Wednesday, October 31, 2012

MSFT: ‘Uneventful’ Q3; All Eyes On Win 8

Shares of Microsoft (MSFT) are up 15 cents, or half a percent, at $27.19 after the company last night beatanalysts’ revenue estimates in its fiscal Q1 report and reported EPS in line with consensus.

The quarter was marked by stronger-than-expected performance from the “Business Division,” which includes Microsoft’s “Office”�program, but also collaborative work tools such as “Lync” and “SharePoint.”

Having come through a rough PC market in Q3 in rather healthy fashion, Microsoft now seems to be a company awaiting a catalyst, with both bull and bear presuming that is the arrival of Windows 8 sometime next year.

Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating and a $32 price target. This fiscal year will “not be an upgrade year,” as he’s expecting Windows 8 sometime around next October or so, and the only catalysts are “likely to be the release to beta of Windows 8, probably by January.” Overall, the quarter showed “good results on low expectations,” Sherlund writes. The stock, at 9.4 times his 2012 calendar EPS estimate of $2.88, or 7.4 excluding cash, offers “some incentive to put toes back in the water.”

Mark Moerdler, Sanford Bernstein: Reiterates an Outperform rating and a $34 price target. The Windows division revenue of $4.87 billion was below his own $4.93 billion estimate, and Server & Tools was also light, by his reckoning. But the Business Division‘s $5.62 billion was ahead of his $5.55 billion estimate, and the Entertainment & Devices division’s $1.96 billion was ahead of his $1.62 billion estimate. Enterprise demand, according to the company, was “strong,” he notes. Moerdler is inclined to take Microsoft at their word that most of the weakness in the PC market is from a 50% drop in shipments of “netbooks.” And that bodes well for Microsoft, he thinks: “Strong PC growth ex-netbook is a positive for Microsoft going forward since their Windows revenue on PCs (including ultrabooks) is higher than netbooks.” Otherwise, the forecast Microsoft offered on its conference call, by segment of the business, largely seems to match his and consensus estimates, he writes.

David Hilal, FBR Capital: Reiterates a Market Perform rating and a $28 price target. It was an “uneventful” quarter, he writes, with most everything pretty much in line. He notes “healthy” demand for Office, SharePoint, Lync. “We remain concerned about PC growth going forward. While Windows 8 looks promising, we are taking a wait-and-see stance on its prospects for success. With regards to tablets, we think Windows 8 will face an uphill battle in the consumer market against the iPad but think it has a chance of penetrating the enterprise market.”

Heather Bellini, Goldman Sachs: Reiterates a Neutral rating on the shares and a $27 price target. She notes that the quarter’s upside was from the Business Division, “which has now posted upside to consensus for five of the past five quarters.” However, the success of some of those products, such as “Windows 365” and “Dynamics Online,” both actually services, not packaged software, brings down overall profitability because those programs have a lower profit margin than things such as Windows. Hence, Bellini cut her gross profit margin estimate for this fiscal year to 76% from 77.9% previously. Perhaps more important for the moment, so is the crisis at Western Digital (WDC), whose disk drive operations in Thailand have been shut down temporarily by flooding. “The real wild card to Microsoft�s FY12 forecast stems from the company�s Windows segment and the potential negative impact related to the flooding in Thailand which is impacting hard disk drive capacity (we estimate that 40% of the global capacity for HDD is located in Thailand).”

POT Just Says ‘No’; Options Say ‘Yes’

Potash Corp. of Saskatchewan (NYSE: POT) rejected BHP Billiton Limited’s (NYSE: BHP) unsolicited takeover bid, saying it was “grossly inadequate.” But it seems the market expects this to resolve in a predominantly cash deal. With a stock north of $140 at Tuesday’s close on a $130 bid, it doesn’t take rocket science to expect the company to settle somewhere higher.

What’s interesting is that if you look at the options markets, you’d pretty much assume this was a done deal. As done as a hostile bid with no agreement in sight can be anyway.

POT September options are trading at about a 35 volatility. Even if the company reaches an agreement tomorrow, POT is not going off the board before September, and it’s not going off the board at this price either (i.e., there’s at least one more gap day ahead). So it is somewhat hard to argue that the stock is wildly expensive here.

POT options out to January 2011 now carry a mid-20s volatility. That’s a good 10 points below typical levels in POT options about that far out (see the chart below). And POT options out to January 2012 now trade at a 20 volatility and below.

BHP options out to Jan 2011 trade at a 38 volatility, and slightly higher out to January 2012.

If the market expected a stock merger, BHP and POT volatility levels would converge, not repel. POT’s option activity is clearly saying there’s not much time value owning longer-term paper in POT.

If you think POT is going to stonewall and BHP is going to walk away, there’s a huge opportunity here. But the market is generally pretty efficient when the arbitrage gang gets involved, so I’d refrain from placing that bet.

Follow Adam Warner on Twitter @agwarner

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2 Emerging Market Debt Funds to Buy Now

There are no guarantees when it comes to the stock market. But there is one certainty these days: Any bad news from Europe will kill stocks.

Whether it’s the ongoing threat of a bank failure in Spain or more fears about Greece leaving the euro, investors are tossing the baby out with the bathwater and turning to “safer” investments. Capital is camping out in the U.S. dollar and bonds, as well as in German bonds as investors wait for the eurozone to get its fiscal house in order.

The Pain in Spain Stays Mainly the Same

The euro has been hammered, pushed recently to a two-year low of $1.24. And because of this, we’re also seeing emerging market currencies pull back in sympathy with the euro. Now, that’s not fair, is it?

Here you have an emerging economy that’s posting 5% to 6% GDP growth, has low inflation rates and no debt on its balance sheet � yet the value of its currency is dropping?

The reason why this is occurring is that the history of emerging markets has been littered with Banana Republics, hyperinflation and politically motivated governments that have nationalized businesses or were overthrown by military coups. History shows an unstable environment.

But in the past decade, these emerging economies have turned it around, embracing U.S. economic standards. Their leaders have been educated in America’s finest business schools. Their governments are now pro-democracy and transparent. And many deal in foreign markets as part of the World Trade Organization (WTO) and NAFTA treaties.

The tide is changing.

In fact, who do you think is buying all of our Treasury bonds when we come out with trillions of dollars of debt every two to three months? Emerging economies like Brazil, Indonesia, Malaysia, Turkey, Australia and New Zealand.

Emerging economies are quickly moving up the food chain among the world’s most powerful economies. India, for instance, is likely to pass the U.S. in GDP terms in the next two decades. China already has in several industries.

We’re seeing an incredible transformation in the balance of economic power — and we have the opportunity to take advantage of this shift while the rest of the world is looking in the other direction.

Buy Emerging Market Debt Today

The opportunities I find compelling right now are in emerging market debt. As Standard & Poor’s and Moody’s are downgrading the very solvent ratings of the U.S. and eurozone, these credit agencies are upgrading the future creditworthiness of places like Brazil, Turkey, Malaysia, Indonesia, the Philippines � just to name a few.

You see, it’s a great time to buy emerging market currencies in their local denominations while they’re down and out of favor, unfairly punished because of the eurozone crisis and the flight to safety to the U.S. dollar.

The best way to invest in these currencies is to focus on a select few diversified closed-end funds that are denominated in local currencies and are professionally managed by U.S. fund managers.

If you’re interested in emerging market debt, diversifying away from the U.S. dollar (U.S. 10-year Treasuries are paying a mere 1.62% yield!) and profiting from strong countries that aren’t saddled with a lot of debt, I have two funds for you today.

WisdomTree Emerging Markets Equity Income Fund (NYSEARCA:DEM) gives you great exposure to the world’s emerging markets. Its top 10 high-yield holdings are from regions like China, Brazil, Taiwan and Malaysia. And its current dividend yield is around 4% to 5%.

The other fund I like is AllianceBernstein Global High Income Fund (NYSE:AWF), which focuses on high-income plays in developed and developing markets. It currently carries a high 8% to 9% yield, depending on where you buy it.

Bryan Perry is the editor of Cash Machine, a weekly financial advisory that focuses on high-yield investments that provide cash payments month after month�no matter what happens in the stock market and global economy. In his brand-new report, 18 Breakout Payout Stocks that Will Pay You Up to 15% Annually Guaranteed, Bryan names 18 stocks and funds that will pay you up to 18% annually, as well as all the details on how to get started collecting fat income paychecks month after month. To access your FREE copy,go here now.

