Why Global Sources's Earnings Are Outstanding

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Global Sources (Nasdaq: GSOL  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Global Sources generated $29.9 million cash while it booked net income of $32.2 million. That means it turned 12.9% of its revenue into FCF. That sounds pretty impressive. However, FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Global Sources look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 13.2% of operating cash flow coming from questionable sources, Global Sources investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 7.7% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 4.4% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Looking for alternatives to Global Sources? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Global Sources to My Watchlist.

Outerwall's Culture of Innovation

The Motley Fool is on the road in Seattle! Recently we visited Coinstar -- now officially renamed Outerwall  (NASDAQ: OUTR  ) -- to speak with CFO-turned-CEO Scott Di Valerio about the 22-year-old company's well-known coin-cashing machines, as well as its more recent acquisition of Redbox, and future initiatives to expand into other aspects of the automated retail market.

In this video segment, Scott describes Coinstar's innovation and openness to new ideas, balanced with the structure and discipline to evaluate trial programs and prototypes realistically and know when it's time to move on. The full version of the interview can be watched here.

A full transcript follows the video.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only the most forward-looking and capable companies will survive, and they'll handsomely reward 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.

Eric Bleeker: Great. First generation of the company Coinstar, second Redbox, and really beginning a third one right now. You talked about making low bets across the business. How would you establish what you want to put manpower behind, versus when you're going to move on beyond an idea?

As we know, one thing that can concern shareholders a lot of the time is companies chasing some too far. How are you going to establish the discipline for the right moves to make?

Scott Di Valerio: Right. Well, we are very structured in how we make investments in our new business innovations, and what the metrics are that are required for them to continue, for us to continue, to invest. We do kind of run them on a survivalist basis.

There are key metrics that each of the businesses that we decide to move forward with are on. They have to hit them on a monthly/quarterly basis. If they're not hitting those metrics, we make some tough decisions. We're looking for alternative solutions for our Orango business, which was our used/refurbished electronics business. We shut down Chirp about two years ago.

Again, it's around being very structured. Once a business isn't doing, consistently, what it needs to do, we turn it off and move on to others. We have a team that really does focus on bringing new businesses to marketplace. We set up card tables and test them out, and then begin to figure out how that business might work if it's successful.

We have enough to keep churning those through, so we don't need to hang on one that that might not be doing what it needs to.

Bleeker: Got you. I guess that would lead into, from a leadership perspective -- and I know you're new on the job here -- but how would you foster that kind of culture, where people are always looking for new ideas?

You're clearly looking to take advantage of some of these verticals, and what you see as a huge opportunity in automated retail. How do you build out a culture within a company, that people are trying new things and not afraid of failure, and being really innovative?

Di Valerio: We're lucky because it's in our DNA, because of how we started the company, both the coin and the Redbox businesses, as well as some of these newer businesses. What we try to do -- you mentioned it -- allowing people to fail, but to learn from those failures and then keep making the right investments going forward.

We really do try to foster a company where people feel like they have the power to make decisions. They're empowered to go after businesses, but they also are empowered to make mistakes and then to learn from those mistakes. I think we've been successful at that.

We've structured, in order to be able to do that, we have a team that's really focused on the new business innovation. We have teams within each of the lines of business that are focused on that, that continue to extend out our brands and not sit back on our haunches.

Again, it's a matter of just allowing that openness and really being -- as we talk about -- being inventive, being intuitive with our businesses, and then also being inclusive, both from our employee base but really also inclusive by understanding what our customers want.

A Game-Changer for Microsoft?

The following video is from Thursday's Motley Fool Money roundtable discussion in which host Chris Hill, along with analysts Charly Travers, James Early, and Ron Gross, discuss the top business and investing stories of the week.

Microsoft (NASDAQ: MSFT  )  unveiled the Xbox One this week. Will the next generation of  Microsoft's gaming system be a hit with consumers? Shares of Microsoft are up 30% this year. What will the Xbox One mean for investors? In this installment of Motley Fool Money, our analysts tackle those questions.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that, while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

The relevant video segment can be found between 4:08 and 5:52.

For the full video of today's Motley Fool Money, click here .

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More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Dow Hit by a Drop in Pending Home Sales

U.S. stocks are moderately lower today following a reported drop in pending home sales: As of 12:45 p.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 53 points, or 0.34%, while the S&P 500 is off by 0.44% and the Nasdaq has lost 0.43%. The National Association of Realtors said sales contracts fell 0.4% during the month of June as interest rates began rising in May and housing prices continued to tick higher. Sales hit a six-year high in May and are still up more than 10% when compared to June of last year.

Bank of America (NYSE: BAC  ) is losing out today, likely because of the disappointing pending-home-sales report. Shares are down 1.4% as investors grow concerned about the bank's plan to grow revenue by increasing its mortgage business. Bank of America and the other large financial institutions have been shifting toward the mortgage business, rather than riskier forms of banking such as trading and investing. But these plans will only work if the U.S. housing market continues to improve and provide a large quantity of new home mortgages.

Boeing (NYSE: BA  ) 's fall, on the other hand, has nothing to do with the lackluster housing report. The company has recently experienced a number of problems with its 787 Dreamliner, and it seems the drama just doesn't end. Months ago the aircraft was grounded after a number of the planes experienced problems with the new battery system. Recently, a 787 caught fire while sitting on the tarmac, and then another 787 was taken out of service after smoke was seen coming from an electrical panel. This morning the company requested that inspections be performed on all of its aircraft that use a Honeywell emergency locator beacon, as Boeing believes this may be what caused the recent incidents. Nervous investors have pushed Boeing's Stock price down 0.8% today, but year to date the shares are up more than 39%, Boeing drama and all. Given the aircraft engineering industry's massive barriers to entry and Boeing's impressive sales performance and growing backlog, investors should just sit tight and try to tune out the noise surrounding the company until clearer skies can be seen.

With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

Hot Tech Stocks To Invest In Right Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of network equipment king�Cisco Systems (NASDAQ: CSCO  ) soared 12% today after its quarterly results and outlook topped Wall Street expectations.

So what: Sluggish global business spending has weighed on the technology sector recently, but Cisco's first-quarter results -- adjusted EPS of $0.51 on revenue of $12.2 billion versus the consensus of $0.49 and $12.2 billion -- suggest that its competitive position is strengthening amid the weak environment. In fact, the company's gross margin widened 110 basis points to 63%, reinforcing investor confidence in its market share growth going forward.

Hot Tech Stocks To Invest In Right Now: Hemispherx Biopharma Inc (HEB)

Hemispherx Biopharma, Inc. (Hemispherx) is a specialty pharmaceutical company engaged in the clinical development of new drugs therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. Hemispherx focuses on two core pharmaceutical technology platforms Ampligen and Alferon N Injection.The commercial focus for Ampligen includes application as a treatment for Chronic Fatigue Syndrome (CFS) and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection is a United States Food and Drug Administration (FDA) approved product with an indication for refractory or recurring genital warts. Alferon LDO (Low Dose Oral) is a formulation under development targeting influenza. It has three subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp. The Company's foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A.

Ampligen

Ampligen is an experimental drug, which is undergoing clinical development for the treatment of Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS). Over 1,000 patients have participated in the Ampligen clinical trials representing the administration of more than 90,000 doses of this drug. The Company is also engaged in ongoing, experimental studies assessing the efficacy of Ampligen against influenza viruses.

Alferon N Injection

Alferon N Injection is the registered trademark for the Company's injectable formulation of natural alpha interferon. Interferons are a group of proteins produced and secreted by cells to combat diseases. The Company's natural alpha interferon is produced from human white blood cells. Alferon N Injection [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon product.

Alferon LDO (Low Dose Oral)

Alferon LDO [Low Dose Oral Interferon Alfa-n3 (Human Leukocyte Derived)]! is an experimental low-dose, oral liquid formulation of Natural Alpha Interferon and like Alferon N Injection should not cause antibody formation, which is a problem with recombinant interferon. It is an experimental immunotherapeutic that works by stimulating an immune cascade response in the cells of the mouth and throat, enabling it to bolster systemic immune response through the entire body by absorption through the oral mucosa.

The Company competes with Pfizer, GlaxoSmithKline, Merck, AstraZeneca, Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta.

Hot Tech Stocks To Invest In Right Now: Ipc Corporation Limited (I12.SI)

IPC Corporation Ltd., an investment holding company, engages in property investment and development activities in the Asia Pacific and the Americas. It is involved in reselling properties; investment in hospitality assets; and the provision of property consulting services, as well as management of clubs. The company also engages in the sale and distribution of telecommunication products, and computer system boards and peripheral products. IPC Corporation Ltd. was incorporated in 1985 and is headquartered in Singapore.

