Ex-WaMu execs in $64 million settlement

NEW YORK (CNNMoney) -- The Federal Deposit Insurance Corp. is preparing to settle with three former executives who ran Washington Mutual, the biggest bank failure in U.S. history, for the return of $64 million worth of golden parachutes, bonuses and retirement funds.

Senior FDIC officials, during a teleconference with reporters Tuesday, said the settlement with WaMu ex-CEO Kerry Killinger, ex-president Stephen Rotella and David Schneider is pending, and is expected to be completed within days.

"We have reached an arm's length agreement with the three officers of WaMu," said an FDIC official, adding that the settlement will "ensure the surrender of the golden parachute." The official was quoted on condition of anonymity.

As part of the deal, Killinger will have to give up his retirement package, Rotella and Schneider will have to let go of their golden parachutes, and Schneider will also have to hand over his bonus.

The FDIC officials said the settlement with the executives is in addition to $125 million settlement reached with Washington Mutual.

The recovered funds will go into receivership and will be used to pay back WaMu creditors, according to the FDIC.

The FDIC was originally seeking a $900 million settlement when it sued the three WaMu executives for managing the bank negligently and hiding assets from their creditors. They are accused of destroying the massive bank through an expansion of risky loans.

The officials would not comment on the disparity between the pending settlement and the amount they were originally seeking.

Lame responses from CEOs

"At this point in time we believe that the settlement maximizes the recovery for the receiver," said a FDIC official.

Claims will be dropped against the executives' wives, according to FDIC, and there are no allegations of fraud.

WaMu is now part of JPMorgan Chase (JPM, Fortune 500), which acquired the firm on Sept. 25, 2008, following its collapse.

JPMorgan spokesman Tom Kelly said there was "nothing for us to say" because the executives are "long gone" from WaMu.

The collapse of WaMu was due largely to a high-risk lending strategy pursued by the company's management, according to a government report released last year.

Regulators said that strategy, combined with the housing and mortgage market collapse in 2007, resulted in huge losses for WaMu, drove its stock price down and prompted a rush of withdrawals by jittery depositors. As a result, the OTS closed WaMu and the FDIC arranged for JPMorgan Chase to buy it in a closed bank transaction.

Steven Caplow, a lawyer for Schneider and Rotella, did not return messages from CNNMoney.

Barry Kaplan, attorney for Killinger, declined to comment. 

Ares Capital Bolsters Its Balance Sheet

We do spend an inordinate amount of time here at the BDC Reporter analyzing the earnings of Business Development Companies, new business activity in the leveraged finance market, and other activities which impact the asset side of the balance sheet.

However, it’s worth looking at what companies are doing on the liability side. Thanks to a reviving capital markets for all kinds of debt, many BDCs are using the opportunity to reduce their cost of capital. Just as importantly, BDC managers are attempting to steer away from the plain vanilla one or two year Revolving lines of credit, which were the mainstay of most BDCs borrowings.

These Revolvers, while inexpensive, cause unmitigated trouble for many BDCs during the Great Recession when many lenders fled the market. Even lenders who remained were non supportive as the very existence of the financial system was in doubt. This caused BDCs to have to scramble for alternative capital to repay Revolvers coming due at a time when capital was very hard to come by, and/or to sell assets in a hurry to pay down debt. At the very least, even well heeled BDCs were forced to freeze any new lending as borrowing capacity shrunk.

The watchword in the halls of the BDCs is “never again”, and most of the major players have been taking steps to establish capital structures-especially where debt is concerned, which will be capable of absorbing the impact of any future recession without the attendant panic and freeze on new lending that occurred last time around. At the forefront of this trend is Ares Capital (ARCC). We thought we’d use the occasion of Thursday's under the radar announcement that the company is redeeming its $300mn 2011 Unsecured Notes, as an opportunity to look at some of the actions taken by Ares in recent weeks to bolster its balance sheet.

Pay-Off the Unsecured Notes

First, let’s discuss the Notes pay-off. The Notes were assumed by Ares as part of the acquisition of Allied Capital a year ago. There are 3 different sets of Notes, each with different maturities and different pricing. In aggregate they accounted for $690mn at September 30, 2010 and accounted for nearly half all debt outstanding. Two sets of the Notes are maturing in 2011 and 2012, with the third set in 2047.