Top Stocks For 4/2/2012-17 Incorporated (Nasdaq:PCLN) announced that it intends to hold a conference call to discuss its 1st quarter 2011 financial results on May 5 at 4:30 p.m. ET. The event will be webcast live and the audio will be available for seven days thereafter at in the Investor Relations Section. Incorporated operates as an online travel company principally in the United States, Europe, and Asia. It provides various travel services, including airline tickets, hotel rooms, car rentals, vacation packages, cruises, and reservation services.

Crown Equity Holdings, Inc. (CRWE)

Internet advertising is a form of company, product and services advertising that uses the internet and World Wide Web as its core communication tool to the current and potential customers while also reaching out to the current and potential investors. The tool has been adopted by many businesses because of the many benefits it comes with. It is an effective way of telling the world what you are selling and eventually selling the product to them.

Crown Equity Holdings Inc. offers internet media-driven advertising services, which covers and connects a range of marketing specialties, as well as search engine optimization for clients interested in online media awareness.

It is relatively easy to advertise on the internet. One just needs to create a company website from where they can be uploading their offers. You can also advertise without owning a website. You just need to post your page on the web and you can be sure that people will see it, develop interest and the next thing they will do is to contact you and confirm about the offer.

CRWE’s digital network is designed, on behalf of its clients, to bring together targeted high-income audiences and advertisers on its financial websites that include, among others,,,,,, and

Crown Equity Holdings, Inc. together with its digital network currently provides electronic media services specializing in online publishing, which brings together targeted audiences and advertisers.

Crown Equity Holdings, Inc. has creative resources to dramatically enhance one’s company’s corporate identity with its in-house advertising and name-branding services. This includes creating, designing, implementing logos, and other strategies which rapidly increase one’s company’s credibility and value. As many people know, brand strength is a good indicator of the strength of a company and its financial value.
Crown Equity Holdings, Inc.’s mission is to profitably disseminate a variety of information as a worldwide online media publisher in an environment that has a positive effect.

For more information about Crown Equity Holdings, Inc. visit its website

National Health Partners, Inc. (NHPR)

Concern about high and rising health care costs in the United States has increased sharply in recent years. With the increase in costs and the lack of affordability of health insurance for many Americans, health policy experts are discussing whether steps can be taken to expand insurance coverage while keeping costs down.

National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called “CARExpress.” CARExpress is one of the largest networks of hospitals, doctors, dentists, pharmacists and other healthcare providers in the country and is comprised of over 1,000,000 medical professionals that belong to such PPOs as CareMark and Aetna.

U.S. spending on health care as a percentage of Gross Domestic Product is more than six percentage points higher than the average for other developed countries. Other important drivers of health care spending include health status (particularly obesity) and low productivity gains in the health care sector.

The company’s primary target customer group is the 47 million Americans who have no health insurance of any kind. The company’s secondary target customer group includes the millions of Americans who lack complete health insurance coverage. The company is headquartered in Horsham, Pennsylvania.

National Health Partners, Inc. recently announced that it has signed a new agreement with a major marketing company that will significantly enhance the growth of its CARExpress membership base.

According to the Company, this deal, in combination with the previous partnership with Xpress Healthcare, will enable the company to build its membership base exponentially, initially generating in excess of an additional 2,000 new members per month. The new campaign is set to launch within the next few weeks and will provide a material positive impact on the company’s 2nd quarter sales.

National Health Partners anticipate that this new marketing agreement will provide a major impact on their overall sales not only for the 2nd quarter, but more importantly for the year. They look forward to building on the profits that they anticipate generating in 2011 that will be driven by substantial growth in sales of their CARExpress health discount programs. The combination of their substantial growth with their low price-to-equity ratio should reflect itself in the price of their stock over the coming months.

For more information about National Health Partners, Inc visit its website

Intuitive Surgical, Inc. (Nasdaq:ISRG) reported first quarter of 2011 revenue of $388 million, up 18% compared with $329 million for the first quarter of 2010. First quarter of 2011 revenue growth was driven by continued robotic procedure adoption and higher da Vinci Surgical System sales. First quarter of 2011 instruments and accessories revenue increased 28% to $157 million from $123 million in the first quarter of 2010. The growth in instruments and accessories revenue was primarily driven by growth in da Vinci surgical procedures of approximately 30%. First quarter of 2011 systems revenue was $167 million, an increase of 8%, compared to $155 million during the first quarter of 2010. First quarter of 2011 services revenue increased 26% to $64 million from $51 million during the first quarter of 2010, reflecting growth in the installed base of da Vinci Surgical Systems.

Intuitive Surgical, Inc., together with its subsidiaries, engages in the design, manufacture, and marketing of da Vinci surgical systems for use in urologic, gynecologic, cardiothoracic, general, and head and neck surgeries.

Apple Inc. (Nasdaq:AAPL) announced that iPad� 2, the second-generation of its breakthrough post-PC device, will arrive in Japan on Thursday, April 28 and Hong Kong, Korea, Singapore and eight additional countries on Friday, April 29. iPad 2 will be available at Apple retail stores at 9 a.m. local time, select Apple Authorized Resellers, and online through the Apple Store� ( beginning at 1 a.m. Additionally, iPad 2 with Wi-Fi will be available in China beginning Friday, May 6.

Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide.

Obama Administration Endorses the Lifting of Energy Industry Subsidies

The Obama administration seems particularly intent on rolling back subsidies for the American oil and natural gas industry, as the Executive Office released a statement this Monday explicitly endorsing�the passage of Senate Bill S. 2204 — Repeal Big Oil Subsidies Act.

The bill is currently undergoing debate in the Senate; its standing iteration lays out plans to scale back oil and natural gas industry entitlements over the span of a decade. In terms of financial specifics, the bill outlines an initiative to lift $21 billion in oil and natural gas industry tax breaks over a period of ten years — ultimately including the previously uncollected sum among a given year’s tax collection.

The March 26 statement directly claims:

The Nation�s outdated tax laws currently provide the oil and gas industry billions of dollars per year in these subsidies, even though the industry is reporting outsized profits. Furthermore, heads of the major oil companies have in the past made it clear that high oil prices provide more than enough profit motive to invest in domestic exploration and production without special tax breaks.

Irrespective of whether one believes this measure to be economically sound, it is clear that volatile oil geopolitics are bumping the market value of crude oil and its constellation of refined products to an exceptional high.

Adam Patterson is an Assistant Editor of InvestorPlace.�You can follow him on Twitter�@ToweringBabble.

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

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When Good Stocks Love Bad News

Most investors read news reports to evaluate a company's prospects. Bullish or bearish articles naturally impact our perception -- and positions. Yet in most cases we interpret the news in the wrong way. News headlines are, by definition, a lagging indicator. And because stocks often don't act the way news suggests they "should," we should skip the headlines and monitor the markets themselves.

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Case in point: shipping stocks, where the news has gone from bleak to downright grim. This, even as a rally in risk assets has pushed the Dow Jones Transpiration Index to within 6% of its all-time-high. Last year the billionaire chairman of supertanker operator Frontline (FRO) predicted the shipping rates would soon "collapse."

The Baltic Dry Index, which measures the cost of transporting goods by ocean freight and was discussed in this column last year, has dropped as much as 63% in 2012, hitting a 25-year low, including a 33-day run in which the index fell every single day.

Even now shipping costs remain unsustainably low. Because large tankers can deteriorate more rapidly docked than in use, some fleet owners are now actually paying users to rent its vessels. According to published reports, Global Maritime Investments chartered a vessel to commodities trader Glencore International for a rate of negative $2,000 a day, essentially paying the company to ship its own grain.

Yet amid these dour reports, many shipping stocks, including the Guggenheim Shipping ETF (SEA) we wrote about last month, are actually outperforming. Since the beginning of 2010, the fund has gained about 16%, not including a nearly 6% annual dividend, powered by components like Alexander & Baldwin, Seaspan (SSW), Nippon Yusen (NPNYY) and Teekay Corporation (TK) .

Positive price action combined with negative headlines? As one part of a risk portfolio, I'd consider that a winning bet.

—Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in many of the securities mentioned.

Tuesday, October 30, 2012

Nike — How to Play Thursday’s Earnings Report

Sports apparel company Nike (NYSE:NKE) reports earnings for the quarter ending Aug. 31, 2011, on Thursday after the market closes. Retail stocks are rebounding nicely in September, but weak guidance from Lululemon (NASDAQ:LULU) might foreshadow trouble for Nike.

The market clearly is uncomfortable at current levels. One week we go up, only to retest the lows the next week. The bears are expecting a significant slowdown in the economy. The bulls believe we have seen the worst of it.

