Auto Car Insurance: July 2014

Wednesday, July 30, 2014

5 Things Mortgage Lenders Need to Know About Your Money

Home purchases often require much more more explaining and documenting than buyers realize. Here are five things mortgage lenders need to know about the money in your bank accounts, as well as how it got there, before they'll hand money over to you.

1. How long has your money been in the bank?
If your money has been the bank for at least 60 days without much change in the balance, you'll be able to use the money for down payment of closing costs pretty easily. This is called "seasoning," and it's the recipe for the easiest approval of your money in the bank.

2. Can you explain those big deposits?
So you got an unexpected bonus, and Uncle Louie finally paid back the two grand he lost on the horse race a few months back. These large, one-time deposits will need to be explained and documented. If Louie paid you back in cash, you probably won't be able to use that money toward a down payment. Keep in mind that direct deposits of your paycheck and tax refunds don't have to be explained so long as it's obvious where they came from.

Large deposits into accounts are probably the biggest source of stress for most customers during the loan process. If you have a lot of cash deposits going in and out of your accounts and plan to get a loan in the next 60 to 90 days, consider opening a "new house" account so that you can keep a big chunk of money in there and keep the balance fairly constant for the next couple of months. You'll need a full two months' worth of statements so make sure you plan and time things accordingly.

3. Retirement accounts
If you have funds tied up in retirement savings accounts, only $0.60 of every dollar will count for the purposes of qualifying. The reason is simple: The lender is considering the value of those accounts in the case that you have to liquidate them to pay your bills. You would be subject to early withdrawal penalties, as well as potential fluctuations in value based on market conditions. The consensus among lenders is that a 40% reduction in the accounts' value makes sense when using that asset to qualify for a mortgage.

4. 401(k) loans
Using the borrowing power of your 401(k) can be a relatively cheap way to get access to the money you need for the down payment and closing costs on a new purchase. One drawback is that the loan payment will be applied as a reduction in your income, as the payment is deducted from your paycheck and you'll therefore have a little less qualifying income for the new loan.

The other drawback is that not only will that money no longer be working for you in the market, but the value of the asset will be reduced by how much you borrow. This can create a problem if you are buying investment property, as the guidelines require that you have six months of monthly payments in the bank for every investment property you own.

For example, let's say you have $50,000 in a 401k and you borrow $25,000 against it. You have $25,000 left, but because a 401(k) is a retirement account, you'll get as little as 60% of value toward your reserve requirement, or $15,000.

If you own two other investment properties with $1,000/month payments each, not only will you need to have $6,000 for each property, but you'll need $6,000 on the new property you buy -- for a total of $18,000. Since you only have access to $15,000 worth of asset value in your 401(k), you're short on the reserve requirement, and the lender won't make that loan.

Be sure to check your reserve situation with a mortgage professional before you take out that 401(k) loan.

5. The whole bank statement and nothing but the whole bank statement
There was a time not long ago when you could hand over the first couple of pages of your bank statement and lenders were fine with it. Not anymore. If you have a 14-page statement -- even if seven pages of the statement are small-print legal disclosures or general information -- you need to provide every single page.

Don't bother asking for an exception: It won't be granted. If you don't want to provide or don't need a particular asset to qualify, then just tell your mortgage professional you don't want it used for qualifying.

Final Foolish thoughts
In general, if you've been in the habit of saving for a while, these are the safest and easiest ways to verify money in the bank for a mortgage. Guidelines vary by lender, and exceptions are sometimes made, but in the hyper-regulated home loan financing world we live in, you will find that the more you stray outside these five options, the more documentation and explanation hoops you will have to jump through.

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Sunday, July 27, 2014

Pfizer's Incoming Patent Cliff

Pfizer (NYSE: PFE ) investors have had enough of the patent cliff already.

The big pharma giant's loss of patent exclusivity on the world's former top-selling drug, cholesterol fighter Lipitor, has cost its drug revenues dearly. Pfizer's sales have fallen sharply in each of the past two years, declining by 6% year-over-year in 2013 after plunging 10% in 2012. Meanwhile, the company's up-and-coming drugs are taking longer to pan out, meaning that drugs and vaccines such as Lyrica and Prevnar are doing much of the heavy lifting for Pfizer today.

Will the patent cliff strike again before Pfizer can turn this ship around? Teva Pharmaceuticals (NYSE: TEVA ) and other top generics makers are looking to pounce on Pfizer's expiring patents as soon as this year. With expirations looming in the near future for big sellers in the company's portfolio, Pfizer's stock is facing a murky future.

Celebrex's December downfall
The patent cliff's taken a bite out of more than just Pfizer's financial statements since Lipitor's patent expired in 2012. Shareholders have felt the pressure as well as this stock's underperformed its fellow American big pharma giants over the past two years.

PFE Chart

PFE data by YCharts

Yet more woes may be on the way. While Pfizer's not facing a single patent loss on the scale of Lipitor -- a drug that once brought in $13 billion per year in peak sales -- several of the company's top drugs in its portfolio will be facing the possibility of generic competition through the end of the decade, starting this year.

Pain-fighting anti-inflammatory agent Celebrex is first up on Pfizer's line of patent blows. Celebrex has been a big winner for a long time, and the drug ranked as Pfizer's fourth highest-selling pharmaceutical product in the first quarter, even as it saw sales slump by 4% year-over-year.

Time's running short for Pfizer's blockbuster, however. The company's fought a protracted battle to stave off Celebrex's patent loss as long as possible, but this year Pfizer negotiated with top drugmakers to allow generic copies to roll out across America this December. Teva Pharmaceuticals has ended up the big winner of this deal, as Pfizer and Teva negotiated a six-month exclusivity window starting in December for three doses of Celebrex.

It's a big boost for Teva, which is currently fighting its own battle against the patent cliff as rival drugmakers look to prey upon the company's Copaxone, which made more than $4 billion last year. Celebrex, as a drug that earned $624 million in Q1, should help mitigate losses from Copaxone when generic copycats emerge. Mylan's (NASDAQ: MYL ) also getting in on the action. Pfizer negotiated with Mylan for a similar six-month exclusivity period for the smallest dosage of Celebrex, although the generic drugmaker's fighting against Teva's own exclusive rights.

For Pfizer, however, December's bringing a big hit -- whether it's Mylan, Teva, or any other generics drugmaker getting its hands on this top blockbuster. Down the road, however, Celebrex isn't the only drug that could cost Pfizer in a big way.

Painful hits on the way
Another top-ten drug in Pfizer's portfolio is facing challengers in 2015. Zyvox, the company's seventh best-selling drug in the first quarter, is set to lose its primary patent protection next year -- although formulation and delivery patents extend further. Still, Teva's already earned approval for its own generic version of Zyvox, and investors shouldn't be surprised if this blockbuster -- a drug that picked up more than $1.3 billion in sales last year -- takes a hit going forward.

Source: Wikimedia Commons

Viagra, one of Pfizer's most recognizable brands, is already feeling the heat. The drug's sales plunged by more than 8% last year even as it raked in more than $1.8 billion in revenue, a casualty of the drug's European patent expiring last June. Viagra's patent extends in the U.S. through 2020, but Teva Pharmaceuticals once again is capitalizing on Pfizer's loss, as the generic drugmaker will be free to launch its own generic version of the drug in 2017. With more than half of the drug's revenue coming from the U.S., Pfizer's set to take a hit in a few years from Viagra's loss.

