Sunday, March 31, 2013

Fast Casual Restaurants Slice Off Bigger Portion of Dining Dollar

Led by the rapidly growing fast casual segment, the restaurant industry should see significant sales increases in 2011 after getting rocked by the recession.

Consumers who were worried about the economy cut back on dining out in 2008 and 2009. But with modest gains in 2010 pointing to better days ahead, industry analysts believe this year could be the best for restaurants since 2007.

"Consumers are finding some retail therapy in things like eating out," John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC inBoston told Bloomberg. "They may not be ready for that two-week vacation inEuropeyet, but they'll go to a restaurant once every couple of weeks. It's an affordable luxury."

U.S. restaurant chains should enjoy a 1.6% increase in sales this year following a 0.1% increase in 2010, according to restaurant consultancy Technomic Inc.

The National Restaurant Association is even more optimistic, predicting a year-over-year sales increase of 3.6%.

"We're seeing a substantial reversal in the trend and consumer confidence is getting better," Hudson Riehle, senior vice president of the Research and Knowledge Group for the National Restaurant Association told "Challenges remain, but from an industry perspective, the momentum levels are the highest they've been since 2007."

The Popular ChoiceWhile all types of restaurants should get a lift from the gradually improving economy, the fast casual group - exemplified by Panera Bread Company (Nasdaq: PNRA) and Chipotle Mexican Grill Inc. (NYSE: CMG) - is expected to outperform the rest of the industry as it has for the past several years.

Fast casual, an offshoot of the quick service segment that includes fast food chains such as McDonald's Corporation (NYSE: MCD), offers a more upscale atmosphere and healthier food while omitting the table service of casual dining restaurants like Brinker International Inc.'s (NYSE: EAT) Chili's and DineEquity Inc.'s (NYSE: DIN) Applebee's.

Visits to the top fast casual chains, which include Chipotle, Panera Bread, Five Guys Burgers and Fries, and Noodles & Co. (both Five Guys and Noodles are privately held) rose 6% in 2010, according to NPD Group's CREST, while restaurants as a whole witnessed a 1% drop. Since 2007 traffic has increased 17% at fast casual establishments.

And the fast casuals have responded by adding more locations. Even in the difficult economy of past three years, the segment has expanded by 12%.

Sales growth also reflected the exploding popularity of fast casual restaurants. Five Guys, with a 38% increase in sales, was the fastest growing chain in the United States last year, according to Technomic. Chipotle's 22% rise in sales earned it third place; Noodles & Company, with a 14% increase, came in ninth.

"The strong growth in demand in restaurants is the [fast casual] sector that is positioned between fast food and casual dining," Bryan Elliott, restaurant analyst with Raymond James told columnist Andrew Leckey. "These restaurants have no ‘wait staffs' (table servers) and are perceived to offer better food quality and a better buying experience than fast food, which helped them do well during recession and continues to help now."

The healthier food is a primary reason consumers are flocking to fast casuals. According to the National Restaurant Association, 7 out of 10 consumers say they are trying to make healthier choices in restaurants then they did two years ago.

"There's a food revolution going on in this country," Steve Ells, founder of Chipotle, said at a Television Critics Association press tour. "People are really concerned about what they're eating. This notion of a fast-casual restaurant is different from fast food. ... Fast casual brings real food and real cooking and adds convenience."

Tough to SwallowTo some degree, the fast casual group's success has come at the expense of the two segments it sits in between, fast food and casual dining.

While fast casual visits went up last year, visits to casual dining restaurants fell 2%. The bar-and-grill segment in particular has struggled, reporting negative traffic every quarter since 2004.

Two chains, Fuddruckers and Uno Chicago Grill, filed for Chapter 11 bankruptcy in 2010. By midsummer Luby's Inc. (NYSE: LUB) had purchased Fuddruckers, while Uno managed to emerge from bankruptcy.

Only those casuals that offer distinct dining experiences, such as The Cheesecake Factory Inc. (Nasdaq: CAKE) and Texas Roadhouse Inc. (Nasdaq: TXRH), have thrived.

The fast-food chains have made a mediocre showing in the U.S. lately.

"The only fast-food chains really doing well this year are YUM! Brands Inc. (NYSE: YUM) and McDonald's, and that is really driven by international business," Steve West, restaurant analyst with Stifel Nicolaus (NYSE: SF), told columnist Andrew Leckey. "McDonald's has a really good U.S. business as well, but when we talk about YUM it is all about China and its 3,000 KFC stores and its 500 Pizza Hut stores there."

With fast casual the only segment showing significant growth, the rest of the industry has taken notice.

Competing segments are trying to adopt some of the elements that have made fast casual so popular. Most fast food chains already have jumped on the healthier menu bandwagon. And last November Denny's Corporation (Nasdaq: DENN) took the radical step oflaunching Denny's Café, a fast casual version of its traditional restaurant.

But while all segments should do better 2011, potential threats to the industry like higher food and gas prices may keep skittish restaurant-goers from returning in full force for years.

"You don't have the same freedom and frivolity around eating out that you had prior to the recession," David Grzelak, an executive director at Engauge, an advertising and marketing agency told the Chicago Tribune. "(Consumers) are eating out more often, but the decisions around how they're spending - they have more guardrails, warning signals. They're doing so much more cautiously."

News and Related Story Links:

  • Franchise Times: What exactly is fast casual?
  • Chicago Tribune:
    Restaurants would relish any growth
  • Idaho Business Review: Take a closer look at restaurant stocks
  • Reuters: Rising food costs could force U.S. eatery overhaul
  • Bloomberg: Dining Out Is In as Tax Cuts Help Fill Cheesecake Factory, Texas Roadhouse
  • 2011 provides optimism for restaurant industry
  • The NPD Group: Leading Fast Casual Restaurant Chains Not Only Weathered the Economic Storm, They Prospered
  • National Restaurant Association: Restaurant Industry Sales Turn Positive in 2011 after Three Tough Years
  • QSR Magazine: Yes Ron, There is a Fast Casual
  • Money Morning: Hidden Inflation: U.S. Consumers Adjust Spending Habits Amid Soaring Prices
  • Money Morning: Buy, Sell or Hold: With its Laser Focus on China, It's Time To Buy McDonald's Corp. (NYSE: MCD)
  • Money Morning: Fighting to Feed the Dragon: McDonald's Vs. Yum!

Tuesday Options Recap


Stock market averages rebounded from morning losses and are holding solid gains late-Tuesday. Hong Kong’s Hang Seng lost 4.2 percent on disappointing economic data overnight. Meanwhile, European markets saw sluggish action Tuesday after Moody’s warned France might be downgraded. Weakness in overseas trading set the table for morning losses on Wall Street. However, BofA (BAC) erased early losses and is the big winner in the Dow today. Shares gained 10.7 percent after the bank reported a 56-cent per share quarterly profit. IBM is seeing a 4.2 percent post-earnings loss and is now the Dow’s only loser. Trading was mixed at midday, but stocks caught a bid in afternoon trading on unconfirmed reports France and Germany have agreed on an EU bailout plan. The Dow Jones Industrial Average is now up 206 points and at session highs. The tech-heavy NASDAQ gained 44. With less than an hour to trade, CBOE Volatility Index (.VIX) is down 3.09 to 30.30. Trading in the options market is relatively light, with 7.9 million calls and 6.8 million puts traded across the exchanges so far.

Bullish Flow

DR Horton (DHI) sees an impressive rally Tuesday. Shares fell to a low of $9.4 early, but are now up $1.06 to $10.60 and moving to new session highs. The stock is up 12.8 percent off its lows of the day. Options action has been picking up as well. 16,000 calls and 2,260 puts traded on the homebuilder so far. October 9 calls, which are now $1.60 in-the-money, are the most actives. 11,030 traded. Some short call writers might be covering positions ahead of the expiration, as 100 percent of the volume has been at the ask. The top trade is 7,950 for $1.38 and open interest is 24,081 — the second largest position in DHI behind Jan $10 puts. Meanwhile, implied volatility in options on the stock is down 7 percent to 49 after data released today showed the NAHB Index of homebuilder sentiment (HMI) jumping to 18 this month, from 14 in September and much better than the 15 that was expected.

Talisman Energy (TLM) adds 53 cents to $13.56 and options volume on the Calgary-based oil company is running 12X the average daily after 7,900 calls and 725 puts traded on the stock. Jan $14 calls are the most actives. 4,440 traded. Another 2,205 Jan $13 and 744 Jan $12 changed hands. Implied vols up 1.5 percent to 54. The increased call activity might be in reaction to an analyst upgrade. Tudor Pickering raised the stock to Buy.

Bearish Flow

Sears Holdings (SHLD) jumps $1.77 to $74.32 and one strategist sells-to-close a position in 8,500 Jan 50 puts at $1.79 and buys-to-open a Nov 60 – 67.5 put spread for $1.94, 9500X. Looks like a roll of a bearish position or possibly a hedge after a 42.9 percent surge in shares in less than a month. SHLD traded for $52.04 at the closing bell on 9/22.

Implied Volatility Movers

Human Genome Sciences (HGSI) adds $1.75 to $13 after the Daily Mail reported that Glaxo might bid $25 per share for the company. The article circulated late-Monday. HGSI is rallying around the story today and options volume on the biotech is 16,000 calls and 3,280 puts. Nov 15 calls, which are 16.5 percent OTM and expiring in 31 days, are the most actives. 1,700 traded. Oct 12, Nov 16, Nov 17, Jan 17.5 and Jan 24 calls on HGSI are seeing volume as well. Meanwhile, implied volatility in the options on the stock jumped 47 percent and is now elevated at 127.5.

