HP's Big CEO Change: Tech Weekly Recap
Cramer's 'Mad Money' Recap: Next Week's Game Plan (Final)
Protecting Your Portfolio
Pricing Power
In his "Executive Decision" segment, Cramer sat down with Don Knauss, a veteran as well as the chairman and CEO of Clorox (CLX), a great American company with brands such as Kingsford charcoal, Pinesol, Hidden Valley Ranch and of course, its namesake, Clorox bleach. Knauss said that Clorox is still on track to see 3%-to-5% top line growth going forward, thanks to the strength of its many brands, 90% of which are first and second in their categories. He said these brands have pricing power, with 48 of the 50 price increases the company instituted still in place. Knauss also said that commodity prices are likely to move in the company's favor beginning in the first half of 2012. Another plus for Clorox will be the introduction of new products in December that will offer 95% natural alternatives to some of the company's other products. Being Veteran's Day, Cramer also asked how Knauss' ! military training helped him at Clorox. Knauss said frankly that he wouldn't be CEO, if not for the leadership and training that the Marines taught him. He said the vets make for great employees, which is why about 10% of Clorox' workforce are veterans. When asked how current veterans coming home can find a job in a tough economy, Knauss said that vets need to be persistent, make contact with the companies they're interested in and never give up the hunt.Helping the Homefront
Lightning Round
Cramer was bullish on Ameren (AEE), T. Rowe Price (TROW), Walt Disney (DIS), Visa (V), Caterpillar (CAT), Alcoa (AA), Ford Motor (F), Deere (DE), Public Storage (PSA), Accenture (ACN), CSX (CSX) and Union Pacific (UNP).Cramer was bearish onTerra Nitrogen (TNH) and Booz Allen Hamilton (BAH).Closing Comments
Cramer said that it's never too late to start investing. He said when compared to real estate, bonds and bank CDs, stocks and gold are the only compelling investments left. Better still, stocks are cheap when compared to their fundamentals.Cramer said that new investors should watch the show and do their homework to get comfortable with the companies they're investing in. No time or inclination for stocks? Cramer recommended working with an advisor and investing in low-fee mutual funds. He recommended 20% of a portfolio be international, 10% be in gold and another 10% stay in cash for the next big opportunities. To contact the writer of this article, click here: Scott Rutt.Follow TheStreet on Twitter and become a fan on Facebook.Shares In Amylin Plunge, Options Players Prep For A Rebound
Amylin Pharmaceuticals, Inc. (AMLN)�C Sharesin the biopharmaceutical company plunged 18.1% to an intraday low of$8.95 on Tuesday on news the company ended its diabetes partnership withdrug maker, Eli Lilly & Co. Options activity on AmylinPharmaceuticals, however, suggests some strategists see the selloff asoverdone, with a number of investors stepping up today to position forthe price of the underlying to rebound. Near-term bulls snapped up morethan 1,650 calls at the Nov. $11 strike for a premium of $0.22 apiece.Buyers of the call options profit at expiration if shares in AMLN surge21.4% over the current traded price of $9.24 (as of 11:50 am in NewYork), to surpass the average breakeven price of $11.22. Optimism for anAMLN-recovery story spread to the Dec. $10 strike, where more than5,600 call options changed hands against open interest of 270 contracts.It looks like one investor purchased the majority of these calls for anaverage premium of $0.85 a-pop. The strategist profits at expirationnext month in the event that Amylin's shares increase 17.4% to tradeabove $10.85. Longer-dated contracts are the most active in terms ofvolume on the drug maker so far today. One trader appears to havepurchased a 5,000-lot April 2012 $10/$15 call spread for a net premiumof $1.30 per contract. The call-spreader may reel in profits of up to$3.70 per contract on the position if AMLN's shares jump 62.3% to exceed$15.00 by April expiration day. Meanwhile, the sale of 9,000 puts for apremium of $0.63 per contract at the April 2012 $6.0 strike suggests atleast one investor expects the price of the underlying to exceed thatlevel through expiration next year. The trader walks away with thepremium in hand as long as the put options expire worthless at Aprilexpiration day. We note that while much of the activity in Amylinoptions is likely bullish, the stock was not exclusively populated withbullish players. Some of the volume generated in April 2012 contractcalls looks to have been sold by traders betting! against the likelihoodof steep double-digit gains the shares. Additionally, light put buyingthe front month indicates other investors are prepared to see the stockpull back further ahead of November expiration. Options impliedvolatility on AMLN is up 46.7% at 85.0% just after midday on the EastCoast.
Xilinx, Inc.
(XLNX) �C Renewedtakeover chatter, as reported by theflyonthewall.com, spurred tradingin Xilinx call options this morning, and helped shares in the chipmakerearlier rise 2.0% to an intraday high of $33.64. The stock gave upearlier gains, and presently trades 0.10% lower on the day at $32.94 asof 12:20 pm in New York. Trading traffic in XLNX call options isheaviest in the front month, where the Nov. $34 strike call changedhands more than 5,600 times against open interest of 583 contracts. Itlooks like most of these calls were purchased for an average premium of$0.43 each. Buyers of the call options may profit at expiration nextFriday in the event that Xilinx's shares increase 4.5% over the currentprice of $32.94 to exceed the average breakeven point on the upside at$34.43. Investors exchanged some 2,800 calls at the higher Nov. $35strike against open interest of 336 positions, but trading at thisstrike was initiated by both buyers and sellers for an average premiumof $0.18 apiece. Sellers of the call options keep the full amount ofpremium received as long as XLNX shares fail to rally above $35.00 atexpiration day, while buyers of the contracts lose the premium paidunder this scenario. Finally, Dec. $36 and $37 strike call optionsattracted greater-than-normal volume in the first half of the session.Trading in the Dec. contract calls was mixed, as well.Dean Foods Co. (DF) �C Thefood and beverage provider's shares are up 3.85% at $10.55 inearly-afternoon trade, ahead of the company's third-quarter earningsreport before the opening bell on Wednesday. Heightened activity inDecember contract calls this morning suggests one player is positioningfor the price of the! underly ing to continue to climb ahead of expirationnext month. Dean Foods Co. was raised to ��Overweight' from ��EqualWeight' with a share price target of $13.00, up from $11.00, at Stephenstoday. It looks like one investor was responsible for much of thevolume printed in Dean Foods calls in the first half of the session. Thetrader appears to have purchased 3,325 calls at the Dec. $11 strike foran average premium of $0.52 per contract. Profits may be available tothe investor on the position in the event that the dairy processor'sshares surge 9.2% to trade above the average breakeven price of $11.52by December expiration. Shares in the Dallas, Texas-based company lasttraded above $11.52 back in July.
Netgear, Inc. (NTGR) �C Themaker of networking products popped up on our ��hot by options volume'market scanner this morning due to greater-than-usual activity inNetgear calls. Shares in NTGR surged 8.8% to an intraday high of $38.35today, and it looks like a number of options players are prepared toprofit should the stock continue its run higher in the near term.Investors traded 399 calls at the Nov. $39 strike against zero openpositions, and appear to have purchased most of the contracts for anaverage premium of $0.68 apiece. Traders long the calls may profit atexpiration if Netgear's shares rally another 3.5% over today's high of$38.35 to surpass the average breakeven point at $39.68. Bulls purchasedanother 191 calls at the higher Nov. $40 strike, and picked up 111calls at the Nov. $41 strike, for average premiums of $0.43 and $0.28each, respectively. Netgear is scheduled to participate in the GoldmanSachs Small Cap Technology 1 on 1 Conference on Thursday in SanFrancisco, California.
{$end}The Risk Of Momentum Stocks
Let's look at the risk of momentum stocks like Netflix (NFLX), Opentable (OPEN), Travelzoo (TZOO) and Salesforce.com (CRM).
I don't think anyone will argue that Salesforce.com isn't a momentum stock. With a Price/Earnings ratio north of 500 and a Price/Sales ratio of 8, boasting a market capitalization of 16 Billion dollars, it is one of the most chased large cap stocks on Wall Street.
The characteristic of a momo stock is that it attracts more buyers, just because just keeps going up in price, thereby disconnecting itself from the underlying fundamentals, like PE, PS, book value, etc.
People are buying because other people are buying, and because they want to miss a piece of the pie. Of course this process is often helped by media hype, and analysts who keep claiming the stock remains attractive with upside potential. Knowledgeable value investors do not see a sensible reason why the stock keeps rising, as they take the value ratios as a measure to buy or not buy.
The phenomenon is depicted rather well in this cartoon clip.
However, the opposite is true when a momo stock loses its momentum. The result is a total collapse, like we are witnessing for Netflix, Opentable, Travelzoo, etcetera.