But the biggest obstacle looming over Pfizer is the 2018 patent expiration of current top-seller Lyrica. Lyrica, which generated nearly $4.6 billion in revenues for the company in 2013 (good enough for around 9.6% of Pfizer's total biopharmaceutical product revenue), also managed to keep up growth. The drug's been Pfizer's biggest bright spot in its post-Lipitor downturn, as Lyrica posted the highest year-over-year sales growth among Pfizer's top 20 best-selling drugs in 2014's first quarter.

Pfizer won a critical court ruling this year against generic drugmakers in its fight to preserve Lyrica's patent to December of 2018, but when that date rolls around, the company stands to lose a huge piece of its portfolio's foundation.

A foggy future
What's Pfizer's best hope going forward to avoid the same type of struggles that have plagued it since Lipitor's patent loss? The company needs ballyhooed drugs such as blood thinner Eliquis and immunology therapy Xeljanz -- a drug that first loses patent protection in 2020 -- to come through. Both Eliquis and Xeljanz have been hyped as potential blockbusters, but both have gotten off to slow starts. Star vaccine Prevnar, Pfizer's second best-selling pharmaceutical product in the first quarter, also needs to keep going strong, particularly after seeing sales slide in 2013.

Pfizer's pipeline boasted 26 products in phase 3 or later development as of early May, but the bigger winner for Pfizer's future is palbociclib, a breast cancer drug with peak sales estimates varying from $1 billion to $2 billion per year all the way as high as $6 billion. Still, that may not be enough to stave off falling sales in major products, particularly with the patent cliff on the way. A smart acquisition may be Pfizer's best chance now to impress investors in the long term, but for now, don't expect this stock's future to brighten in a hurry.

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Thursday, July 24, 2014

Matthews China Fund Comments on Sina

So far this year, our holdings in this area did not work well and the overall IT sector performance was dragged down especially by two small-cap companies—Sina Corp (SINA) and Digital China Holdings. Sina, one of China's most popular web portals, came under selling pressure due to market concerns that its Twitter-like online communications services Weibo, may be losing its growth momentum to a main competitor. However, we continue to hold Sina as we believe the target market for its competitor is different from Weibo and we also believe Sina's current valuation does not reflect its other attractive underlying assets.From Matthews China Fund (Trades, Portfolio)'s Second Quarter 2014 Commentary.Also check out: Matthews China Fund Undervalued Stocks Matthews China Fund Top Growth Companies Matthews China Fund High Yield stocks, and Stocks that Matthews China Fund keeps buying

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Why 3-D Printing Software Maker Dassault Systemes SA's Stock Apparently Crashed 49% Today

Shareholders in the 3-D printing software maker Dassault Systemes (NASDAQOTH: DASTY ) can rest easy, as their stock is not down 49% today, no matter what they see on Google Finance, Yahoo! Finance, and other top financial sites today. The France-based company's stock apparently split 1:2 today, and that's not yet reflected in the price-per-share data on the financial sites.

I say "apparently" because I also had to assume that the split was effective today, as news isn't easy to find. Dassault's first-quarter earnings report in March, however, did include the following on page 3:

The Board of Directors has scheduled the Annual Shareholders' Meeting for May 26, 2014 and is recommending a 4% increase in the annual cash dividend per share equivalent to €0.83 per share for the fiscal year ended December 31, 2013, compared to €0.80 per share for the fiscal year ended December 31, 2012 and a two-for-one stock split effective from July 2014. (emphasis mine)

A telltale sign of a split, or how not to be freaked out again: daily volume
This type of delay isn't uncommon, especially when we're talking about foreign companies trading over the counter in the United States. A similar scenario played out earlier this year with Sweden-based 3-D printing company Arcam. However, in Arcam's case it was less obvious, as the stock split was 1:4, with the share price appearing to fall 70%. According to a couple comments on the article I wrote, some investors didn't know what was happening. I'd assume that the same might be true in Dassault's case.

If you ever see a huge drop in stock price, it will be almost surely be due to a stock split if the daily trading volume is just average.

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Wednesday, July 23, 2014

How Early Withdrawals Can Tax Your Retirement Savings

Couple in kitchen with paperwork using laptop look Cathy Yeulet/Getty Images Taking money out of your 401(k) before age 59½ typically results in taxes and penalties on the amount withdrawn. Investors who take early withdrawals also miss out on the tax-deferred growth their savings would have accumulated if they had left the money in the 401(k) plan or rolled it over to an individual retirement account. Here's what happens when you take an early 401(k) withdrawal and how to limit the fallout. Income tax. Regular income tax is due on each withdrawal from your traditional 401(k) plan. A worker in the 25 percent tax bracket who withdraws $10,000 from a 401(k) plan will owe $2,500 in federal income taxes on it, and perhaps more in state income taxes. When you receive a 401(k) distribution, 20 percent will typically be withheld for income tax purposes. So, when you withdraw $10,000 from a 401(k) account, you will actually only receive $8,000. You will need to come up with any additional tax you owe from the distribution itself or another source. "Many people who have cash-outs when they leave a job often are not leaving their job voluntarily, and some of this is being used as a temporary stopgap measure," says Jack VanDerhei, research director of the Employee Benefit Research Institute. "If you have a situation where you don't absolutely have to have the money, you should keep as much in the tax-advantaged accounts as possible."

Saturday, July 19, 2014

Here's How Social Media Companies Make Money

how do social media companies make money

So far in 2014, we've seen Facebook stock (Nasdaq: FB) continue its dramatic share price rebound, Twitter stock (NYSE: TWTR) plunge more than 40%, and two new social media IPOs debut - GrubHub (NYSE: GRUB) and Weibo (Nasdaq ADR: WB) - but have you ever wondered, how do social media companies make money?

We asked Money Morning E-Commerce Director Bret Holmes to give us the scoop. Part of Holmes' job is to utilize web advertising via social media platforms to best market Money Morning. As a result, he's on top of what's going on inside of today's social media giants.

Holmes said the key to unlocking value for social media companies is successful advertising models.

"Social media companies are legitimate advertising websites, no different than, say, Google or Yahoo. The same way Google made its money is the same way Twitter and Facebook will make their money," Holmes explained.

And web advertising via social media is a market that's growing at a staggering rate.

A 2013 Nielsen report showed that 89% of advertisers use free social media advertising and 75% use paid social media advertising. The report also highlighted that 64% of advertisers expected they'd increase their paid social media advertising budgets over the course of 2013. On May 12, BIA/Kelsey released its U.S. Social Local Media report. The research firm projected that total U.S. social media advertising revenue will grow from $5.1 billion in 2013 to $15 billion in 2018, for a compound annual growth rate (CAGR) of 24%.

That means a lot of opportunity for social media companies to make major money.

The trick for social media companies looking to profit as ad platforms is to find the best way to insert advertising into the user's experience without impacting the user in a negative way.

And that advertising methodology is hugely important to these companies' revenue growth.

The same BIA/Kelseyreport in May revealed that the greatest year-over-year jump in social media ad revenue ever has been seen this year. It's grown from $5.1 billion in 2013 to $8.4 billion, which the firm largely attributes to a surge in both native and mobile advertising. It estimates that social mobile revenue alone is projected at 38.3% CAGR.