5 Best Oil Stocks For 2014: Echelon Corporation(ELON)

Echelon Corporation develops, markets, and supports energy control networking solutions worldwide. Its solutions enable everyday devices, such as air conditioners, appliances, electricity meters, light switches, thermostats, and valves to be inter-connected; and energy control networking platform powers energy-savings applications for smart grid, smart cities, and smart buildings. The company?s product portfolio includes twisted pair smart transceivers that can be embedded into building automation devices, such as sensors, thermostats, motion detectors, air handlers, and chillers; SmartServer controller, a system manager and field controller for building networks and smart-energy applications; LonWorks control networks software (LNS) and OpenLNS operating system, which are development and integration tools; and third party energy management or grid analytics software, and apps for the SmartServer in hosted or server-based configurations. It also offers PL/RF Bridge to con nect segments of streetlights to a SmartServer; smart meters that provide load profiling, time-of-use, display of energy consumption, and prepaid metering payment capabilities; edge control nodes that connect smart meters and open smart grid protocol (OGSP) -based grid devices; and networked energy system software to retrieve data from smart meters and other OSGP-based devices. In addition, the company provides Element Manager, a browser based software that provides network analysis, graphed statistics, and automated network management; and control point modules that enable original equipment manufacturers (OEMs) to build OSGP compliant smart grid devices. It serves OEMs and systems integrators in the building, industrial, transportation, utility/home, and other automation markets through direct sales organization, electronics representatives, value-added resellers, and distributors. Echelon Corporation was founded in 1988 and is headquartered in San Jose, California.

Hot Tech Stocks To Invest In Right Now: CDI Corporation(CDI)

CDI Corp. provides engineering and information technology project outsourcing solutions and professional staffing services primarily in the United States, the United Kingdom, and Canada. It operates in four segments: ES, MRI, Anders, and ITS. The ES segment provides engineering, design, project management, staffing, and outsourcing solutions to oil, gas, refining, alternative energy, power generation and energy transmission, chemicals, and heavy manufacturing industries; engineering, design, logistics, and staffing services to the defense industry, primarily in marine design, systems development, and military aviation support; engineering, design, project management, staffing, and facility start-up services to pharmaceutical, bio-pharmaceutical, and regulated medical services industries; and architecture, civil and environmental engineering, communication technology, and consulting services to governmental, educational, and private industry customers. The MRI segment opera tes as a global franchisor that does business as MRINetwork and provides the use of its trademarks, business systems, and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional, and managerial personnel for employment by their customers. It also provides training, implementation services, and back-office services to enable franchisees to pursue staffing opportunities. The Anders segment provides contract and permanent placement candidates to customers in the areas of architecture, building services, rail, commercial and industrial construction, consulting engineering, facilities management, interior design, surveying, and town planning. The ITS segment offers various information technology related services, which include staffing augmentation, permanent placement, outsourcing, and consulting. The company was founded in 1950 and is based in Philadelphia, Pennsylvania.

Advisors' Opinion:

• [By Vodicka]

  CDI Corp. provides engineering and information technology outsourcing and professional staffing services to its customers. Its EPS forecast for the current year is 0.45 and next year is 0.76. According to consensus estimates, its topline is expected to grow 10.13% current year and 8.49% next year. It is trading at a forward P/E of 20.04. Out of four analysts covering the company, one is positive and has a buy recommendation and three have hold ratings.

Hello, Shoppers, You Are Being Watched

As brick-and-mortar retailers continue to look for ways to level the playing field in terms of customers' data relative to their online brethren like Amazon.com, they're experimenting with an increasing number of technologies. A recent New York Times article detailed how Nordstrom (NYSE: JWN  ) recently ended such a test with Euclid Analytics that used customers' smartphones to track their movements within stores; in-store signs detailing the practice drew negative customer feedback, leading to the end of the experiment.

In the video below, Fool.com contributor Doug Ehrman discusses some of these new technologies and considers the costs and benefits, and why the approach simply feels different than that of their online counterparts.

Even as some of these companies are searching for ways to get an advantage, others are succeeding. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Debunking the Netflix "Virtuous Cycle" Myth

Netflix (NASDAQ: NFLX  ) management has often talked about pursuing a virtuous cycle that will sustain rapid streaming membership growth for years to come. By having more members than competitors such as Amazon.com (NASDAQ: AMZN  ) or Hulu, Netflix can afford to spend more on content, improving the quality of the service and attracting even more members.

The company's long-term view states, "Success relative to these competitors-for-content would be us having substantially larger revenue and therefore sustainable increasing content, tech and marketing spending, leading to further growth, and a virtuous cycle."

This expectation of a virtuous cycle is one of the primary reasons Netflix CEO Reed Hastings believes that the company will ultimately attract 60 million to 90 million U.S. streaming subscribers. As he explained during the company's recent earnings interview: "[B]y the time we get to 40 million and 50 million, we get the content better and the service better. So, it's not 60 million or 90 million for the current service, it's 60 million or 90 million for the future service that's much improved, with maybe a lot more originals and incredible streaming."

There's just one problem: The much-talked about "virtuous cycle" is a myth. As the membership base grows, Netflix does have more streaming revenue, allowing it to increase its content budget. However, that is very different from the picture of "increasing content" that Netflix describes.

In fact, inflation in the cost of content is likely to outrun Netflix's U.S. subscriber growth rate for the foreseeable future. In other words, Netflix will spend more on content but will get much less for its money. This will force Netflix to either ramp up content spending at an even faster rate than membership growth or else face the possibility of a vicious cycle a few years down the road, whereby decreasing content leads to fewer subscribers, leading to further content cuts.

New competitive landscape
Netflix's top executives seem to realize that they face a potential content cost inflation issue, but they aren't willing to admit the severity of the problem. On the company's Q1 conference call, Hastings noted that Hulu and Amazon had begun bidding more aggressively in the past 12 months, driving up content prices. By contrast, Netflix had been the only serious bidder for U.S. streaming rights until last year.

In the long-term view, Netflix tries to reassure investors that it won't get caught up in a bidding war with competitors. The company claims, "Competitive pressures in bidding for content would lead us to have slightly less content than we would otherwise, rather than overspending."

Netflix's Q2 results provide ample evidence of that strategy at work. While the domestic streaming subscriber base hit just above the midpoint of the 29.40 million-30.05 million guidance range, domestic streaming contribution profit of $151 million beat the top of Netflix's guidance range. Moreover, the domestic streaming contribution margin expanded by 190 basis points, nearly double the company's target.

This unexpected increase in profit and contribution margin may seem like a good thing. However, since revenue and subscriber growth was in line with expectations, the higher profit must have been the result of lower costs; i.e. not overspending on content. With Netflix suddenly economizing, how will it continue to drive strong subscriber growth through a "virtuous cycle"?

Losing ground
Let's take a step back and look at the competition between Netflix and Amazon from a user perspective. Earlier this year, Amazon won the exclusive streaming rights to the popular PBS show Downton Abbey. Until the new agreement went into effect a month ago, Netflix and Hulu also streamed old episodes of the popular show. Downton Abbey is the most-watched show on Prime Instant Video, which suggests that it was also heavily watched on Netflix and Hulu.

More recently, Netflix declined to renew a broad licensing deal with Viacom (NASDAQ: VIAB  ) for a variety of content, including popular kids shows such as Dora the Explorer and SpongeBob SquarePants. In Netflix's Q1 investor letter, management stated that it was interested in renewing a few popular titles from Viacom on an exclusive basis rather than having a bulk, non-exclusive deal. However, it didn't win any of that content, as Amazon happily stepped in and bought the streaming rights to Viacom's shows.

Netflix is still spending more money on streaming content each quarter. However, for every major new addition to the content library, there are big subtractions. Netflix seems happy so far with its recent move into original programming, but it remains to be seen whether the long-term value (dollar-for-dollar) of Netflix's originals will outweigh that of the programming it is losing. Downton Abbey averaged more than 10 million viewers in its most recent season on PBS (Season 3), whereas Arrested Development drew just 4 million viewers on average in its third season.

Netflix doesn't release viewing statistics, so it's impossible to know how many people are really watching its original shows. However, given the known popularity of the shows it's dropping, investors should question whether the service is really "better" today than it was six months ago in the eyes of the marginal subscriber.

Beware the coming vicious cycle
So far, Netflix hasn't suffered any ill effects from the loss of key content deals to Amazon. However, much of the lost content has departed Netflix in the past three months. We shouldn't expect to see 1 million Downton Abbey fans cancel Netflix and sign up for Amazon Prime on the day that Netflix lost that content. Instead, the loss of content at Netflix and the improvement at Amazon (and, to a lesser extent, Hulu) will gradually lead to higher churn at Netflix, as users become disillusioned upon seeing that some of their favorite programs are gone.