People are now selling because other people are selling, and because there is no rational reason to hold because of valuation, just like there was no rational reason to buy when the stock went up. Greed has made place for fear. The media and the analysts that were marveling the stock and its growth story on the way up, now join the bandwagon to tell you to sell. Where there seemed no limit on the way up, there appears to be no bottom on the way down. The way down is normally much steeper than the way up. Where the way up took a few years, the way down is usually a few weeks or months. Just look at the charts of OPEN and N! FLX or t his example.
I see CRM as a classic momentum stock, that has just turned the corner. Even more a momentum stock than NLFX, OPEN and TZOO if you look at valuation. It could well be on the verge of breaking down, with steep declines ahead.
Disclosure: I am short CRM.
These three companies are headed to the graveyard
Seas boiling! Skies falling! The dead rising from the grave! Yes, we are all sensitive to apocalyptic and eerie portents and signs on Halloween. That looming dread is part of the fun. It’s a great counterpoint to the sugar-rush/comedown portion of the holiday. “Horror, then sweets” goes the formula.
The world might not be ending and the dead might not be rising from the grave on Halloween 2011, but for some technology businesses, it certainly feels that way. As the year careens to a close, consumer spending remains tepid and the competitive landscape in a number of technologies — especially mobile devices — is changing with alarming speed. If Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are the happy trick-or-treaters in tech, then who are the publicly traded ghouls and goblins of the day? Consider these lost souls:
Research In Motion
Can changing tastes and an unwillingness to change be considered a curse? Judging from the company’s performance over the past 12 months, it certainly seems that Research In Motion (NASDAQ:RIMM) is living under a bad moon. The BlackBerry maker has seen share prices crumble from $70 in February to below $21 as of Monday. The pre-crash trading price of $145, hit around July 2008, seems a distant memory.
While RIM didn’t diss a gypsy queen to earn its declining fate, it has failed to transform its smartphone business and enterprise services into competitive products that can go head-to-head with Apple’s popular products or the openness of Google Android-powered devices. RIM’s share of the global smartphone market shrank from 19% to 14% over the past year. It isn’t coming back, either. Research firm IDC expects that share to shrink to 13% by 2015. RIM’s lonely future is to be devoured by a competitor for its juicy patents.
If zombie stocks are all too real, then Hewlett-Packard (NYSE:HPQ) is one of the recently bitten unfortunates that’s slowly transforming into a shambling, undead beast. After two years of pig-headed, multi-billion dollar acquisitions like Palm and 3com, HP has had a miserable 2011. Months of falling PC sales, the bizarre failure of its TouchPad tablet and the departure of CEO Leo Apotheker have all left the company without a clear sense of identity or direction. This bad news came to a head in August when HP lowered its EPS forecast for the year from $5 to around $4.86, Apotheker was booted, and the company announced it would leave both the PC and mobile businesses. Now it appears that HP plans to shamble forward in the same way it has. New CEO Meg Whitman has decided to keep the company in the PC business and plans another rush at the tablet market with a device powered by Microsoft (NASDAQ:MSFT) Windows 8. The problem is that PC sales, according to Gartner and IDC, are going to grow at a slower and slower pace over the next four years, and the iPad is expected to hold on to a majority share of the tablet market.?Run if you happen to hear shuffling feat and a mournful moan in the night of “consuuuumer PC sales revenuuuue.” Of all the companies presented in this bestiary, TiVo (NASDAQ:TIVO) is the only one whose corporate mascot is legitimately terrifying. That creepy little TV character is precisely the sort of thing you do not want to run into in a pumpkin patch around midnight. As for the company itself: TiVo peaked in 2000, three years after the company was incorporated and just months after its IPO. The business was sound and exciting. No one had offered digital video recording service before, and it appeared the market for TiVo set top boxes and subscription service was wide open. This was before Comcast ( NASDAQ:CMCSA), Time Warner (NYSE:TWX) and literally every other premium television service began offering DVR as a standard feature for subscribers. Considering TiVo had just 2 million subscribers left in March 2011 — the company’s peak subscribership was above 4.3 million in 2006 — and the company is shedding subscribers to the tune of 200,000 per quarter, it’s difficult to see TiVo as anything more than a faded brand haunting the tech industry until it finally disappears. The stock is as deceptive as a ghost, too. TIVO actually is performing better now than it was at its 2006 subscribership peak. Recent gains, however, came after the company announced it planned a buyback of $100 million in common shares (likely a ploy to muster investor interest and confidence) and an influx of $500 million won in a patent lawsuit settlement with Dish Network (NASDAQ:DISH). But TiVo has reported losses in 10 of the past 11 quarters — that, if nothing else, should scare investors. As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at?@ajohnagnello?and?become a fan of?InvestorPlace on Facebook.TiVo
Rodham & Renshaw to Drop China Research: Report
3 Cancer-Fighting Stocks That Could Deliver Huge Gains
Here's a bit of good news. With millions of Americans now taking anticholesterol drugs (known as statins), heart disease may soon lose its status as the leading cause of deaths in the United States. In 2009 (the year for which the most recent data is available), 598,000 Americans died of heart disease, down from 616,000 in 2007 and 636,000 in 2006. That's the first time the figure has moved below 600,000 in a number of decades, according to the Centers for Disease Control (CDC).
For investors, there's another bit of good news. These oncology-focused firms have seen their shares clobbered in the recent market rout. Here are three newly-discounted oncology stocks that you should be researching right now. The first two are small and quite risky, so owning a basket of them may be wiser than just holding one or two, as not all drugs make it to the clinical finish line.
1. Celsion (Nasdaq: CLSN)
This firm's scientists discovered that delivering cancer-fighting drugs at an elevated temperature (40° C), the drug is more likely to permeate the walls of cancer cells. Best of all, this technique -- known as ThermDox -- leaves nearby healthy tissue relatively unharmed.
Clesion's ThermoDox is currently being tested in Phase III clinical trials using patients in 11 countries. Though this study focuses on liver cancer (which has been spreading in many countries thanks to a spike in cases of Hepatitis B and C), the technology has applications for other cancers a! s well. Colorectal cancer appears to be the next area of focus.
Yet it's the liver-cancer trial, known as HEAT, which remains the biggest near-term catalyst for shares. The company has taken longer than expected to enroll at least 600 patients in the trial. Now that the process is complete, interim data should be reported by year-end, and the final results of the study by next summer. Celsion raised cash earlier this summer, which will probably tide it over until the final data are released in 2012, at which time the company will likely need to pursue a strategic investor to help it launch the drug.
This, of course, assumes further testing data are as robust as the data we've seen thus far. If so, then this could be a potential blockbuster opportunity because liver cancer is expected to be the leading form of cancer by 2020, as the ranks of Hepatitis-infected patients continues to swell. Meanwhile, this summer's market rout has taken this stock down from $4 in early July to a recent $2.40.
2. Threshold Pharma (Nasdaq: THLD)
A key problem in treating cancer tumors is that they emerge from areas that have little oxygen, or are in "hypoxic" environments. These hypoxic regions of the tumor are thought to provide the cancer stem cells that proliferate upon withdrawal of chemotherapy and are a factor in disease recurrence. Threshold's key drug, TH-302, is inactive until it reaches hypoxic regions of tumors, where it then releases its cancer-fighting molecules. As is the case with Celsion's approach, nearby healthy tissue is unaffected.
Threshold's Phase II trials targeting pancreatic cancer have yielded strong results, so the company aims to start Phase III trials in 2012. If all goes well, TH-302 could hit the market by 2014. The company has also embarked on Phase I trials using TH-302 to fight leukemia and expects to report top-line results by the end of this year. More than likely, Threshold will need to raise money in 2012 -- its! cash wi ll run out by next summer at current burn rates. Threshold's $70 million market value sharply discounts the size of the potential for TH-302, which could represent a $300 million to $500 million market opportunity if successful.
3. Medivation (Nasdaq: MDVN)
This had been a well-known biotech stock looking to establish a strong presence in the market for the treatment of Alzheimer's Disease with it's treatment, known as Dimebon. Unfortunately, it proved to be fairly ineffectual in clinical trials, and when tepid Phase III data were released on March 13, 2010, shares quickly plunged from $40 to $13 in just one day. (Shares trade today under $16.)
At that point, management had no choice but to shift its focus to a prostate cancer drug that had been in clinical development, known as MDV3100. Lucky for Medivation, it had brought in large sums of money Pfizer (NYSE: PFE) and Japan's Astellas, which wanted a piece of the Alzheimer's drug. (Medivation currently has $182 million in net cash.)
MDV 3100 appears to be fairly effective in clinical trials, and unlike many biotech stocks, investors may not have to wait much longer to get a sense of whether this stock will turn out to be a home run or a dud. Some time before the end of this year, Medivation is expected to release interim results from its AFFIRM study. "If the results are positive over the pre-specified hurdle and safety is not an issue," Medivation can move quickly to file a New Drug Application (NDA) with the Food & Drug Administration, according to analysts at Citigroup. (The hurdle that they describe entails a complex calculus that measures safety and efficacy in various time frames, relative to a placebo.)