Unusual Volume Movers

Bullish flow detected in Toll Brothers (TOL), with 7125 calls trading, or 3x the recent avg daily call volume in the name.

Bearish activity detected in Polycom (PLCM), with 4730 puts trading, or 6x the recent avg daily put volume in the name.

Bullish flow detected in Biosante Pharmaceuticals (BPAX), with 6971 calls trading, or 4x the recent avg daily call volume in the name.

Unusually high volume is also being seen in IBM (IBM), Cree (CREE), and EMC (EMC).

Existing Home Prices, Sales Fall

The NAR (National Association of Realtors) reported that sales of existing homes fell 3.0 percent last month, from a seasonally adjusted annual rate of 5.06 million in August to 4.91 million in September, 11.3 percent above the level of a year ago.

More importantly, median home prices fell 3.5 percent to $165,400 from a year ago and that trend is likely to continue in the months ahead as traditional buyers continue to exit the market after the conclusion of the summer sales season and investors make up an increasing share of purchases, in many cases paying cash for distressed properties.

Distressed sales accounted for 30 percent of all sales in September – 18 percent foreclosures and 12 percent short sales – down from 31 percent in August, but this market share should rise over the winter months putting more downward pressure on prices.

The supply of unsold homes fell 2.0 percent to 3.48 million units representing an 8.5 month supply at the current sales pace, up from an 8.4 month supply in August.

In an era of “freakishly low” borrowing costs – rates for 30-year fixed mortgages recently dipped below four percent – contract cancellations continue to be a problem as the lack of qualified buyers and low appraisals slow sales, some 18 percent of all purchase contracts having been canceled last month, most for one of these two reasons.

5 Dates to Circle in April

Despite the unseasonably cool weather across parts of the country this time of year, things will heat up on Wall Street in April. There are plenty of things for investors to watch.

From the launch of a highly anticipated smartphone to the beginning of the new earnings season, let's start looking out to some of the events that will unfold this month.

April 2
Tesla Motors (NASDAQ: TSLA  ) CEO Elon Musk has something important to say on Tuesday, or so his Twitter account says.

"Really exciting @TeslaMotors announcement coming," Musk tweeted last week. "Am going to put my money where my mouth is in v major way."

He later clarified that the announcement will be made on Tuesday.

This may be merely Musk increasing his stake in the company or helping the company pay down its debt. However, the shares did move higher on the tease. Let's see what Tuesday brings shareholders of the company behind the coolest plug-in electric vehicles on the market.

April 5
There have been rumors of a Facebook (NASDAQ: FB  ) smartphone for ages, but the leading social-networking website may have something better up its sleeves. The website with more than a billion unique monthly visitors has scheduled a media even for Friday.

"Come See Our New Home on Android," reads the invitation.

No one is expecting an actual Facebook smartphone. The likely takeaway here will be tools to make Facebook more integrated into Android smartphones. At a time when Android devices have the market cornered when it comes to smartphones, it certainly makes sense for Facebook to give those phone owners easier access to the social hub.

April 16
Samsung tantalized the wireless market by unveiling its bar-raising Galaxy S4 device in March, and details were just solidified on pricing and pre-order availability.

Samsung, now the world's largest smartphone manufacturer, will have its S4 available domestically starting at $250 with a two-year contract. Pre-orders will start on April 16. The launch date is likely to be a couple of weeks later.

April 18
Microsoft (NASDAQ: MSFT  ) and Google (NASDAQ: GOOG  ) report their latest quarterly results on the same day. It should be interesting, to say the least.

Microsoft and Google appear to be passing ships. Mr. Softy is the old guard, champion of the Windows operating system at a time when PC sales have hit a wall. Google's the company behind the open-source Android platform that's the mobile operating system of choice on a majority of the smartphones and tablets in the world.

It may come as a surprise to learn that Microsoft is still growing. Despite lackluster demand for Windows 8 PCs, Surface tablets, and even Xbox 360s, analysts see a strong quarter out of Microsoft, with revenue and profitability soaring 19% and 28%, respectively. Google's earnings, meanwhile, are expected to grow substantially more slowly for the period.

You didn't see that coming? Well, let's see what both companies ultimately deliver in a couple of weeks.

April 23
Netflix (NASDAQ: NFLX  ) has historically reported during the fourth week of April, serving up its first-quarter results between April 21 and April 25 in each of the past six years. April 23 is a ballpark estimate for when the leading video service will report.

It's going to be an important presentation. Shares of Netflix have more than tripled since bottoming out this past summer, and analysts have been jacking up their profit and revenue targets.

Netflix's ability to turn a healthy profit despite incurring losses in its costly international expansion efforts is impressive, but after seeing shares rally this high, it's going to take a monster report to keep the good times coming.

Give me more
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Maybe the Mississippi Lime Isn’t So Bad After All

When Chesapeake Energy (NYSE: CHK  ) sold part of its stake in the Mississippi Lime for well below what it was believed to be worth, it was taken as a sign to the market that maybe the play wasn�t panning out. That�s what happens when you previously tell investors the land was worth three times the amount you ended up getting in the joint venture sale. Given the latest news out of the Mississippi Lime it would appear that Chesapeake is wrong about the play, again.

As part of a broad strategy to secure domestically produced crude oil, Phillips 66 (NYSE: PSX  ) signed an agreement with Magellan Midstream Partners (NYSE: MMP  ) to access the oil coming out of the Mississippi Lime. While a bulk of the company's recent deals involved crude oil being shipped by rail, this deal will feature crude oil being shipped by pipeline. Once the Magellan pipeline project is complete early next year, 20,000 barrels of oil per day will be sent to Phillips 66 Ponca City refinery in Oklahoma.

In addition to the oil from Magellan�s pipeline, Phillips 66 is investing in its own transportation infrastructure to secure an another 40,000 barrels of Mississippian oil per day for the same refinery. As you can see in the map, Ponca City is located very close to the Mississippi Lime, which is ideal for keeping transportation costs down.�

Source: Phillips 66 Investor Presentation

While securing cheaper crude is great for the bottom line at Phillips 66, it�s also great news for SandRidge Energy (NYSE: SD  ) . Investors have punished the company�s shares over the past few years as it�s made several debt-fueled bets that went bad. Its latest foray is an all-in investment on its Mississippi Lime acreage, so a Phillips 66 stamp of approval on the play is nice to see.�

SandRidge, which is by far the biggest operator in the play, has nearly 700 wells drilled and more than 30 rigs currently running. For some context, Chesapeake has drilled the second-largest number of wells, but it�s less than half the amount that SandRidge has. Chesapeake and its new Chinese partner are unlikely to catch up anytime soon with just eight rigs running; in fact, the Devon Energy (NYSE: DVN  ) has the second-highest rig count at 10 rigs. Both Devon and�Chesapeake have focused their drilling dollars elsewhere, while SandRidge has doubled down on the Mississippian.�

SandRidge has just under 2 million net acres in the Mississippian and sees the�potential�for nearly 11,000 future drilling locations. According to the company, that equates to an 18-year drilling inventory. That's big-time growth, and the movement of Phillips 66 to secure some of the play's production would seem to indicate that it sees a lot of value to its business in the play being developed. SandRidge could be on the cusp of something big, especially if it can shed its reputation of a poor�performer.�

The Phillips 66 deal to secure Mississippi Lime crude oil certainly bodes well for the future of SandRidge. With the company focusing on growing liquids production, the future looks optimistic for the first time in years. If you are unsure about the future of this emerging oil and gas junior and are looking to find out more about its strengths and weaknesses, then check out The Motley Fool's premium research report detailing SandRidge's game plan and what to expect from the company. To get started, simply click here now!

Top Stocks For 3/31/2013-15

PTS, Inc. (OTC.BB:PTSH) announced that through its ThinLine division has signed a 3-year Voice Over Internet Protocol (VOIP) contract with MC Universal Art.

MC Universal Art has been designing and installing quality framed art for over 30 years. They are a leading provider of wholesale and retail art frames, fine art prints, signed limited additions, as well as providing interior design consulting services. MC Universal Art works with leading interior designers, architects, and office furniture dealers – they help their wholesale clients achieve an environment that drives the image and identity they want to project for customers.

MC Universal Art is expanding its office and manufacturing infrastructure and required a scalable communications system that can handle their growth without effecting customer service. They also had a need to insure that their IT architecture would not be impacted with their communication upgrade.

“We were looking for a company that had VOIP expertise but also had the IT expertise to install, manage and scale our telecommunications infrastructure”, said Macky Pannu CEO of MC Universal Art. “ThinLine met all of our criteria and we look forward to growing our services with them in the future,” added Macky Pannu.

“I am impressed with MC Universal Art. They have a world class company and I am excited to have the opportunity to work with Macky and his team,” said Raj Kalra CEO of PTS, Inc. “Our VOIP product will work perfectly to meet their existing demand, and will allow them to grow as quickly as they need so they can scale to keep up with their growth,” added Raj Kalra.

Orofino Gold Corp. (ORFG.PK) has several Gold development properties in Colombia, a current hot spot of gold production in the world markets.

The company is please to announce that the Board Of Directors have appointed Mr. Ning Shi Long as Chairman of the Board and Executive Director.

Mr. Ary Fernando Pernett Marque has been appointed as the new President/CEO & Executive Director of Orofino Gold Corp.

Mr. Pernett will be responsible for all affairs of the Company in Colombia. Mr. Pernett has 30 years of experience working in the Colombian Mining sector and will over the near term choose his new development team to assist in the development of the company’s Senderos de Oro gold camp in the Sur de Bolivar Colombia.