Exemplary of the profitability of this kind of social media advertising growth is Facebook. In late April, Facebook announced that its mobile ads accounted for 59% of its second quarter ad revenue, up from approximately 30% of ad revenue in the first quarter of 2013. Mobile ad revenue alone came in at a mammoth $2.265 billion for the quarter.

This kind of advertising success is tied directly into a social media company's bottom line - and its profitability for investors.

To learn how to gauge which companies will succeed, here's how social media advertising actually works...

How Social Media Companies Make Money: A Lesson from Facebook Facebook stock

We'll use Facebook as an example.

The Facebook IPO was an unmitigated disaster. It lost over half of its value within six months of listing, and was priced at 107 times trailing 12-month earnings, making it pricier than 99% of all companies in the S&P 500 at the time.

But boy did it rebound.

From July through September 2013, the Facebook stock price more than doubled. Shares are up more than 150% over the past 12 months, and 15% so far in 2014. As of July 8, FB stock traded at $62.60 - putting it $24.60 over its IPO price of $38.

It was advertising that undoubtedly turned the tides for Facebook.

"Facebook has gotten really good at advertising. It's new, it's inexpensive, and it's smartly done," Holmes said. "When Google first started, it wasn't good at advertising, and look at them now. Facebook is going to be a success story."

Here is what Facebook did to unlock its value and become what Holmes described as "the most advantageously competitive product on the market for advertisers, hands down"...

Originally, Facebook started with space ads. Then, it added self-promoting individuals' or a company's Facebook page. But things were still sluggish.

However, around the start of 2013, Facebook developed a new advertising format. They're technically referred to as native social ads - ads that are seamlessly integrated into the social media's platform. BIA/Kelsey projects social media native revenue as the fastest-growing social media advertising method at a 38.6% CAGR by 2018.

"Facebook has integrated in-stream ads to the user experience. Response rates are high and advertisers will always chase the least expensive ad with the best response. It works because it's new and cheap," said Holmes.

In-stream ads can be videos. For instance, a commercial will appear before the user may watch an Internet video. The in-stream video ad will typically last 15-30 seconds.

On a social media site like Facebook, which has real-time update feeds, in-stream ads can be inserted into a streaming feed. So, for example, the user scrolls through the News Feed to see what friends and family are up to, and in-stream ads are peppered into the Feed.

By far the largest social network, FB's Q2 2014 ad revenue reached $2.27 billion - an 82% increase from the same quarter last year. Revenue for the full year 2013 was $7.87 billion, a 55% gain year over year.

"For the first time in 2013, Facebook let advertisers access FBX, an ad exchange where you can customize your own ads," explained Holmes. "Now we can glean information and better target our audience. We can also advertise on mobile now."

The ad model is helping Facebook monetize its massive 1.28 billion monthly active users who increasingly access the site via mobile devices. Facebook revealed it has more than 1 million advertisers in total as of the start of 2014.

And to top it all off, Facebook continuously improves its method to provide performance-based analytics that are invaluable to advertisers.

Watching Facebook's advertising Cinderella story shows us a great deal about how advertising makes money for social media companies.

One company that hasn't yet found a way to make money on its user base is Twitter - but it's working on it.

In a troubling Q1 2014 earnings report, Twitter revealed that monthly active users (MAUs) were lackluster, with only a 6% gain since last quarter. And the previous quarter saw only a 3% growth in MAUs. The report also showed that TWTR's net loss grew by more than $100 million. Twitter stock fell more than 8% that day, and it's down nearly 17% since its Nov. 8 initial public offering (IPO).

In an effort to improve its numbers, Twitter is in the process of rolling out 15 types of new ads aimed at e-commerce companies and mobile game developers, according to The Wall Street Journal.

But the key here is the addition of a mobile-app install unit. That means an ad for a game, for example, includes a button that takes users directly to an app store where they can buy it.
Facebook has included this tool since late 2012 - and in its most recent quarter, mobile in-app install units represented half of the company's revenue.

Another way Twitter has been trying to boost ad revenue is through e-commerce. In early May, it built in a way to send impulse-buy ads to people based on what they are tweeting about. In doing so, TWTR partnered with Amazon.com Inc. (Nasdaq: AMZN) to let users type #AmazonCart to respond to tweets that include an Amazon link - and put the item directly in their cart.

If Twitter is able to increase its user base and find successful ways to monetize it via ads, the stock could pull a Facebook-like turnaround.

For more on what Twitter has recently done to turn itself around, read here about its latest major management shake up...

Nielsen: Paid Social Media Advertising - Industry Update and Best Practices 2013 BIA/Kelsey: Press Release: U.S. Social Media Advertising Revenues to Reach $15B by 2018 The Wall Street Journal: Coming to Your Twitter Feed: 15 New Types of Ads

Thursday, July 17, 2014

‘Unloved’ Coal Stocks Bouncing

Coal stocks Alpha Natural Resources (ANR), Arch Coal (ACI) and Peabody Energy (BTU) are soaring today following China’s strong GDP reading and CSX Corp’s (CSX) solid earnings. FBR’s Mitesh Thakkar isn’t feeling too optimistic heading into earnings, however:

Bloomberg News

Heading into the 2Q14 earnings season, we think the coal sector continues to be unloved with met coal prices close to bottom while steam coal prices are slightly cooling off after a strong rally during 1Q14. Similar to 1Q14, the two major challenges for coal producers remain weak met coal pricing and rail service limiting steam coal volume uptick. On the positive side, since 1Q14, we have gotten about 16 MTPA of global met coal production cuts, which are slowly flowing through the system but could take another three months to drive prices higher. On the other hand, rail service (BNSF and CSX) challenges continue, and we do not expect to see any major improvement through 2H14, which is later than expected during 1Q14, when some producers indicated 3Q14 normalization. We expect a majority of earnings calls to be focused on those two themes over and above company-specific issues (asset sales/divestitures, cost control, and balance sheet management). While still in the early days, we will look for any color on the coal industry’s preparedness for eventual implementation of GHG regulation announced by the EPA in early June. Within our coal coverage, we are lowering our 2014 EBITDA estimates by an average of 12% for the group, while our 2015–2016 estimates are largely unchanged. In addition, we are adjusting our price targets for Cloud Peak Energy (CLD) to $25 from $26 and Walter Energy (WLT) to $7.50 from $8.50 as we update our coal price deck for 2Q14 actuals and the 3Q14 met coal benchmark settlement, as well as adjust for rail service issues in the Powder River Basin. In terms of our overall coal coverage, we continue to prefer steam coal names and/or low-cost met coal assets with solid balance sheets. Our Outperform rated names include Arch Coal, Peabody Energy, Cloud Peak Energy, and Consol Energy (CNX).

Shares of Alpha Natural Resources have gained 6.4% to $3.42 at 1:47 p.m., while Arch Coal has risen 1.9% to $3.24, Peabody Energy has advanced 2.6% to $16.35 and Walter Energy has jumped 5.2% to $5.71. CSX Corp. is little changed at $31.16.

Monday, July 14, 2014

Harmonic Drops On Weak Forecast; URS Shares Surge

Related BZSUM Mid-Morning Market Update: Markets Open Higher; Citigroup Profit Beats Street View #PreMarket Primer: Monday, July 14: Germany Wins World Cup 1-0

Midway through trading Monday, the Dow traded up 0.80 percent to 17,078.60 while the NASDAQ gained 0.80 percent to 4,450.90. The S&P also rose, gaining 0.61 percent to 1,979.62.