They assign the likelihood of a positive outcome at 75% to 80%, and figure shares would move up to the $30-$35 range. On the other hand, if the interim trial results don't yield favorable data -- a 20% to 25% probability -- then shares would quickl! y move d own to the low teens, according to the analysts.
Risks to consider: Beyond the obvious risk that clinical trials fail to yield robust measures of efficacy and safety, Celsion and Threshold also have balance sheet risk. Each firm will likely need to refill its coffers in 2012 with another equity raise. And if shares remain at currently-depressed levels, then the dilution could be significant.
> Even though biotechs represent considerable risk, and investors are quite risk-averse right now, many of these stocks are trading at absurdly low valuations in terms of the potential market opportunity they face. Few stocks represent as much significant upside as biotech stocks, assuming their drugs continue to deliver on the promises they hold.
AMZN: ‘Fire’ To Crimp Margins; Better A Cannibal Than Be Eaten
Responses are trickling in to Amazon.com’s (AMZN) announcement this morning that it will offer a touch-based version of its “Kindle” e-reader, a lower-priced version of the traditional model, and a new tablet computer called “Kindle Fire,” based on Google’s (GOOG) “Android” operating system.
Citigroup’s Mark Mahaney, who has a Buy rating on Amazon shares, and a $280 price target, calls it the “Bonfire of the Kindles.”
The prices — from $79 to $199 — are “very aggressive” and “very attractive,” he writes. He found the breadth of features and the quality of the designs surprising.
It’s going to hit profit, he writes:
We had assumed that AMZN would be aggressive with pricing, but not THIS aggressive. Assuming the products hold up, we believe there should be a path here to multi-million unit sales in the near- to medium-term for both the new eReaders and the Fire. But we would expect this to come at the expense of margins. Unit economics will require a detailed BOM (Bill Of Materials) analysis, which we won��t be able to do until the products ship. Our first pass is that 2012 EPS will likely be only modestly impacted, with potentially greater than expected Revenue mostly offset by lower than expected margins. If these products succeed, the positive EPS impact is probably more likely in 2013.
Gene Munster with Piper Jaffray, who covers, Apple (AAPL), writes that the Fire is “more competitive” than he had presumed compared to Apple’s iPad, even though the device is “not a true iPad competitor.”
The small storage — 8 gigabytes — the lack of a camera, and the lack of a 3G option are drawbacks of the Fire, but the Web browsing and movie watching and music playing were more than he was expecti! ng.
< p>Munster is not revising his estimate Apple will ship 50 million iPads next year, however, as he was expecting some Android tablets to succeed in taking market share from the iPad over time.Amazon shares are up $10.02, or almost 5%, at $234.25, while Apple shares are up $1.94, or half a percent, at $401.20.
Barnes & Noble (BKS) stock, meanwhile, has seen its loss today go deeper since the announcement. Shares are currently down$1.64, or 12.4%, at $11.57.
Update: JP Morgan’s Doug Anmuth, who rates Amazon shares Overweight, this afternoon wrote that the Fire will sell well over the holidays, perhaps by as much as 4 million to 5 million units. The device will at best be neutral to profits, and likely a loss-maker for the company, he writes.
Still “to truly compete more with the iPad we believe Amazon will need to offer a 10�� version with additional features and functionality.”
The combined impact of the new Kindles and the tablet is that “Amazon is both recognizing the market opportunity for single-purpose devices at the low end and also defining a new price point for low-mid level tablets,” he writes.
“It��s better for Amazon to cannibalize itself than have it done anymore by Apple,” he adds.
Markets Soar As European Fears Dim
- DJIA up 259.89 (+2.19%) to 12,153.68
- S&P 500 up 24.16 (+1.95%) to 1,263.85
- Nasdaq up 53.60 (+2.04%) to 2,678.75
GLOBAL SENTIMENT
- Nikkei up 0.16%.
- Hang Seng up 0.9%.
- FTSE-100 up 1.8%.
Stocks soared in Friday's regular session, with the major U.S. averages adding about 2% each and the S&P 500 and Nasdaq returning to the black for 2011. Bulls were in clear command throughout the day as Italy's latest moves to approve austerity measures and new leadership in Greece cooled some of the eurozone debt worries while a gauge of U.S. consumer confidence came in better-than-expected.
Looking forward to next week, developments in Italy and Greece will remain a concern for U.S. traders as will a run of earnings from major retailers. On the earnings front, J.C. Penney (JCP) and Lowe's (LOW) report results on Monday, followed by Agilent (A), Dell (DELL), Home Depot (HD) and Wal-Mart (WMT) on Tuesday. Applied Materials (AMAT), NetApp (NTAP) and Target (TGT) post financials on Wednesday, with Marvel Technology (MRVL), Salesforce.com (CRM) and GameStop (GME) releasing quarterly numbers on Thursday. Ann Inc. (ANN) and H.J. Heinz (HNZ) are slated to issue results on Friday.
On the economic front, PPI, retail sales, Empire manufacturing and business inventories data are due on Tuesday. On Wednesday, we'll see CPI data, industrial production/capacity utilization, the NAHB housing market index, and crude inventories. Initial claims, housing starts and the Philadelphia Fed will be released on Thursday, followed by leading indicators on Friday.
In today's U.S. economic data, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 64.2 in November compared with an October reading of 60.9. That increase is better than the 63 reading economists had expected.
That provided a lift to retailers, which are gearing up for ! the all -important holiday shopping season. Wal-Mart Stores, Target, Best Buy (BBY) and TJX Companies (TJX) were all higher on Friday.
Late Thursday, Walt Disney Co. (DIS) reported fourth quarter revenue of $10.42 billion, which topped analysts' average estimate of $10.36 billion as gauged by Thomson Reuters. Earnings per share were $0.58 compared to expectations of $0.54 per share. Disney shares spiked in the extended session and into Friday's session, with trades topping a 7% gain.
Overseas, the dramatic events that shaped the week in Europe appear to be settling down - at least for the short term. Italian lawmakers appeared set to approve 2012 budget measures over the weekend, potentially clearing the way for the formal resignation of Prime Minister Silvio Berlusconi and the naming of a new coalition government headed by economist and former European Commissioner Mario Monti, according to news reports. Monti is widely considered to be a technocrat who will go about the business of implementing budget action.
In company news:
Shares of Citigroup (C) were higher while the Financial Times reported that the bank will get $4.1 billion from its sale of recording house EMI after a deal agreed to by Universal and Sony.
Bristol-Myers Squibb (BMY) shares edged up after it announced a technology transfer agreement with the Brazilian Ministry of Health to expand access to its HIV treatment Reyataz in Brazil. The agreement is designed to build the capacity and skills required for the Brazilian government to produce a sustainable, high quality supply of atazanavir and will enable the government to become, over time, the sole source of atazanavir in Brazil.
Shares of Google (GOOG) were higher as the company is reportedly planning to unveil a television running Google software at the Consumer Electronics Show in Las Vegas, according to a Bloomberg report.
ConocoPhillips (COP) was up while The Wall Street Journal reported that China's State Oceani! c Admini stration said in a statement Friday that a ConocoPhillips unit violated development plans at its oil field in China's Bohai Bay.
Commodities finished higher as crude oil futures advanced along with the broader equities markets and gold was helped by a weaker U.S. dollar.
Light, sweet crude oil for December delivery finished up 1.2% to $98.99 a barrel. In other energy futures, heating oil was up 1.75% to $3.15 a gallon while natural gas was down 0.08% to $3.64 per million British thermal units.
Meanwhile, gold futures finished higher after slumping in the prior session as investors sought relative bargains in the metal.
Gold for December delivery finished up 1.6% to $1,788.10 an ounce. In other metal futures, silver was down 1.43% to $33.87 a troy ounce while copper was down 2.54% to $3.35.
UPSIDE MOVERS
(+) NVDA continues evening gain that followed earnings beat.
(+) DIS continues evening gain that followed earnings beat.
(+) CAT building new plant; confirms Asian expansion.
DOWNSIDE MOVERS
(-) KW prices shares.
(-) DHI issues mixed results.
(-) ANX selling stock.
(-) MCP continues evening drop that followed Q3 miss.
(-) ETFC company won't pursue sale
Wal-Mart Stores, Inc. (NYSE: WMT ): Q3 2012 Earnings Preview
Wal-Mart Stores, Inc. (NYSE: WMT ) is expected to report its earnings on Nov 15, 2011.
For the quarter ended October 2011, the company is likely to report revenue of $106.7 billion, an increase of 4.7 percent over the same quarter a year ago. ?Operating profit is likely to come in at $6.76 billion, compared with $5.61 billion in the same quarter a year ago. Net profit is likely to come in at $3.97 billion, compared with $3.43 billion the same quarter a year ago.