The company and Mr. Pernett will continue to work with Contexto Legal of Medellin and Bogota, the company’s legal counsel as well as Discovery Consultants, (The Qualified 43-101 team) Canada, as they have in the past. The new team will now aggressively pursue other known Gold occurrences in the companies Senderos de Oro Gold Camp while the development team works to improve production at La Azul Mine.

The Board of Director’s have accepted resignation of John T. Martin, former Managing Director of the Company. His resignation is effective immediately. The Company wish him well and success in future endeavors.

Mack-Cali Realty Corporation (NYSE:CLI) recently announced that its operating partnership, Mack-Cali Realty, L.P., will redeem for cash all $300,000,000 principal amount of the Operating Partnership�s 7.75% Notes due February 15, 2011.

Mack-Cali Realty Corporation is a real estate investment trust.

Magic Software Enterprises Ltd. (NASDAQ:MGIC), a global provider of application platforms and business and process integration solutions, recently announced its financial results for the third quarter ended September 30, 2010. All dollar amounts are quoted in US Dollars. Third quarter revenues increased 66% year-over-year from $13.5 million to $22.4 million , and 4% from the second quarter of 2010.

Magic Software Enterprises Ltd. develops, markets, and supports software development and deployment technology, and applications.

Kennametal Inc. (NYSE:KMT) recently reported fiscal 2011 first quarter earnings per diluted share of $0.42 compared with prior year quarter reported loss per diluted share of ($0.12). Absent restructuring and divestiture related charges, adjusted EPS for the current quarter were $0.47, compared with the prior year quarter adjusted loss per share of ($0.04).

Kennametal Inc. provides tooling, engineered components, and advanced materials consumed in production processes worldwide.

Top Stocks To Buy For 3/31/2013-1

Intersil Corporation NASDAQ:ISIL opened at $15.07 and with a fall of 3.93% closed at $14.67. Company’s fifty days average price is $13.66 whereas it has a market capitalization $1.82 billion.
The total of 5.09 million shares was transacted over last trading day.

Silver Standard Resources Inc. (USA) NASDAQ:SSRI opened at $28.50 and with a fall of 3.47% closed at $27.24. Company’s fifty days average price is $25.80 whereas it has a market capitalization $2.15 billion.
The total of 1.05 million shares was transacted over last trading day.

Banner Corporation NASDAQ:BANR opened at $2.36 and with a fall of 3.45% closed at $2.24. Company’s fifty days average price is $1.76 whereas it has a market capitalization $251.02 million.
The total of 1.49 million shares was transacted over last trading day.

Dynavax Technologies Corporation NASDAQ:DVAX opened at $3.20 and with a fall of 3.44% closed at $3.09. Company’s fifty days average price is $2.19 whereas it has a market capitalization $357.13 million.
The total of 2.00 million shares was transacted over last trading day.

Nektar Therapeutics NASDAQ:NKTR opened at $12.95 and with a fall of 2.49% closed at $12.53. Company’s fifty days average price is $13.22 whereas it has a market capitalization $1.18 billion.
The total of 1.14 million shares was transacted over last trading day.

Top Stocks For 3/16/2013-19

Orofino Gold Corp. (ORFG.PK) has several Gold development properties in Colombia, a current hot spot of gold production in the world markets.

The company is pleased to announce that the Board Of Directors have appointed Mr. Ning Shi Long as Chairman of the Board and Executive Director.

Mr. Ary Fernando Pernett Marque has been appointed as the new President/CEO & Executive Director of Orofino Gold Corp.

Mr. Pernett will be responsible for all affairs of the Company in Colombia. Mr. Pernett has 30 years of experience working in the Colombian Mining sector and will over the near term choose his new development team to assist in the development of the company�s Senderos de Oro gold camp in the Sur de Bolivar Colombia.

The company and Mr. Pernett will continue to work with Contexto Legal of Medellin and Bogota, the company�s legal counsel as well as Discovery Consultants, (The Qualified 43-101 team) Canada, as they have in the past. The new team will now aggressively pursue other known Gold occurrences in the companies Senderos de Oro Gold Camp while the development team works to improve production at La Azul Mine.

The Board of Director�s have accepted resignation of John T. Martin, former Managing Director of the Company. His resignation is effective immediately. The Company wishes him well and success in future endeavors.

Global Hunter Corp. (TSX.V: BOB) (FSE:G5D) previously announced the results from the first 91.8 metres of core drilled in hole RS-D-08-123 averaging 0.070 percent molybdenum and 0.13 grams per tonne rhenium. The molybdenum grade is 8.3 percent higher than the grade from the same interval in twinned hole RS-D-80-56. None of the previous operators had analyzed for rhenium. The hole intersected porphyritic quartz monzonite with molybdenite bearing quartz veins and disseminated molybdenite from surface to 170.0 metres followed by a Thrust Fault to 193.0 metres and andesite to end of the hole at 212.9 metres.

Global Hunter�s focus is on strategic and base metals, particularly copper and molybdenum. The Company has built an outstanding portfolio of projects in the stable geopolitical geographies of Canada and Chile. Their exploration and development teams are on the ground rapidly advancing the La Corona de Cobre property near La Serena, Chile and the Rabbit South property in British Columbia, Canada. Either one of these projects could carry the company forward on a stand-alone basis, but together they bring the company additional stability, strength and value.

For More Information Go To:

Duoyuan Global Water Inc. (NYSE:DGW) a leading China-based domestic water treatment equipment supplier, announced unaudited financial results for the third quarter of 2010.

Third Quarter 2010 Financial Highlights Revenue increased 35.1% to RMB344.7 million ($51.5 million(1)) from RMB255.2 million in the prior year period.Gross profit increased 25.7% to RMB158.8 million ($23.7 million) from RMB126.4 million in the prior year period. Gross margin was 46.1% compared to 49.5% in the prior year period. Diluted earnings per ADS were $0.55. Each ADS represents two of the Company�s ordinary shares.This press release contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars for the quarter ended September 30, 2010, were made at a rate of RMB6.6905 to USD1.00, the noon buying rate in effect on September 30, 2010 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Oriental Financial Group Inc. (NYSE:OFG) announced on November 24, 2010 it has increased its regularly quarterly cash dividend per common share by 25%, to $0.05 per share, from $0.04 per share, for the fourth quarter ending December 31, 2010. The payable date is January 14, 2011, to holders of record on December 31, 2010, with an ex-dividend date of December 29, 2010. On an annualized basis, the dividend increases to $0.20 per share, from $0.16, and represents a 1.68% yield based on yesterday�s closing price of $11.88. �The dividend increase is a tangible recognition by the Board of the strong current positioning and improving outlook for Oriental as we grow our banking activities,� said Jos� Rafael Fern�ndez, Vice Chairman of the Board, President and Chief Executive Officer.

Oriental Financial Group Inc., a financial holding company, provides a range of financial services to mid and high net worth individuals, and families, including professionals and owners of small and mid-sized businesses primarily in Puerto Rico. It operates in three segments: Banking, Financial Services, and Treasury.

China North East Petroleum Holdings Limited (AMEX:NEP) announced on November 19, 2010 consolidated financial results for the third quarter ended September 30, 2010. Revenue for the third quarter of 2010 increased 38.8% to $20.0 million from $14.4 million in the prior year period. This increase was primarily a result of the contribution from the Tiancheng drilling services business as well as from the higher price of oil compared to the prior year period. Tiancheng contributed $10.1 million of the revenue in the third quarter 2010. The average per barrel oil price for the third quarter was US$72.30, a 12% increase from US$64.33 for the third quarter of 2009. Total oil production in the third quarter 2010 was 135,473 barrels, a 40% decrease from 224,219 barrels in the prior year third quarter period. This decrease was primarily due to unexpected severe flooding that washed out roads disabling the passage of oil delivery trucks.

China North East Petroleum Holdings Limited, through its subsidiaries, engages in the exploration and production of crude oil in the People’s Republic of China. As of December 31, 2008, it operated 247 producing wells located in 4 oilfields in Northern China.

Verizon Q3 Edges Estimates

Verizon (VZ) this morning reported Q3 revenue of $26.48 billion, a hair ahead of the Street at $26.34 billion. Adjusted EPS of 56 cents a share beat the the consensus of 54 cents by two pennies.

The company added 997,000 net new wireless customers in the quarter, boosting the total to 93.2 million. Verizon added 226,000 FiOS broadband customers, to 3.9 million; it added 204,000 FiOS TV customers, to 3.3 million. Residential wirelines in service fell 10.2%, continuing the recent trend.

The company said it expects second half adjusted EPS to be 5%-10% higher than the $1.01 reported for the first half. That implies second half profits of $1.06-$1.11; and that brings the full year total to $2.07-$2.12, which is actually a bit below the Street consensus at $2.23.

VZ this morning is down 20 cents, or 0.6%, to $32.32.

Top Stocks For 2/11/2013-3

Reported by: Eric CRWE Newswire Middle East correspondent

China Petroleum & Chemical Corp (SNP) announced an increase of 6.7 percent for the first half of 2010. The Company reported a net profit of 35.46 billion yuan equivalent to US $ 5.2 billion for the first six months of 2010 as compared to net income of 32.90 billion yuan for the same period last year.