Leading and Lagging Sectors

Telecommunications services shares jumped around 1.19 percent in today’s trading. Top gainers in the sector included NQ Mobile (NYSE: NQ), China Unicom (Hong Kong) (NYSE: CHU), and Partner Communications Company (NASDAQ: PTNR).

In trading on Monday, utilities shares fell by 0.31 percent. Top losers in the sector included Exelon (NYSE: EXC), down 2.3 percent, and NRG Energy (NYSE: NRG), off 1.6 percent.

Top Headline

Citigroup (NYSE: C) reported better-than-expected second-quarter results.

Citigroup’s quarterly net profit fell to $181 million, or $0.03 per share, versus a year-ago profit of $4.18 billion, or $1.34 per share. Its adjusted net profit came in at $3.9 billion, or $1.24 per share. Its revenue slipped 6% to $19.3 billion from $20.48 billion. Excluding CVA/DVA, revenue fell 3% to $19.4 billion. However, analysts were estimating earnings of $1.06 per share on revenue of $18.92 billion.

The bank also announced its plans to pay $7 billion to settle the ongoing investigation of the Residential Mortgage-Backed Securities Working Group.

Equities Trading UP

Exelixis (NASDAQ: EXEL) shares shot up 4.96 percent to $3.49 after the company announced positive phase 3 data for coBRIM.

Shares of Kandi Technolgies Group (NASDAQ: KNDI) got a boost, shooting up 10.45 percent to $16.26 on report of a 238% rise in EV sales.

URS (NYSE: URS) shares were also up, gaining 9.60 percent to $57.01 after Aecom Technology (NYSE: ACM) announced its plans to buy URS for $4 billion in cash and stock.

Equities Trading DOWN

Shares of Harmonic (NASDAQ: HLIT) were down 8.91 percent to $6.50 after the company lowered its Q2 forecast and issued a weak Q3 guidance.

Riverbed Technology (NASDAQ: RVBD) shares tumbled 5.85 percent to $19.16 after the company lowered its Q2 revenue forecast.

GT Advanced Technologies (NASDAQ: GTAT) was down, falling 4.14 percent to $15.39 after cautious comments by CLSA.

Commodities

In commodity news, oil traded down 0.38 percent to $100.45, while gold traded down 2.10 percent to $1,309.30.

Silver traded down 2.15 percent Monday to $21.00, while copper fell 0.23 percent to $3.26.

Eurozone

European shares were higher today.

The eurozone’s STOXX 600 rose 0.94 percent, the Spanish Ibex Index surged 0.76 percent, while Italy’s FTSE MIB Index climbed 0.56 percent.

Meanwhile, the German DAX rose 1.14 percent and the French CAC 40 climbed 0.78 percent while UK shares gained 0.99 percent.

Economics

The Treasury is set to auction 3-and 6-month bills.

Posted-In: Earnings News Guidance Eurozone Futures Commodities FDA Legal

Most Popular Earnings Expectations For The Week Of July 14: Big Banks, Tech Giants And More UPDATE: Barclays Upgrades Apple, Has High Expectations For Near Term Phone Arena Reports Apple's 5.5-inch iPhone 6 Could be Delayed Until 2015 Stocks To Watch For July 14, 2014 GT Advanced Technologies Down Sharply On iPhone Production Concerns #PreMarket Primer: Monday, July 14: Germany Wins World Cup 1-0 Related Articles (ACM + BZSUM) Harmonic Drops On Weak Forecast; URS Shares Surge Top Performing Industries For July 14, 2014 Benzinga's Volume Movers Mid-Morning Market Update: Markets Open Higher; Citigroup Profit Beats Street View Morning Market Movers Benzinga's Top #PreMarket Gainers Around the Web, We're Loving... We're Now Hiring Real-Time

Friday, July 11, 2014

â€˜Compellingâ€™ Case for Emerging Markets: USAA Expert

The Federal Reserve may have cut its monthly bond-buying program from $85 billion to $35 billion, but you wouldn’t know it by watching emerging-market stocks.

Earlier this year, the emerging markets tanked with the Fed’s tapering. But since early February, EM stocks are up 16%, says Wasif Latif, head of global multi-assets for USAA, in a report issued Thursday.

They’re up more than 6% for the year. Some key countries “have far surpassed that average, led by India’s stock gains of more than 20%,” he points out.

Analysis done by USAA points to the investment case for emerging markets being compelling in both the short term and over the longer term, “particularly when compared to the world’s developed countries,” Latif notes. “For that reason, we have an overweight allocation to EM equities relative to the benchmark, while maintaining an underweight position to U.S. stocks.”

GDP growth estimates for 2014 have been reduced for EMs, the analyst note, but their pace of economic expansion “still far exceeds that of the U.S., Western Europe and Japan, and there’s nothing to indicate that this trend will be changing any time soon.”

Furthermore, the foundation of that economic growth keeps shifting.

“Whereas China was once content to be the factory for the world, it is now redirecting its production to meet a growing demand for goods and services at home,” Latif explained. “This powerful shift in emphasis from exportation to domestic consumption results from higher living standards and is not unique to China.”

As for EM companies’ fundamental valuations, they are “still attractive,” even after the rally over the past five months, he insists. It’s true that — on a cyclically adjusted basis — the price-to-earnings ratio for EMs relative to the P/E for the Standard & Poor’s 500 is well below average.

Earnings growth “has not been strong in EMs,” he adds, “but this growth has been driven by fundamentals rather than by share buybacks, as seen in the United States. Profit margins are low, so there is room for improvement there, and EM companies are not as leveraged as their developed-world counterparts.”

In addition, revenue growth has been “fairly decent” for those EM companies that focused on their domestic markets, and inflation remains “muted.”

“In all, there’s plenty to feel positive about when looking at emerging markets, and that upside could be further enhanced as economic growth picks up in developed markets,” Latif concluded.

USAA is not overweight non-U.S. developed markets, nor is it overweight emerging markets based on relative valuations. Instead, it says EM investments as attractive and offering “an interesting long-term prospect for growth.”

In addition, USAA’s cautious view of U.S. equities “remains unchanged," he said. "we are underweight U.S. large caps and small caps. While signs point to continued recovery of the U.S. economy, valuations are no longer cheap, and profit margins are near record highs.”

---

Check out Surprising Pick for High Safety, High Returns: Emerging Market Stocks on ThinkAdvisor.

Wednesday, July 9, 2014

3 Things to Watch When Wells Fargo Announces Earnings This Week

With the calendar officially turned to July, the second quarter is on the books and earnings season is upon us. There are three things investors must watch when Wells Fargo (NYSE: WFC ) kicks it off this Friday.

Continued loan and deposit growth
As shown in the chart below, one of the things Wells Fargo publicized at its recent investor day was its performance relative to that of its peers like Bank of America (NYSE: BAC ) and Citigroup (NYSE: C ) , especially its ability to grow its loans and deposits over the last year:

Source: Company Investor Relations.

But it's also important to recognize that trend only continued in the first quarter, as Bank of America saw its loans fall by 1.5%, or $12 billion, and Citigroup saw its drop by $1.2 billion. Wells Fargo, on the other hand, saw its rise by $4.1 billion, which represented a gain of 1%.