China sales were affected due to a two-week shutdown tied to labeling of its pork products at its Chongqing stores. In addition, risks from food safety and capricious regulators in China remain a challenge to the company.
In the past 14 to 15 months, Wal-Mart shifted its merchandising focus back to a basic assortment of socks, underwear, T-shirts and jeans, and the move seems to be paying off. September, same-store sales of socks, underwear and jeans saw gains. Boosting apparel sales is key to the company's profit as that's among the areas that generate higher gross margins than the commodity consumable products. Sales of popular toys should have also increased as I expect the company to have gained some market share from rivals such as Target, Kmart, and Amazon.
Net-on-net, the company is likely to report EPS of $0.96 for the quarter ended October 2011, compared with $0.9 in the year-ago quarter.
In October, female workers in California launched the first in an expected series of regional suits against the company. I expect the company to provide details on how it is going tackle this issue. I expect the company to provide details on how it will face regulators in South Africa after the government filed a lawsuit compelling the review of its prior approval of Wal-Mart's purchase of Massmart.
{$end}AAPL: Hong Kong iPhone Rush Partly Supply Issue, Says Ticonderoga
Brian White with Ticonderoga Securities this morning says Apple (AAPL) shares will be “held hostage” to various data points from the supply chain until it becomes clear just how the company’s production of iPhone and iPad fared this quarter, which should happen as the quarter progresses and more data points emerge.
White has a Buy rating and a $666 price target on Apple shares.
White is responding to rumors over the last 48 hours suggesting Apple had cut or delayed some production of the devices, with vague attributions to anonymous supply chain sources. Wedge Partners’s Brian Blair dismissed those rumors today, while Susquehanna chip analyst Christopher Caso thinks there may well be delays in production.
White himself yesterday cited in a note to clients what he calls the “Apple barometer” of supplier trends for the company as being relatively weak in October, though he’s not sure whether that means anything real in terms of how things are tracking.
White notes in a letter to clients today that Apple’s newest iPhone, the “4S,” sold out in just three hours when it went on sale at Apple’s brand new Hong Kong store this morning. That, despite the fact the device does not support mandarin language in its “Siri” voice assistant feature.
In a phone call this afternoon, White remarked to me that he thinks the fast sell-out, following pre-orders for Hong Kong selling out in just six minutes last week, may point to some supply constraint for the device.
“Apple likes to sell out, but I really don’t think Apple wants to sell out in six minutes,” White tells me.
“There could be a supply issue out there. That may be why the October barometer was weak.R! 21;
< p>Regarding the iPad, White reiterated a claim he’d made back in October, which is that Apple did, indeed, cut some iPad production orders, after taking “a little more of cautious view based on the economy,” and perhaps somewhat in response to the unveiling of Amazon.com’s “Kindle Fire” tablet last month, which could prove a viable competitor for consumers of low-priced tablet computers.All of this will become clearer as the quarter moves along and more data becomes available, White concludes.
Apple shares today are down $1.27 at $383.95.
4 Hot Stocks on Our Radar: Apple Shares Struggle, Disney Pops 6%, and E*Trade Cancels Sell Order
Despite a large rally on Friday, shares of Apple (NASDAQ:AAPL) continue to lag behind.? Shares closed .16% lower, and continue to edge down in late trading.? On the positive, it only took the iPhone 4S three hours to sell out in Hong Kong.? Shares are down 3.9% over the past month.? Competitors include: Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT).
After reporting strong earnings, Disney (NYSE:DIS) shares closed 5.95% higher.? After the closing bell, shares continue to edge .14% higher.? Net income for the entertainment company rose to $1.09 billion (58 cents per share), compared to $835 million (43 cents per share) in the same quarter a year earlier. This marks a rise of 30.2% from the year earlier quarter.? Competitors include: CBS (NYSE:CBS), Viacom (NYSE:VIA), and Time Warner (NYSE:TWX).
Investing Insights: The Walt Disney Company Earnings Cheat Sheet: Rising Revenue Helps Margins Expand, Profit Rises.
Shares of E*Trade (NASDAQ:ETFC) closed 4.11% lower after the brokerage cancelled its own sell order.? After exploring a number of strategic alternatives, E*Trade announced that it will remain independent.? On Thursday, E*Trade��s board of directors made the decision to withdraw from selling the company. It had been working with Goldman Sachs (NYSE:GS) as their financial adviser, and the bank had recommended they cease the selling process.? Shares are down .22% after the closing bell.
CME Group Inc. (NASDAQ:CME) climbed 1.33% higher on Friday after announcing it pledged $300 million to help speed up the release of customer cash and collateral that is trapped in the bankruptcy of MF Global.? “We recognize that the U.S. Bankruptcy Code requires the trustee to account for all customer assets and claims to ensure a fair, pro-rata distribution of those assets, and w! e sincer ely appreciate how complex this task is for the Trustee,” said Craig Donohue, chief executive of CME, in a statement.
New Nevada regulations have slowed foreclosure processing, but that doesn¡¯t mean delinquencies are declining
After reigning for 22 months as the nation��s No. 1 spot for foreclosures, Las Vegas has just been kicked all the way down to the No. 5 position.
Is this cause for hope? Is Sin City, which has lost more than 100,000 homes to foreclosure in the last four years, about to see its housing market stabilize at long last?
Not exactly. According to RealtyTrac, the nation��s leading tracker of foreclosure properties, this drop to No. 5 is temporary, caused by a new Nevada regulation that requires mortgage servicers to provide an affidavit showing the mortgage balance due, verification of title and who has the authority to foreclose. The law is designed to prevent mortgage servicers or trustees from making false representations concerning a title.
But apparently the law also is slowing down the process enough to take away Vegas’ foreclosure crown. At least for now. RealtyTrac fully expects it to regain its top spot as soon as lenders work through the red tape in the new reporting process.
Las Vegas home prices have dropped about 9% in the last year, and almost 60% from their peak of five years ago. Some market watchers estimate that another 100,000 homes could be lost to foreclosure in Nevada over the next four years.
So which were the top 10 foreclosure markets in October? A list just released by RealtyTrac shows the following:
- ?Stockton, Calif.
- ?Modesto, Calif.
- ?Vallejo-Fairchild, Calif.
- ?Riverside-San Bernardino, Calif.
- ?Las Vegas, Nev.
- ?Saginaw, Mich.
- ?Sacramento, Calif.
- ?Cape Coral-Ft. Myers, Fla.
- ?Merced, Calif.
- ?Orlando, Fla
It��s no surprise that California has a claim on six of the top 10 spots. Areas such as Stockton and Modesto have been kicking around in the top 10 for many months now, and the relatively high default rates in those markets are unlikely to shrink significantly any time soon.
Nationwide,? more t! han 230, 600 foreclosures were filed in October, and while this is down a remarkable 31% from October 2010, it represents a 7% increase from the previous month. RealtyTrac attributes the large year-over-year drop to the discovery last autumn of a large number of ��robo-signings�� — in which bank employees signed off on foreclosure proceedings without reviewing each case — which banks to temporarily halt foreclosures.
RealtyTrac also notes that new default notices — the first step in the foreclosure process — were up about 10% from September, and represent a seven-month high. This is troubling because it suggests that America’s foreclosure problem is not getting any better, and that increases in foreclosure rates could be on the way.
What��s more, foreclosure rate increases can be self-perpetuating simply because foreclosed homes often diminish property values in surrounding neighborhoods. When values drop, people who are ��underwater�� on their mortgage (have negative equity in the home) are more inclined to hand their house keys to the bank and walk away from the property, generating yet another foreclosure.
This practice, known as ��strategic default,�� has resulted in even larger numbers of foreclosures and a greater decline in property values across the nation. A new report by CNBC claims that half of the homeowners in America are now underwater on their mortgages.
So are there any solutions to the real estate doldrums? Well, as I said in a recent article for InvestorPlace, it may be time to give real estate investors some tax breaks or other incentives as a way to clear out the excessive inventory of foreclosures that is damaging the market.
Yes, much lower unemployment will definitely help the real estate market. But achieving that will be a slow and painful process over the next few years. In the meantime, the real estate sector will continue to languish, which in turn will hinder the l! arger ec onomy.
So don��t expect to see the housing market bottom any time in the near future, and if you are an investor gambling that the Las Vegas housing is suddenly on the way back to prosperity, you may have just rolled snake eyes!
New Fund Gives You Early Warning Of Europe¡¯S Crisis
The fireworks in Europe are just getting started. Leaders and bankers across the Continent are playing the same "extend and pretend" game U.S. bankers have used with their mortgage portfolios.
We've known all along the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) had unsustainable government deficits and would need bailouts. The question was (and still is) how the debt will be liquidated �� and who will feel the pain.