For example, when Downton Abbey fans want to catch up on old seasons of the show before the Season 4 premiere next January, they may decide to subscribe to Amazon Prime. Some may keep their Netflix subscriptions as well, but many others will drop Netflix to save money. This type of behavior will lead to lower subscriber growth over time.

Netflix bulls often argue that Netflix's viewing data allows it to drop the shows that aren't cost effective, and therefore investors shouldn't worry about content losses. However, bulls seem to ignore the fact that Netflix has to work within a budget. Two years ago, the lack of competition for streaming content allowed Netflix to avoid tough choices on content. Today, Netflix is dropping hugely popular content because it simply can't afford to pay for everything that's popular without crushing its streaming margins.

Over the next two years, Netflix's domestic growth is likely to peter out, as rising content costs and budget constraints prevent Netflix from improving the overall quality of its offerings. In its recent investor letter, Netflix stated it expects content costs to continue rising, but that it has many multi-year deals in place to mitigate the effect. However, the flip side is that as these cheaper deals expire over the next few years, Netflix will continually be faced with an unpleasant choice between paying vastly more to renew the deals, or losing even more content.

Time to get realistic
Netflix's growth days aren't over just yet. But with the stock still trading for almost 80 times 2014 earnings estimates, investors appear to be counting on many more years of rapid growth. This scenario seems highly unlikely. Reasonable people can disagree about the quality of one show versus another, but it's hard to make a convincing argument that Netflix has dramatically improved its content library this year. The content Netflix has lost is just as high-profile as the content it has added.

Time Warner's (NYSE: TWX  ) HBO service has been incredibly successful in maintaining a big subscriber base despite offering a limited content library. If Netflix can develop some of its originals into popular franchises, the company may realize its dream of becoming the next HBO, even if its content library shrinks on a "net" basis.

However, investors should be careful of what they wish for. If Netflix continues to dump lots of popular third-party content to free up money for originals, user defections could soon balance out new subscribers. Then Netflix really would be on the way to becoming the next HBO: a highly acclaimed, popular service that can't seem to grow. Somehow, I don't think investors will be very happy when they get there.

Netflix's foray into original programming opens up lots of big opportunities. Yet there are also plenty of risks.  Traditional networks are adapting to safeguard their market position in the TV business. If you want to know who has the upper hand in the fast-moving TV industry, check out the Motley Fool's new special report "Who Will Own the Future of Television?" Click here to read the full report; it's free!

Can the New News Corp. Overcome the Old Skeptics?

The new News Corp. (NASDAQ: NWSA  ) has a lot to prove as a stand-alone company.

This News Corp. is the product of a split between the former media conglomerate also known as News Corp., which then consisted of one company containing ample entertainment, broadcasting, and print-media assets. When the old News Corp. CEO Rupert Murdoch chose to divide it into two separate companies, with trading commencing on July 1, the new News Corp. inherited the print-journalism assets, including The Wall Street Journal and the perennially money-bleeding New York Post, as well as book publisher HarperCollins and Dow Jones (for which I worked, as a media columnist at MarketWatch, from 2007 till early this year).

The other component, 21st Century Fox (NASDAQ: FOXA  ) , encompasses such broadcasting brands as the Fox News Channel and the Fox filmed-entertainment unit.

OK. Got that straight? Old News Corp., boasting those more promising properties, good. New News Corp., consisting of worrisome print components, not so good.

It is no secret that U.S. newspaper companies have had a tough time adjusting to the digital revolution, as the dailies' advertising dollars have slowed down and managements have groped with the challenge of monetizing the Internet.

Like many media observers, I'm fascinated to see whether this operation can overcome the stigma of being closely identified with the bad, "old" media of print journalism and publishing.

21st Century Fox shareholders sure aren't complaining, though. Murdoch's decision to put the less desirable print properties into a separate company is in step with the broader media ecosystem. Just last month, Gannett acquired Belo to add broadcasting strength and reduce its dependence on the newspaper business. For its part, Tribune also recently gobbled up TV operations, enabling it to reinvent itself as a strong local TV entity, as it ponders a potential sale of its daily newspapers. 

Murdoch, the CEO of the "old" News Corp. and the head of 21st Century Fox, has pledged that the new entity will succeed. Murdoch has a stake in it, as he will be the chairman of both companies.

When he announced the plans for the split, Murdoch said the move would "unlock the true value of both companies and their distinct assets, enabling investors to benefit from the strategic opportunities resulting from more focused management of each division."

Skeptics, however, assert that when Murdoch created these two entities, the more attractive movie and television-related assets were assigned to 21st Century Fox. Meanwhile, the comparatively less appealing and slower-growth properties were lumped together at the new News Corp., under the direction of Robert Thomson, who was promoted from his position as editor of The Wall Street Journal.

Not only were the print assets financially worrisome before the split, but they were also capable of causing Murdoch and the company tremendous embarrassment worldwide. Two summers ago, News Corp. print journalists in London were found to have hacked the phones and violated the privacy of private citizens. In fact, many believe that the fallout from this scandal paved the way for the News Corp. split, as a way to keep the attractive broadcast assets apart from the troublesome print ones.

So far, at least, in the early returns, we see that since the July 1 trading of the stocks commenced, News Corp. shares rose 2.9% while 21st Century Fox shares jumped 5.5% by July 24 and the Standard & Poor's 500 increased 5%.

For his part, Thomson stressed that the new media conglomerate would "cultivate a start-up sensibility even though we already work for the world's most established and prestigious diversified media and information services company."

Thomson's strategy is to get the most out of his prized asset, The Wall Street Journal. News Corp. is intent on creating value around its news assets and editorial content, the backbone of the company. To do that, News Corp. must find ways to make more money from the Journal by leveraging its prestige in the marketplace.

The Journal already possesses a clientele of well-heeled readers, which is why it was able a few years ago to take the bold step of diversifying its news offerings from beyond business and finance to become more of a general-news paper, in the style of The New York Times.

Having accomplished that objective, Thomson and his team must now come up with ways to leverage the prestige of the Journal on mobile devices and tablets, and in other digital ways.

The Journal is coming to the new company from a position of strength. As of May 1, it was bucking the trend of declining circulation numbers in the U.S. newspaper world, remaining the nation's biggest newspaper. Going by the average weekday circulation figures, as of March 31, it boasted 2.4 million in total print and digital subscribers. This represented a 12% jump from the previous year, based on a report by the Alliance for Audited Media. These data encompassed 898,102 online customers.

Wall Street will be following the new company to measure how well it can survive on its own, without the cushion of the strengths of 21st Century Fox, such as its cable capabilities and a movie studio that has lifted all boats in the past with blockbusters like Avatar and Titanic.

Dow Jones CEO Lex Fenwick was not long ago a senior executive at Bloomberg, and he well understands the inner workings of his ex-employer, one of Dow Jones' most heated foes. Dow Jones' new DJX project, which has acquired the nickname "The Bloomberg Killer," is intended to go forcefully against Bloomberg and Thomson Reuters. It will offer a wire service that supplies subscribers with a two-minute jump on news exclusives of the Journal and additional Dow Jones journalists.

Journalism points aside, there is another tantalizing question that Wall Street is pondering: What role will Rupert Murdoch play in the new News Corp.? Naysayers fret that Murdoch will be so busy at 21st Century Fox that he won't be able to give that much of his attention to News Corp.

Public comments I've seen are more inclined to champion 21st Century Fox than anything else, as a testament to Murdoch's vision. "By divesting its less attractive legacy business, Fox has become a pure-play entertainment company with fantastic assets in its cable channels," Gabelli & Co. analyst Brett Harriss told Reuters a few weeks ago.

That's great news -- if you hold shares in 21st Century Fox.

If you happen, however, to be a holder of News Corp., the best you can do is wait and see.

Why Brunswick Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Brunswick (NYSE: BC  ) were getting fired up today, climbing as much as 12% after issuing a strong quarterly report and improved guidance.  

So what: The boat-and-engine maker delivered an adjusted profit of $1.23 per share, better than expectations of $1.08, as revenue edged up 5%, to $1.1 billion, helped by growth in outboard boat products, fitness equipment, and bowling products. Most importantly, the company lifted its outlook for the full year, saying it now expects earnings per share of $2.55-$2.65, up from a previous range of $2.30-$2.50. Analysts had called for $2.50. The increase is due, in part, to aspects outside of operations, including a favorable debt-financing agreement and a lower tax rate.

Now what: Despite a weak marine market, Brunswick keeps on pleasing the Street. Though management is only forecasting 4% sales growth for the year, improvements in profitability are enough to keep earnings growing a solid pace. Even with the sluggish economy, Brunswick looks like a decent bet, but if the recovery picks up and boat sales improve, the stock could surge once again.

Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet, those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important, and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

The Worst-Performing Biotech Stocks of the Last Decade

Suppose we filled a jar with slips of paper with the names of biotech companies that have been around for at least 10 years and with a market cap of at $500 million or more written on them. The chances are quite good that if we pulled a random slip of paper out of that jar, the selected biotech's stock performed reasonably well over the last decade. Of course, the concept of survival of the fittest plays a big factor.

Not every biotech we picked would be a winner, though. Even with an incredible run in recent years for biotech stocks in general, several biotech stocks have lagged well behind their peers. Here are three of the worst performing biotech stocks of the last decade.

1. Lexicon Pharmaceuticals (NASDAQ: LXRX  )
Lexicon experienced its heyday in the first few years of the 21st century, but it's pretty much been downhill since then. Shares of the biotech have dropped more than 60% in the past 10 years.

Although it has no commercialized drugs to generate revenue, Lexicon has been able to keep going through the years by forming relationships with larger organizations. For example, Lexicon and Merck (NYSE: MRK  ) have worked together for several years to develop biotherapeutic drugs. The partnership with Merck has netted Lexicon $52.5 million in revenue for development.

For much of the last decade, Lexicon wouldn't have met our $500 million market cap threshold. That changed in 2010 as investors began to see potential in the company's pipeline, particularly with its lead drug candidate telostristat etiprate. The experimental drug received orphan status in the U.S. and Europe as a treatment for the rare disease carcinoid syndrome. It also obtained fast-track status in the U.S. that allows an expedited review process.

Lexicon's hopes of improving upon its dismal performance from the last decade depend on telostristat etiprate and other drugs in its pipeline, including diabetes drug LX4211 and irritable bowel syndrome drug LX1033. Shares are up 11% year-to-date as these drugs advance in clinical trials, but Lexicon still has a long way to go to make up for the last 10 years.

2. Sequenom (NASDAQ: SQNM  )
Sequenom and Lexicon have similar stories in one respect. Sequenom also started off roaring in 2000 only to fizzle out in subsequent years. Over the last decade, the genetic analysis company has seen shares decline by 54%.

There were bright spots during those years, though. In part of 2008 and 2009, Sequenom traded at levels four times higher than the current share price. The bottom fell out of the stock shortly afterwards. First, Sequenom failed in its hostile takeover attempt of rival Exact Sciences. A few months later, the company disclosed mishandling of test data for prenatal diagnostics studies. Sequenom's stock still hasn't recovered.

Now, investors interested in Sequenom focus on the growth prospects for the company's MaterniT21 PLUS laboratory-developed test for Down syndrome. Sequenom reported solid numbers for the test in the first quarter of 2013. Many eagerly await the second-quarter results to see if Sequenom can regain momentum.

3. Dendreon (NASDAQ: DNDN  )
If the 10-year period we were looking at ended in 2011, Dendreon would come out looking really good. For the last decade, though, that's not the case at all. Shares slumped 26% over the past 10 years.

The good, the bad, and the ugly for Dendreon all tie back to Provenge, the company's prostate cancer drug. Back in 2010, one analyst predicted peak annual sales for Provenge of up to $4 billion. That kind of forecast can pump air beneath a biotech stock's wings (and did so for Dendreon). Unfortunately, analysts' forecasts can be dead wrong.

As it turned out, physicians were reluctant to prescribe Provenge primarily because they weren't confident that payers would cover the expensive drug. Sales got off to a slow start and didn't ramp up to expected levels even as more time went by. Dendreon's stock went into a free fall.

Long-suffering shareholders see hope now that the Committee for Medicinal Products for Human Use, or CHMP, has recommended that Provenge be approved for sale in Europe. However, Dendreon faces stiff competition in marketing Provenge against Medivation's Xtandi and Johnson & Johnson's Zytiga. Analysts expect both drugs to eventually hit annual sales of around $2 billion. Only time will tell if these targets are right -- and if Dendreon can mount a comeback.

The decade ahead
Could the next 10 years be better than the last decade for these three biotechs? Sure. However, the prospects vary for each company.

I think Lexicon's pipeline and partnerships with big players like Merck -- and its horrible performance over the past several years -- make it the most likely to improve. It wouldn't be too surprising if Lexicon or Sequenom caught the eye of a larger company looking to make an acquisition. Dendreon has a formidable challenge, though. I'm more pessimistic about its chances, but anything is possible.

While biotech has its big winners and its bombs, the best investing approach in any decade is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

An Important Update on Gold Stocks

 After suffering a horrible first half of the year, Royal Gold is starting to look interesting.

 

It's a potentially bullish sign for gold stocks...

 

Royal Gold is one of the world's premier precious metal "royalty" firms. Regular readers are familiar with the idea of royalty firms... These companies don't mine any gold or silver of their own. Instead, they finance lots of early-stage mining projects, then earn royalties on mine production if things work out. It's a safer, more diversified way to invest in the gold-mining business than owning a company focused on one big strike.

 

 Like every gold stock, Royal Gold has suffered this year. The price of gold has fallen from $1,685 an ounce to around $1,285 an ounce (a 24% decline). This has produced a huge correction in gold stocks. The benchmark gold stock index fell 50% from its 2013 starting level.

 

As you can see from the one-year chart below, Royal Gold was slammed. Shares are down from $80 to the low $40s.

 

 Jeff Clark has been keeping readers up to date on gold stocks in Growth Stock Wire. Right now, nobody wants to own them. Expectations of rough times are "priced in" to most gold companies.

 

This makes the recent low in Royal Gold – around $40 per share – worth noting...

 

 

If the stock can hold this level for a while... and move into the mid $40s... it's a bullish sign for the sector. Traders can consider buying Royal Gold – or its fellow gold stocks – and using a tight stop.

 

If the recent lows hold, the upside for these cheap, hated stocks is substantial. If you use a tight stop, the downside is minimal.

 

 Another market worth watching (and trading) is the Japanese equity market...

 

Back in November, True Wealth editor Steve Sjuggerud urged readers to buy Japanese stocks. He said the changing of government leaders ensured the country would enact major stimulus programs... and push the value of Japanese stocks much higher. He's repeatedly called it one of his top trades for 2013.

 

The best way to track the Japanese stock market is with the "Nikkei" average. It's the "Dow Industrials of Japan." It tracks the share price movements of major Japanese companies, like Toyota, Mitsubishi, and Honda.

 

Steve's call was well-timed. The government changeover occurred... massive stimulus efforts are happening... and the Nikkei skyrocketed. It soared 72% from November 2012 to May of this year.

 

After such a big run, it was only natural for the Nikkei to correct. Remember, markets are like runners. They can't sprint flat out for miles without needing a breather.

 

The Nikkei did just that in May... and fell from 15,600 to 12,500. Since bottoming around 12,500, the Nikkei has begun a recovery... and more upside is likely on the way.

 

 

Regards,

 

Brian Hunt

Top 10 Bank Companies To Buy For 2014

The following video is from Thursday's Investor Beat, in which host Chris Hill, and analysts Bryan Hinmon and Matt Argersinger dissect the hardest-hitting investing stories of the day.

In this installment of Investor Beat, our analysts explain why they're watching J.B. Hunt Transport Services (NASDAQ: JBHT  ) and Wells Fargo (NYSE: WFC  ) .

Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

Top 10 Bank Companies To Buy For 2014: First Republic Bank (FRC)

First Republic Bank is a full-service bank and wealth management firm. First Republic Bank and its subsidiaries provide private banking, private business banking and private wealth management, including investment, trust and brokerage services. The Company specializes in delivering service through offices in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Greenwich and New York City. The Company's products and services include residential lending, commercial real estate lending, personal lending, private business banking, deposit services, trust services, brokerage services and investment management services. Investment advisory services are provided by First Republic Investment Management, Inc. Trust services are provided by First Republic Trust Company. Brokerage services are offered through First Republic Securities Company, LLC. In March 2012, the Company announced the opening of a new trust company.

The Company offers full-service banking on both coasts, including free online banking, free bill pay and free access to over 800, 000 automated teller machines (ATMs) worldwide. Its private business banking provides specialized services for accounting firms, architecture and design, art and antique dealers, business management firms, business partnership, entertainment/media, entrepreneurs, family offices, financial services, independent school, investment firms, law firms, medical firms, non-profit organizations, private equity funds, property management firms, real estate investors, venture capital funds, wineries, and yacht, golf, city and country clubs. The Company�� private wealth management offers customized investment management, trust, and brokerage services for individuals, trust endowments, and pension plans. Wealth management services include asset allocation, trust administration and custody, portfolio management, financial and estate planning, manager selection and comprehensive brokerage services.

Advisors' Opinion:

• [By Dan Freed]

  Shares of First Republic currently trade at "a modest 4% premium to peers" and JPMorgan does expect the bank's stock to keep pace with a 2012 15% top line growth range.