The Company’s total revenue surged by 75 percent to 936.5 billion yuan as compared to 534.0 billion yuan for the six month period last year. The Company’s operating profit jumped to 21.99 billon yuan as compared to 5.50 billion yuan last year. According to the oil giant the increase in profitability was due to substantial increase in oil prices. Selling price of its crude oil gained 98 percent to 3,363 yuan per ton as compared to last year figures and internationally crude oil prices gained 50 percent in the first 6 months of 2010 to $78 per barrel

The company’s refining business was down by 71 percent in the first half to 5.69 billion yuan from 19.90 billion yuan last year due to increased oil imports eventually reducing the company’s profit margin.

Sinopec has the largest capacity in Asia among refiners with more than 70 percent of its crude oil being imported the company booked heavy past losses. Though the company has posted exceptionally high profit for the last six months still it hasn’t been able to meet the performance by rival companies such as Chevron (CVX), Royal Dutch Shell (RDSA, RDSB) and Exxon Mobil (XOM).


The Views and Opinions Expressed by the author are his or her opinions only and do not necessarily reflect those of this Web-Site or its agents, affiliates, officers, directors, staff, or contractors. The author at the time of this article did not own any shares or receive any consideration financial or otherwise from any company or person mentioned or referred to in the article.


Saturday, March 30, 2013

Confusion reigns over G-7 position on yen

FRANKFURT (MarketWatch) � A joint statement by Group of Seven finance ministers and central bankers Tuesday sowed more confusion than clarity over how global policy makers feel about the sliding Japanese yen ahead of a meeting expected to focus on worries over a potential global currency war.

/quotes/zigman/4868099/sampled USDJPY 93.2850, -1.0345, -1.0968% Dollar vs. yen

The shared currency rebounded sharply Tuesday after Reuters quoted an unnamed G-7 official as saying market participants had misinterpreted a statement issued a few hours earlier as a tacit endorsement of Japanese polices aimed at weakening the yen. See: Yen rallies as G-7 statement said to be misinterpreted.

The official said the statement was intended to signal concern about �excess moves� in the yen and �unilateral guidance� on the currency. The official said Japan would be in the spotlight when finance ministers and central bankers from the Group of 20 nations meet Friday and Saturday in Moscow, according to the report.

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�Rather than calm the markets, the poorly communicated statement has significantly raised volatility, and now we have to wait to see the actual outcome of G-20 on the weekend,� said Richard Gilhooly, interest-rate strategist at TD Securities in New York.

Economists had initially interpreted the G-7 statement as an international economic -policy victory for Japan�s new government.

The dollar USDJPY dropped more than 1 yen after the remarks by the G-7 official, slipping to an intraday low of �93.09. It traded in recent action at �93.18, down 1% from its level late Monday in North American trade.

In the statement, G-7 officials said they affirmed a long-standing commitment to �market-determined exchange rates and to consult closely in regard to foreign-exchange markets.� See full statement by G-7 finance ministers, central bankers.

The officials also said that fiscal and monetary policies �have been and will remain oriented toward meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.�

Economists said markets initially interpreted the statement as making a distinction between unwelcome efforts to deliberately weaken the yen to boost Japanese exports as opposed to a more acceptable framework in which policies aimed at reflating the Japanese economy also result in a weaker yen.

The subsequent remarks by the G-7 official signal confusion over �whether or not the Japanese are unilaterally talking down the yen in an effort to promote recovery,� said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

The statement came a day after a senior U.S. Treasury official indicated Washington wouldn�t be bothered by further yen weakness provided it is the result of policies aimed at boosting Japan�s economy.

While the remarks were enough to trigger a sharp yen rebound, the Japanese currency is likely to see renewed selling pressure soon unless the unidentified G-7 official�s remarks are echoed by one of a handful of key, senior G-7 figures, said Alan Ruskin, New York�based currency strategist at Deutsche Bank, in a note.

�We don�t know who the official is who spoke about the G-7 statement being misinterpreted, or how senior they are, we know only one thing for sure that the unnamed official is not Japanese,� Ruskin said. �Quite frankly this is a mess, but it will only restrain yen selling briefly, unless echoed by important named officials.�

The term currency war was coined in 2010 by Brazil�s finance minister, who at the time complained that efforts by major central banks, including the U.S. Federal Reserve�s quantitative-easing strategy, were setting the stage for a spiral of competitive devaluations.

Fears of a currency war have mounted as Japan�s new government has taken aggressive steps to reinvigorate its moribund economy.

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The yen has tumbled versus major rivals as the Bank of Japan has moved to boost its inflation target and Prime Minister Shinzo Abe has ramped up fiscal stimulus in an effort to end deflation.

The dollar has jumped 7.6% versus the yen since the start of the year and is up more than 17% over the last three months. The euro EURJPY has advanced nearly 10% against the yen since the start of 2013 and has gained more than 24% in three months.

After his election victory late last year, Abe openly called for a weaker yen, saying it was crucial that Japan defend itself as other governments sought to devalue their currencies.

Japanese officials have subsequently cooled their talk about the yen, which has proceeded to plunge anyway, instead emphasizing that policies are aimed at boosting the economy rather than at directly weakening the yen, analysts said.

The change in tack appeared to �carefully mirror� the U.S.�s own policy approach, said Neil Mellor, currency strategist at Bank of New York Mellon in London.

U.S. policy measures are credited with weakening the dollar, helping to foster fears of a global currency war � fears that have been amplified by the yen�s sharp fall.

In the statement, the G-7 did reiterate a concern over the pace of currency moves, noting that �excessive volatility and disorderly movements� in exchange rates can undercut economic and financial stability. The G-7 said it would �continue to consult closely on exchange markets and cooperate as appropriate.�

Stocks Hit Another Oil Slick

And so it’s on again — after a few light-volume days that breathed life back into commodities and brought stocks close to another high for the year, investors returned to push most assets significantly lower on Wednesday.

The Dow Jones Industrial Average fell 130 points to 12,630, the Nasdaq lost 27 points to 2845 and the S&P 500 slipped 15 points to 1342.

Such is the current state of volatile markets. Oil fell more than 5% to close at just above $98 a barrel, silver shed more than 8%, and gold lost about 1% — all of the three essentially giving up their gains accrued during a three-day rally.

Many observers were pointing to strength in the dollar as a prime contributor to the commodities selloff — and the subsequent hit on energy and materials equities names.

Specifically, some inflationary concerns out of both China and the U.K. on Wednesday turned out to be solid news for the greenback, which, despite the multiplying amount of them out there, benefited from a reality check that certain inflationary concerns may be more real than those in the U.S. (For now).

As you’d expect, energy companies and miners didn’t fare well on Wednesday. Freeport McMoRan (NYSE:FCX), for example, shed 5.5%.

And as we’ve seen (as early as four days ago), the deflation of oil and precious metals isn’t much of a sail-blower for small-cap stocks. The Russell 2000 lost 1.7%

It’s also somewhat worrisome for bulls that large financial stocks as a whole have once again dropped near their lows for the year. The SPDR Financial Select Sector (NYSE:XLF) exchange-traded fund fell 1.4%, and as we’ve noted in the past, a medium-term downtrend from mid-February remains very much intact.

Whatever happens to the rest of the market on Thursday, it’s probably pretty safe money that a fall by the XLF below its 2011 lows would not be a good thing for stocks in the short term.

Airlines outperformed on Thursday — US Airways (NYSE:LCC) gained 5.2% while American Airlines parent AMR Corp. (NYSE:AMR) rose 4.6% — with the fall in crude getting the sector back to two-month highs.

3 Companies Betting Big on This Emerging Shale Play

The great thing about America's shale oil and gas revolution is that new shale plays keep popping up from time to time.

Currently, the two hottest shale plays are arguably North Dakota's Bakken and Texas' Eagle Ford. These oil-rich formations are especially attractive because the price of oil is high, providing producers with a major incentive to keep drilling.

But there's a downside to these plays. Because they've already proved their mettle and boast at least a few years of very impressive production history, land lease prices and production costs are sky high. That's why energy companies continue to search for the next big resource play, hoping to establish a substantial acreage position while the land is cheap and competitors few and far between.

A case in point is the Utica, an emerging shale play that spans several states, though the majority of drilling activity so far has been focused in Ohio. Initial assessments suggest that the Utica's resource potential could be on par with that of the Eagle Ford.

Based on encouraging initial test well results, several energy companies have expressed enthusiasm about the Utica's prospects. Let's look at three major ones.

Chesapeake Energy
First up is Chesapeake Energy (NYSE: CHK  ) . After discovering the Utica in 2010, Chesapeake remains one of the most active operators in the play. As it stands, it is the largest leasehold owner, boasting approximately 1 million net acres. To date, it has drilled a total of 184 wells in the play, of which 45 are currently producing.

Chesapeake's well results so far have been quite impressive, with several of its wells reporting daily production rates in excess of 350 bbls of oil per day. Two recent well completions in the company's core drilling area in Carroll County, Ohio -- the 8H Houyouse "15-13-5" and 8H White "17-13-5" -- posted rates of 465 bbls and 390 bbls of crude oil per day, respectively. �

Though the company was initially very bullish about the play's oil potential, it has since scaled back its expectations. It even recently announced that it no longer views the Utica as central to meeting its oil production growth target for the year, though it remains optimistic about the play's dry gas and gas liquids potential.

Going forward, it will be focusing its drilling efforts primarily in the wet gas window of the play inside of its joint venture with Total (NYSE: TOT  ) , where it commands 450,000 net acres. Within this area, the company is projecting expected ultimate recoveries of five to 10 bcfe. �

Magnum Hunter Resources
Next up is Magnum Hunter Resources (NYSE: MHR  ) , a Houston-based energy explorer and producer. In February, the company closed on the acquisition of about 15,500 gross leasehold acres located primarily in Noble County, Ohio, through Triad Hunter, its wholly owned subsidiary. That brings Magnum Hunter Resources' total position in the Utica shale to a little over 61,000 net �acres.