Who will be right? With third-quarter earnings season set to begin in early October, we will soon find out. In the interim, a handful of companies — Nike among them — are reporting results that will give us clues as to the future direction of the market.

Nike has exceeded Wall Street estimates in three of the past four quarters:

When Nike reported results for the quarter ending May 31, shares soared. The glowing report did include a warning that higher manufacturing costs would eat into future profits into 2012. With the warning, analysts reduced guidance for the current quarter.

The average Wall Street estimate is for Nike to make $1.21 per share. That number is eight cents lower than the $1.29 per share estimate 90 days ago. For the full year ending May 31, 2012, the company is expected to make $4.83 per share. In the last fiscal year, Nike made a profit of $4.17 per share.

At current prices, NKE shares trade for 22 times trailing earnings and 19 times forward earnings. The expected year-over-year profit growth rate is 16%.

Given the strong operating performance during the past year, it should be no surprise that shares of Nike have gained 16%:

Nike�s earnings report comes at a time when the market is in rally mode. During the past week, stocks have gained impressively, with the only blip coming on Monday. Shares of Nike have participated in the rally, with shares spiking to above $90 per share. Those gains have Nike at a premium valuation relative to its expected growth rate.

Using Lululemon�s reduced guidance as a guide, it would be surprising to see Nike be anything but cautious in the current report. The company previously suggested profit margins would be hit by higher manufacturing costs. Will the strong brand equity in the Swoosh be enough to propel shares higher from here?

At the time Lululemon reported its results on Sept. 8, shares traded for 50 times current-year estimates, with expected profit growth of 27%. The reduction in earnings pierced the bubble somewhat, but shares now trade well above pre-earnings levels thanks to a rally in stocks.

Nike trades for a much more reasonable valuation. Current quarter estimates have been sliced, setting the table for an earnings beat on Thursday. A particularly strong report could impress investors to the point of pushing shares up 5% or more.

Other companies reporting results this week include Finish Line (NASDAQ:FINL) and KB Home (NYSE:KBH).

FSLR: Ticonderoga Says Sell, Modules To Lose Money In 2012

Shares of solar energy technology supplier First Solar (FSLR) are up $1.25, or 2%, at $57.16 despite a downgrade this morning by Ticonderoga Securities analyst Paul Leming, who cut his rating on the stock from Neutral to Sell, with a $40 price target, arguing that pricing and volume declines in solar equipment will crimp revenue and profit.

Prices for the “thin film” version of solar modules sold by First Solar are “at or below 90 cents per watt” writes Leming, which means First Solar is at best break even based on its manufacturing costs, he writes.

“Pricing throughout photovoltaic value chain appears to be accelerating to the downside,” writes Leming, “consistent with disappointing Q4 volumes, massive overcapacity throughout the value chain, and the reality that still weaker volumes in the seasonally soft first half of the year (2012) will soon become a reality in the industry.”

Leming thinks First Solar’s modules will start to lose money next year, given that prices for polysilicon, the other material used by competitors, is likely to “break $30 per kilogram over the next nine months.”

Leming thinks First Solar is “absurdly” burying the risk to module profits by hiding their actual pricing in First Solar’s “downstream project business,” an accounting gimmick, in his view.

Leming cut his 2011 revenue estimate to $3.42 billion in revenue from $3.61 billion previously, and cut his EPS estimate to $8 from $8.23. For 2012, his numbers go to $4.1 billion from $4.2 billion and his EPS estimate goes to $6.30 from $7.

Gordon Johnson with Axiom Capital this morning offered his own note on the risks to First Solar. He notes that Phoenix Solar, which is Germany’s largest installer of solar panels, yesterday cut its year outlook because of the “current market environment.” The company now projects �300 million to �400 million in revenue, down from �635 million.

Because Phoenix may not meet its loan obligations, Johnson theorizes the company will have to dump its inventory of panels, “the bulk of which consists of First Solar panels,” writes Johnson.

NYSE: FB vs. Nasdaq: FB, And the Other Big Facebook IPO Questions

Nasdaq (NDAQ) is home to many popular tech stocks, and the addition of the long-awaited Facebook listing will cement its position as the favored exchange for big names in U.S. tech. The Nasdaq has about twice as many tech companies as the NYSE Euronext (NYX) trading for more than $1 billion, according to Bloomberg News.

Some of the biggest U.S. blue-chip companies, like IBM (NYSE: IBM), are listed on NYSE. The market capitalization of NYSE shares is nearly triple that of Nasdaq, and NYSE is associated with big, global names - which is why CEO Mark Zuckerberg's decision for NASDAQ: FB surprises some.

Now Nasdaq will enjoy association with one of the hottest companies hitting the markets in years. Facebook now has reached more than 800 million users and $3.7 billion in revenue.

Nasdaq also will get healthy boost in revenue and trading fees.

"There's cachet to winning one of the biggest IPOs ever," Tim Hoyle, the director of research at Haverford Trust Co., which manages $6 billion including NYSE shares, told Bloomberg. "The straight- up value of this IPO will make for a nice gain in listing fees, which make up a meaningful portion of the revenue stream for exchanges."

NASDAQ: FB Boosts NASDAQ Nasdaq shares extended gains after reports came out that Facebook would trade as NASDAQ: FB, and closed up 1.19% to $25.52. NYSE Euronext fell 1.26% to $28.31.

Nasdaq failed to snag all of last year's hyped Internet IPOs. LinkedIn Corp. (NYSE: LNKD) and Pandora Media Inc. (NYSE: P) both chose NYSE.

In 2011, NYSE hosted 44% of technology IPOs in the United States, bringing 19 new listings to the market and ranking first globally in IPO proceeds raised. It's listed about 63% of qualified tech IPOs this year, and 60% of all qualified transactions.

But Nasdaq still holds seven of the 10 largest tech companies by market value, including the two largest, Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT).

Besides being known as a home for tech stocks, Nasdaq also differs from NYSE in expenses and trading models. Nasdaq operates on an electronic trading model, while NYSE is a hybrid model with both electronic and floor trading activity.

Also, NYSE is more expensive, charging an upfront fee to list, and an annual fee. Listing fees range from $38,000 to $500,000 a year on NYSE, and between $35,000 and $99,500 a year on Nasdaq.

The NASDAQ: FB decision could sway future tech IPOs to join the tech-heavy Nasdaq exchange.

It's a high profile win for their listings business," Michael Adams, an analyst with Sandler O'Neill, told The New York Times. "In terms of earnings, the impact won't be dramatic, but it's something to be proud of."

News and Related Story Links:

  • Money Morning:
    Who Wins with the Facebook IPO
  • Money Morning:
    Buy, Sell or Hold: When to Buy Shares of Facebook
  • Bloomberg:
    Nasdaq Said to Win Facebook Listing in Win Over NYSE
  • CNBC:
    Facebook picks Nasdaq for marquee listing: source
  • The New York Times:
    Facebook Is Said to Pick Nasdaq for I.P.O.

AMT: Stifel Starts at Buy, Prefers to SBAC

Following AT&T’s (T) announcement last night it will give up its bid to buy Deutsche Telekom’s (DTEGY) T-Mobile USA unit, there’s been some rejoicing, as I noted earlier, for the companies that own and operate the cellular towers used by carriers, who all seemed until today to be on the wrong side of industry consolidation.

Stifel Nicolaus’s Ben Lowe takes diverging points of view on American Tower (AMT) and SBA Communications (SBAC), rating the former a Buy and the latter a Hold.

Overall, the long-term, or “secular” expansion of mobile data use, and of Internet traffic, will lead to further investment by carriers in network infrastructure, which should be good for the tower stocks, he thinks.

American Tower “is well positioned to capitalize on the attractive fundamental growth outlook for the tower industry as well as company specific growth initiatives,” he writes, “which include the company�s efforts to enhance its overall growth by investing internationally.”

Lowe’s $72 price target on AMT is a multiple of 17 times enterprise value divided by Ebitda.

SBA, on the other hand, is “an interesting growth story,” he thinks, but the company’s balance sheet is not as flexible given higher leverage, and there’s only “modest potential upside in the stock.”

AMT shares are up $2.59, or almost 5%, at $59.77, while SBAC is up $1.57, or 4%, at $41.14.

Stocks Gain Ahead of Fed; BAC, CHK Jump

Stocks rallied on Tuesday, as the FOMC considered what to do about lagging U.S. growth; its announcement is expected Wednesday. The market is expecting the Fed to extend “Operation Twist,” writes LPL Financial economist John Canally.