The next domino is Italy. Greece is relatively small in comparison. Consider these 2010 statistics from the CIA World Factbook:
Greece Italy
Note that on a per capita basis, Greece and Italy look about equally prosperous. Their debt/GDP ratios are also not far apart. Italy, however, has a GDP almost six times that of Greece, and a labor force five times bigger.
In other words, Greece is just the opening act. Italy is a MUCH bigger problem. That's why France and Germany are worried.
 |
| Both countries are old. But one is much bigger. |
ITLT and BUNT, Revisited
A few months ago I told you how Euro Unity Was Always an Illusion. At that time I said "Greece was the first crisis only because the bankers had to start somewhere. Italy isn't far behind." Now we are seeing the next phase of the crisis.
You may recall we looked at two 3x-leveraged exchange-traded notes that follow the Italian and German Treasury bond markets.
Back then, PowerShares DB 3x German Bund Futures ETN (BUNT) was sharply outperforming PowerShares DB 3x Italian Treasury Bond Futures ETN (ITLT). This told us, among other things, that th! e real b ailout beneficiaries were German banks.
What's happening to them now? Earlier this week, ITLT broke below the August 4 panic low. Here is an updated chart ��
As for BUNT, it's still in a nice uptrend but has not yet surpassed the September high point.
The declining strength of BUNT in comparison to ITLT suggests to me that traders are losing confidence in Germany. This doesn't mean the German economy is anywhere near as bad as Italy, Greece, or the other PIIGS. But we're starting to see some cracks.
 |
| They're furious at Greece. |
Greek leader George Papandreou's plan to call an austerity-plan referendum sparked furious responses from other governments. Their "take it or leave it" ultimatum admitted for the first time that it is possible Greece can leave the euro currency. This was a key turning point.
If Greece successfully abandons the euro, then Italy, Spain, Portugal, Ireland, and others will face irresistible pressure to do the same.
I think a euro breakup is inevitable. The only question is when it will happen, and whether it will be done the easy way or the hard way. I'm afraid they will choose the hard way, and the consequences will be global.
So What Do You Do Now?
You don't have to just sit here and bite your nails in suspense. Some of the smartest people on the planet are following the crisis every second of every day: Bond traders.
You probably don't know how to find current quotes on foreign government bonds. And even if you do, you might not know how to decipher them. Instruments like BUNT make it a whole lot easier. They are the financial equivalent of weat! her rada r �� your early warning system.
My suggestion: Keep an eye on BUNT. Add it to your watch list. If you see it start to roll over �� as it very nearly did in late October �� you'll know German government bonds are no longer a safe haven.
Likewise, as long as BUNT holds up then you can probably relax a little bit. We could still be blindsided in some way, but any mass exit from German bonds will show up quickly in the BUNT quote.
Best wishes,
Ron
P.S. Earlier this week I told my International ETF Trader subscribers about another new ETF in a very attractive market niche. Click here to learn more.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
{$end}2 Reasons I'm Buying This Overpriced Tech Stock
Say you found a stock that's grown incremental revenue six quarters running. Say that also, in that time, management and the board, which own more than 19% of the business, had found a way to steadily increase returns on invested capital.
The trade-off is you have to pay roughly 100 times earnings to buy shares. Oh, and the list of competitors is long, growing, and dominated by some of the biggest names on the planet. Would you buy? I would. Here's why:
| Metric | Q3 2011 | Q2 2011 | Q1 2011 | Q4 2010 |
|---|---|---|---|---|
| New revenue (in millions) | $17,343.0 | $17,227.0 | $15,276.0 | $15,016.0 |
| Additional servers | 4,689 | 3,555 | 4,458 | 2,019 |
| New revenue per server | $3,698.7 | $4,845.9 | $3,426.6 | $7,437.3 |
| Cloud computing as a % of revenue | 19.2% | 17.4% | 16.1% | 14.6% ! |
Sources: press releases and TMF estimates.?
| Metric | Q3 2010 | Q2 2010 | Q1 2010 | Q4 2009 |
|---|---|---|---|---|
| New revenue (in millions) | $12,396.0 | $8,509.0 | $9,289.0 | $7,117.0 |
| Additional servers | 2,122 | 1,998 | 3,205 | 2,016 |
| New revenue per server | $5,841.7 | $4,258.8 | $2,898.3 | $3,530.3 |
| Cloud computing as a % of revenue | 13.4% | 12.4% | 10.8% | 10.1% |
Sources: press releases and TMF estimates.
This, Fool, is what the growth trajectory at Rackspace Hosting (NYSE: RAX ) looks like. I'll review the two reasons why these numbers are so important in a moment. First, let's cover what happened in the recently comple! ted thir d quarter.
Strong growth, increasing leverage
Revenue improved 32.5% year over year to $264.6 million while earnings grew 56% to $0.14 a share. Analysts surveyed by S&P Capital IQ had been expecting a similar profit but on just $261.6 million in revenue. The beat reflects continued appreciation for Rackspace's cloud computing offerings.
Customers are flocking to the platform. More than 161,000 use Rackspace now, up almost 9,000 from the prior quarter and 43,000 from last year's Q3. Monthly churn, meanwhile, continues to be under 1%, a remarkably low number for a business that competes with Amazon.com (Nasdaq: AMZN ) , AT&T (NYSE: T ) , Verizon (NYSE: VZ ) , and even upstart 8x8 (Nasdaq: EGHT ) in supplying services for hosting websites and Web-connected services and business operations.
Two metrics, two reasons I'm buying
Investors should be especially pleased with the customer data. Why? Look back at the table above. Revenue has grown progressively faster in each of the past six quarters despite relatively stable customer growth.
Last quarter, Rackspace added $17.343 million in new revenue while adding 8,844 customers. That's $1,961 in new revenue per customer. Now contrast that with last year at this time. In Q3 of 2010, Rackspace added $12.396 million sales and 10,709 new customers. That's an average of $1,158 in new revenue per customer. Rackspace is 69% more efficient at generating revenue than it was a year ago.
The data speak to the leverage built into Rackspace's model. Buy or finance extremely cheap servers from Dell (Nasdaq: DELL ) and white box vendors, own little land, and spend abundant resources on people with the skill to build dif! ferentia ting software and support customer environments fanatically.
Indeed, it's the leverage that leads to the second reason I'm buying Rackspace. Underlying efficiency has led to strong and increasing returns on invested capital. On an annualized basis, return on capital improved from 12.5% in last year's Q3 to 14.8% last quarter. The implication? Management's expansion efforts are paying off and creating excess value for the business, and thereby, shareholders.
More proof that the cloud isn't just hot air
Skeptics should note that the efficiency gains and attendant rise in ROC charts with a similar rise in the amount of revenue Rackspace gets from services such as managed cloud hosting.
In these high-touch situations, Rackspace guarantees the same sort of service and support it always has to customers using dedicated hardware -- and then strips away the hardware. Not that it disappears, per se. Instead, Rackspace sets the parameters for the type of infrastructure required and then loads the customer's online software into a network some 78,000 servers strong.
Eliminating the need for dedicated servers and disks in this manner lowers costs for both customers and Rackspace. The net effect for shareholders, spokesman Bryan McGrath said in an interview, is that these situations tend to provide three times the average revenue per server.
There's growth, there's smart growth, and then there's really smart growth. I submit that, at Rackspace, we're seeing the latter. That's why I believe this stock story is far from over, and why I'll be adding it to a new real-money tech portfolio I'll be rolling out soon.
Of course, you don't need to wait if you're in the market for more Internet stock ideas. This free video digs into the details of the cloud computing revolution that's lifting the fortunes of Rackspace Hosting and so many others. Watch now and you'll come away smarter and with a winning stock idea from our Motley Fool Rule Breakers scorec ard. Click here to get started -- it's 100% free to watch.
Is Apple Behaving Like Walmart?
Apple (NASDAQ:AAPL) has started planning how to respond if its retail employees unionize, reports CNET.? The company posted information about a training course on union awareness required for all new store managers. Is this a page out of Walmart’s (NYSE:WMT) corporate strategy to keep labor costs in check?
The training description reads, “This course is intended to provide managers with a practical understanding of how unions affect the workplace, how and why employees organize, and the legal do’s and don’ts of dealing with unions.? This is a mandatory class for all new managers, and is required biannually for all managers.” ?They added the course “is a great opportunity to meet our legal team and ask any questions you may have.”
Six months ago, Apple’s (NASDAQ:AAPL) retail employees tried to unionize.? The Apple (NASDAQ:AAPL)?Retail Workers Union accused Apple of giving part time employees poor compensation and insufficient “break schedules, training opportunities,” and “the selection and hiring process for internal candidates for open positions.”
A retail union could potentially increase Apple’s (NASDAQ:AAPL)?operating costs if they are successful with pay increases and more benefits.? Though having a union would not guarantee Apple (NASDAQ:AAPL)would make changes, the move gives the union the ability to set up negotiations.? Apple (NASDAQ:AAPL)?has let employees know they oppose a union.