The company has announced plans to drill at least four Utica test wells in Ohio this year. If results are encouraging, it will develop its leasehold position further later this year. The company is currently constructing its first pad in Washington County, Ohio, that will probably be used to drill the four horizontal wells. �

Gary C. Evans, Magnum Hunter's CEO, expressed his enthusiasm about the company's position in the Utica, saying, "The Utica Shale of Ohio will be a major focal point for our company this year as we prepare to drill our first well in this exciting new resource play." Depending on the results of its test wells, the Utica may prove crucial in helping the company increase production and cash flow, while reducing its uncomfortable level of debt.

Gulfport Energy
Last but not least is Gulfport Energy (NASDAQ: GPOR  ) . Most recently, the company announced that it will purchase roughly 22,000 acres in the eastern Ohio portion of the play from Windsor Ohio, an affiliate of Wexford Capital, a Connecticut-based investment manager focused on energy and natural resources. This most recent purchase, announced last month, will bring Gulfport's total acreage in the Utica to around 128,000 acres, making it one of the dominant names in the play. �

Encouraged by impressive initial results, Gulfport CEO James Palm touted the Utica as having "exceptional potential." Not surprisingly, the company plans to allocate the vast majority of its capital budget for 2013 toward its operations in the play. It plans to drill roughly 50 gross wells this year, many of which will be situated on pads adjacent to existing wells.

Final thoughts
Going forward, these and other companies' enthusiasm about the Utica may be partially vindicated by production data scheduled to come out shortly. One of the major reasons there's such a paucity of data for the Utica is that Ohio reports production statistics only annually, as opposed to quarterly as most other states do.

Well, the Ohio Department of Natural Resources will release that annual data next month, which should provide investors with a meaningful glimpse into the play's potential. The DNR report will include data on between 50 and 60 wells drilled in Ohio's Utica last year, including each well's output, its location, and its operator.

These statistics should offer a better understanding of where some of the most productive zones lie and which companies have managed to secure the most promising acreage. For those interested in this data, be sure to check it out next month on the Ohio DNR website.

Chesapeake may have scaled back its expectations about the Utica's oil potential. But it still has several core holdings to help it transition away from natural gas production and toward oil. Will the company manage to meet its oil production target and boost cash flow? Or will it languish under the weight of its heavy debt load? To answer that question and to learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy, and as an added bonus, you'll receive a full year of key updates and expert guidance as news continues to develop.

Small Business Saturday Hits Its Stride

In six days, thousands of small businesses across the U.S. that take the American Express(AXP) card will promote Small Business Saturday -- an initiative meant to rival big-box retailers vying for consumer dollars on Black Friday and Cyber Monday as the holiday season kicks into full gear.

This is the second year American Express is running the promotion meant to encourage consumers to shop -- hopefully by using their American Express cards -- in locally owned, non-chain stores. But this year the initiative has seen significant expansion, a foreshadowing of the potential of this growing movement.

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Small Business Saturday was created last year by American Express in response to what the company says is businesses' most pressing need: more customers."Year 1 was about claiming the day. Year 2 is about empowering small businesses to own that day," says American Express OPEN spokesman Scott Krugman. "I think Year 3 you do start to see the snowball effect -- it becomes a part of the holiday tradition nestled between Black Friday and Cyber Monday," Krugman says.And it's clear the movement works. American Express saw a 28% rise in sales volume for Amex-accepting small-business merchants on Small Business Saturday 2010 versus the same day in 2009. Although the company does not have sales projections for this year, given the growing support of the movement representatives say it's sure to be significantly more. A poll of consumers has 89 million saying they plan to shop locally on Small Business Saturday. This year, social media titans Google(GOOG), Facebook and Twitter have shown their support for Small Business Saturday by encouraging businesses to share their stories and business information as promotion. American Express is giving $100 in free Facebook advertising to the first 10,000 business owners who sign up. For consumers, American Express is offering $25 statement credit to the first 200,000 cardholders who registered their cards to shop at locally owned small businesses on Saturday. FedEx(FDX) is also encouraging consumers to shop locally. All month long it's been giving away "Shop-Small" American Express gift cards, each worth $25, to consumers through its own Facebook page and offering a special 20% savings to businesses that use FedEx Office Print Online to print Small Business Saturday materials through the event.

The Small Business Saturday page on Facebook also features an interactive map where shoppers can quickly find the independent businesses in their communities promoting the initiative.

More than 200 advocacy organizations have decided to support the movement.

One such organization is Independent We Stand, which promotes the benefits to local economies of buying from small independent shops. American Express has "the resources and demonstrated commitment to promote the importance and benefits of supporting small businesses," says Independent We Stand's spokesman, Bill Brunelle. "It's a great example of a major brand that gets it and is willing to do something about it. We need more companies like Amex to step up like this."Locally owned businesses reinvest in the local economy at a 60% higher rate than chains and Internet retailers, he says, so the initiative will also help revitalize economies. There's also appreciation that the movement is not just for direct retailers. "Small businesses need sales no matter what. Whether they are retail- or service-oriented, they need business," says Jean Card, a spokeswoman for the National Federation of Independent Business. "We anticipate this getting to be more well-known as each year goes by," Card says. "Our hope is that someday it is as big as Black Friday. I think there is potential for that." All Creatures Veterinary Services in Long Beach, N.Y., is taking advantage of the event."We do pretty large volume [on Saturdays]. Maybe [clients] will be encouraged to purchase some other form of pet product -- maybe some dog treats or cat chow, so it's beneficial to both the client and us. And it's good will in the neighborhood," says Michele Knox, All Creatures' office manager.

Not everyone agrees with American Express' initiative.

The Business Alliance for Local Living Economies, a nonprofit organization looking to promote socially responsible businesses, is made up of more than 80 community networks in the U.S. and Canada, representing more than 22,000 independent business members. It is instead promoting the Shift Your Shopping campaign through the week of Nov. 25-Dec. 4, as is the American Independent Business Alliance.

Janneke House, executive director of Cambridge Local First, a community of small businesses in Massachusetts, says they were approached by American Express but chose not to participate "because a lot of our local businesses do not carry American Express because the fees are so high," she says. She says the initiative would get even more traction if Amex agreed to eliminate the interchange fees for even just one day. Cambridge Local First has instead joined with BALLE and supports Plaid Friday -- a California Bay Area-born movement that encourages the local shopping experience (while wearing plaid, as a contrast to "Black" Friday efforts that benefit mainly larger retailers). "Instead of showing up to a big-box store at 4 a.m. with that rush to get the best deals, it's all about the experience of shopping. You're supposed to enjoy that day by taking your family, stopping at the cafe to grab coffee and just enjoying," House says. American Express OPEN's Krugman wants to make clear that the initiative is not just about padding the card company's coffers. "You don't have to take the American Express card" to participate in the day, Krugman says. "That's not what it's about. It's about a general movement to shop local and make sure that small retailers and local merchants have more business driven to them during the holiday season."Even businesses that choose not to support the Amex initiative will benefit from a halo effect, he says."If you are a Main Street merchant, you are going to benefit on Nov. 26," he says. To follow Laurie Kulikowski on Twitter, go to:!/LKulikowskiTo submit a news tip, send an email to: TheStreet on Twitter and become a fan on Facebook.

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Top Stocks To Buy For 3/30/2013-1

Sirius XM Radio Inc. NASDAQ:SIRI opened at $1.67 and with a gain of 3.77% closed at $1.69. Company’s fifty days average price is $1.42 whereas it has a market capitalization $6.64 billion.
The total of 84.30 million shares was transacted over last trading day.

Intel Corporation NASDAQ:INTC opened at $21.02 and with a fall of 0.86% closed at $20.85. Company’s fifty days average price is $20.95 whereas it has a market capitalization $116.30 billion.
The total of 58.22 million shares was transacted over last trading day.

Cisco Systems, Inc. NASDAQ:CSCO opened at $20.47and with a gain of 1.29% closed at $20.49. Company’s fifty days average price is $21.03 whereas it has a market capitalization $113.57 billion.
The total of 54.31 million shares was transacted over last trading day.

Microsoft Corporation NASDAQ:MSFT opened at $28.10 and with a gain of 0.25% closed at $27.98. Company’s fifty days average price is $26.59 whereas it has a market capitalization $239.38 billion.
The total of 53.45 million shares was transacted over last trading day.

Micron Technology, Inc. NASDAQ:MU opened at $8.16 and with a gain of 3.18% closed at $8.27. Company’s fifty days average price is $7.84 whereas it has a market capitalization $8.24 billion.
The total of 43.45 million shares was transacted over last trading day.


AT&T Prices Samsung Galaxy S4 at $250

Samsung unveiled its new flagship Galaxy S4 earlier this month, saying the device would be available in the U.S. in April. Wireless carrier AT&T (NYSE: T  ) today officially announced pricing and pre-orders of the South Korean company's latest smartphone.

AT&T will begin taking pre-orders for the Galaxy S4 on April 16 and will price the smartphone at $250 with a standard two-year contract. That's on the higher end of typical flagship pricing, which is normally $200 on contract. AT&T did not announce a specific launch date for retail availability.

Smaller rival T-Mobile said earlier this week at its "Un-carrier" event that it would launch the Galaxy S4 by May 1, but has not set exact pricing.