  The report argues that FRC has a "strong a management team with a strong track record of creating shareholder value" and that its growth model is "highly differentiated" from other banks since a majority of growth comes from existing customers rather gathering new customers.

• [By Philip van Doorn]

  First Republic Bank (FRC_) of San Francisco. Rochester upgraded First Republic to a "Buy" rating from a "Hold," and raised his price target for the former subsidiary of Bank of America by a dollar to $38, saying "we expect EPS growth double the rate of the industry for the next two years to support premium trading multiples and solid share upside." The analyst cited "above peer" growth prospects for the bank's business banking and wealth management services, as well as "a materially reduced private equity ownership overhang (from 39% in Mar. 2012 to 14% in Dec. 2012." Rochester added that First Republic could be tempted by the "potential for [an] increasing take-out premium over time," as its total assets approach $50 billion. First Republic's shares closed at $33.69 Thursday. Deutsche Bank estimates the bank will earn $2.96 a share in 2013, with EPS increasing to $2.97 in 2014 and $3.05 in 2015.

Top 10 Bank Companies To Buy For 2014: Banco Bilbao Vizcaya Argentaria S.A. (BBVA)

Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) is a diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. The Company also has investments in some of Spain�� companies. During the year ended December 31, 2009, BBVA focused its operations on six major business areas: Spain and Portugal, Wholesale Banking and Asset Management, Mexico, The United States, South America and Corporate Activities. On August 21, 2009, through its subsidiary BBVA Compass, BBVA acquired certain assets of Guaranty from the United States Federal Deposit Insurance Corporation (the FDIC).

Spain and Portugal

The Spain and Portugal business area focuses on providing banking services and consumer finance to private individuals, enterprises and institutions in Spain and Portugal. The main business units included in the Spain and Portugal area Spanish Retail Network, which manages individual customers, high net-worth individuals (private banking) and small companies and retailers in the Spanish market; Corporate and Business Banking, which manages business with small and medium enterprises (SMEs), large companies, institutions and developers in the Spanish market, and Other units, which includes consumer finance, that manages renting and leasing business, credit to individual and to enterprises for consumer products and Internet banking; European Insurance that manages the insurance business in Spain and Portugal, and BBVA Portugal, that manages the banking business in Portugal. The Spanish Retail Network unit services the financial and non-financial needs of households, professional practices, retailers and small businesses. The Corporate and Business Banking unit offers a range of services and products to SMEs, large companies, institutions and developers with specialized branch networks for each segment.

The Company�� European Insurance unit�� activities are conducted through! various insurance companies that provide direct insurance, reinsurance and insurance brokering services in Spain and Portugal and market products for different types of customers (private individuals, SMEs, retailers, professional service firms and providers and self-employed individuals) through this unit�� branch offices. BBVA Portugal manages its banking business in Portugal.

Wholesale Banking and Asset Management

The Wholesale Banking and Asset Management area focuses on providing services to large international companies and investment banking, capital markets and treasury management services to clients. The business units included in the Wholesale Banking and Asset Management area are Corporate and Investment Banking, which coordinates origination, distribution and management of a complete catalogue of corporate and investment banking products (corporate finance, structured finance, syndicated loans and debt capital markets) and provides global trade finance and global transaction services with coverage of large corporate customers specialized by sector (industry bankers); Global Markets, which handles the origination, structuring, distribution and risk management of market products, which are placed through its trading rooms in Europe, Asia and the Americas; Asset Management, which designs and manages the products that are marketed through its different branch networks including traditional asset management, alternative asset management and Valanza (its private equity unit); Industrial and Other Holdings, which helps to diversify the area�� businesses with the aim of creating medium and long-term value through active management of a portfolio of industrial holdings and other Spanish and international projects, and Asia.

During the year ended December 31, 2009, it launched two products: BBVA Bonos Cash (BBVA Cash Bonds), a money market fund for retail customers, and BBVA Bonos Largo Plazo Gobiernos II (BBVA Long-Term Government Bonds), a public-debt fu! nd. In ad! dition it launched through this unit additional fixed-income long-term funds, including BBVA Bonos Corporativos 2011 and BBVA Bonos 2014, which were sold to HNWI customers.

Mexico

The business units included in the Mexico area are Retail and Corporate banking and Pensions and Insurance. BBVA Bancomer launched six new mortgage products for lending to home buyers in 2009. These products included: loans for home improvements, remodeling or additions to homes and financial discount which provides liquidity to construction companies. In Mexico, it operates its pensions business through Afore Bancomer, its insurance business through Seguros Bancomer, its annuities business through Pensiones Bancomer and its health insurance business through Preventis.

The United States

The business units included in the United States area are BBVA Compass and Other units: BBVA Puerto Rico and Bancomer Transfers Services (BTS). During 2009 this unit marketed and sold several new products, The ClearPoints credit card, Business Build-to-order Checking, Compass for your Cause and Money Market Sweep.

South America

The South America business area includes its banking, insurance and pension businesses in South America. The business units included in the South America business area are Retail and Corporate Banking, which includes banks in Argentina, Chile, Colombia, Panama, Paraguay, Peru, Uruguay and Venezuela; Pension businesses, which includes pensions businesses in Argentina, Bolivia, Chile, Colombia, Ecuador and Peru and Dominican Republic, and Insurance businesses, which includes insurance businesses in Argentina, Chile, Colombia, Dominican Republic and Venezuela.

Corporate Activities

The Corporate Activities area handles its general management functions. These mainly consist of structural positions for interest rates associated with the euro balance sheet and exchange rates, together with liquidity management and shareholde! rs��fun! ds.

Top Stocks For 2014: Access National Corp (ANCX)

Access National Corporation (ANC) operates as a bank holding company. The Company has two wholly owned subsidiaries: Access National Bank (the Bank) and Access National Capital Trust II. The Bank is the operating business of the Company. The Bank provides credit, deposit, and mortgage services to middle market commercial businesses and associated professionals, primarily in the greater Washington, D.C. Metropolitan Area. The Bank offers a range of financial services and products and specializes in providing customized financial services to small and medium sized businesses, professionals, and associated individuals. The Bank provides its customers with personal customized service utilizing the latest technology and delivery channels. The Bank�� business is serving the credit, depository and cash management needs of businesses and associated professionals. The products and services offered by the Bank include accounts receivable lines of credit, accounts receivable collection accounts, growth capital term loans, business acquisition financing, online banking, checking accounts, money market accounts, sweep accounts, personal checking accounts, savings /money market accounts and certificates of deposit.

The Bank�� revenues are derived from interest and fees received in connection with loans, deposits, and investments. The Bank operates from five banking centers located in Chantilly, Tysons Corner, Reston, Leesburg and Manassas, Virginia and online at www.accessnationalbank.com. The Mortgage Corporation specializes in the origination of conforming and government insured residential mortgages to individuals in the greater Washington, D.C. Metropolitan Area, the surrounding areas of its branch locations, outside of its local markets through direct mail solicitation, and otherwise. The Mortgage Corporation has offices throughout Virginia, in Fairfax, Reston, Roanoke, and McLean.

Lending Activities

The Bank�� lending activities involve commercial real estate loa! ns, residential mortgage loans, commercial loans, commercial and residential real estate construction loans, home equity loans, and consumer loans. These lending activities provide access to credit to small to medium sized businesses, professionals, and consumers in the greater Washington, D.C. Metropolitan Area. Loans originated by the Bank are classified as loans held for investment. At December 31, 2011 loans held for investment totaled $569.4 million. At December 31, 2011 unsecured loans were comprised of $2.9 million in commercial loans and approximately $124 thousand in consumer loans and collectively equal approximately 0.5% of the loans held for investment portfolio.

The Bank�� commercial real estate loans-wner Occupied represented 30.14% of our loan portfolio held for investment, as of December 31, 2011. Its commercial real estate loans-non-owner occupied loans represent ed18.44% of its loan portfolio held for investment, as of December 31, 2011. The Bank�� residential real estate loans represented 22.56% of the loan portfolio, as of December 31, 2011.

These loans fall into one of three situations: loans supporting an owner occupied commercial property; properties used by non-profit organizations, such as churches or schools where repayment is dependent upon the cash flow of the non-profit organizations, and loans supporting a commercial property leased to third parties for investment. Its residential real estate loans category includes loans secured by first or second mortgages on one to four family residential properties, extended to the Bank clients.