Union expert Jay Krupin told CNET, “If a union represents the Apple (NASDAQ:AAPL)?retail employees, it just means they sit down across the table, and if Apple is doing what they’re doing now, which is being a tremendously successful retailer, there’s very little a union’s going to be able to do.��
Apple’s (NASDAQ:AAPL)?retail emp! ire has become an important part of the company��s success in it��s 10 years of existence.?Apple’s (NASDAQ:AAPL)? fiscal 2011 posted net sales of $14.12 billion from its stores, a 44 percent increase from the last year. Glassdoor.com, a job tracking service, ranked Apple (NASDAQ:AAPL)? as one of the top 50 best places to work — an award Apple (NASDAQ:AAPL)?has received three years in a row.
Interestingly, Apple (NASDAQ:AAPL)?has confessed that it’s easier to get a job at its 350 global corporate headquarters than one of its retail stores.
Metals Recap: Gold and Silver Climb, FCX Rebounds
On Wednesday, gold?(NYSE:GLD) futures for December delivery climbed $25 higher to settle at $1,641.60 per ounce, while?silver?(NYSE:SLV) futures rose 51 cents to settle at $30.52. ?After declining earlier in the week, gold and silver equities jumped on the positive price movement. ?In afternoon trading,?Barrick Gold?(NYSE:ABX) traded more than 3% higher, while?Yamana Gold?(NYSE:AUY) jumped by nearly 7%. ?Silver miners?(NYSE:SIL) also participated in the rebound. ?First Majestic Silver?(NYSE:AG) surged 9% and?Endeavour Silver?(NYSE:EXK) climbed 6% higher.
As the chart below shows, shares of?Freeport-McMoRan Copper & Gold?(NYSE:FCX) finally rebounded after falling to under $30 yesterday. ?Shares have taken a tumble since they crossed over the 50-day and 200-day moving averages.
In addition to a rebound in gold prices, Freeport-McMoRan received a boost from some upbeat economic data. According to ADP Employer Services, US companies added 91k jobs in September. ?The median forecast of economists surveyed by Bloomberg News expected an increase of only 75k. ?The ISM Non-Manufacturing Index is also maintaining expansion status by staying above 50%. ?The September ISM Non-Manufacturing number came in at 53% today.
In early August, we warned our?Premium Gold & Silver?subscribers to remain “extremely cautious” on?Freeport-McMoRan?as shares fell below our critical $53 support level. ?Our indicators pointed to more trouble for shares and subscribers who heeded our warnings saved themselves a painful fall. ?We warned investors again in September to wait to buy?Freeport-McMoRan?as shares hit $35. ?Shares would go on to ultimately fall to $29.85. If you would like to receive more professional analysis on Freeport-McMoRan and other precious metal investments,?we invite you to try our premi! um servi ce free for 14 days.
Here’s Why Groupon’s Business Model Looks Eerily Like a Ponzi Scheme
Now that Groupon (NASDAQ:GRPN) has gone public, questions and gossip about the company continue. One speculation floating around the Web is Groupon?exhibiting all the characteristics of a classic Ponzi scheme.
In a Knewton post prior to Groupon trading as public company, the author stated his with the following:
Groupon (NASDAQ:GRPN) has found that you can get local merchants to try anything once if it brings them new customers. A few local merchants in Chicago get them started, and Groupon shows good revenues. In fact, Groupon immediately remits half of those ��revenues�� back to the local merchant �� they were never Groupon revenues in any meaningful sense of the word. But, optically, Groupon revenues look high �� which they use to raise a financing round at a high valuation. Then they use the proceeds to hire vast armies of salespeople to dig deeper into Chicago��s local merchant community and repeat the trick in other cities.
Unfortunately for merchants, the new customers don’t stick around since the advertised discount is usually a one-time deal. As a result, the merchants usually discontinue using Groupon. Groupon responds by adding new merchants, raising another round of money, and expanding its sales force. This is called a “churn and burn” business model.
Groupon (NASDAQ:GRPN) will work only?if local merchants get something back for the cost of extreme discounts. If they don’t, it’s really a Ponzi scheme.
What does Groupon say?
The company believes it helps local merchants grow and expand their customer base. This is the payment for gaining customers through Groupon (NASDAQ:GRPN), and it is allegedly the sales pitch used to close the deal.
Many people looking for a discount use Groupons for many merchants rather than becoming a new loyal customer for any given business. Groupon gets the money from the merchant; however, some merchants might not get back anything in return after th! e dust s ettles from a deal.
What do you think? Does Groupon sound like a Ponzi scheme to you?
Volatility has speeded up the roadshow
This week, I had a chance to meet up with Frank Slootman. ?In 2007, he took Data Domain public and then sold the company for $2.4 billion in 2009 to EMC (NYSE:EMC).? He then went on to be a venture partner at Greylock, which has backed companies like Pandora (NYSE:P), Groupon (Nasdaq:GRPN) and LinkedIn (NYSE:LNKD).
He��s also the CEO of ServiceNow, a fast-growing cloud company, which I suspect will go public at some point.
Slootman sees the current market volatility as a big problem for IPOs.
To deal with this, companies are trying to find ways to compress the whole ��roadshow�� process, Slootman says.? Traditionally, the process takes anywhere from two to three weeks.? But in today��s markets, that can be an eternity.
As a result, Slootman thinks roadshows will now scale down to a week or so.? This may involve visiting only a few cities like San Francisco, New York and Los Angeles.? And for the most part, a company will skip Europe or Asia.? In fact, this was the case with Imperva (Nasdaq:IMPV), which priced its IPOon Tuesday and saw a 33% gain even with the Dow off nearly 400 points (Slootman is on the board of the company).
Interestingly enough, more companies are doing pre-deal roadshows, which means visiting mutual funds and other institutions even before the filing with the Securities and Exchange Commission.
For the next year, Slootman, who says he��s no expert at forecasting markets, says his hunch is that we��ll continue to see ��short bursts�� of activity.
Make Money in Growing Dividend Stocks the Easy Way
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect strong dividend-paying stocks to rise in value over time while kicking out income to investors, the brand-new Schwab U.S. Dividend Equity ETF (NYSE: SCHD ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Schwab ETF's expense ratio -- its annual fee -- is a very low 0.17%. It's also a good reason to consider this ETF versus other dividend-focused ETFs, despite its young age and small current size.
This ETF has little performance to speak of so far, but a look at its components reveals plenty of stocks that have fared reasonably well in recent years, considering our difficult economic conditions. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Several of this ETF's components have done well over the past year and may contribute to the ETF's performance in the coming year. Caterpillar (NYSE: CAT ) , for example, gained about 19% over the past year, posting big jumps in demand for its offerings and enjoying an all-time high in its order backlog. It has also been enjoying strong growth from emerging markets, as have competitors such as Manitowoc (NYSE: MTW ) .
Intel (Nasdaq: INTC ) is up 21%, and for such a big blue-chip company, its current low price and sizable dividend payout are reason alone to give it strong consideration. It's also enjoying fat profit margins and contin! uing to thwart rival Advanced Micro Devices (Nasdaq: AMD ) .
Other companies didn't do as well in the past year but could add to the ETF's returns in the years to come. Boeing (NYSE: BA ) , for example, shed about 1%, despite big relief that it finally released its new 787 Dreamliner. But it's not likely to reap big profits from it in the near term. United Technologies (NYSE: UTX ) was up just 5% over the past year, but some don't love its plan to gobble up Goodrich.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.
3 Dividend Stocks to Buy in November
My dream investment is a high-yield stock with a fast-growing dividend. But such combinations are rare. This is because most companies that pay a fat dividend have matured out of their high-growth phase and compensate investors for slower growth by distributing more of their cash as dividends. If you look hard, however, you can still find a few rare gems that offer generous yields and rising dividends.
Consider, for example, if you had purchased the S&P 500 ETF (NYSE: SPY) at year-end 1998 and sold at year-end 2010. Your purchase price would have been $123.31, and your selling would have been $125.75 -- a gain of just 2%. Add dividends to the equation, however, and the picture becomes much rosier. During the holding period, you would have collected a hefty $20.53 per share in dividends, which increases your return to 18.6%.
Here are three high-yielders that have recently hiked their dividends in a big way. If any of these entice you, I should note that you should consider buying soon in order to take advantage of their higher dividend payouts in December.
Let's take a look...
1. Lockheed Martin (NYSE: LMT)
Yield: 5%
Dividend hike: 33%
Lockheed is the world's largest pure-play defense contractor, deriving 60% of its revenue from Department of Defense contracts. The company supplies combat aircraft to the U.S. Air Force and is the prime contractor for F-16 and F-22 fighter jets.