T-Mobile Stops Subsidizing Apple

Equally important as the hubbub over T-Mobile�finally getting its hands on Apple's (NASDAQ: AAPL  ) iPhone was the announcement over the weekend it was finally ending the subsidies it pays on smartphones. Instead�users will pay full freight for a handset, but will have the option of paying it off in installments or bringing their own device if they choose.�

Wireless carriers have traditionally subsidized the cost of a new smartphone in exchange for locking in consumers to a two-year contract. And while the greater penetration has helped increase the average revenue per user for carriers as well as greater mobile data revenue, margins end up being compressed because of the subsidy's costs.�

AT&T (NYSE: T  ) said postpaid wireless subscriber ARPU grew 1.9% to $64.98 while its cost of sales grew 4.1%.�Verizon (NYSE: VZ  ) reported fourth-quarter average revenue per account -- a slightly different way of calculating the number, since multiple devices can share data -- jumped 6.6% to $146.80 while its cost of sales were up over 8%.�

Since it's largely going it alone at the moment, T-Mobile is taking a risk that consumers will calculate the no-contract, unsubsidized program is better for them in the long run. But I don't think they'll do the math. They'll compare their upfront costs -- $650 for a new no-contract iPhone versus a tethered $199 subsidized handset -- and they'll choose the latter because they'll be laying out less cash.

Now the Fool's Evan Niu suggests T-Mobile is still sending a few bills Cupertino's way with its payment plan, which, if consumers choose that option, could make it the more attractive plan among the major carriers. But with iPhone 4 units still being given away for free and 4S models going for $99 with two-year contracts at retailers like Best Buy, paying for the phones -- even if they're slightly subsidized -- still might not be so attractive.

But a larger question might be on carriers' minds: Why should they subsidize cash-rich Apple at all, which reportedly sits on $40 billion in cash and short-term investments (or nearly $140 billion, if you include long-term investments), when they're taking a hit to their margins?

That's why over the short haul I think T-Mobile will take a hit for blazing this trail, but over time I see Verizon and Ma Bell coming around to its way of thinking. Eventually, highly subsidized smartphones will be a thing of the past.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Why Joy Global Is Poised to Bounce Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, mining equipment maker Joy Global (NYSE: JOY  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Joy Global and see what CAPS investors are saying about the stock right now.

PepsiCo facts

Headquarters (founded)

Milwaukee, Wis. (1884)

Market Cap

$6.3 billion


Farm and construction machinery

Trailing-12-Month Revenue

$5.7 billion


CEO Michael Sutherlin (since 2006)

CFO James Sullivan (since 2012)

Return on Equity (average, past 3 years)



$269.9 million / $1.4 billion

Dividend Yield





Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 97% of the 1,662 members who have rated Joy Global believe the stock will outperform the S&P 500 going forward.

Earlier this month, one of those Fools, Nehams, succinctly summed up the bull case for our community:

Joy Global isn't sitting on its hands while the Chinese mining markets take time to revive. It is hauling up operations, improving margins, and cleaning up its balance sheet. In short, a leaner and stronger Joy Global is on its way, to arrive bang on time as the markets pick up. Takeover rumors are getting hotter too. At a P/E that's close to its 5-year average, long-term investors should see a lot of value in this company when business cycles turn.

With the European debt crisis and slowing growth in China many investors are worried about heady growth going forward, but fear not, because: The Future is Made in America. Domestic manufacturing is poised to once again become the investment driver of the world, and all because of one disruptive technology. You can uncover the three companies that will become the American Steel of tomorrow in The Motley Fool's�new free report. Just click here to read more.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

Friday, March 29, 2013

Bill Gross Launches Alternative PIMCO Total Return Fund

PIMCO bond guru Bill Gross has made headlines once again, this time by launching a new version of his Total Return Fund that eschews the risky high-yield strategies that grew the original Total Return into the world’s largest mutual fund.

Called the PIMCO Total Return Fund IV in a February regulatory filing, the new fund will forgo high-yield debt, borrowing to create leverage and investing in derivatives such as options, Bloomberg reported in a news story on March 11.

The new fund will provide an alternative to the PIMCO Total Return Fund, but it won’t replace the original, Bloomberg reported.

Gross (left), the co-founder of Pacific Investment Management Co. in Newport Beach, Calif., is tinkering with a strategy that helped him beat 98% of rivals over almost 24 years and attract $25.1 billion of new deposits last year,” according to Bloomberg. “With Gross forecasting an end of the three-decade bond rally, PIMCO may be targeting investors who prefer a more conservative approach over the risks associated with excess yields, according to Francois Otieno, a senior fixed-income analyst at Hewitt EnnisKnupp, which advises institutional investors.”

On March 4, Gross was in the news when he urged lawmakers to cut the massive federal deficit. In response to the federal government’s projected

record budget deficits, Gross eliminated all U.S. Treasury debt from his flagship fund in February.

Gross wrote in his March investment outlook: “If on June 30, 2011 (the assumed termination date of Quantitative Easing II), the private sector cannot stand on its own two legs – issuing debt at low yields and narrow credit spreads, creating the jobs necessary to reduce unemployment and instilling global confidence in the sanctity and stability of the U.S. dollar – then the QEs will have been a colossal flop. If so, there will be no 15%+ tip for the American economy and its citizen waiters. An inflation-adjusted ‘negative buck’ might be more likely.”

Meanwhile, on March 3, PIMCO announced seven new hires with expertise in emerging markets and global equities.

“Recruiting the best talent is critical to the expanded offering to our clients of PIMCO quality equities solutions,” said Neel Kashkari, head of PIMCO’s New Investment Initiatives, in a statement.

PIMCO’s spokesman did not return calls for further comment.

Read more about the PIMCO Total Return Fund’s reduced Treasury exposure at

IMF Seeks End to Energy Subsidies

The International Monetary Fund (IMF) released a report this week that urges governments, including the U.S. government, to reform their energy subsidies substantially. In its report "Energy Subsidy Reform: Lessons and Implications," [link opens PDF] the IMF says that while subsidies are meant to protect consumers, they have significantly negative consequences that ultimately hurt those same consumers.

The report says that subsidies "distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources." The IMF highlights further negative effects, including aggravated financial inequality and depressed private investment.

The report identifies the U.S. among the top three subsidizers across the world, in absolute terms, at $502 billion. China ($279 billion) and Russia ($116 billion) round out the list. In advanced economies like that of the U.S., the report finds that "prices remain below the levels needed to fully capture the negative externalities of energy consumption on the environment, public health, and traffic congestion."

Among its reform recommendations, the IMF urges governments to phase in energy price increases across energy products, and to implement institutional reforms that depoliticize energy pricing, such as automatic pricing mechanisms. The report is dated Jan. 28 but was released this week.


Can the Tablet Take Your Order Now?

Carla Hesseltine is considering buying a few tablet devices for her bakery so customers can place orders for her signature M&M cupcakes on their own, straight from the counter.

The reason: She fears the $7.25 an hour that she currently pays her 10 customer-service employees, mostly college students, could rise, perhaps to $9 an hour under a pledge by President Barack Obama earlier this month.

In order for her Just Cupcakes LLC to remain profitable in the face of higher expected labor costs, Ms. Hesseltine believes the customer-ordering process "would have to be more automated" at the Virginia Beach, Va., chain, which has two strip-mall locations as well as a food van. Thus, she could eliminate the 10 workers who currently ask customers what they would like to eat.

Enlarge Image

Close Matt Eich for The Wall Street Journal

Customers at Just Cupcakes, a Virginia Beach, Va., bakery, may be asked to use self-service tablets, helping owner Carla Hesseltine cut labor costs.

Small-business owners have long griped that increases in the minimum wage hurt their bottom lines by forcing them to spend more on payroll, related taxes and benefits. The president's proposal is unlikely to pass, yet many business owners nonetheless feel threatened having seen the minimum wage increase in nearly every state in the past six years.

Some owners say they now see a possible solution to the problem: replacing workers with new and cheaper technologies designed to help employers simplify operations.

Hardware and software prices have come down in the past decade, making them more affordable to small firms. For example, the average price of a tablet�the kind Ms. Hesseltine is looking into�dropped to $394 by the end of 2012 from more than $1,330 three years earlier, according to IHS, a market research firm.

The combined cost of two such tablets, plus a customized application for displaying products with descriptions and processing orders, ranges from $5,000 to $15,000 to implement. But in recent years, online app-building tools have become available at substantially lower costs.

Unlike major corporations, which can often absorb increases in labor costs, small-business owners typically have few options for coping with higher wages, particularly when the economy is weak. They can raise prices only so much without decreasing sales, and many have already done so because of higher operating costs, such as commodity and gas prices and health-care premiums.

Supporters of the president's proposal argue that the federal minimum wage is long overdue for an upgrade and that a higher rate would provide residual benefits, such as a reduction in turnover and increased productivity. Before rising to $5.85 in 2008, the federal minimum wage held steady at $5.15 for a decade.

Twenty-six states have a minimum wage equal to or lower than the current federal minimum of $7.25 an hour. And 19 states, plus the District of Columbia, require employers to pay an even higher minimum wage, with Washington requiring the greatest amount, $9.19 an hour, followed by Oregon's minimum of $8.95 an hour. Ten states index their minimum wages to keep pace with inflation; for instance, Arizona, Missouri and Vermont raised their minimum wages earlier this year.

In all, one-third of low-wage workers are employed by businesses with fewer than 100 employees, according to estimates by the National Employment Law Project, an organized-labor-backed advocacy group for low-wage workers.

