performed well since its IPO, with its stock climbing 9% in its debut and another 3% in aftermarket trading. The company intends to announce full year 2010 results next Tuesday, March 1.

Protecting Your Sirius Profits With $2.50 Puts

With Sirius XM (SIRI) reaching near 4 year highs at a close of $2.40 on Monday, many investors are wondering how far the current bullish run will take them.

click to enlarge

But that is not the only question on investors' minds. Also important for every investor is protecting your gains. Some may suggest locking in profits by selling partial or full positions. A great idea at the top, but who knows where the top is? For all anyone knows, we could be over $2.75 next week.

For that matter, for all anyone knows, we could be at $2.20, and this is where being a bit conservative and protecting and insuring your assets, comes in. And that is the concern. How do you lock in your profits on your position, retain the ability to benefit from the share price increasing, and cover yourself on the downside?

You buy option contracts called "puts."

The strategy I am about to outline is a very important one for Sirius XM longs to consider as we approach, and hopefully pass, the $2.50 price point. Once this share price is passed by a few cents, near term $2.50 puts should cost only a few cents to purchase, and become an excellent option for locking in your gains at relatively low cost.

First, an explanation of what a "put" contract is. A put contract gives the buyer the option to sell the underlying security (in this case Sirius XM) at the strike price (in this case, $2.50), any time before the expiration date (for this example, April 21). Contracts are sold in lots of 100, so when you purchase 1 put contract, this will cover 100 shares you own.

For this example I will assume the share price has reached $2.60, and the cost of one put contract is $0.04 (it will be up to you to figure in fees for your respective trading platform). Our owner of the shares is named Bob and he owns the following :

  • 25,000 shares of Sirius XM
  • Going share price of $2.60
  • Total value of $65,000.

Bob wishes to protect himself in the case of a retrace in the share price back past $2.50. To do this, Bob can purchase put contracts.

Because Bob owns 25,000 shares, to fully cover his position Bob must buy 250 put contracts. 25,000 / 100 per contract. Prices on the put contracts are $0.04 each, but since each one covers 100 shares, the price per contract is $4. Bob must spend $1000, which is $4 X 250 contracts, in order to cover his position.

So why did Bob do this?

If the share price drops below $2.50 by April 21st, Bob may sell his shares for $2.50 to the person who sold him the options. Consider, if the share price drops to $2.20, Bob can sell out his position for $62,500, or 25,000 X $2.50, instead of the $55,000 they would be worth on the open market. Bob just saved himself $7,500 because of his $1,000 option purchase and is thus $6,500 ahead of where he would be if he did not purchase the options. Bob may also keep his shares at this point if he wishes, and merely sell the option contracts back into the market for $0.30 each, or $7,500, if he wishes to keep his shares.

If the share price runs to $3 by April 21st, Bob's options expire worthless and Bob loses that $1000 he paid for the option contracts. But in this case Bob's shares are worth $75,000, so he has locked in a $9,000 profit.

If the share price stays stagnant at $2.60, Bob's shares retain the same value, but he loses the $1000 paid for the option contracts which expire worthless.

There are two break even points that are important for the option trader to make note of. Take the price of the put contract which is $0.04 in this example. Bob's break even points are $2.46 which is the strike price of the put, minus the cost of the put, and $2.64, which is the underlying share price at the time Bob bought the option contract plus the cost of the put contract. At these share prices, Bob breaks even.

Options can be looked at in much greater detail, but that would take pages of analysis to explain. Hopefully this article gives the reader a good idea of how to protect your recent gains in Sirius XM with put contracts, while still allowing for large gains to the upside. I believe the $2.50 puts will offer tremendous value as insurance if the share price passes the $2.50 strike very soon. Long holders would do well to consider them to protect against a possible retrace, and lock in these wonderful gains we are currently seeing.

Disclosure: I am long SIRI.

Back to Basics: Client Relationships: Practice Edge, September 2009

A new school year is starting, and kids are going back to the basics--trading summer camps for classrooms, skateboards for school supplies, and video games for textbooks. Like these returning schoolchildren, investment advisors are also going back to basics this year as they attempt to navigate the current market environment. In this month's article we will examine one of the most important basic skills receiving renewed attention: client relationships.

Advisors' return to relationship basics is one of the largest shifts we've seen in ten years of collecting data through AdvisorBenchmarking. The 2008 market crisis has advisors focusing on fundamental issues such as regaining assets and effective client relationship management. Advisors ranked "relationship management" as the most important area for running an advisory firm, according to almost half (45%) of survey participants. They also named finding new clients (88%) and communication with clients (79%) as the most challenging areas of their businesses. In other words, advisors are struggling with some of the most basic aspects of the business: client relationship management and client communication.

Relationship Managementis the Key for Referrals

The advisory business is a people business, and relationship management is a critical component of an advisor's job. People prefer to work with someone they like at the best of times. In light of the market meltdown, worried clients will increasingly demand expert interpersonal skills as well as excellent financial management from their advisors. One of the major challenges for investment advisors today is how to attract new clients while retaining current ones. For both jobs, good relationship management is key.With a tough 2008 behind us, many dissatisfied investors are shopping for new advisors--and asking friends and family for suggestions. There is tremendous opportunity now to sign on new clients by actively seeking referrals from your existing ones. Most professionals (86%) believe that their top source for increasing assets under management (AUM) in the next five years will be referrals from existing clients--continuing the trend we've seen in the past. In our 2008 survey, advisors reported gaining more clients by actively seeking referrals than they had in 2007--12% compared to 5%. However, many advisors confided that they are uncomfortable with soliciting referrals from clients. They don't feel confident with the process and don't have formal referral programs in place.