Source: Company Investor Relations.

And while both Bank of America and Citigroup are also trying to unwind the non-strategic loans on their balance sheets, you can see the year over year growth is even more impressive at Wells Fargo when you consider its core loans have risen by 14%, or $90 billion, since the first quarter of 2012, as shown to the right.

Wells Fargo told investors it expects "to grow loans at a rate faster than U.S. GDP growth" -- and, especially as the economy has been plodding along in the second quarter, one would hope it has been able to continue to grow its loans at a rate better than its biggest peers.

Can it post another record?
For 15 quarters in a row, Wells Fargo has posted record quarterly earnings. From its $0.60 per share -- or $3.3 billion in total -- during the third quarter of 2010 to its $5.9 billion, or $1.05 per share, during the first quarter of this year, it has delivered resounding and remarkable growth over the last four years.

Yet knowing the refinancing boom is over and that Wells Fargo earned $2.8 billion from its mortgage banking unit in the second quarter of last year (versus $1.5 billion in the most recent quarter), significant ground will have to be made up elsewhere for the trend to continue.

While it has posted the record by growing its earnings marginally in certain quarters, one has to wonder if its streak is finally coming to an end.

Source: Company Investor Relations.

Efficiency in becoming more efficient
The final thing I'll be watching is the progress of its efficiency ratio -- which essentially measures how much each dollar of revenue costs -- which should continue to fall.

Source: Company Investor Relations.

In the first quarter Wells Fargo posted record earnings despite the fact its revenue fell by nearly $650 million. Part of this resulted from its provision for credit losses -- what it expects to lose on loans -- plummeting by 73%, or $900 million, but another major factor was its expenses dipping by $450 million. As a result, its efficiency ratio fell from 58.3% to 57.9%.

As shown to the left, it bested all but one of its peers in its efficiency ratio in 2013 -- but Wells Fargo has a goal between 55% and 59%. With that in mind, continued improvement will be important to monitor.

The important thing to remember
One quarter's results from a massive bank like Wells Fargo -- or Bank of America or Citigroup, for that matter -- likely will not change the broader investment thesis surrounding the company itself. However, it's important to monitor and track exactly how strong they are or aren't doing relative to peers, and these are three things I'll be watching when Wells Fargo reports its earnings this week.

Wells Fargo + Apple? This device makes it possible.
There is one thing that could change Wells Fargo and the entire banking industry. You see, Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Tuesday, July 8, 2014

Stocks: After the Party, the Hangover

Remember how good we all felt last week when the Dow Jones Industrial Average closed above 17,000? Right, neither do I.

REUTERS

The S&P 500 fell 0.4% to 1,977.65, while the Dow Jones Industrial Average dropped 0.3% to 17,025.21. The Nasdaq Composite declined 0.8% to 4,451.53 and the small-companyRussell 2000slid 1.8% to 1,186.74, its biggest drop since April.

Not much to blame for the weakness today. Investors pondered when the Fed might hike rates. The looked ahead to earnings. They worried about valuations–valuations which are virtually unchanged since last week. They sold stocks.

Morgan Stanley’s Adam Parker and team think a higher price-earnings ratio is the key to a higher market:

It is hard for us to forecast a lot more multiple expansion from here, and that sentiment is shared by many people we have recently been talking to. These data have existed since 1976, and the median price-to-forward earnings level since then is 13.8x. Admittedly, however, the market has rarely traded at that level for any sustained period. Today we are trading just above 16x the next 12 months earnings outlook. While this may be a warning sign for the market multiple on a 5-10 year view, it is pretty clear that forecasting the market multiple over a short horizon is a fool’s game. Although our best guess is that the multiple keeps expanding for now, we think the risk-reward is getting more balanced from here.

JPMorgan’s contemplates whether the financial markets are getting bubbly:

The faster stocks rise, the more investors and policy makers should be worried about the next asset bubble and crash. Monetary authorities across the world are indeed increasingly fretting about this risk and about what to do about it. Witness the latest BIS report and the debate between Yellen and Lagarde on financial instability. Our take remains that as long as central banks feel they have control over the banks and overall system leverage, they will allow local asset bubbles and busts to happen as they are seen to have little contagion. Investors should still be worried and are thus we believe best off to focus on risk assets that have seen the least growth: hence, our advice to reduce credit OWs in favor of equities, EM and commodity roll.

HSBC’s Gary Evans, too, is sticking with stocks:

…earnings are showing some signs of life. The latest earnings season saw strong beats and positive growth in both the US and Europe. The momentum of analysts' earnings is picking up. Our top-down model now points to 12% EPS growth this year, up from 10% earlier. The better outlook for earnings means we have tweaked up our index targets, so that we look for 9% growth for 2014 as a whole, up from the 6% we forecast in January.

We see little on the horizon that could trigger a bear market. Global economic growth continues, albeit sluggishly. Systemic risks are generally under control and, while the Middle East is a geopolitical risk, oil prices would need to rise much more to be a threat. We don't share the worry of many about how "eerily quiet" markets have been of late. We find, rather, that low volatility and tight credit spreads are typical of the mature phase of a bull market. It is when they rise that you need to worry.

In other words, hum a few bars of “Don’t Worry, Be Happy,” and keep on keepin’ on.

Monday, July 7, 2014

Monster Beverages May Energize Your Portfolio

Monster Beverage Corporation (MNST) develops, markets, sells and distributes alternative beverage, such as non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages.

Story So Far

Monster Beverage's "Monster Energy Ultra Red" has become one of the brand's top sellers. This product debuted in September 2013. Its Muscle Monster protein shakes are second in the ready-to-drink protein segment: convenience and gas channels.

Monster Beverage sells "alternative" beverages under names such as Monster Energy and Muscle Monster. Monster Beverage expanded its revenue, net income, and free cash flow 11%, 50%, and 275%, respectively, in the most recent quarter.

Global volume increases from its Monster Energy brand and expansion into international markets served as the primary catalysts for the increase in revenue. Production efficiencies and lower expenses stemming from termination of distributors, lower insurance premiums, and lower marketing expenses contributed to gains in net income.

Favorable changes in operating assets and liabilities, specifically in inventory, accounts receivable, and income taxes payable, contributed to the year-over-year gain in free cash flow.

When we look at the company's balance sheet, we see $211.35 million in cash and $402.25 million in short-term investments, totaling $613.6 million in liquid assets. This compares nicely with last year's $222.51 million in cash, $97.04 million in short-term investments, totaling $319.55 million in liquid assets. Monster continues to be debt-free, which increases the likelihood that the company will be returning more of its income to investors once its growth starts slowing down further down the line.

The most important aspect of the Monster Energy brand dominance is that it has allowed the company to expand into other beverage segments, most recently the large protein-drinks category. The company's protein brand, called Muscle Monster, has gotten off to a good start. The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Beverages industry average. The net income increased by 50.0% when compared to the same quarter one year prior, rising from $63.50 million to $95.25 million.

Future Outlook

In the future, Monster Beverages plans to expand into additional countries, launch new product lines, and develop new lower calorie drinks to take advantage of a shift in consumer preference for lower calorie alternative beverages.

Monster has the potential to resume higher growth by replicating its business model in international markets. Moreover, international markets still have a long runway for growth. According to Beverage Marketing, the average American consumed nearly 5 liters of energy drinks in 2010. By comparison, global per capita energy-drink consumption (including the U.S.) is now slightly more than 1 liter. Clearly, international markets have some catching up to do.