Mike Reis, 43 years old, who earns $7.25 an hour as a sales clerk at Hobby Works in Rockville, Md., says he's not worried about losing his job if the minimum wage goes up. "In retail, it's not like you can get a machine to replace someone on the floor," he says. But he is worried about having his hours cut back and ending up with less cash in his pockets, he adds.

Just how many small firms will turn to technology to replace jobs in the face of a wage increase isn't clear. Many studies about the effects of higher wages on overall employment tend to be politicized, clashing over whether the benefits of higher paid workers outweigh the costs of having fewer low-wage jobs.

To support President Obama's case for an increase in the minimum wage, the White House cites a 2009 academic study that says any adverse employment effect from such would be of a small and possibly irrelevant magnitude. The president's 2013 report, released this month, further states that "even with the tax relief we've put in place, a family with two kids that earns the minimum wage still lives below the poverty line."

Owners of small firms tend to wear a lot of hats, but might not have the know-how to operate complicated technologies. Even simple technologies, such as tablets, bring other costs, including implementation, maintenance upgrades and repair.

Tarang Gosalia, of Cambridge, Mass., hopes he can get away with having fewer employees waiting on customers at the three hair-salon franchises and one frozen-yogurt outlet he owns by using Square, a three-year-old technology brand designed to streamline credit-card transactions. He is planning to test it out starting in June to see if it will make accepting payments easier and faster for his staffers�and therefore allow him to downsize. About 70% of the 35 employees who work for his combined businesses currently earn $8 an hour, the minimum pay required in his state. Raising prices to offset the higher payroll costs strikes him as too risky, because he worries his sales may suffer.

Some entrepreneurs see a promising market in selling technologies to small businesses that might help them to streamline operations and do away with low-wage workers, or retrain them for higher-skilled jobs. An automatic hamburger flipper currently in development could replace low-wage line cooks at a beachside burger joint, for example. A $22,000 six-foot-tall robot with flexible arms, a face screen and rolling pedestal might replace low-wage workers at small manufacturing firms that can't afford traditional automation. The robot would likely require an employee to program it.

There are significant downsides to using technology to replace low-wage workers, too. At small firms, many employees tend to work a variety of tasks, such as answering customer questions, mopping floors and setting up displays.

Ms. Hesseltine got the idea for using touch-screen technology to eliminate most or all of her minimum-wage customer-service staff after seeing a nearby juice business do something similar. She figures she could install tablet devices that would display photos of her cupcakes, which she sells for $3 apiece, and their ingredients.

Customers could scroll through the options and select what they want, rather than have a customer-service worker jot down their order on a piece of paper and pass that along to another employee who fills it.

Ms. Hesseltine says she hopes her son, a 27-year-old computer engineer, will be able to do some of the setup work for free.

—Emily Maltby contributed to this article.

Write to Sarah E. Needleman at and Angus Loten at

Oil Steady Above $96 as Cyprus Banks Reopen

The price of oil was up slightly Thursday after climbing more than $4 in less than a week as financially troubled Cyprus reopened its banks after nearly two weeks.

By early afternoon in Europe, benchmark oil for May delivery was up 8 cents to $96.66 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 24 cents to close at a five-week high of $96.58 on Wednesday.

The oil market was tempered by caution as Cypriot banks reopened for the first time since March 16. The banks were shut as political leaders negotiated an emergency bailout to prevent a banking collapse. The contentious deal reached Monday will force losses on bigger depositors, which many analysts have said could spark a crisis of confidence in banking across the 17 countries that use the euro.

No disturbances were reported as people across Cyprus formed long but orderly lines at ATMs and banks.

In the prior four sessions, oil gained $4.13, driven by strong U.S. economic data. The trend continued Thursday as the U.S. Commerce Department revised higher its figures for economic growth during the last three months of 2012, to 0.4 percent from an earlier estimate of 0.1 percent.

The Energy Department's Energy Information Administration said Wednesday that crude supplies for the week ending March 22 increased by 3.25 million barrels. Ample supplies tend to keep a lid on energy prices.

The supply build "was due primarily to a sharp increase in imports which could not be offset by higher crude oil processing by the refineries," said a report from Commerzbank in Frankfurt.

Brent crude, used to price many kinds of oil imported by U.S. refineries, was down 56 cents to $109.13 a barrel on the ICE Futures exchange in London.

In other energy futures trading on the Nymex:

  • Wholesale gasoline fell 2.94 cents to $3.0824 a gallon.
  • Heating oil lost 1.16 cents to $3.0252 a gallon.
  • Natural gas dropped 2.8 cents to $4.04 per 1,000 cubic feet.

What Made AIG Great Before It Collapsed

For many, the history of AIG (NYSE: AIG  ) starts in September, 2008, when it collapsed and was bailed out by the U.S. government.

That's unfortunate, because the company has a deep history spanning nearly a century. Long before it was bailed out, and long before it bet heavily on risky mortgage derivatives, it was the one of the most successful and admired insurance companies in the world.

I recently interviewed former AIG chairman and CEO Hank Greenberg, who ran the company for almost 50 years before retiring in 2005. I asked him a simple question: What made AIG great during its heyday? Here's what he had to say (transcript follows):

Morgan Housel: What I liked about the book is that it spent most of the time on the early days and the growth of AIG during its heyday. I think what�s unfortunate is that for a lot of Americans, the history of AIG begins in September 2008.

Hank Greenberg: That�s exactly right.

Morgan Housel: What was AIG�s key to success during its heyday?

Hank: Many things. First of all, we had a culture that was quite unique, and I think a lot of it was also when we started. Starr died in 1968. I became the head of the company in 67, and the people around us then, most of us at the very senior level were veterans, had been officers of the military, so there was a separate culture that was just unique, almost a military-like culture of discipline.

We attracted the best and the brightest, people who could live with a very high-powered environment. We were totally committed to building a great company, and we did. It was the largest insurance company in history. The largest in history, in 130-odd countries; it didn�t happen by accident. The planning and the execution were great.

Morgan Housel: You talk a lot about the culture of success. What other publicly traded companies today do you admire, that are doing things right?

Hank Greenberg: I think one of the companies now public was a part of AIG called AIA, in Hong Kong. Its market value today is almost that of AIG. It was wholly owned by AIG. I just had lunch with the guy running it, the CEO, yesterday. The company is a replica of what AIG was.�

For more on AIG
At the end of last year, AIG was the favorite stock among hedge fund managers. Have they identified the next big multi-bagger, or are the risks facing the insurance giant still too great? In The Motley Fool�s premium report on AIG, Financials Bureau Chief Matt Koppenheffer breaks down the key issues that you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you'll also receive a full year of key updates and expert analysis as news continues to develop.

Markets Rise on Mixed Economic Data

While the jobless-claims report is normally an important data point for investors to watch on Thursdays, today the jobs market is taking a backseat to the bailout in Cyprus and the revised GDP number.

But let's start with the jobs report. The Department of Labor said initial jobless claims rose more than expected last week to a seasonally adjusted 357,000, an increase of 16,000 from the previous reading. The four-week average rose 2,250 to 343,000, but many believe the job market is still moving forward any time the average is below 350,000.

The Cypriot banks all opened this morning without incident. One report I read said there may have been more reporters than actual bank customers when the doors opened for business. This will hopefully help stabilize the banking system not only in Cyprus but throughout Europe, and clearly this is a good sign for investors.

Lastly, revised U.S. GDP numbers were released this morning, showing that fourth-quarter GDP rose 0.4% during the last three months of 2012. This was slightly lower than the expected 0.5% but still a positive sign.

And with all of that, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 26 points, or 0.18%, as of 1 p.m. EDT. As usual, though, a few losers can be found.

Today's top Dow downers
Even though the Cypriot banks opened without a hitch today, the Dow's two banks are down again today. JPMorgan Chase (NYSE: JPM  ) is down 0.8%, while Bank of America (NYSE: BAC  ) has lost 0.7%. Both of the banks are heading lower due to their own problems today, not a macroeconomic event. JPMorgan was denied its request for a lawsuit dismissal by a U.S. district judge today. The bank is being sued by a pension fund that claims the bank mismanaged the funds.

Bank of America is likely heading lower due to the revelation that not only did CEO Brian Moynihan receive more than $12 million in compensation during 2012, but his co-COO actually made more than that: In a filing released this morning, the bank reported that Tom Montag made $14.5 million in 2012. While the majority of both compensation packages came in the form of stock options, some investors are still turned off by the thought that top executives are making that amount of money.

Even though Boeing's (NYSE: BA  ) top brass continues to express confidence that the grounded 787 Dreamliner will soon be cleared to fly by the FAA, shares are down 0.7% this afternoon. The decline may be the result of a Boeing customer reporting that it is now leasing aircraft from Airbus, Boeing's closest competitor. Polish airline LOT signed a lease agreement with Airbus for planes from April 12 until the end of May, at which time the airline is hoping it can fly its 787s.

Boeing is a major player in a multitrillion-dollar market in which the opportunities are massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. In our premium research report on the company, two of The Motley Fool's best industrial-sector minds have collaborated to provide investors with the must-know info on Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.

Adding to Our Position in This Compounding Machine

As I detailed in my initial write-up of the company, I believe Loews (NYSE: L  ) is a value-creation machine. The company has a returns-focused management team, several subsidiaries in which capital can be deployed, and a long track record of compounding wealth. Since that write-up, none of this has changed. Loews remains undervalued, and I'm going back for a second helping of this well-run business.