In the first incarnation of Operation Twist, the Fed sold shorter-term securities and bought long-term securities in an attempt to bring down long-term rates. As’s Randall Forsyth noted, it’s unclear whether that effort succeeded — although 10-year Treasury yields have since hit historic lows, that arguably has more to do with investors seeking safety as Europe melts down.

Canally doesn’t expect the Fed to announce QE3, which would entail a large asset-buying program. But to keep investors happy, the Fed will (at the very least) have to extend language indicating that it will keep rates low into 2014, Canally wrote.

“Extending the commitment to keep the Fed funds rate near zero beyond the end of 2014 is the minimum the Fed could do to keep markets placated,” Canally wrote.

On Tuesday, stocks rose in anticipation of Fed action, and on slightly more positive news out of Europe. In addition, a jump in building permits in May added to optimism about the housing market. The Dow rose 95.5 points, and the S&P 500 was up 13.2 points.

Financial stocks posted large gains, with Bank of America (BAC) ending 4.5% higher. Chesapeake Energy (CHK) led a rise in energy stocks, ending the day up 5.9%.

Why Qualcomm May Break $80 As Spreadtrum Struggles

Qualcomm (QCOM) once again proved strong fundamentals during the recently quarterly results. The Street has since boosted EPS targets with all 38 revisions up for a net change of 4.4%. As Spreadtrum (SPRD) relatively struggles, investors have an opportunity to capitalize on Qualcomm's outperformance during a recovery. Based on my multiples analysis and review of the fundamentals, I find considerable upside for Qualcomm.

From a multiples perspective, Qualcomm is by far the more expensive of the two. It trades at a respective 22.2x and 14.8x past and forward earnings while Spreadtrum trades at a respective 6.9x and 6.3x past and forward earnings. In addition, Spreadtrum also offers a dividend yield that is 100bps higher at 2.4%. As much as this premium gives investors pause, once should consider that Qualcomm's PE multiple is 87% of the 5-year average.

At the recent first quarter earnings call, Qualcomm's CEO, Paul Jacobs, noted a stellar start to the year:

"We're very pleased to report record revenues, earnings per share and MSM shipments this quarter driven by increased demand for smartphones and data-centric devices across an expanding number of regions and price points. It was a very successful quarter, and we're pleased to be raising our financial outlook for fiscal 2012. QCT continues to execute and is well positioned to take advantage of the many opportunities ahead.

We announced the expansion of our Snapdragon S4 processor road map, demonstrated Windows 8 running on an MSM8960-based device over LTE and had several partners launch noteworthy devices based on our solutions. Our Licensing business had another strong quarter as well, driven by the global adoption of smartphones and other connected devices".

End market demand is finally starting to pick up and Qualcomm has an attractive portfolio of products to penetrate the WCDMA chipset market. The firm is the top supplier in the digital wireless market, reigning supreme in CDMA. It is further well exposed to favorable trends in the 3G market with an excellent combination of chip and IPR offerings. Furthermore, management is impressively improving an already strong balance sheet. Roughly $5.2B is expected to be added to the firm's net cash position over the next two years. With free cash flow yield at 4.2%, management may explore getting more aggressive with share repurchases to boost ROE.

Consensus estimates for Qualcomm's EPS forecast that it will grow by 16.9% to $3.74 in 2012 and then by 11% and 13.5% in the following two years. Assuming a multiple of 20x and a conservative 2013 EPS of $4.12, the rough intrinsic value of the stock is $82.40, implying 33.9% upside.

Turning over to Spreadtrum, we find a company that has indicated slowing sales momentum for the beginning of the year. While the Android 2.2 TD-SCDMA smartphone does a nice job showcase the strength of Spreadtrum's solutions, Nokia is undergoing a bit of a turnaround and locking out market share gains in emerging markets, like China. Furthermore, the delay in launching its smartphone platform has made investors hesitant over execution. TD shipments were sequentially flat in the fourth quarter, but meaningful penetration of the 2G market is in sight. Going forward, the company will most likely shift its GSM products over to 40nm, mainly as a means to improve margins.

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

Monday, October 29, 2012

High-Yielders with a Decade of Sales Growth

Only 313 U.S. companies have increased sales every year for the past decade. These are companies that have improved every year since 1999 -- growing through three presidents and two bear markets.

Some of the biggest names that have pulled off this financial feat include Wal-Mart (NYSE: WMT), (Nasdaq: AMZN) and Medtronic (NNYSE: MDT). Most of these companies don't pay enough in dividends -- or any in's case -- to make the final cut for serious income investors.

Thirteen of the 313 U.S. companies pay more than 6%.

Company (Ticker)TypeYieldEPSDPS
Buckeye Partners
Penn Virginia
Empire District Electric (NYSE: EDE)Utility7.0%$1.20$1.28
Realty Income
Wash Real Estate
Entertainment Prop. (NYSE: EPR)REIT8.3%$0.06$2.79
Sun Communities
Investors Real
(Nasdaq: IRET)
Urstadt Biddle
One Liberty Prop.
First Real Estate
Middlefield Banc
Amer. Church Mtg.
(Pink: ACMC)


Even with a decade of stellar earnings growth behind it, this list is full of landmines. American Church Mortgage Company's nearly 20% yield, for example, isn't very secure. In the past 12 months, the company has paid out more than twice what it has earned, making this company's dividend endangered.

Several others are worse. IRET, SUI, EPR, WRE, PVR, and BPL all paid out more than twice what they earned during the past twelve months.

Even though Empire District Electric (NYSE: EDE) has paid out slightly more in dividends than it has earned during the past 12 month, it's the winner in this category. A payout ratio of 108%, in the short-term, isn't too concerning, especially when it's a public utility monopoly that has the states it operates in on its side.

The company is currently seeking rate increases in several of its coverage areas that will help fill that gap. Earlier this month, it filed a request with the Kansas Corporation Commission to hike electricity rates in Kansas by nearly 25%. And at the end of October, the company filed a request with the Missouri Public Service Commission to hike electricity rates nearly 20%.

While customers won't be pleased with any hike, they'll have to find a way to deal with them as there are few other prospects, none of which are more agreeable than installing a wind turbine on the roof.

Based in Joplin, Missouri, the Empire District Electric is a century-old $661 million company that provides electricity, natural gas, or water services to some 215,000 customers in Missouri, Kansas, Oklahoma, and Arkansas. Its seven power plants can produce 1,255 megawatts of power for the 121 cities it provides electricity to.

The company pays $0.32 per share quarterly for a total of $1.28 yearly. At current prices around $18, it equates to a yield of 7%. It has maintained its dividend at this level since 1992 and has continuously paid dividends since 1944.

This is not an exciting stock. With a beta of 0.76, it's significantly less volatile than the S&P 500. But over the past decade it has outperformed the S&P by +44 percentage points.

The company's next $0.32 per share dividend will be paid on December 15, 2009 to holders of record as of December 1, 2009.

The company offers a dividend reinvestment program through Wells Fargo Bank that provides a 3% discount to the three day average trading price preceding the dividend payment date. For more information on this program, call 800-468-9716 or visit this link.

A Few Chinese Bad News Bears To Spoil A Happy New Year

Goldman's Jim O'Neill noted in a recent interview that the world's future prosperity depends on China's growth. While we don't totally agree with that assessment as we see China as one of the many contributory factors towards world's future, there are some recent bad news bears coming out of China that could spell troubles for markets, at least in 2012.

Export Growth Could Drop to Zero in 2012

The General Administration of Customs released November trade figures showing export growth continued to decelerate and was at their most sluggish in two years. At a news conference, China's Commerce Ministry spokesperson warned,

The overall trade environment next year for China will be complicated, partly due to the economic uncertainties in the European countries, and I should say that the export situation in the first quarter of next year will be very severe."

Wang Tao, an economist at UBS Securities noted China's export growth is expected to "drop to zero in 2012," which will have a "sizable negative impact on the economy," and that the export figures underline "shifts in the export structure - some traditional lower-end and labor-intensive sectors may be losing market share to cheaper producers." (See Chart Below)

Chart Source:, 14 Dec. 2011

FDI Sees Its First YoY Drop in 28 Months

Part of China's recent explosive growth has to do with foreign investments pouring into the country to capitalize on the expected burgeoning middle class income growth. But in November, China experienced its first year-on-year dip of 9.76% in Foreign Direct Investment (FDI) in 28 months primarily from a sharp drop in inflows from the United States, while investments from the European Union -- China's single largest trading partner -- were essentially flat. (See Chart Below).

Moreover, this drop came on top of the first net capital outflow from China in four years in October, as investors fled emerging markets due to Europe's festering debt crisis.