Since Monster's international operations will benefit from higher market penetration and increases in per capita consumption, overseas markets may sustain Monster's current pace of growth.

Monster Beverage shunned traditional TV and radio advertising. Instead it went where its target customers were. The company promoted events and competitions in action sports such as motocross, drifting, surfing, snowboarding and mountain biking, as well as mixed martial arts and bull riding.

To End

Monster Beverages is one of the largest competitors in the $38 Billion alternative drink industry. Monster Energy drinks are sold in more than 114 countries across six continents. Monster's astronomical growth -- net sales were 20 times higher in 2013 than in 2003 -- has made it the No. 2 player in the energy drink market.

By overhauling its original energy-drink formula, knowing its target customers, expanding into new markets and innovating new drinks, the Corona, Calif.-based firm became a dominant force in the crowded energy-drink market.

It is not hard to make a case for Monster's continued prosperity. In addition to the massive demand driving energy drink growth, Monster's capital-light business model enables it to expand quickly and profitably. The company acts as a caretaker of its brands and outsources manufacturing and distribution. By doing so, it can expand into new territories by signing new distribution agreements; the only capital required is that needed for advertising.

Monster Beverage is one of the most aggressive investments in the beverages industry. The company continues to benefit from its formidable positioning in the energy-drink segment and its popular image. Additionally, management is now leveraging that success to position the company for growth in new product categories.

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The Federal Reserve: Asleep at the Switch

Central bankers intervene when global economies crash, but they shouldn't act to prevent economies from coming off the rails.

That seems like an odd strategy, but that was, in essence, the argument made by Janet Yellen, the head of the Federal Reserve, in a speech at the International Monetary Fund in late June. She said it's a bad idea to raise rates to fight financial excesses, some of which, it should be noted, have been created by the Fed and other central banks around the world.

Yellen said that the Fed's "monetary policy faces significant limitations as a tool to promote financial stability," according to the New York Times. Monetary policy's effects aren't well understood on financial problems and "are less direct than a regulatory or supervisory approach." She also said adjusting interest rates would "increase the volatility of inflation and employment."

In effect, Yellen believes the Fed's way to help the financial sector withstand booms and busts is by policies such as increasing the amount of capital that banks must hold. Though in the speech, she conceded that higher interest rates in 2003 and 2006 might have slowed the rate of home price growth that created the housing bubble. But, she added, such increases wouldn't have done much to quell the rapid rise in housing prices but would have "weakened households' ability to repay previous debts." The net effect would have been to improve "household balance sheets only modestly."

What's most disturbing about her comments is that her central bank colleagues in other countries deeply disagree with this position. They argue that low rates caused by central bank stimulus programs may be sowing the seeds for the next financial crisis.

The Bank of International Settlements, the institution in Basel, Switzerland that is the central bank for central banks, said in its recently released annual report! that stimulus programs that ignore the long term "run the risk of addressing the immediate problem at the cost of creating a bigger [financial crisis] down the road."

The S&P 500 Hitting Historical Highs: Is the Market Bubble about to Burst?

Source: Y Charts

Many economists have warned that another financial bubble may be in the making as the same forces that are artificially propping up asset markets in the U.S. through central bank stimulus are also propping assets in various countries overseas.

Furthermore, central bank stimulus in the U.S., Japan, and China is having the unintended consequence of driving investors to buy assets overseas that may be overvalued or too volatile.

The bank said low interest rates and low volatility encourage investors "to take positions in the riskier part of the investment spectrum." It noted that in developed countries lots of low-rated debt was issued and lapped up by investors, as stock markets reached new highs. Also, some assets rose so high they lost touch with fundamentals, while at the same time volatility "in many asset classes approached historic lows."

And in the report, the BIS noted that, "the fallout from the financial cycle can be devastating. When financial booms turn to busts, output and employment losses may be huge and extraordinarily long-lasting. In other words, balance sheet recessions levy a much heavier toll than normal recessions."

Stagflation Risks Ahead

As my colleague Chief Investment Strategist Ben Shepherd reported last week in his report entitled, "The Fed's Dreaded Dilemma: A Weak Economy Plus Inflation," while the economy contracted at a greater than expected 2.9 percent in the first quarter of this year, in May the consumer price index (CPI) rose at an annualized 2.1 percent, its highest level since October 2012. Energy prices were up 5.8 percent from a year earlier, while food prices rose 2.1 percent. Even the Federal Reserve's own preferred me! asure of ! inflation, the personal consumption expenditures (PCE) index, popped up to 1.8 percent last month.

That the Fed's PCE index is showing inflationary pressure is significant, since it is essentially designed to lowball price increases. The CPI gives a 31 percent weighting to shelter costs and a 17 percent weighting to transportation (read as rent and gasoline), which the PCE basically cuts in half. By reducing the volatility of its preferred inflation gauge, the Fed essentially gives itself the leeway to maintain a looser policy longer, Shepherd said.

The Fed has said for years now that it would act when inflation reaches an annualized 2 percent, a level that is fast approaching. But according to Yellen's recent comments it not only appears the Fed risks being late to the inflation party, as we have long argued would likely happen, the central bank now risks not moving fast enough to arrest the consequences of a financial collapse for asset bubbles forming.

Certainly, Yellen is in a tough spot. If the Fed puts the brake on too soon it may kill any advances the economy has made in growth, which is still weak, but if she waits too long the central bank may not be able to contain inflation or pop a financial asset bubble before it bursts.

Despite the fact that inflation is clearly picking up, consumer spending has actually contracted over the past two months on an inflation-adjusted basis and is growing well below the pre-recession average of 5 percent. Incomes were also up by just 3.5 percent last month, another metric which typically ran above 5 percent for much of the two decades prior to 2008.

On June 3, the Labor Department reported the economy accelerated, with employers adding 288,000 jobs, well above the rate of hiring recorded in the first five months of 2014 and another sign that growth may be finally rebounding. The Labor Department also reported the unemployment rate fell 0.2 percentage point to 6.1 percent, the lowest since September 2008, at the time the gl! obal fina! ncial crisis occurred.

Wishing our readers a happy Fourth of July holiday, from the investment team at Inflation Survival Letter.

Sunday, July 6, 2014

How Intel and Caterpillar Became the Dow's 1st-Half Winners

Monday marked the end of the second quarter, and the Dow Jones Industrials (DJINDICES: ^DJI ) failed to rise to the occasion, falling 25 points. The Dow has had a fairly flat performance so far in 2014, gaining just over 1% and making many investors question whether the bull market has the staying power it would need to provide the sixth-straight year of positive returns for the Dow. Yet even amid the lackluster gains for the Dow overall, Intel (NASDAQ: INTC ) and Caterpillar (NYSE: CAT ) have helped the Dow avoid losses for the year, with each of the Dow components gaining more than 20% in the first half. Let's take a closer look at how they did it.

INTC Total Return Price Chart

Total Return Price data by YCharts

Source: Intel.