As of December 31, 2011, commercial loans represented 23.15% of the Bank�� loan portfolio held for investment. These loans are to businesses or individuals within its market for business purposes. As of December 31, 2011, real estate construction loans consisted of 5.22% of loans held for investment loan portfolio. These loans include loans to construct owner occupied commercial buildings; l! oans to i! ndividuals; loans to builders for the purpose of acquiring property and constructing homes for sale to consumers, and loans to developers for the purpose of acquiring land, which is developed into finished lots for the ultimate construction of residential or commercial buildings. As of December 31, 2011, consumer loans made up approximately 0.49% of its loan portfolio.

Investment Activities

The Company�� investment securities portfolio is consisted of the United States Treasury securities, the United States Government Agency securities, municipal securities, Community Reinvestment Act (CRA) mutual fund, and mortgage backed securities issued by the United States Government sponsored agencies and corporate bonds. At December 31, 2011, securities totaled $85.8 million. . The securities portfolio is comprised of $45.8 million in securities classified as available-for-sale and $40.0 million in securities classified as held-to-maturity.

Sources of Funds

As of December 31, 2011, deposits totaled $645.0 million. As of December 31, 2011, deposits consisted of noninterest-bearing demand deposits in the amount of $113.9 million, savings and interest-bearing deposits in the amount of $182.0 million, and time deposits in the amount of $349.1 million. The Bank also uses wholesale funding or brokered deposits to supplement traditional customer deposits for liquidity. It participates in the Certificate of Deposit Account Registry Service (CDARS). Through CDARS its depositors are able to obtain FDIC insurance of up to $50 million. As of December 31, 2011, brokered deposits totaled $223,554,000, which includes $192,326,000 in reciprocal CDARS deposits. It also maintains lines of credit with the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB). At December 31, 2011 there was $284.9 million available under these lines of credit. Borrowed funds consist of advances from the FHLB, senior unsecured term note, FHLB long-term borrowings, subordinated debentures (! trust pre! ferred), securities sold under agreement to repurchase, United States Treasury demand notes, federal funds purchased, and commercial paper. As of December 31, 2011 borrowed funds totaled $123.6 million. At December 31, 2011 borrowed funds totaled $70.9 million.

Top 10 Bank Companies To Buy For 2014: Goldman Sachs Group Inc.(The)

The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, restructurings, and spin-offs; and underwriting securities, loans and other financial instruments, and derivative transactions. The company?s Institutional Client Services segment provides client execution activities, such as fixed income, currency, and commodities client execution related to making markets in interest rate products, credit products, mortgages, currencies, and commodities; and equities related to making markets in equity products, as well as commissions and fees from executing and clearing institutional client transactions on stock, options, and fu tures exchanges. This segment also engages in the securities services business providing financing, securities lending, and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds, and foundations. Its Investing and Lending segment invests in debt securities, loans, public and private equity securities, real estate, consolidated investment entities, and power generation facilities. This segment also involves in the origination of loans to provide financing to clients. The company?s Investment Management segment provides investment management services and investment products to institutional and individual clients. This segment also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. In addition, it provides global investment research services. The company was founded in 1869 and is headquartered in New York, New York.

Top 10 Bank Companies To Buy For 2014: Ampco-Pittsburgh Corporation(AP)

Ampco-Pittsburgh Corporation and its subsidiaries manufacture and sell custom-engineered equipment in the United States and internationally. It operates in two segments, Forged and Cast Rolls, and Air and Liquid Processing. The Forged and Cast Rolls segment produces forged hardened steel rolls used in cold rolling for the producers of steel, aluminum, and other metals; and cast iron and steel rolls for hot and cold strip mills, medium/heavy section mills, and plate mills. The Air and Liquid Processing segment manufactures finned tube and plate finned heat exchange coils for the commercial and industrial construction, as well as for process and utility industries; custom air handling systems used in commercial, institutional, and industrial buildings; and a line of centrifugal pumps for the refrigeration, power generation, and marine defense industries. The company was founded in 1929 and is based in Pittsburgh, Pennsylvania.

Advisors' Opinion:

• [By EntreBankph.com]

  Aboitiz Power Corporation (AP) is a publicly-owned holding company listed with the Philippine Stock Exchange that, through its subsidiaries and affiliates, is a leader in the Philippine hydroelectric power generation industry and has interests in some of the largest privately-owned distribution utilities in the Philippines. Since its incorporation in 1998, AP has accumulated interests in both hydroelectric power generation facilities and in thermal plants.

Top 10 Bank Companies To Buy For 2014: National Australia Bank Ltd (NAB)

National Australia Bank Limited provides products, advice and services. In Australia, it operates through National Australia Bank, MLC and UBank. In the United Kingdom, it operates through Clydesdale Bank. In New Zealand, it operates through Bank of New Zealand. In the United States, it operates through Great Western Bank. Segments include Business Banking, Personal Banking, Wholesale Banking, UK Banking and NZ Banking, MLC and NAB and Great Western Ban. As of April 5, 2012, the Company and its associated entities ceased to be a substantial holder in BlueScope Steel Limited. On May 17, 2012, it ceased to be a substantial holder in Spark Infrastructure Group and Sandfire Resources NL. As of August 24, 2012, the Company and its associated entities ceased to be holder in Tabcorp Holdings Limited. In September 2012, the Company and its associated entities have ceased to be a substantial holder in Incitec Pivot Limited, as of August 30, 2012. Advisors' Opinion:

• [By Dale Gillham]

  NAB is still a long way from its all-time high of $44.84 from 2007, but has so far been able to hold above 50 per cent ($22.42) of its all-time high, which is a positive sign. Given that NAB has spent a lot of time in a zigzag formation above this level; you can see how strong this level has been for its shares. At present NAB is probably my least preferred bank stocks when weighing up the risks from a technical perspective, but while it stays above this 50 per cent level it has a greater probability of rising than falling.

  What is holding it back? You can see how a few months ago NAB attempted to break the $26.00 level overhead, which has proven to be an important threshold for those just not willing to pay more for NAB. If you are a bit of a contrarian and like to pick underdogs, you may decide to keep NAB on your watch list because very soon I am expecting it to show where it is headed. A move back below the 50 per cent level would not bode well for those holding NAB.

Top 10 Bank Companies To Buy For 2014: Bank Of Montreal (BMO)

Bank of Montreal, together with its subsidiaries, provides a range of retail banking, wealth management, and investment banking products and solutions in North America and internationally. It offers personal banking products and services to consumers and small businesses, including deposit and investment services, mortgages, consumer credit, small business lending, and other banking services; and commercial banking products and services to small business, medium-sized enterprise, and mid-market banking clients comprising lending, deposits, treasury management, and risk management services. The company also offers cards and payments services; investment and wealth advisory services; self-directed investing services; private banking services to high net worth and ultra-high net worth clients; investment fund solutions across a range of channels; pension plans; investment management services; and creditor insurance, and life insurance and annuity products and services. In add ition, it provides capital markets products and services, including equity and debt underwriting, corporate lending and project financing, mergers and acquisitions, restructurings and recapitalizations, balance sheet management, liquidity management, merchant banking, securitization, foreign exchange, derivatives, debt and equity research, and institutional sales and trading to corporate, institutional, and government clients. As of October 31, 2010, Bank of Montreal operated and maintained approximately 1,230 bank branches in Canada and the United States. The company was founded in 1817 and is headquartered in Toronto, Canada.

Advisors' Opinion:

• [By Andrew]

  This is another solid Canadian bank paying a whopping 4.70% dividend.  My arguments for buying this bank are pretty much the same as above for TD.

Top 10 Bank Companies To Buy For 2014: Federal National Mortgage Association (FNMA)

Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by the United States Congress to support liquidity and stability in the secondary mortgage market, where mortgage-related assets are purchased and sold. The Company�� activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage-related securities in the secondary market for its mortgage portfolio. Fannie Mae operates in three business segments: Single-Family business, Multifamily Business (formerly Housing and Community Development (HCD)) and Capital Markets group. Its Single-Family Credit Guaranty and Multifamily businesses work with its lender customers to purchase and securitize mortgage loans customers deliver to the Company into Fannie Mae MBS.

The Company obtains funds to support its business activities by issuing a variety of debt securities in the domestic and international capital markets. Fannie Mae acquires funds to purchase mortgage-related assets for its mortgage portfolio by issuing a variety of debt securities in the domestic and international capital markets. It also makes other investments. Fannie Mae conducts its business in the United States residential mortgage market and the global securities market. It conducts business in the United States residential mortgage market and the global securities market. During the year ended December 31, 2011, the Company��

Single-Family Business

Single-Family business includes mortgage securitizations, mortgage acquisitions, credit risk management and credit loss management. Single-Family business works with the Company�� lender customers to provide funds to the mortgage market by securitizing single-family mortgage loans into Fannie Mae MBS. Its Single-Family business also works with its Capital Markets group to facilitate the pu! rchase of single-family mortgage loans for the Company�� mortgage portfolio. Fannie Mae�� Single-Family business prices and manages the credit risk on its single-family guaranty book of business, which consists of single-family mortgage loans underlying Fannie Mae MBS and single-family loans held in its mortgage portfolio. Single-Family business and Capital Markets group securitize and purchase primarily single-family fixed-rate or adjustable-rate, first lien mortgage loans, or mortgage-related securities backed by these types of loans.