Chart Source:, 16 Dec. 2011

Manufacturing Tanks To Near Three-Year Low

China’s manufacturing contracted for the first time since February 2009 with the Purchasing Managers’ Index (PMI) fell to 49.0 in November from 50.4 in October. (Read: China Manufacturing Tanks To Near 3-year Low)

The December number did not bode well either as the HSBC flash manufacturing PMI, an early indicator of China's industrial activity, showed China's factory output shrank again in December after new orders fell. (See Chart Below)

Chart Source: HSBC, 15 Dec. 2011

PBOC Reversing Course - How Bad Is The Economy?

In early December, PBOC (The People's Bank of China), China's central bank, announced the first cut in banks’ reserve requirements since 2008, just two hours before the U.S. Federal Reserve led a global dollar liquidity injection to ease Europe’s sovereign debt crisis. And there could be more easing on the way, as Reuters reported that data showed Chinese banks made 562 billion yuan of new loans in November, a shade more than forecast as Beijing gently eases tight credit conditions.

China has made controlling prices a top priority this year and implemented a series of tightening measures. Inflation fell from a three-year high of 6.5% in July to 4.2% in November, which is still above Beijing's current inflation target of 4%. And China's inflation battle is far from over as rising labor costs and higher input prices are among the factors that will continue to push up consumer price levels.

So the more interesting question is:

How bad is the real economy for China to reverse course taking on the risk of re-surging inflation pressures?

Escalating Social Unrest

Inflation and social unrest goes hand-in-hand and has toppled quite a few governments in the history book. Judging from the recent Wukan Siege, the social unrest in China (due to disputes in wages, land grab, etc.) seems to have escalated in both scale and duration. This could suggest a more serious mid-to-long-term undercurrent that would be challenging and delicate to handle for the central government.


From what we discussed so far, it is evident a pronounced China slowdown in the next year or so is inevitable with the nation's export-centric economy struggling with waning global demand, while undergoing domestic structural economic and demographic shifts. Moreover, there could be some hidden debt bombs as a recent Bloomberg finding suggests that China's banks may be understating their exposure to runaway local borrowing by possibly billions of dollars that is raising fears of a government bailout.

How Beijing steers its economic and monetary policies in the next 2-3 years will be key to balance the country's inflation, growth and stability. While we see a very low probability of ahard landing case for China, but if Jim O'Neill is right about how much the world depends on China's growth, then don't count on that much world prosperity, at least in 2012.

Economic Forecast for February 2011: Black Swan Uncertainty

The recent release of 4Q2010 GDP shows that the USA economy, from a traditional bookkeeping point of view, has left the recovery stage – and the economy is now technically back into an expansion phase. Expansion begins when GDP exceeds its pre-recession peak.

While this is true technically, realistically the economy remains under the influence of the recession, especially when measurements are made on Main Streets in much of the country. And when real GDP is normalized to population, the conomy is only half way to recovery.

At the end of every month, the editorial team of Global Economic Intersection go through the quantitative exercise of reviewing our set of non-monetary economic pulse points – and extrapolate a prediction for the next month’s Econintersect Economic Index (EEI).

This is not a mindless exercise. Thorough review of the data and checks of quantitative forecast against anecdotal observation not only determines what is observable in aggregate, but also exposes the process to challenges from thing others might call externalities and preclude from consideration. To date, we believe that our forecasts have fairly forecasted the real underlying economy.

For February, we are seeing a potential black swan event unfolding which may impact this quantitative forecast – the Middle East/ North Africa unrest.

Our first concern is that this crisis may pop the equities bubble championed by Fed Chairman Ben Bernanke as the main beneficiary of quantitative easing.

The ownership of equities is concentrated in the upper 20% of the USA citizens. It is the spending of these citizens which is driving the current “weak” recovery (or expansion, if you accept the traditional view). Loss of wealth of this group would contract spending of this group. This spending contraction would be over a period of time, and likely would have a small effect in our forecast period.

But Econintersect’s primary concern with this potential black swan event is the effect of an oil price spike. Oil price spikes could effect the economy in February.

All forecasts rely on measurement of underlying trends which historically have a correlation to future economic movements. A black swan is an unforeseeable event – such as the oil crisis which began in October 1973 and literally within days triggered the 1973 USA recession. Both in 1973 and February 2011 – the underlying economy was weak.

For this reason, Econintersect believes there is an unusually high uncertainty for any forecast (ours included) for the month of February. For this reason, the team at Econintersect are qualifying this February 2011 economic forecast.

Econintersect’s February 2011 USA Economic Indicator

The Econintersect forecast for February 2011 is for slightly positive growth. All underlying indicators are showing expansion.

click to enlarge images

The EEI has improved from +0.04 to +0.25. There has been some back revision in the data over the last 4 months almost eliminating the dip below zero in the 4Q2010.

One major component of the EEI is transport related. Econintersect considers transport (truck, rail and sea container) counts a primary economic pulse point – and its trend represents underlying economic pressure.

This month, the transport portion of the EEI index was flat MoM. This portion of the index is quite noisy as it quantifies the month-over-month (MoM) change (positive numbers indicate seasonally adjusted MoM growth, negative numbers represent seasonally adjusted MoM contraction).

To Econintersect, transports represent the pulse of the real economy – the economy of Joe Sixpack. All of our man made surroundings, the clothes we wear and the food we eat are moved several times by transport during their processing / delivery cycles. A growing economy consumes more (and therefore transports more), a contracting economy consumes less.

There is growing anecdotal evidence that the transport indicator portion of the EEI may soon start to decline.

For a complete explanation of the EEI, please see the October 2010 forecast.

Past EEI Forecasts for: January 2011, December 2010, November 2010, October 2010, September 2010.

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

Top Stocks For 2012-2-9-17 Stock Report!

Tuesday September 15, 2009

The Board of Directors of FirstEnergy Corp. (NYSE: FE) today declared an unchanged quarterly dividend of 55 cents per share of outstanding common stock. The dividend will be payable December 1, 2009, to shareholders of record as of November 6, 2009.

ATS Medical, Inc. (Nasdaq: ATSI), manufacturer and marketer of state-of-the-art cardiac surgery products, announced today that it will participate in the 2009 UBS Global Life Sciences Conference at the Grand Hyatt Hotel in New York. Michael Dale, President and CEO of ATS Medical, will present at 4:30 p.m. Eastern Time on Tuesday, September 22, 2009.

Marriott International, Inc. (NYSE: MAR) announced a partnership today with the Australian Indigenous Minority Supplier Council (AIMSC) as the first lodging company to participate in a pilot program through 2012. The program will help identify local suppliers to provide services for multiple hotels in Australia.

CareView Communications, Inc. (Pink Sheets: CRVW), an information technology provider to the healthcare industry, announced today that it is relocating to a new office warehouse complex as of October 1, 2009. Located at the intersection of State Highway 121 and Interstate Highway 35 in Lewisville, Texas, this facility will accommodate CareView’s expanding operations as well as being located closer to the Dallas/Fort Worth International Airport. The new facility provides almost 40% more square footage than the current location. In addition to more adequate office and meeting space, the new facility will have warehouse space and equipment testing labs to allow CareView to design, develop and provide quality assurance for its CareView System(TM) product, and will allow for a larger and more efficient assembly area for the server systems CareView uses in its hospitals.

Cal-Maine Foods, Inc. (NASDAQ: CALM) today announced that the Company will release its first quarter fiscal 2010 financial results on Monday, September 28, 2009. A press release will be issued prior to the open of market trading. Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packing and sale of fresh shell eggs. The Company, which is headquartered in Jackson, Mississippi, currently is the largest producer and distributor of fresh shell eggs in the United States and sells the majority of its shell eggs in approximately 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.

In recognition of its strategic, innovative technology, J. C. Penney Company, Inc. (NYSE: JCP) was ranked No. 6 on the 2009 InformationWeek 500 and was named the Category Winner for Supply Chain and the Industry Winner for Retail. These honors were presented at the InformationWeek 500 Conference and awards gala ceremony on Sept. 14 in Dana Point, Calif.

Sunday, October 28, 2012

High Conviction: Short the Yen

Alexander Tepper is Chief Economist at TKNG Capital, a global macro hedge fund based in New York. Previously, Mr. Tepper was a senior economic policy aide to U.S. Senator Frank Lautenberg. He also has experience at Oliver, Wyman & Company advising Fortune 500 financial institutions on risk management and as an investment banking Associate at Credit Suisse. He has a masters degree in Economics from Oxford University, and a BA in Physics from Princeton University.

We recently had the opportunity to ask Alexander about the single highest conviction position he currently holds in his fund.

What is your highest conviction position in your fund right now - long or short?