Lockheed raised its dividend 33% in September to a $4.00 annualized rate, good for a 5.4% yield at recent prices. The new dividend is payable Dec. 30 to holders of record as of Dec.1. This was the ninth-consecutive annual dividend increase of at least 10%. And if a 33% dividend increase isn't enough to impress you, Lockheed also authorized an additional $2.5 billion in share repurchases to enhance future earnings growth. According to the CEO! , Lockhe ed is committed to returning at least 50% of its free cash flow to investors.
Lockheed's earnings from continuing operations jumped 10% year-over-year in the first nine months of 2011, to $2 billion from $1.8 billion a year earlier. Earnings per share (EPS) improved 18% to $5.72 from $4.84 a year earlier. Lockheed's nine-month cash flow of $3 billion easily covered $770 million in dividend payments, and the company has cash on the balance sheet totaling $4.6 billion or more than $14 per share.
Analysts expect Lockheed to grow earnings 10% a year for the next five years. An aging Air Force fleet (the average age of its aircraft is 24+ years) is creating big sales opportunities, and should help make Lockheed's goals attainable. The Air Force plans to replace aging aircraft with Lockheed's fifth-generation fighter jet, the F-35 Lightning II Joint Strike Fighter. International allies such as Israel, Canada and Turkey are also lining up with orders. Altogether, 3,100 F-35s are expected to be sold through 2035.
2. Marathon Petroleum Corp. (NYSE: MPC)
Yield: 3%
Dividend hike: 25%
Marathon is America's fifth-largest fuel refiner. This refiner/marketer owns assets in the Midwest, Gulf Coast and Southeast, and sells gasoline through its own Marathon-branded retail outlets and through its wholly-owned subsidiary, Speedway, which is the nation's fourth-largest gas station/convenience store chain. The company was spun off from its parent company, Marathon Oil (NYSE: MRO), in July.
Marathon enjoys better-than-average refining margins because of its ability to process heavy crude, which comprises 50% of its feedstock. The company's competitive advantage increases next year when Marathon will complete an upgrade to its Detroit refinery, which will add 80,000 barrels a day to heavy-oil processing capacity. Marathon's third-quarter earnings of $1.13 billion, or $3.16 per share, were more than q! uadruple last year's third-quarter results of $277 million, or $0.77 per diluted share.
Marathon has nearly $3 billion of cash, an unused $2 billion revolving credit facility and debt of $3.3 billion, representing just 36% of equity. Marathon hiked its dividend 25% in October, to a $1.00 annual rate, giving the stock a yield near 3%. The increased dividend will be payable on Dec. 12 to shareholders of record as of Nov. 16.
3. Macerich Co. (NYSE: MAC)
Yield: 4%
Dividend hike: 10%
This retail REIT (real estate investment trust) owns 71 regional shopping centers across the United States, and is benefiting from the favorable demographics of its property portfolio. The markets where Macerich malls are located boast average household incomes of $77,000 a year and populations that are expected to rise 6% by 2015.
Macerich recently recorded its seventh consecutive quarter of same-center income growth. In this year's September quarter, annual sales per square feet of leased space improved 10% to $467 compared with $426 last year. Funds from operations (FFO) per share, a REIT cash flow metric, grew 14% year-over-year to $0.75 from $0.66. FFO totaling $244.6 million for the first nine months of 2011 readily covered $217.6 million in dividend payments.Analysts look for Macerich to deliver 8% yearly earnings growth in the next five years.
Thanks to these healthy numbers, Macerich hiked its annual dividend 10% in October to a $2.20 rate, which increased the yield to 4.4%. The new $0.55 quarterly dividend is payable Dec. 8 to stockholders of record on Nov. 11.
Disney Rises After Q4 Earnings Beat
Walt Disney (DIS) rose about 2% after beating analysts’ earnings and revenue expectations in its fourth quarter report.
The media and entertainment company posted 58 cents of EPS, 4 cents better than analysts had been expecting. Revenue came in at $10.43 billion, against expectations for $10.36 billion.
Media Networks revenue jumped 9% and Parks and Resorts rose 11%, while Studio Entertainment revenue fell 8% in the quarter. Cable networks posted 12% higher revenue and 17% higher operating income, as ESPN posted higher advertising and affiliate revenue.
The company also addressed the potential cancellation of the upcoming NBA season: in some ways, Disney might be able to benefit from games being cancelled.
“We expect a good portion of NBA ad dollars will be re-expressed to other ESPN properties,” management said on the earnings call.
A stronger home market may be coming, but these shares have gotten ahead of any rebound
Looking for a?good read on the state of the long beaten-down homebuilding sector? Pay attention to DR Horton’s (NYSE:DHI) earnings report for the quarter ending Sept. 30, due out on Friday. With the economy on the precipice of a recession, but still growing for now, DR Horton’s numbers will be less important than its future guidance.
Investors in homebuilding stocks have been acting bullish on stocks in the group without confirmation of a true turnaround based on the numbers. It’s all hope that at some point homebuilding will be profitable, and consistently so.
After many false starts, I think the odds of a true rebound in the industry are more likely than not. Strong earnings reports from homebuilders will confirm that something good may be on the horizon. Does that mean you should buy their stocks today?
Actually, I believe the opposite. Valuing homebuilding stocks is simply a matter of looking at book value. Here’s why: Homebuilders aren’t like, say, tech stocks. Investors shouldn’t expect homebuilders to post huge amounts of growth. Therefore, paying a multiple of earnings as you do with growth stocks doesn’t apply. The discipline in homebuilding requires you to buy at book value or less.?To the extent shares trade for less than book value, homebuilders should be bought aggressively. Historically, this has been a profitable strategy.
But after a huge rally in October, many homebuilding stocks are trading well above book value. So, now may be a good time to take some money off the table in advance of earnings reports.
While I am optimistic on homebuilding in the long run, stocks are a bit too far out in front for my taste. Home sales in September grew at a weak pace, and sentiment among homebuilding companies fell in during that month.
Specifically, homebuilding is weighed down by foreclosures that continue to mount. Another troubling sign is the third-quarter increa! se in mo rtgage late payments. Throw in the volatility caused by Europe’s debt crisis, and there are plenty of reasons to be nervous in the short run.
None of this should be a surprise to anyone who has followed the boom and bust in homebuilding. The industry experienced a once-in-a-lifetime event. To recover will simply take time. Investors, however, are impatient and ever optimistic. The recent run-up in homebuilding stocks is another in a long line of hopeful rallies.
This one has gone about as far as it can. I would be a seller of homebuilder stocks today. Here are three to consider jettisoning from your portfolio:
DR Horton
If you owned DR Horton over the last three months, you’ve done quite well. Despite the stock being down 5% during Wednesday’s market rout, shares are up a rock-solid 20% over the past three months. Those gains have the stock trading for nearly 1.5 times book value, a hefty premium considering the industry’s headwinds.
From an earnings perspective DR Horton is doing well. The company has exceeded Wall Street estimates in each of the last two quarters and three of the last four. For the full year ending Sept. 30, analysts expect a profit of 26 cents per share. That profit is forecast to grow by 88% in the following year, to 49 cents per share. At current prices, DR Horton trades for a whopping 44 times current-year estimated earnings.
The profits are nice, but they’re small. Book value then is likely to grow only slightly. And because there’s still risk of further declines in homebuilding, those profits aren’t assured. A more reasonable valuation of DR Horton would be 1.2 times book value.
I would look to sell this stock today and buy at a cheaper level.
KB Home
Another homebuilding stock trending positive over the last month is KB Home (NYSE:KBH), but the gains haven’t been easy to come by. The stock has been incredibly volatile during that time. On Thursday it dropped more than 8%. Even so, KB Home shares are up nearly 30% since late September.
The reason for those gains is directly related to its most recent earnings report released on Sept. 23. KB Home posted a loss that was smaller than Wall Street expectations. The results are certainly encouraging, but KB Home is still on the wrong side of the profit track.
Wall Street is looking for it to lose $2.48 per share in the current fiscal year ending Nov. 30. The estimate is for the loss to shrink to 20 cents per share in the following year. Book value is getting smaller. With recent gains in the stock, shares trade for 1.35 times book value.
Earnings performance against estimates has been mixed over the last four quarters. Before the strong last quarter, the company missed Wall Street expectations badly. There’s an equal chance KB Home will miss estimates again.
I would not want to pay more than 1 times book value for this stock. Look for shares to retreat to those levels as investors lock in profits.
Toll Brothers
Supposedly, luxury markets are performing better than the rest of the economy. While the majority of us struggle, the rich and ultra-rich keep spending. And the clear leader in mass luxury homebuilding is Toll Brothers (NYSE:TOL).
But cracks in the luxury world may be showing. A number of stocks in this category have lately slipped, including Harley Davidson (NYSE:HOG) and Ralph Lauren (NYSE:RL), to name a couple.