The Company securitizes or purchases loans insured by Federal Housing Administration (FHA), loans guaranteed by the Department of Veterans Affairs (VA), and loans guaranteed by the Rural Development Housing and Community Facilities Program of the Department of Agriculture, manufactured housing loans, reverse mortgage loans, multifamily mortgage loans, subordinate lien mortgage loans and other mortgage-related securities. Its Single-Family business securitizes single-family mortgage loans and issues single-class Fannie Mae MBS. Fannie Mae�� Single-Family business securitizes loans solely in lender swap transactions, in which lenders deliver pools of mortgage loans to the Company, which are placed immediately in a trust, in exchange for Fannie Mae MBS backed by these loans. Generally, the servicing of the mortgage loans held in its mortgage portfolio or that backs its Fannie Mae MBS is performed by mortgage servicers on the Company�� behalf. Lenders who sell single-family mortgage loans to Fannie Mae service these loans for the Company. For loans it owns or guarantees, the lender or servicer must obtain its approval before selling servicing rights to another servicer.

Fannie Mae�� mortgage servicers collect and deliver principal and interest payments, administer escrow accounts, monitor and report delinquencies, perform default prevention activities, evaluate transfers of ownership interests, respond to requests for partial releases of s! ecurity, ! and handle proceeds from casualty and condemnation losses. Its mortgage servicers are the primary point of contact for borrowers and perform implementation of its homeownership assistance initiatives, negotiation of workouts of troubled loans, and loss mitigation activities. Mortgage servicers also inspect and preserve properties and process foreclosures and bankruptcies.

Multifamily Mortgage Business

Multifamily business works with the Company�� lender customers to provide funds to the mortgage market by securitizing multifamily mortgage loans into Fannie Mae MBS. Through its Multifamily business, Fannie Mae provides liquidity and support to the United States multifamily housing market principally by purchasing or securitizing loans that finance multifamily rental housing properties. It also provides some limited debt financing for other acquisition, development, construction and rehabilitation activity related to projects that complement this business. Fannie Mae�� Multifamily business also works with its Capital Markets group to facilitate the purchase and securitization of multifamily mortgage loans and securities for Fannie Mae�� portfolio, as well as to facilitate portfolio securitization and resecuritization activities.

The Company�� multifamily guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS and multifamily loans and securities held in Fannie Mae�� mortgage portfolio. Revenues for Fannie Mae�� Multifamily business are derived from a variety of sources, including guaranty fees received as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS and on the multifamily mortgage loans held in its portfolio and on other mortgage-related securities; transaction fees associated with the multifamily business, and other bond credit enhancement related fees. As with the servicing of single-family mortgages, multifamily mortgage servicing is performed by the lenders who! sell the! mortgages to the Company. Fannie Mae�� Multifamily business is organized and operated as an integrated commercial real estate finance business.

Capital Markets

Capital Markets group's primary business activities include mortgage and other investments, mortgage securitizations, structured mortgage securitizations and other customer services, and interest rate risk management. Capital Markets group manages the Company�� investment activity in mortgage-related assets and other interest-earning, non-mortgage investments. It funds its investments primarily through proceeds the Company receives from the issuance of debt securities in the domestic and international capital markets. Its business activity is focused on making short-term use of its balance sheet rather than long-term investments. Activities Fannie Mae is undertaking to provide liquidity to the mortgage market include whole loan conduit, early funding, real estate mortgage investment conduit (REMICs) and other structured securitizations and dollar roll transactions. Whole loan conduit activities include its purchase of both single-family and multifamily loans principally for the purpose of securitizing them. During the year ended December 31, 2010, it was engaged in dollar roll activity. A dollar roll transaction is a commitment to purchase a mortgage-related security with a concurrent agreement to re-sell a similar security at a later date or vice versa.

Fannie Mae�� Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through both portfolio securitizations and structured securitizations involving third party assets. Its Capital Markets group creates single-class and multi-class Fannie Mae MBS from mortgage-related assets held in its mortgage portfolio. Fannie Mae�� Capital Markets group may sell these Fannie Mae MBS into the secondary market or may retain the Fannie Mae MBS in its investment portfolio. The Company�� Capital Markets group creates single-clas! s and mul! ti-class structured Fannie Mae MBS, for its lender customers or securities dealer customers, in exchange for a transaction fee. The Company�� Capital Markets group provides its lender customers and their affiliates with services that include offering to purchase a range of mortgage assets, including non-standard mortgage loan products; segregating customer portfolios to obtain optimal pricing for their mortgage loans, and assisting customers with hedging their mortgage business.

Although the Company�� Capital Markets group�� business activities are focused on short-term financing and investing, revenue from its Capital Markets group is derived primarily from the difference, or spread, between the interests it earns on its mortgage and non-mortgage investments and the interest it incurs on the debt the Company issues to fund these assets. Its Capital Markets revenues are primarily derived from the Company�� mortgage asset portfolio. Capital Markets group funds its investments primarily through the issuance of a variety of debt securities in a range of maturities in the domestic and international capital markets. Investors in the Company�� debt securities include commercial bank portfolios and trust departments, investment fund managers, insurance companies, pension funds, state and local governments, and central banks.

The Company competes with Freddie Mac, FHA and Ginnie Mae.

Top 10 Bank Companies To Buy For 2014: Signature Bank (SBNY.O)

Signature Bank (the Bank) is a full-service commercial bank with 25 private client offices located in the New York metropolitan area serving the needs of privately owned business clients and their owners and senior managers. The Bank offers a variety of business and personal banking products and services through the Bank, as well as investment, brokerage, asset management and insurance products and services through its wholly owned subsidiary, Signature Securities Group Corporation (Signature Securities), a licensed broker-dealer and investment adviser. Through Signature Securities, it also purchases, securitizes and sells the guaranteed portions of the United States Small Business Administration (SBA) loans. The Bank offers a variety of deposit, escrow deposit, credit, cash management, investment and insurance products and services to its clients. As of December 31, 2011, the Bank maintained approximately 78,000 deposit accounts, 6,900 investment accounts, 8,600 loan a ccounts and 14,300 client relationships. In April 2012, it formed a new subsidiary, Signature Financial, LLC.

The Bank offers a range of products and services oriented to the needs of its business clients, including deposit products, such as non-interest-bearing checking accounts, money market accounts and time deposits; escrow deposit services; cash management services; commercial loans and lines of credit for working capital and to finance internal growth, acquisitions and leveraged buyouts; permanent real estate loans; letters of credit; investment products to help better manage idle cash balances, including money market mutual funds and short-term money market instruments; business retirement accounts, such as 401(k) plans, and business insurance products, including group health and group life products. It offers a range of products and services oriented to the needs of its high net worth personal clients, including interest-bearing and non-interest-bearing checking accounts, with optional features, such as debit/ a! u! tomated teller machine (ATM) cards and overdraft protection and, for its clients, rebates of certain charges, including ATM fees; money market accounts and money market mutual funds; time deposits; personal loans, both secured and unsecured; mortgages, home equity loans and credit card accounts; investment and asset management services, and personal insurance products, including health, life and disability.

Lending Activities

The Bank�� commercial and industrial (C&I) loan portfolio is consisted of lines of credit for working capital and term loans to finance equipment, company owned real estate and other business assets, along with commercial overdrafts. Its lines of credit for working capital are generally renewed on an annual basis and its term loans generally have terms of 2 to 5 years. The Bank�� lines of credit and term loans typically have floating interest rates, and as of December 31, 2011, approximately 61% of its outstanding C&I loan s were variable rate loans. As of December 31, 2011, funded C&I loans totaled approximately 15% of its total funded loans. The Bank�� real estate loan portfolio includes loans secured by commercial and residential properties. It also provides temporary financing for commercial and residential property. As of December 31, 2011, funded real estate loans totaled approximately $5.74 billion, representing approximately 80% of its total funded loans. It issues standby or performance letters of credit, and can service the international needs of its clients through correspondent banks. As of December 31, 2011, its commitments under letters of credit totaled approximately $235.7 million. Its personal loan portfolio consists of personal lines of credit and loans to acquire personal assets. As of December 31, 2011, its consumer loans totaled $11.8 million, representing less than 1% of its total funded loans.