We are short Japanese yen against the US Dollar. We have implemented the trade by selling out-of-the-money calls to buy out-of-the-money puts and taking in premium.

Why did you use options to structure the trade?

Call options on the yen are significantly more expensive than put options. This “skew,” as it’s known, exists because the Japanese investment community tends to be short yen, making it susceptible to sharp rises during bouts of risk aversion.

Investors hedge this exposure by buying out-of-the-money yen calls. But given the sharp adjustment that has already occurred in the crisis and a government whose proclivities are far from fiscally conservative, we view the risks as less asymmetric than implied by the skew.

Structuring this trade with options is akin to playing with dice loaded in our favor.

Tell us a bit about Japan right now, and why you're short its currency.

Japan has traditionally been an export-oriented economy, but that’s going to change as the population continues to age and retire. These older citizens, who have saved their whole lives and are no longer producing anything, will be a natural source of demand, first for domestic Japanese goods and then for imports. A shrinking labor force will mean other nations will need to pick up the slack in production. Already, the savings rate in Japan has fallen into the low single-digits and it should fall further.

Japan is also in serious fiscal trouble. Its net debt is more than 100% of GDP, and gross debt is nearing 200% of GDP. The Japanese government and central bank do not seem particularly concerned. It is only Japan’s strong balance of payments position, and a willful suspension of disbelief by the markets, that differentiates it from countries like Greece. But those, too, should ebb over time.

So why will the yen fall?

First, as the Japanese retire, the supply shock to the economy will result in continuing declines in competitiveness. The yen will need to fall to restore balance.

Second, less income and more retirees will mean that Japan will need to fund more of its government’s borrowing from abroad. Making this attractive will mean a lower exchange rate, higher interest rate, or (most likely) both.

Third, the government’s fiscal position is the worst in the developed world. The scale of the adjustments that are necessary to stabilize the budget deficit would be unprecedented in a large developed nation, requiring deep cuts to pensions, double-digit tax increases, and severe spending restraint elsewhere. If sovereign worries persist, Japan and its currency are obvious targets for speculators.

Finally, we think consumers in the US and UK are undergoing a lasting shift in psychology that will cause them to save a larger share of their incomes going forward. Over the long-term, the savings rate needs to average around 10% in order for Americans to secure a reasonable retirement. When Americans save more, they buy less, especially imports. This lack of demand for imports means a stronger dollar against US trading partners like Japan.

All this is on the assumption that the global economy will limp along for a while. But if instead we have a return to robust growth that looks broadly like the pre-crisis economy, the yen should weaken towards 2007 levels as markets become more and more comfortable with risk and interest rates rise in the rest of the developed world.

There are a lot of ways to win with this trade.

What would you say the current broad sentiment is on the yen?

The market has tended to view the yen as part of the “risk-on/risk-off” trade, where the yen rises with worries about the global economy. Japan’s fiscal issues are well-known, but the market has generally not priced them, with yields on 10-year Japanese bonds below 1.5%. Japanese CDS spreads, however, have doubled since late summer.

More broadly, the markets have believed that correction of global imbalances requires a weaker dollar to encourage Americans and Asians to change their consumption behavior. We think the financial crisis and experience of house price declines will be the driving force that restrains Americans’ profligacy, while Asians will consume more. The result will be a stronger dollar.

Does Japanese economic policy play a role in your position?

The Japanese government has made fairly clear that it does not intend to tolerate a markedly stronger yen because it hurts their exporters. It also seems neither inclined nor able to do anything about the fiscal situation in the near future.

What catalysts do you see that could move the currency, and the trade in your favor?

The eurozone’s sovereign risk worries will soon resolve themselves one way or another. When they do, Japan could easily become a target.

As economic data continue to strengthen over the next few months, a return to normalcy will mean a weaker yen.

We are also prepared for a more gradual adjustment as markets adopt our demographic view.

What could go wrong with this trade?

In the near term, Japanese companies repatriating income around the fiscal year-end in March could potentially lead to a rise in the currency. A sharp rise in risk aversion could have a similar effect. We have been careful to choose the strike prices on our options to minimize the damage if such a spike does occur.

Beyond that, deflation in Japan means that in a perfect economic world, the yen would appreciate over time. There is also the risk that the pundits over the past several years prove right and we see fundamental weakening of the dollar with respect to all Asian currencies.

Finally, if China were to revalue its currency, as many believe it will, that could create space for the Japanese authorities also to allow some appreciation. Again, however, we believe our options are sufficiently out of the money to limit our downside in such a scenario.

What are your thoughts on the short Yen ETFs now available to do this trade (DDY, YCS)?

I don't think any of the leveraged ETFs are suitable for retail investors. Their performance can vary markedly from the underlying index over longer timescales. Just look at the performance of SRS (short real estate) since inception and you'll see what I mean. As an individual investor, I'd do this using options on FXY.

Thanks, Alexander.

Disclosure: TKNG Capital is short the Yen against the Dollar.

Read more High Conviction Picks »

If you are a fund manager and interested in doing an interview with us on your highest conviction stock holding, please email Rebecca Barnett.

How Low Will Holiday TV Prices Go?

The HDTV sets retailers tout as holiday must-haves are bigger and packed with more features than Santa's bag, but the televisions on holiday wish lists have prices smaller than that of a day's feed for eight reindeer.

Holiday shoppers face a television market filled with new 3-D and Internet-connected high-definition flat screens, but that won't prevent global demand for televisions from falling an estimated 1% in the fourth quarter, according to Paul Gagnon, director of North American TV research for consulting firm Display Search. A high conversion rate from old cathode-ray tube sets in North America and Europe and a lukewarm response to new technologies has flattened demand between holiday 2010 and this season. Inventory projected to be right in line with holiday demand isn't exactly sending prices through the roof, either.

See if (SNE) is in our portfolio

Prices on LCD HDTVs, which make up 80% of all global television shipments, have dropped roughly 7% during that time and are falling at a much faster rate than those of plasma televisions. Though overall sales may increase slightly for all of 2011, shipments of plasma televisions are expected to drop 9% this year and 5% to 6% each year thereafter."We expect very low, single-digit unit increases," says Stephen Baker, vice president of industry analysis for market research firm NPD Group. "Aggressive price competition will help keep unit growth positive, although we anticipate revenue growth will be negative despite a fairly strong market for TVs above 50 inches." The combination of economic uncertainty in the U.S. and Europe and the emergence of lower-priced sets made by Samsung and others has taken its toll on Sony(SNE), which announced plans in August to restructure every aspect of its TV division from development to production. The division that produces Sony's heralded Bravia sets has already closed TV factories in Mexico, Slovakia and Spain and outsourced production to Taiwan's Foxconn. It has posted seven consecutive years of losses and is heading for an eighth after reducing its annual TV sales forecast this summer from 27 million sets to 22 million. Rival Panasonic(PC), meanwhile, announced last month that it will cut its flat-screen production in half and close plasma and LCD factories in Japan after forecasting $5.4 billion in losses for 2011.

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"Everyone is struggling with flat panel demand, not just the brands but the retailers as well," Baker says. "However, we continue to see that aggressive price promotion is successful at stimulating consumer demand."

Consumer Reports is already predicting an HDTV price plunge this holiday season based on retailers' Black Friday pre-sale offerings. Its electronics experts have set the low price for 32-inch LCD TVs at $200 thanks to Target(TGT) and Best Buy(BBY) offerings, while $330 to $350 price tags of off-brand, no-frills 40-inch televisions has the publication predicting a $300 TV of that size in the near future. Though Wal-Mart(WMT) and BJ's Wholesale Club(BJ) are already offering $400 42-inch sets and Best Buy is letting a 50-inch set go for $480, 3-D televisions are still a tough sell; even 42-inch 720p models go for $500 or more.