How can you help yourself solicit referrals and attract new clients, as well as manage existing client relationships? Start by polishing your communication skills. To go back to the basics:

l Ask questions and listen carefully.

l Articulate your ideas and your advice with conviction to inspire a positive client response.

l Find meaningful ways to assess and address clients' core values and concerns.

l Consider asking your clients about their communication preferences--in person, by phone, or through email. While younger clients may prefer e-communication, older clients may prefer more traditional phone and in-person contact. But don't make assumptions--ask them.

l Consider a client satisfaction survey that assesses how well you're doing in all aspects of your practice, such as your responsiveness, proactive approach, and performance. The answers can help you focus your relationship management strategies to ensure client loyalty and stability.

l Consider putting an emergency communication plan in place so that the next time you need to reach out proactively to clients you've got a foundation in place to facilitate it.

The basic fact is this: Clients can be your advisors too. They can tell you what they need from you to remain satisfied and loyal customers. They can advise you on prospective new clients who are dissatisfied with their current investment advisors. Good client communication and relationship management are your keys to tapping client advice--and taking advantage of opportunity in the investment advisor market today.

Maya Ivanova is a market research manager with Rydex|SGI AdvisorBenchmarking She can be reached at

Rydex|SGI AdvisorBenchmarking is a research and analysis center focused on the registered investment advisor (RIA) marketplace. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors. Advisors also learn best practices of the most successful advisors in the business.

AdvisorBenchmarking is an affiliate of Rydex|SGI. The analysis on Rydex is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general in nature, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments|SGI and it affiliates or any of its affiliates.

Oil Majors: 2007 All Over Again?

Alan Brochstein had an interesting article about the oil majors this morning in which he discussed some of the potential for the oil majors going into the summer when these companies usually hit their seasonal peaks. We had done a little thought exercise with the refiners the other day, and it might be interesting to do something similar to this group.

The basic assumption is: 2011 equals 2007, that is, the profitability conditions for this sector will be similar to what they were in 2007, when demand for the finished products was strong, the oil price went from 50 to over 90, and most of the companies had record earnings.

Here is a table of the stock prices and forward PE's of the nine stocks mentioned in the above article:

1-Nov Current EPS Est FPE
Apache APA 109 118 11.22 10.52
Andarko APC 67.61 77.55 3.29 23.57
Conoco/Phillips COP 61.81 71.44 6.72 10.63
Chevron/Texaco CVX 84.98 96.62 10.52 9.18
Devon DVN 70.78 88.24 6.09 14.49
Halliburton HAL 31.92 46.13 3.49 13.22
Marathon MRO 33.92 45.48 4.79 9.49
Occidental OXY 84.23 97.21 8.84 11.00
Schlumberger SLB 75.66 88.84 4.99 17.80
Exxon/Mobil XOM 70 83.03 8.04 10.33

The EPS estimate is the analyst average per Yahoo Finance for either 2011, or if available, 2012. The average, as Mr. Brockstein points out, is around 15.

Here are the same stocks performance in 2007. The January 1 price, the price at the 2007 peak, and the PE of the stock at the time of the peak. Some of these companies had their peak at the beginning of 2008, so there might have been some additional upside:

Jan-07 Peak 2007 2007 EPS 2007 Peak PE
APA 65.25 104.92 8.39 12.51
APC 41.83 63.96 6.02 10.62
COP 67.42 90.17 7.22 12.49
CVX 70.55 93.35 8.77 10.64
DVN 67.66 92.56 8 11.57
HAL 29 41.16 3.65 11.28
MRO 42.96 66.25 5.69 11.64
OXY 44.4 78.1 6.47 12.07
SLB 59.2 109.84 4.2 26.15
XOM 72.66 95 7.38 12.87

So now, we can tell how these stocks are priced, relative to where they were on the best day in 2007. A lower PE right now means that there's more potential upside, a higher PE means that the stock is more expensive right now, relative to where it was at the absolute peak of the best year ever, based on earnings:

Here is the list, in order of the "relative inexpensiveness" of the stocks: The higher up on the list, the more of a bargain.

FPE 2007 Peak PE Diff
SLB 17.80 26.15 -8.35
XOM 10.33 12.87 -2.55
MRO 9.49 11.64 -2.15
APA 10.52 12.51 -1.99
COP 10.63 12.49 -1.86
CVX 9.18 10.64 -1.46
OXY 11.00 12.07 -1.07
HAL 13.22 11.28 1.94
DVN 14.49 11.57 2.92
APC 23.57 10.62 12.95

Based on this, most of these stocks still have some room on the upside, if, and it's a big if, you feel like 2011 will be like 2007. Foremost among these are XOM and SLB: XOM's forward earnings estimate is $8 per share, which is more than it earned in 2007, with the stock price still $12 below the 2007 peak, and SLB is estimated to earn $4.99, way over the $4.20 it earned in 2007, when the stock went to 109. It's currently at 88.

On the other end of the scale, HAL, DVN and APC are now relatively more expensive, in PE terms, than they were at the peak of 2007.

So, the higher up this list, the better, if, and like we said, it's a big if, 2011 equals 2007.

What are the risks?: Obviously the demand situation right now is completely different than it was in 2007, there are a lot of black swans, potential dark clouds and other things that could happen that could affect demand and send the oil price tumbling, like it did in 2008. Also, the analysts have been known to be wrong... earnings are coming in this week and they are tending to be a little higher than the analysts estimates, but they could just as easily be the other way in another quarter or two. Also, we're living in a world of near zero CD rates, and people are looking around for places to get returns, so their tolerance for risk might be a little different.

But, in general, the higher up that list the better, You make money when you buy a stock, not when you sell it.

The world is chaotic. There are no guarantees on anything.

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