Intel's gains have stemmed from the fact that the chipmaker has been in the right place at the right time, with a confluence of positives helping to bolster the tech giant's future prospects. On one hand, Intel has finally stepped up to the plate in the mobile space, with efforts to create viable chips for both high-end applications as well as more affordable lower-end devices that can help to meet demand in emerging markets where cost is a much more important concern. At the same time, though, Intel got a positive surprise from a product-upgrade cycle, with older PC users finding themselves having to upgrade in order to keep getting support for key operating-system software. PC sales aren't likely to sustain their upward track for long, but efforts in the direction of becoming a bigger player in mobile could serve Intel well for years to come.

Caterpillar's jump, meanwhile, has come as investors finally concluded that the maker of heavy equipment had just about hit bottom. After years of sluggish construction-equipment sales, the plunge in commodity prices last year sent mining-equipment demand through the floor as well. But equipment dealers have started to see signs of life from their customers, with government spending starting to pick up and a tight rental market making new-equipment purchases look more attractive on a relative basis. Caterpillar still needs to see improvement in economic conditions in other key markets, especially China, but after long periods of underperformance, Caterpillar stock might finally be making the run shareholders have waited for.

Investors in the Dow Jones Industrials would obviously like to see better performance from the average in the second half. For shareholders of Dow components Intel and Caterpillar, though, just holding onto the first half's gains would be victory enough for a solid 2014.

Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour. (That's almost as much as the average American makes in a year!) And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Buffett in his quest for a veritable landslide of profits!

Saturday, July 5, 2014

Gasoline Prices Are Headed to $4 Per Gallonâ€¦ and Here's Why

Futures prices for both crude and gasoline were down yesterday. Unfortunately, that barely tells the real story.

So, enjoy the respite while it lasts.

Thanks to the growing Sunni insurrection and the rapid unraveling of the Shiite government in Baghdad, you can bet that prices for both crude and gasoline will be making the headlines over the next two months.

In fact, when it comes to oil, some bankers are now openly questioning the ability of the market to meet global demand a year out. Now prices further out on the futures curve are rising much more quickly than anticipated.

As the next-month rates (August 2014) fell in yesterday's trade, oil prices as far out as December 2018 began to spike.

Here's why yesterday's drop in prices is just the pause before the storm...

If Iraq Unravels, Oil Production Will Be Crippled

There's a reason why Iraq figures so prominently in this discussion. Everybody's estimates now suggest that global oil demand will accelerate to 94 million barrels a day by the end of this year.

That will place a greater reliance on expanding the existing sources of supply.

Previously, when in the same situation, the Saudis would bail us out since they have the ability to put 12 to 12.5 million barrels a day on line in a matter of a few hours. In the past, that provided a reliable cushion, restraining a real breakout in prices to the upside.

Well, this time that's just not so. The projected demand spike will flat out exceed the ability of Saudi Aramco to deliver. That means relying even more on other OPEC members. The problem is that consistent overall production increases have been muted, with Iran and Venezuela actually posting declines.

However, the singular exception in all of these estimates has been Iraq, where the government has ambitious plans to ratchet up production at major fields in the south from the about 3.1 million barrels a day to more than 6 million barrels a day with further expansion planned beyond that.

In this position, Iraq has become the new "balancer" in the international oil equation.

Now, keep in mind that the ongoing crisis has not hit the oil fields directly. And there is little indication that the Islamic State of Iraq and the Levant (ISIL) has the ability (or intent) to capture these fields. While they have effectively immobilized the nation's largest refinery at Baiji, near Tikrit and north of Baghdad, their forces are far too small to capture and control the critical fields and pipelines.

Unfortunately, the ISIL can accomplish the same result without occupying a single square inch. All they need to do is immobilize the current government and allow the fragmentation already underway to render the new Parliament (supposedly sitting by the end of this week) powerless to act. After all, even without a major insurrection, it usually takes that body months to come up with an ineffective patchwork administration.

Needless to say, that would only make a bad situation even worse.

Here's why: Losing centralized governmental regulation of the oil sector freezes field development and will prompt international majors to start moving personnel out of the south, even though insurrectionists are 200 kilometers away.

In fact, some of these companies have already begun to make their exits. And that's what is prompting a rise in prices further out on the curve. The problem is, even more bad news is right on the horizon.

These Two Numbers Tell Me Why $4 Gas Is Coming Back (Again)

But now there is another shoe about to drop. In this case, don't blink, because the price you see at the pump isn't going to last much longer.

From my experience, I can promise you gas prices are going higher.

Several years ago I was an expert witness in a very large gasoline pricing fraud case. In the course of that proceeding, I developed a way to estimate the real refinery margins from which processors obtained their profits, rather than the basis used by most analysts.

You see, real refinery margins (the difference between actual costs of operations versus initial wholesale prices of finished product - that is, the real profits made by the refinery) are considered proprietary and are not released to the public.

But after two years of study, I was able to set up a working model that allowed me to determine what was really going on. In fact, there are 94 pages of appendices in my book The Vega Factor: Oil Volatility and the Next Global Crisis that breaks all of this down.

Anyway, here are the two numbers you need to remember if you want to ruin your day.

First, I have estimated through last Friday that refiners and wholesalers have not actually passed on to consumers about $6.20 a barrel in average crude oil price increases. Second, according to my number crunching, a $1 increase in a barrel of crude in the current market (these vary) translates into slightly more than a $0.039 increase in the pump price for unleaded regular.

So, sorry, but whatever you paid for gasoline this morning is a thing of the past. You can now expect prices to move up by more than $0.22 a gallon as the providers begin to phase in their cost increases to the product flow pricing.

According to the Oil Price Information Service (OPIS), the national average for regular gasoline was $3.76 on Friday.

Don't look now, but $4 a gallon, here we come...

Unless you live in California or Chicago, where that price is already in the rearview mirror.

Kent has been an energy advisor to both the Iraqi and Kurdish governments. No one knows the players in this ongoing crisis like he does. His decades of experience in energy have brought his readers a consecutive string of double- and triple-digit gains, beating the broad markets almost 10 times over. To sign up for Kent's free Oil & Energy Investor, and receive regular, twice-weekly updates on the situation, along with any unscheduled alerts as they happen, Click here.

Thursday, July 3, 2014

Aside From the Buyout Rumors, Should You Buy Shutterfly (SFLY)?

Bloomberg has reported that small cap digital photo services and solutions stock Shutterfly, Inc (NASDAQ: SFLY) is in talks with investment bank Qatalyst Partners to find buyers for the company – meaning its worth taking a closer look at the stock which has no close publicly traded peers left albeit the stock does compete with Hewlett-Packard Company's (NYSE: HPQ) Snapfish and services offered by retailers like CVS Caremark Corporation (NYSE: CVS).

What is Shutterfly, Inc?

Founded in 1999, small cap Shutterfly is the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. These brands include:

Shutterfly, where your photos come to life in photo books, cards and gifts. Tiny Prints, premium cards and stationery for all life's occasions. Wedding Paper Divas, wedding invitations and stationery for every step of the planning process. Treat, personalized greeting cards that really stand out. MyPublisher, one of the pioneers in the photo book industry and creator of easy-to-use photo book-making software. ThisLife, a private, cloud-based solution that makes it easy for consumers to find, share and enjoy their photos and videos, all in one place. BorrowLenses, the premier online marketplace for photographic and video equipment rentals. What You Need to Know or Be Warned About Shutterfly, Inc

Anonymous sources have told Bloomberg that Shutterfly is working with boutique investment bank Qatalyst Partners LLC to find buyers but preparations are still at an early stage and may not lead to a transaction. Potential acquirers include private-equity firms as well as e-commerce and Web storage companies plus Bloomberg noted that large internet companies like Google Inc (NASDAQ: GOOGL) and Facebook Inc (NASDAQ: FB).