"Pricing for 3-D TV sets will be much lower this holiday as that technology migrates to smaller screens and competing 3-D technologies that are cheaper are pushed into the market from brands like Vizio and LG," NPD Group's Baker says.New 3-D televisions make up only 11% of all TV shipments in North America, according to Display Search, while reaching 12% in China and 14% in Western Europe. The problem, as a survey by electronics review site Retrevo discovered, is that U.S. television buyers feel little to no need to upgrade or flat out don't consider a 3-D television an upgrade at all.Only 33% of the shoppers Retrevo surveyed planned to buy an HDTV within the coming year. Of those shoppers, only 22% will buy a 3-D set, 23% will only go 3-D if the price difference from a normal set is nominal and 55% won't buy a 3-D set under any circumstance. Why the reluctance? Roughly 40% of consumers say Avatar, 3-D cartoons and iffy 3-D transfers of blockbuster releases aren't enough to warrant the premium price, while 30% think the glasses are a problem regardless of whether they're the costly active-shutter pairs or the far cheaper theater-style passive sets. For manufacturers and retailers looking to shrink the margins a bit this season, 3-D and Internet connections are about the only way they can keep prices aloft. Amazon(AMZN), for example, knocked $120 off the price of an 42-inch LG "smart TV" with Internet connectivity, but still offers it for a hefty $680. "There will be downward pressure on products without those features because the brands and retailers want those products to have price-aggressive larger screens to sell and they will be designed to sell for a lower cost," Baker says. "This activity is totally separate from anything that might happen around Smart TV and 3-D." >To follow the writer on Twitter, go to>To submit a news tip, send an email to: RELATED STORIES: >>10 Holiday Songs You'll Hate By Christmas>>10 Holiday Rentals For Your Crazy Family>>Video Games Face Ho-Ho-Horrendous Holiday SeasonFollow on Twitter and become a fan on Facebook.

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Mutual funds say ‘bye’ to bad three-year records

BOSTON (MarketWatch) � Mutual funds mark anniversaries to forget the past, not to celebrate it.

With the three-year anniversary of the U.S. stock market�s bottom during the 2008-09 financial crisis passing last week, fund firms have a lot to be joyful about. They can now show off three-year track records that no longer include the 10-month dive that cut the market�s value in half.

Click to Play Chasing income, investors drive up junk-bonds

Before you load up on high-yield �junk� bonds, give them the sniff test first, says Jason Zweig on Mean Street. Photo: Associated Press.

Investors see that market bottom, reached March 9, 2009, as the low point of the worst bear market since the Great Depression. But fund companies think of it as the start of a powerful bull market. It�s something to brag about, with the Dow Jones Industrial Average DJIA �, Standard & Poor�s 500 Index SPX � and the Nasdaq Composite COMP �all up at least 95% since then.

Fund investors must decide how much of the past they want to remember when evaluating their investments, particularly now that three-year results no longer include the market�s darkest days. The anniversary of the bottom also creates a solid measuring point for determining if funds have met expectations.

Time and money

No matter how often management says � and studies prove � that past performance is no indication of future results, investors rely on track records; when a good or bad event falls out of the common viewing window, it changes the impression investors get.

With that in mind, the time period an investor most relies on is crucial, and should depend on the investor�s tolerance for risk.

�Aggressive investors should focus on the past three years; moderate investors should focus on the past five years,� said Mark Salzinger, editor of the No-Load Fund Investor newsletter. �Conservative investors who want equity exposure should focus on 2008, specifically how various equity funds performed that year. That�s because even most equity funds that performed relatively well that year would rise in a bull market, only probably not as much as the market � [which] should be OK for conservative investors.�

Let�s put that to work and see how different some funds look.

We�ll consider two large-cap value funds that appeal to average investors looking for brand-name, core, long-term holdings: American Century Equity Income TWEIX �and T. Rowe Price Equity-Income PRFDX .

The American Century fund has an average annualized gain of 17.3% over the past three years, which isn�t bad until you realize that puts it in the bottom 5% of its peer group, and badly lags the S&P 500�s 25.5% gain, according to investment researcher Morningstar Inc. Yet over the past five years the fund is up 2.8% annualized, standing in the top 15% of its peer group and ahead of the index.

By comparison, the T. Rowe Price fund is up 26% annualized since the market bottomed � dramatically better than the American Century fund and a bit ahead of the S&P 500 � but has gained just 1.4% annualized over the last five years.

Why? The 2008 results. That year, American Century Equity-Income was off just over 20%, compared to a 37% decline in the S&P 500 and a 41.5% loss for the T. Rowe Price fund.

Using Salzinger�s logic, an aggressive investor would be impressed with the T. Rowe Price fund�s results since the market bottomed; the moderate investor is willing to overlook the American Century fund�s dismal relative results over the last three years for its top-shelf performance in the longer time period, including the market meltdown. The conservative investor, again, would side with American Century because it stood up so well.

For investors who want an even longer view � figuring that more market cycles in a track record improves their understanding of a fund�s potential � both funds beat the index and rank near the top of the peer group for the last 10 and 15 years.

Ask experts and they will tell you that the time frame for judging a fund is a personal decision, but you can see through the time-frame games that fund firms play by thinking like a buyer, not an owner.

That being the case, check the three-year performance of your funds to see how well they have recovered since the market bottomed. If they lagged on the way down and haven�t recovered as well as the market, it�s time for a change; just be careful that you are not taking on more risk than you�re comfortable with just to feel like you have a fund that will continue riding the crest of the current upswing.

Said Jeff Tjornehoj, head of Lipper Americas Research: �This isn�t a pass/fail test, it�s an essay. If you�re going to put your wealth in the hands of an active manager beware the near-certainty that they�ll come up short to their benchmark at some point and that it�ll test your faith in them. Then you can ask yourself if you�d buy that fund today if you didn�t already own it; maybe you�ll change your mind, maybe you won�t.�

5 Stocks Increasing Dividends

Among high yield dividend stocks boosting their payday this week are blue chips Texas Instruments (NYSE: TXN), Kroger Co. (NYSE: KR) and Yum! Brands Inc. (NYSE: YUM). Dividend stock investments like these remain in favor as investors look for the safety of yield instead of just betting on a stock�s share appreciation.

One good rule of thumb for dividend stock investors is to make sure they purchase companies raising their dividends instead of just keeping them steady � or even worse, cutting them. A long track record of dividends is also important, and one of this week�s dividend increases in Paccar (NASDAQ: PCAR) boasts a record of dividends since 1943.

It�s pretty quiet on the dividend front this week without many earnings reports. Typically, increases in dividend payouts occur around quarterly earnings numbers. However, there are a few stocks raising their yields worth pointing out:

Texas Instruments Dividend Increase

On Thursday, Texas Instruments (NYSE: TXN) approved a $7.5 billion stock buyback alongside a dividend increase of +8% for the tech giant. Texas Instruments raised its dividend by a penny to 13 cents a share quarterly, giving TXN stock a new dividend yield of about 1.9%.

Dividends at Texas Instruments are reliable, with a quarterly payday since 1962, however the 1 cent increase is meager and the first dividend boost in over five fiscal quarters.

Texas Instruments has a market cap of just under $30 billion, as has been lagging the broader markets lately. In� 2010, TXN stock is down about 2% compared with a small gain for the Dow Jones.

Kroger Dividend Increase

Grocery store heavyweight Kroger Co. (NYSE: KR) posted strong earnings this week, and along with that report came news of an +11% increase to the company�s dividend. The increase of a penny will give KR stock a 10.5 cent dividend this quarter, for a dividend yield of about 1.9%

On Tuesday, supermarket giant Kroger said earnings per share rose to 41 cents in the second quarter of fiscal 2010 from 39 cents a year earlier. Sales, including gasoline at Kroger stores, were $18.8 billion for the quarter, up +6% from a year earlier. Without fuel, sales rose +2.7%.

Kroger has been outperforming the market in 2010, with shares up about +6% so far since January 1.

Yum Dividend Increase

Yum! Brands Inc. (NYSE: YUM) announced a +19% dividend increase this week. The more boosted YUM stock�s quarterly dividends from 21 cents to 25 cents a share and gave the fast-food leader a new dividend yield of 2.1%.

The dividend payment to be distributed on November 5 �to shareholders of record October 15. �The Yum! dividend policy continues to target a payout ratio of 35 to 40% of annual net income.

YUM stock is having a breakout year, with shares up +31% year to date compared to a relatively flat stock market.

Paccar Dividend Increase

Truck maker Paccar (NASDAQ: PCAR) said Tuesday it will raise its quarterly dividend to 12 cents from 9 cents per share, a +33% increase that gives the company a new yield of about 1%.

The dividend will be paid Dec. 6 to shareholders of record as of Nov. 19. Though the company�s yield isn�t stunning, Paccar has been paying dividends since 1943.

PCAR stocks has been performing very well this year, with gains of about +22% so far in 2010 compared to a small increase in the major indexes.

Colony Financial Dividend Increase

Small-cap real estate finance company Colony Financial Inc. (NYSE: CLNY) approved a +19% increase for the REIT�s quarterly dividend. This is the company’s third increase this year, from 21 to 25 cents previously, and brings the dividend yield of Colony Financial to about 4.6%

Colony Financial went public about a year ago, and has had a rough go of it due to the mortgage crisis. The stock is off about -5% since its fall 2009 IPO and off about -9% year-to-date. However, the big dividend yield is worth noting.