Since I bought shares of Loews, the company has reported earnings per share of just $1.43 in 2012, down from $2.62 in 2011. These results included catastrophe losses at CNA Financial (NYSE: CNA  ) , and impairment charges from Highmount, its wholly owned oil and gas E&P. There's nothing CNA could've done to avoid these catastrophe losses. This is essentially what insurers do -- they price risk. When events occur, they must pay out.

Catastrophe loss aside, the slow turnaround at CNA, Loews' biggest subsidiary, continues. The company continues to push through rate increases across its portfolio. Last year, CNA achieved rate increases of 6% across its property and casualty portfolio. It's going to be a while before we see overall return on equity climb sustainably from the current level, but the company's headed in the right direction.

On the other hand, Highmount's writedown was purely an accounting convention that occurred simply because some of Highmount's natural gas reserves were uneconomical based on 12-month trailing prices. This is hardly a surprise. In fact, we saw similar writedowns at many other E&Ps with natural gas production in North America.

While natural gas has recovered very nicely to about $4 today, it wasn't always this way. Just last year, natural gas momentarily dipped below $2, prompting explorers to reduce their rig counts as natural gas drilling became a money-losing endeavor. What the writedown did was reduce the carrying value of its properties on its balance sheet. This led to a $433 million after-tax hit to earnings, which could've amounted to a $1.11 increase in book value per share for the year.

Going forward, as the price of natural gas continues to recover, many of these written-down properties will become economical once again. However, they've already been written down. While the writedown caused a big hit to earnings last year, the smaller carrying value now means that depreciation and amortization will be lower per thousand cubic feet of gas produced.

That's a long way of saying that the writedown was no big deal in the grand scheme of things. In fact, book value is now understated by the $1.11 figure I mentioned because Highmount is likely to derive value from its properties future, even though they've already been written down.

Growing from within
Finally, Loews continues to invest for future growth in its subsidiaries. Loews Hotels and its partners committed to projects worth more than $1 billion in 2012. Loews has committed to growing its hotel business in the future, and the segment should continue to receive capital for investment.

Boardwalk Pipeline Partners� (NYSE: BWP  ) also acquired the remaining 80% equity interest�in HP Storage for $285 million, acquired a 65% stake in PL Midstream for $269 million, and continues to look for ways to profitably grow its business. As cheap natural gas gains share as a source of energy, the opportunities for Boardwalk to expand its business increase.

Also, Highmount E&P continues to diversify into oil production by testing the Mississippi Lime play, which it entered in late 2011. Thus far, the company has drilled 30 wells on this acreage�and plans to make further strides developing the play over the next year. Success here would add much needed oil production to the mix, adding greatly to the profitability of this subsidiary and achieving a much healthier balance of oil and natural gas production.

Finally, Diamond Offshore (NYSE: DO  ) , Loews' offshore drilling subsidiary, has a fleet renewal program in place to add to its current fleet. It has six rigs that will be delivered over the next two years, three of which have already been committed to contracts with favorable day rates. With oil getting harder to find, Diamond's offshore drilling rigs will play a key role in keeping the oil flowing across the world.

Foolish bottom line
There's always a lot going on at Loews, but the overarching story remains the same: It's a diversified holding company with a capable management team. The holding company receives cash from its subsidiaries, which management then looks to deploy effectively. With that in mind, management is always looking to reinvest in its subsidiaries, buy back shares, consider mergers and acquisitions, or anything else that could potentially boost the value of the company.

I believe Loews deserves a valuation of 1 to 1.1 times book value, or $50 to $55 per share, compared to the recent price of $44. Tomorrow, I'll be buying more shares of this undervalued company in the Street Fighter Portfolio, which I co-manage with Matt Argersinger.�

Many investors are scared about investing in big banking stocks after the crash, but the sector has one notable stand out. In a sea of mismanaged and dangerous peers, it stands out as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's�new report. It's free, so click here to access it now.

Thursday, March 28, 2013

EU Seeks Extra Funding of $14 Billion for 2013

BRUSSELS (AP) -- The European Union's executive arm is certain to upset several of its 27 member states as it is seeking 11.2 billion euros ($14.4 billion) in additional funding, mainly to pay outstanding bills from last year.

Britain, France, Italy, and others will have to find more than a billion euros each at a time when they are trying to trim high deficits through spending cuts or tax raises and their economies are struggling.

The European Commission, the bloc's executive arm, said Wednesday that, in addition to its 2013 budget of 133 billion euros ($170 billion), it needs 9 billion euros to meet obligations funding projects in Europe's less developed economic areas. It needs another 2.2 billion euros for other expenses, excluding administrative costs, which are set to stay flat.

The EU's members must approve the budget by qualified majority. They pay a share of the budget according to their economic strength. If the amended budget is passed, Germany will face an additional bill of 2.2 billion euros, France 1.7 billion euros, Britain 1.6 billion euros, and Italy 1.3 billion euros.

The financial burden might ultimately be somewhat lower because most of the additional EU funds will pay or co-finance projects in the member states. But the money often goes to local entities there, with the central government on the hook to pay Brussels' budget.

The European Commission and the European Parliament are adamant about the need for the additional financing, insisting it's not about expanding the EU's coffers but about honoring the bloc's payments for previously approved projects.

"You order a meal in a restaurant knowing its price, you eat it, then you complain when the bill arrives?" the EU Budget Commissioner's spokesman, Patrizio Fiorilli, wrote in a post on Twitter.

By law, the EU is not allowed to run a deficit. The initial budget shortfall of 2012 was estimated to total 16 billion euros but shifting funds between budget years brought the figure down to about 11 billion euros, according to the latest estimates. The extra funds would just barely put it back in the black.

The EU Parliament is threatening to hold up the bloc's entire 960 billion euros ($1.3 trillion) budget for the years 2014-2020 unless member states accept to pay the outstanding bills.

"At a time when the EU is suffering from a credibility deficit, no one would take us seriously if we were to decide on the budget for the next seven years without being able to pay the bills for the current year," said Alain Lamassoure, Chairman of the European Parliament's Budget Committee of the center-right majority caucus.

The EU's multi-annual budget was hammered out in a round-the-clock summit of the EU's 27 leaders. It foresees the first spending cuts in the bloc' history. The European Parliament has overwhelmingly rejected the proposal and said it wouldn't start negotiations before last year's bills will be paid for.

Is TJX a Cash King?

As an investor, it pays to follow the cash. If you figure out how a company moves its money, you might eventually find some of that cash flowing into your pockets.

In this series, we'll highlight four companies in an industry, and compare their "cash king margins" over time, trying to determine which has the greatest likelihood of putting cash back into your pocket. After all, a company can pay dividends and buy back stock only after it's actually received cash -- not just when it books those accounting figments known as "profits."

Today, let's look at TJX (NYSE: TJX  ) and three of its peers.

The cash king margin
Looking at a company's cash flow statement can help you determine whether its free cash flow actually backs up its reported profit. Companies that can create 10% or more free cash flow from their revenue can be powerful compounding machines for your portfolio. A sustained high cash king margin can be a good predictor of long-term stock returns.

To find the cash king margin, divide the free cash flow from the cash flow statement by sales:

Cash king margin = Free cash flow / sales

Let's take McDonald's as an example. In the four quarters ending in December, the restaurateur generated $6.97 billion in operating cash flow. It invested about $3.05 billion in property, plant, and equipment. To calculate free cash flow, subtract McDonald's investment from its operating cash flow. That leaves us with $3.92 billion in free cash flow, which the company can save for future expenditures or distribute to shareholders.

Taking McDonald's sales of $25.5 billion over the same period, we can figure that the company has a cash king margin of about 14% -- a nice high number. In other words, for every dollar of sales, McDonald's produces $0.14 in free cash.

Ideally, we'd like to see the cash king margin top 10%. The best blue chips can notch numbers greater than 20%, making them true cash dynamos. But some businesses, including many types of retailing, just can't sustain such margins.

We're also looking for companies that can consistently increase their margins over time, which indicates that their competitive position is improving. Erratic swings in margins could signal a deteriorating business, or perhaps some financial skullduggery; you'll have to dig deeper to discover the reason.

Four companies
Here are the cash king margins for four industry peers over a few periods.


Cash King Margin (TTM)

1 Year Ago

3 Years Ago

5 Years Ago






Kohl's (NYSE: KSS  )





Macy's (NYSE: M  )





Saks (NYSE: SKS  )





Source: S&P Capital IQ; TTM = trailing 12 months.

None of these companies meets our 10% threshold, but TJX comes the closest. While its current cash king margins are lower than they were three years ago, they are higher than five years ago. Macy's comes in second, and has consistently offered margins close to the 5% range. Kohl's has 2.5% cash king margins, which have consistently declined over the past three years as operating cash flow has fallen. Saks has the lowest margins at below 2%. While its current margins are up from five years ago, they are the lowest they've been in three years.

TJX has benefited from consumer interest in name brands at discount prices. This strategy has a number of advantages. First, by combining low prices with an in-person, hands-on shopping experience, TJX can draw customers away from online shopping. Also, because these companies consistently discount their products, they avoid the trap of changing consumer expectations and changing value perceptions created by companies like Macy's, Kohl's, and Saks when they discount their products.

The cash king margin can help you find highly profitable businesses, but it should only be the start of your search. The ratio does have its limits, especially for fast-growing small businesses. Many such companies reinvest all of their cash flow into growing the business, leaving them little or no free cash -- but that doesn't necessarily make them poor investments. Conversely, the formula works better for slower-growing blue chips. You'll need to look closer to determine exactly how a company is using its cash.

Still, if you can cut through the earnings headlines to follow the cash instead, you might be on the path toward seriously great investments.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.