Shutterfly is interesting because it allows customers to print photos onto items like mugs, pillows and iPad cases plus the company has made acquisitions in its own right, including Tiny Prints and Wedding Paper Divas to round out a portfolio of stationery, greeting cards and invitations. The company also acquired Kodak Gallery from troubled Eastman Kodak Co. back in 2012.

A look at Shutterfly's financials reveals an upward trend in revenues of $783.64M (2013), $640.62M (2012), $473.27M (2011) and $307.71M (2010) along with mixed net income of $9.29M (2013), $23.00M (2012), $14.05M (2011) and $17.13M (2010). At the end of last March, Shutterfly had $339.03M in cash and short-term investments to cover $246.36M in long term debt.

At the end of last April, Shutterfly reported a 17.5% revenue increase to $137.1 million for the 53rd consecutive quarter of year-over-year net revenue growth along with a GAAP net loss of $34.2M verses $12.4M for the first quarter of 2013. The full year outlook calls for net revenues to range from $903.0 million to $920.0 million for a year-over-year increase of 15.2% along with a GAAP operating income/(loss) to range from ($0.6) million to $9.2 million. The CEO commented:

"Q1 was a strong start to the fiscal year, with solid growth in our consumer business. Leveraging our integrated marketing approach and data driven pricing and promotional strategies, we were able to improve our brand awareness and customer engagement and drive healthy increases in customers, orders and average order value. I am pleased with our sustained high level of execution and remain confident in our strategy and ability to transform the multi-billion dollar memories, social expression and personalized products markets from offline to online."

However, it should be mentioned that in mid-March, Cowen downgraded Shutterfly by two notches to Underperform from Outperform, citing a recent growth slowdown that has continued into 2014 driven by competition, poor mobile performance and pricing pressures. Cowen's Kevin Kopelman commented:

"We no longer expect to see pricing improve, and now believe discounting is likely part of a longer term trend, driven in party by excess printing capacity in the industry and slower growth in consumer demand."

Cowen also lowered their price target to $39 from $56.

Share Performance: Shutterfly, Inc

On Wednesday, small cap Shutterfly surged 14.92% to $50 (SFLY has a 52 week trading range of $36.30 to $59.93 a share) for a market cap of $1.93 billion plus the stock is down 2.1% since the start of the year, down 10.6% over the past year and up 231.8% over the past five years. Here is a look at the long term performance against major benchmarks:

As you can see from the above performance chart, Shutterfly has actually outperformed major indices over the long term albeit its been a bumpy ride for investors at times. However, the latest technical chart is sending mixed messages to investors and traders alike:

The Bottom Line. Unless you want to speculate on buyout rumors, I am sure investors can find better stocks with less competition to put their money than Shutterfly.

10 Best “Strong Buy” Stocks â€” BITA TRGP TPL and more

Popular Posts: Hottest Energy Stocks Now – TPLM HK KOG SDBiggest Movers in Healthcare Stocks Now – TARO PCRX FMS INO10 Best “Strong Buy” Stocks — BITA SHPG TRGP and more Recent Posts: Hottest Financial Stocks Now – WLP HTGC CACC CG Hottest Technology Stocks Now – AYI WDC NUAN YHOO Hottest Healthcare Stocks Now – THC KND VRTX ABBV View All Posts 10 Best “Strong Buy” Stocks — BITA TRGP TPL and more

This week, these ten stocks, all currently earning A’s (“strong buy”) on Portfolio Grader, have the best year-to-date performance.

Shares of Bitauto Holdings Ltd. Sponsored ADR () have risen 59.7% since January 1. Bitauto provides Internet content and marketing services for the automotive industry, primarily in the People'’s Republic of China. .

Since January 1, Targa Resources () has shot up 61.7%. Targa Resources provides midstream natural gas and natural gas liquid (NGL) services in the United States. The stock has a dividend yield of 2.6%. .

Since January 1, the price of Texas Pacific Land () has grown 61.8%. Texas Pacific Land Trust derives revenue from all avenues of managing land, such as royalties from oil and gas and land sales. .

Since January 1, Illumina, Inc. () has jumped 64.6%. Illumina develops, manufactures and markets integrated systems for the large-scale analysis of genetic variation and biological function. .

Since the first of the year, shares of Shire PLC Sponsored ADR () have soared 70.7%. Shire, a biopharmaceutical company, researches, develops, manufactures, sells, and distributes pharmaceutical products. .

Questcor Pharmaceuticals, Inc. () has risen 71.3% since the first of the year. Questcor Pharmaceuticals develops and commercializes novel central nervous system-focused therapeutics that address significant unmet medical needs. .

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Wednesday, July 2, 2014

Wal-Mart Should Be Your Next Pick

Wal-Mart's (WMT) first quarter results were not so interesting since it failed to meet the Street's expectations. It was mainly because of factors such as cold weather conditions and cuts in the food stamp benefits, in November last year.

Delving deeper

Net revenue for the quarter stood at $115 billion, an uptick of 0.8% over last year. On a constant currency basis, revenue from the U.S., the biggest segment, grew 2% to $67.85 billion and that of international operations rose 3.4%. However, international sales declined, on a reported basis, mainly because of unfavorable currency movements.

Same store sales in the U.S., a key metric for any retailer, decreased 0.2%. Although average purchase size grew 1.3%, store traffic was a matter of concern as severe weather conditions kept customers away from stores. People wanted to stay at home and order the required items online.

Therefore, it resulted in higher online sales. Wal-Mart's e-commerce business climbed 27% over the prior year as customers prefer to have their orders delivered at their footstep instead of walking up to the stores.

This was probably the reason why the company witnessed a 1.4% drop in U.S. traffic and 0.2% decline in that of Sam's Club. Nonetheless, increased membership fee led to an overall increase in revenue from Sam's Club.

Strengths in focus

Despite stiff competition from its peers and dollar stores, Wal-Mart has strengths which should help in its future growth. Firstly, its growing online business should help in driving revenue higher. The company's initiatives to improve its e-commerce operations should be helpful. Also, the retailer's entry in the money transfer business should bear fruits.

Moreover, Wal-Mart's entry into the organic food market is quite an interesting move. Since people have become increasingly health conscious, they look for healthier and natural food options. Hence, it should lead to higher store traffic. Also, it has introduced attractions such as video game trade in program which is expected to attract the young population. Therefore, it is eyeing different customer demographics by strengthening a variety of segments.

Most important strength in focus for Wal-Mart is its smaller format stores which witnessed a same store sales increase of 5% in the first quarter. Efforts into these smaller stores, including Neighborhood Market stores and Express stores, should pay off in the long run. These stores are easier to access, even during colder winter conditions, since these are located in the urban areas. With plans of a total of 270-300 new store openings during the year, the company's future looks bright.

Ending thoughts

Despite a large number of problems faced during the quarter, the retailer managed to register an increase in its top line. Also, its efforts should start bearing fruits as customers flock in for their regular needs as well as for organic food. Although the company provided a lackluster outlook for the second quarter, its strengths in new format stores and online business is something to rely on. Therefore, investing in Wal-Mart should be rewarding in the long run.

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