As of this writing, Jeff Reeves did not own a position in any of the stocks named here.

Top 5 Stocks for the 4th Quarter Surge – Louis Navellier details five stocks set to deliver record earnings this October and jump 30%-50% in the next 90 days as the big money piles in. Get their names online here, including Louis� buy-below and target prices.

Apps Are Media

Apps have taken over the world. If you doubt that just take a look at this app map by Horace Dediu at Asymco which shows the 123 countries in the world where iPhones are available. Of course, anywhere you can get an iPhone, you can get an iPhone app. Like the Web, apps are distributed globally.

But when it comes to “media” like books, music, and movies, the distribution is much more limited on digital devices. Again, only looking at Apple (AAPL), Dediu counts only 51 countries where music is available through the iTunes store, and only 6 countries where TV shows are available (see map below). My first reaction is that Apple really needs to broaden its licensing efforts internationally. But remember, iTunes started going international in 2004, and there are still more countries where you can get only apps (72) than both music and apps.

Traditional media industries are more restrictive in their licensing, and this is particularly true for TV shows and movies, which follow all sorts of arcane rules of availability across different distribution channels (theaters, Pay-Per-View, DVDs, cable, internet streaming). When you look at the glacial geographic advance of video and music on iTunes (and the internet, in general), it seems like we still have a long way to go before a global, legal market for digital media establishes itself in a meaningful way.

Except there already is a global market for digital media. They are called apps, and they represent the future of media in many ways. Apps are media. Not only are they a form of media in the way that consumer software and games have always been considered media (they compete with TV, books, and music for consumers’ time and attention). But increasingly, they are also subsuming other forms of media.

We are seeing the first signs of this “Software Eats Media” (to butcher a phrase from Marc Andreessen) phenomenon with books. Some of the most interesting books on the iPad aren’t merely iBook or Kindle editions, they are full-fledged apps. The best children’s books on the iPad are full-blown apps, as are other books and magazines which incorporate images and videos into the experience. The TinTin iPad art book, based on the new animated movie, is a perfect example. It incorporates 3-D models that readers can manipulate, immersive 360-degree rooms, and other software-enhanced media.

Music and movies are arguably more passive experiences, but they are also increasingly becoming features of other apps. The lines between software and media will become harder to tell apart as apps begin to include more and more traditional media. We are seeing this first on the creation side, with songs, videos, movies being recorded on iPhones (part of the next Avengers movie was shot on an iPhone). And more apps are including video and music snippets as well. Imagine a game with immersive 3-D rooms you can “walk” through where you can watch different narratives unfold. Would that be a movie or an app? The way we consume media will be very different from the sit-back mode which rules today.

Before we get there though, there will be many incremental steps along the way. Just think about how longer-form media already is delivered through apps—whether that’s listening to entire albums streamed on Spotify or watching Netflix movies on your iPad. In these cases, it is not so much the original media which gets transformed (the song or the movie), but the experience surrounding it. Media discovery becomes more social and algorithmic.

A song or a TV show will become a hit because it is shared by millions of people on Facebook and Twitter, not because it is getting millions of dollars of promotion on radio or TV. These apps will determine what we watch next through social and algorithmic recommendations—because how else do you find something to watch when traditional programming is dead?

The apps that deliver this media will exert a powerful influence over our consumption habits—what we watch, listen to, and read, as well as how we do it. Apps will help us find media through social and other filters, and throw it onto our TVs, iPads, stereos or whatever device is handy. They will bypass the set-top box, the radio, and the book store. Apps are where media consumption will happen. Media companies can continue to ignore or fight that trend at their own peril.

Original post

SEC Chair Repeats Strong Support for Fiduciary Duty

Schapiro clearly stated in testimony

"Broker-Dealers and Investment Advisers Should be Subject to the Same Fiduciary Standard of Conduct and Heightened Regulatory Regime When Providing the Same or Substantially Similar Services. Another area where regulation should be rationalized involves broker-dealers and investment advisers, particularly with respect to the services they provide to retail investors. The Commission has been closely examining the broker-dealer and investment adviser regulatory regimes and assessing how they can best be harmonized and improved for the benefit of investors. Many investors do not recognize the differences in standards of conduct or the regulatory requirements applicable to broker-dealers and investment advisers. When investors receive similar services from similar financial service providers, it is critical that the service providers be subject to a uniform fiduciary standard of conduct that is at least as strong as exists under the Investment Advisers Act, and equivalent regulatory requirements, regardless of the label attached to the service providers," Schapiro told the Committee.

Referring to the hearings during the Great Depression that led to the Wall Street and banking reforms of that era, Schapiro drew a comparison between the FCIC's work and that investigation of the crash in 1929: "Ferdinand Pecora uncovered widespread fraud and abuse on Wall Street, including self-dealing and market manipulation among investment banks and their securities affiliates." See all FCIC testimony, here.

In her testimony, the Chairman outlined several initiatives that will enable the SEC to strengthen enforcement, addressed supervision of "Complex Financial Institutions," broker/dealer capital and reporting concerns, transparency, compensation and regulation of markets. She also addressed, once again, the need for more resources for the SEC, something that Barney Frank has recognized in proposed financial services reforms legislation. The SEC takes in much more in revenue than Congress has appropriated for it in recent years. (See related articles, below.)

Comments? Please send them to Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

Related articles and commentary:

House Passes Sweeping Financial Reforms

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Schapiro's Call for Fiduciary Standard Reflects SEC's Original Mandate

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Brokers and the Fiduciary Standard

Survey indicates that a majority of broker/dealer reps support fiduciary duty to clients. That's surprising "support among brokers for the fiduciary standard in light of the industrys historic opposition to it.

Mr. Dodds Message from Washington

Now that we have heard from both the House and Senate committees on finance and banking about investor protection, lets not misinterpret what they are saying.

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FINRA Chairman and CEO Richard Ketchum challenged broker/dealer industry leaders to win back investors confidence.

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The Fiduciary Issue

In a Wealth Manager Webinar, SIFMAs Kevin Carroll and The Committee for the Fiduciary Standards Knut A. Rostad discuss the differences between SIFMAs proposed federal fiduciary standard and the authentic fiduciary standard.

Saturday, October 27, 2012

Risk Is Rapidly Rising in this Market

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

U.S. stocks closed Friday with strong gains for the week, leading the S&P 500 Index on track to finish October with the biggest monthly gain since 1974.� Stocks continued their rally after the European rescue fund was boosted to 1 trillion Euros and banks agreed to a voluntary writedown of 50% on their Greek debt holdings. But the big question this week, of course, is whether the run will last.

As I usually like to look at longer-term charts for perspective let us now turn to two monthly charts.� Before October the S&P 500 had fallen five consecutive months, mostly driven by concern the debt crisis would curtail global growth.

So after five negative months it would have been expected to see a rise in stocks for the month of October … although maybe not the second best month for stocks, ever!

Such are the current times however where volatility is as volatile as stocks themselves thanks in large part due to the wildcards that remain in politicians� hands.

Click to EnlargeThose hefty gains also left their mark on the monthly charts.� On the two charts here, note that both the S&P 500 and the Nasdaq 100 index recorded big monthly outside bars (engulfing candles).� The S&P 500 held support at the 200 week simply moving average (blue line) while the Nasdaq 100 more or less finds itself right back near the highs for 2011.

Click to EnlargeSuch price action is bullish all else being equal and certainly something to keep in mind although not an actionable catalyst in and of itself.

While the S&P 500 rallied beyond its 61.8% Fibonacci retracement of the highs-to-lows move from this year, the European indices, at least the German DAX and the Eurostoxx 50 are still well within those resistance zones.

Click to Enlarge Given that the rally off the early October lows was mostly� on the back of medium-term perceived positive news out of Europe it might be wise to take technical resistance clues from those indices.

Click to EnlargeAnd this again brings me full circle to the importance of the current crossroads.� Charts across asset classes, from commodities to currencies and stocks, sit near significant resistance levels.

Given the volatility of the current global macro environment however it would not be surprising to see somewhat higher levels in risk assets across the board at some point in coming weeks.� Eventually however the “good” news will have been priced in, fund managers will have chased the rally enough, and focus will again turn to “show me” economic results that will have to back up the recent enthusiasm for risk assets.

Get Sam Collins’ trade of the day: Tech stock Akamai due for 10% to 15% pop

Get Sam Collins’ market commentary: Only a bonkers bull would chase this market

Get Serge Berger’s market commentary: Charts show risk is rapidly rising for investors