Over the last year, Toll Brothers shares have actually drifted lower. But since the end of September, when the stock bottomed at ju! st above $13, it has gained more than 40%. That’s a rip-roaring return that envisions a robust housing rebound, which recent statistics suggest may still be elusive.
The stock is ahead of itself. Shares trade for 1.2 times book value — not horribly expensive, but not cheap either. Wall Street expects Toll Brothers to make 20 cents per share in the fiscal year ending Oct. 31. For the following year, profits are seen? improving to 31 cents per share.
After a significant beat in the last quarter ending July 31, look for Toll Brothers to come back to earth when it reports results for the quarter ending Oct. 31. Based on the big gains over the last month, I would sell Toll in advance of results and look to buy shares at a cheaper price later.
These Stocks Are Shifting Into Overdrive
It's tough to be bullish on the automotive industry sometimes. The bankruptcy of General Motors (NYSE: GM ) in 2009 was a memorable example of the harsh reality of a struggling company hit with a difficult macroeconomic environment. Then there was Ford (NYSE: F ) , which experienced brutal operating losses for years. While America's recovery in the automotive industry has a long way to go, data suggest that it's coming back.
Things are looking up
Despite all the doom and gloom that is implied through weak consumer confidence numbers, Ford's sales numbers speak for themselves. After great efforts to reinvent itself after the financial crisis of 2008, the company boasts not only profitability, but robust cash flow and growth in market share. Ford is reducing debt with every consecutive quarter on top of that. Because of Ford's efforts, it was recently awarded new BB+ credit ratings by Standard & Poor's and Fitch -- just one notch short of investment-grade status. While this is far from perfect, it proves that the carmaker is at least moving in the right direction in terms of its obligations.
Ford's latest quarterly report also indicates continuing improvement in the automotive market despite all the negative data we've been seeing relating to consumer confidence and sky-high unemployment. Revenue has been surprisingly strong in the third quarter of 2011, growing at a comfortable 14% relative to Q3 2010. Sales volume supports the revenue data -- the growth was about 7% in the last year.
Reward never comes without risk
Like anything, an investment in Ford comes with risks. While earnings growth is apparent, Ford is actually struggling to stay profitable in Asia. Ford lost $43 million last quarter before taxes. An even bigger problem is Europe, which lost Ford a whopping $306 million (which was 56% more than last y! ear's lo sses). Since the eurozone is considering massive austerity measures in response to the debt situation, it's possible that Ford will be seeing bigger losses across the pond in coming quarters. Nonetheless, for now, strong demand in the United States is the main driver in propping up the company's prospects. Since most of its profitability is coming from this one market, Ford's fate is strongly tied to the fate of the USA.
GM: a similar story with one big difference
Unlike Ford, General Motors has a particularly strong position in China and will see solid revenues from the country for years to come. Just days ago GM reported that it had broken a new Chinese sales record in October 2011 of 220,412 units, a huge 10.4% annual increase. GM also has a very clean balance sheet, which makes it very possible that we'll see a share buyback or dividend relatively soon.
Then again, dividends aren't everything
While investors have been clamoring for a dividend from Ford, it's important to remember that the company has only recently swung to profitability after years of losses. Debt obligations remain a problem, too. By taking the road of caution, CEO Alan Mulally is demonstrating a real sense of long-term responsibility to the company and its shareholders. He's basically willing to lose some popularity points today for a better tomorrow. Having said that, Mulally hints that a dividend is possible in the near future.
It's still a scary world
Despite great leaps in progress, GM and Ford are toughing it out in one of the most competitive markets in the world with huge obstacles still impeding progress. Manufacturing costs and raw materials continue to become increasingly expensive. This eats away at profit margins. Research and development for environmentally friendly cars is also becoming more expensive because of market competition and tougher government regulations. Perhaps worst of all, unemployment is still abnormally high, which is keepin! g demand for big-ticket purchases, such as a new car, rather weak.
On the bright side, it seems that the uncertain macroeconomic situation has been fully priced into the shares. For instance, at the time I'm writing this, Ford trades at a rock-bottom P/E multiple of 6.6, while GM trades at an even cheaper P/E multiple of 4.7. Sure, America's economy may have a "frustratingly slow" recovery, as Federal Reserve Chairman Ben Bernanke himself said, but when optimism returns, these shares will shoot up rather quickly. You may not want to pass up on these terrific companies or their shares now; they might make you a killing in the long run.
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AT&T: The Stock Performs Well, Is Safe And Undervalued
Investors do not often expect to find safety in technology and telecommunications, where trends come and go and start-ups are always emerging. Frontier Communications (FTR) and AT&T (T) are two exceptions to the rule with their low betas and stunning commitments to returning free cash flow to shareholders. Both firms, in my view, thus represent attractive investments given concerns over a double dip.
From a multiples perspective, AT&T is the more undervalued of the two. It trades at a respective 14.8x and 11.7x past and forward earnings; Frontier Communications trades at a respective 35.4x and 19.5x past and forward earnings. Moreover, the former has a consensus rating more toward a "buy" while the latter's rating is more toward a "hold." At the same time, Frontier Communications offers a staggering dividend yield of 13.3% versus AT&T's still staggering 5.9%. The question naturally follows how sustainable these distributions are ...
One way of gauging the sustainability of dividend yields comes through calculating the interest coverage and payout ratios. As of late October, Frontier Communications had an interest coverage of 1.6 and a FCF payout ratio of 64.7% - more than sustainable. Management has additionally reinforced its commitment to returning cash to shareholders, despite lowering its FCF estimate to around $1.1B for 2011 due partially to storms. Net debt, however, stands at $8B, a good margin above market capitalization. With that said, the acquisition of Verizon's (VZ) rural wireline assets is being optimized in a process that will inevitably clean up the balance sheet in the years ahead.
AT&T is also in a good position to keep paying its dividend yield given an interest coverage of 6.1 and an EPS payout ratio of 21.7% (see here for a more thorough analysis).
At the third quarter earnings call, AT&T's CFO, John Stephens, noted:
"We are very pleased with what we've ! accompli shed in the third quarter and year-to-date, and we continue to see impressive strength in all our growth engines. Mobile broadband leads the way. Ralph will give you more details in a moment but we had a great quarter. Sales were strong across the board, with gains in every subscriber category. Smart phone sales were robust, even in a quarter where you might expect sales to slow. Branded computing devices were also strong, and we turned in impressive service margin results with our best performance in six quarters. There also is good news for our wireline business, where for the first time in three years, we posted sequential growth in total and business revenues. IP data continues to be the driver for business and in wireline consumer, where we continue to see positive results. The thing I'm most encouraged by is that in addition to solid earnings, we delivered excellent free cash flow. In fact, we had our strongest free cash flow in two years. That comes even with making significant CapEx investments. So you're seeing solid execution in every area of the business, which puts us in a great position heading into the fourth quarter."
During the third quarter alone, the number of U-verse broadband subs increased by half a million, which reassured me about the company's demand. The telecommunications firm also experienced sequential growth in wireline consumers, despite the higher operating expenses arising from storms and other unexpected costs. At the same time, strong projected iPhone sales - around 5.5M units sold for Apple (AAPL) through AT&T in the fourth quarter - will dilute margins due to high expenses in later quarters.
Going forward, I model revenue growing by a CAGR of roughly 1.7% over the next three years with a negative CAGR in wireline and a CAGR upwards of 6.5% in wireless. Capital expenditures are likely to increase by a rate in the low single-digits, but still remain a global leader in this metric. This level of innovation should help drive free cash fl! ow to se cure the dividend yield even more.
Additionally, I am also optimistic about AT&T winning the Department of Justice's approval to merge with T-Mobile sometime in 2012. The trial, which is a quarter of a year away, should influence confidence in this matter and thus presents an attractive inflection point for investors. Should the deal win approval, it will produce significant revenue and cost synergies largely due to unlocking international growth catalysts.
In terms of competition, I believe that AT&T faces substantial risk from Verizon (VZ), which was the quickest developer of 4G LTE technology and is very much undervalued, as I underline here. Sprint (S), on the other hand, is in a precarious position. Meanwhile, Clearwire (CLWR) is being left stranded by its partner and is currently experiencing a "do or die" moment as it bleeds negative EPS. Overall, I believe that AT&T has a solid path forward, especially with the T-Mobile merger.
Consensus estimates for AT&T's EPS are that it will increase by 1.3% to $2.33 in 2011 and then by 6.9% and 5.2% in the following two years. Assuming a multiple of 15x - slightly higher than currently - and a bear case 2012 EPS estimate of $2.40 yields a rough intrinsic value estimate of $36, implying a 23.5% margin of safety. Considering its impressive dividend yield, beta of 0.62, and high discount to intrinsic value, I believe that AT&T presents favorable reward with little risk.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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