Investment and Asset Management Products and Services

Investment and asset management products and servi! ces a! re! provid! ed through the Bank�� subsidiary, Signature Securities. Signature Securities is a licensed broker-dealer. Signature Securities is an introducing firm and, as such, clears its trades through National Financial Services, Inc., a wholly owned subsidiary of Fidelity Investments. Signature Securities is also registered as an investment adviser in New York, New Jersey, Pennsylvania and Florida. It offers an array of asset management and investment products, including the ability to purchase and sell all types of individual securities, such as equities, options, fixed income securities, mutual funds and annuities. The Bank offers transactional, cash management type brokerage accounts with check writing and daily sweep capabilities. It also offers retirement products, such as individual retirement accounts (IRAs) and administrative services for retirement vehicles, such as pension, profit sharing, and 401(k) plans to its clients. Signature Securities offers wealth management servi ces to its high net worth personal clients. Together with its client and their other professional advisors, including attorneys and certified public accountants, it develops a financial plan that can include estate planning, business succession planning, asset protection, investment management, family office advisory services, bill payment, art and collectible advisory services and concentrated stock services.

Sources of Funds

The Bank offers a variety of deposit products to its clients. Its business deposit products include commercial checking accounts, money market accounts, escrow deposit accounts, lockbox accounts, cash concentration accounts and other cash management products. Its personal deposit products include checking accounts, money market accounts and certificates of deposit. The Bank also allows its personal and business deposit clients to access their accounts, transfer funds, pay bills and perform other account functions over the Inte rnet and through ATM machines. As of December 31,! 2011, it! m! aintained! approximately 78,000 deposit accounts representing $11.70 billion in client deposits, excluding brokered deposits.

Insurance Services

The Bank offers its business and private clients an array of individual and group insurance products, including health, life, disability and long-term care insurance products through its subsidiary, Signature Securities. The Bank does not underwrite insurance policies. It only acts as an agent in offering insurance products and services underwritten by insurers.

Top 10 Bank Companies To Buy For 2014: Federal National Mortgage Association (FNMA.OB)

Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by the United States Congress to support liquidity and stability in the secondary mortgage market, where mortgage-related assets are purchased and sold. The Company�� activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage-related securities in the secondary market for its mortgage portfolio. Fannie Mae operates in three business segments: Single-Family business, Multifamily Business (formerly Housing and Community Development (HCD)) and Capital Markets group. Its Single-Family Credit Guaranty and Multifamily businesses work with its lender customers to purchase and securitize mortgage loans customers deliver to the Company into Fannie Mae MBS.

The Company obtains funds to suppo rt its business activities by issuing a variety of debt securities in the domestic and international capital markets. Fannie Mae acquires funds to purchase mortgage-related assets for its mortgage portfolio by issuing a variety of debt securities in the domestic and international capital markets. It also makes other investments. Fannie Mae conducts its business in the United States residential mortgage market and the global securities market. It conducts business in the United States residential mortgage market and the global securities market. During the year ended December 31, 2011, the Company��

Single-Family Business

Single-Family business includes mortgage securitizations, mortgage acquisitions, credit risk management and credit loss management. Single-Family business works with the Company�� lender customers to provide funds to the mortgage market by securitizing single-family mortgage loans into Fannie Mae MBS. Its Single-Family business also works with its Capital Markets group to facilitate th! e! purchase of single-family mortgage loans for the Company�� mortgage portfolio. Fannie Mae�� Single-Family business prices and manages the credit risk on its single-family guaranty book of business, which consists of single-family mortgage loans underlying Fannie Mae MBS and single-family loans held in its mortgage portfolio. Single-Family business and Capital Markets group securitize and purchase primarily single-family fixed-rate or adjustable-rate, first lien mortgage loans, or mortgage-related securities backed by these types of loans.

The Company securitizes or purchases loans insured by Federal Housing Administration (FHA), loans guaranteed by the Department of Veterans Affairs (VA), and loans guaranteed by the Rural Development Housing and Community Facilities Program of the Department of Agriculture, manufactured housing loans, reverse mortgage loans, multifamily mortgage loans, subordinate lien mortgage loans and other mortgage-related securities. I ts Single-Family business securitizes single-family mortgage loans and issues single-class Fannie Mae MBS. Fannie Mae�� Single-Family business securitizes loans solely in lender swap transactions, in which lenders deliver pools of mortgage loans to the Company, which are placed immediately in a trust, in exchange for Fannie Mae MBS backed by these loans. Generally, the servicing of the mortgage loans held in its mortgage portfolio or that backs its Fannie Mae MBS is performed by mortgage servicers on the Company�� behalf. Lenders who sell single-family mortgage loans to Fannie Mae service these loans for the Company. For loans it owns or guarantees, the lender or servicer must obtain its approval before selling servicing rights to another servicer.

Fannie Mae�� mortgage servicers collect and deliver principal and interest payments, administer escrow accounts, monitor and report delinquencies, perform default prevention activities, evaluate transfers of own ership interests, respond to requests for partial releas! es o! f s! ecurit! y, and handle proceeds from casualty and condemnation losses. Its mortgage servicers are the primary point of contact for borrowers and perform implementation of its homeownership assistance initiatives, negotiation of workouts of troubled loans, and loss mitigation activities. Mortgage servicers also inspect and preserve properties and process foreclosures and bankruptcies.

Multifamily Mortgage Business

Multifamily business works with the Company�� lender customers to provide funds to the mortgage market by securitizing multifamily mortgage loans into Fannie Mae MBS. Through its Multifamily business, Fannie Mae provides liquidity and support to the United States multifamily housing market principally by purchasing or securitizing loans that finance multifamily rental housing properties. It also provides some limited debt financing for other acquisition, development, construction and rehabilitation activity related to projects that complement this business. Fannie Mae�� Multifamily business also works with its Capital Markets group to facilitate the purchase and securitization of multifamily mortgage loans and securities for Fannie Mae�� portfolio, as well as to facilitate portfolio securitization and resecuritization activities.

The Company�� multifamily guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS and multifamily loans and securities held in Fannie Mae�� mortgage portfolio. Revenues for Fannie Mae�� Multifamily business are derived from a variety of sources, including guaranty fees received as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS and on the multifamily mortgage loans held in its portfolio and on other mortgage-related securities; transaction fees associated with the multifamily business, and other bond credit enhancement related fees. As with the servicing of single-family mortgages, multifamily mortgage servicing is performed by the ! lenders !! who sell ! the mortgages to the Company. Fannie Mae�� Multifamily business is organized and operated as an integrated commercial real estate finance business.

Capital Markets

Capital Markets group's primary business activities include mortgage and other investments, mortgage securitizations, structured mortgage securitizations and other customer services, and interest rate risk management. Capital Markets group manages the Company�� investment activity in mortgage-related assets and other interest-earning, non-mortgage investments. It funds its investments primarily through proceeds the Company receives from the issuance of debt securities in the domestic and international capital markets. Its business activity is focused on making short-term use of its balance sheet rather than long-term investments. Activities Fannie Mae is undertaking to provide liquidity to the mortgage market include whole loan conduit, early funding, real estate mortgage investment c onduit (REMICs) and other structured securitizations and dollar roll transactions. Whole loan conduit activities include its purchase of both single-family and multifamily loans principally for the purpose of securitizing them. During the year ended December 31, 2010, it was engaged in dollar roll activity. A dollar roll transaction is a commitment to purchase a mortgage-related security with a concurrent agreement to re-sell a similar security at a later date or vice versa.

Fannie Mae�� Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through both portfolio securitizations and structured securitizations involving third party assets. Its Capital Markets group creates single-class and multi-class Fannie Mae MBS from mortgage-related assets held in its mortgage portfolio. Fannie Mae�� Capital Markets group may sell these Fannie Mae MBS into the secondary market or may retain the Fannie Mae MBS in its investment portf olio. The Company�� Capital Markets group cr! eates sin! gle-c! lass and ! multi-class structured Fannie Mae MBS, for its lender customers or securities dealer customers, in exchange for a transaction fee. The Company�� Capital Markets group provides its lender customers and their affiliates with services that include offering to purchase a range of mortgage assets, including non-standard mortgage loan products; segregating customer portfolios to obtain optimal pricing for their mortgage loans, and assisting customers with hedging their mortgage business.

Although the Company�� Capital Markets group�� business activities are focused on short-term financing and investing, revenue from its Capital Markets group is derived primarily from the difference, or spread, between the interests it earns on its mortgage and non-mortgage investments and the interest it incurs on the debt the Company issues to fund these assets. Its Capital Markets revenues are primarily derived from the Company�� mortgage asset portfolio. Capital Markets gro up funds its investments primarily through the issuance of a variety of debt securities in a range of maturities in the domestic and international capital markets. Investors in the Company�� debt securities include commercial bank portfolios and trust departments, investment fund managers, insurance companies, pension funds, state and local governments, and central banks.

The Company competes with Freddie Mac, FHA and Ginnie Mae.