Ares has been getting its house in order to repay this debt, reduce its cost of capital and push out its maturities. The $300mn in Notes being redeemed bear interest at 6.625%, and will be retired by mid-March. The next maturity is April 2012 for $161mn, and a 6% coupon. Chances are Ares will be paying this debt off as well. In fact, Ares had already bought back $19mn of the 2011 Notes in the 9 months year-to-date through September 2010 according to its 10-Q filings, and $34mn of the 2012 Notes. Starting in 2012, Ares has the ability to prepay the 2047 Notes, which bear interest quarterly at 6.875%.

Convertible Debt

In January of this year, Ares placed $575mn (including underwriter over-allotments) of Convertible Notes at a yield of 5.75%, and a conversion price of $19.1. ARCC is trading at $17.6 today and has flirted with $18.0. By the way, Ares does not have the right to redeem the Convertible Notes, so we can imagine that the new debt will eventually be converted to equity.

The 2011 analyst consensus for Ares is $1.51 a share, so the $19.1 conversion price suggests a 12.6 multiple, which is not unlike the valuation of many other BDCs in a favorable lending environment like the one we are in. At the current dividend level, the company will be paying just 7.3% for this new capital, only a slight premium over the cost of the debt.

Revised Revolver

We didn’t write about it at the time, but Ares has also negotiated (back in mid January 2011) a very flexible funding arrangement with Wells Fargo (WFC) on one of its two Revolvers. The company restructured its $400mn Revolver for its wholly owned subsidiary, Ares Capital Funding, LLC. The revised structure should allow Ares greater flexibility in the future if there is a recession underway or on the horizon, and market conditions become difficult.

Instead of the normal “pay me back everything you owe me on the Revolver maturity date”, the facility contains a two year amortization period. Here’s how it works: For the next 3 years Ares can use the Revolver, drawing down the borrowings and paying them back at will (subject to meeting borrowing base and covenant requirements, of course). As of January 2014 the Revolver expires.

In most cases the line will have been renewed well in advance, but if the market has turned sour and Wells wants out, the Revolver “reinvestment” period expires. However, now Ares has two more years to pay off any outstandings under the facility. Investments which get repaid by Ares’ borrowers pay down the facility, but there is no need for the company to come up with a bullet repayment in 2014.

The goal, which is largely met with this structure, is to match the company’s assets (loans with an average life of 3-4 years) with the borrowing liabilities. There’s even a provision for two annual renewals of the repayment period, but it’s by mutual agreement, which has less value in our eyes. This type of structure is not new, but the 2 year amortization period is longer than most borrowers have been able to negotiate, and the initial three years of initial use is noteworthy.

Pricing remains the same both during the first three years and during the amortization period. The current margin rate is 2.75% over LIBOR, but pricing depends on Ares’ debt ratings and amount of leverage on the books. At worst, the company pays LIBOR + 3.75%, at best LIBOR + 2.25%.

Compared to the heady days of 2006-2007 when some BDCs were able to borrow as low as 1% over LIBOR (including Ares itself ), this is somewhat elevated cost of medium term debt, but given the more flexible structure and longer “reinvestment” period, it’s a bargain. Nonetheless, we wouldn’t be surprised to see Ares or some of the better capitalized BDCs get even lower pricing, as well as borrowing structures that do not cause them to have to pay off outstandings in a hurry when the environment changes. As it will.

Conclusion

The last few months have allowed Ares to recast its balance sheet in a way that will have an impact for years to come. Only time will tell if the mix of Revolving debt, Unsecured Notes, Convertible Debt and fresh equity which Ares is using to finance its investment business will allow the company to steam through the next recession. The immediate benefit though, will be a lower cost of capital and the ability to take advantage of whatever market opportunities might arise.

Already, Ares has been able to stepup to the plate in January and fund a major increase in funding to its JV with GE Capital in the Senior Secured Loan Program, which has swelled from $3.6bn to $5.1bn. Ares was able to raise its contribution from $525mn to $975mn. Along similar lines, Ares was able to underwrite a $245mn second lien Term Loan, and keep $145mn on its books.

Disclosure: Author is long ARCC.

Las Vegas Sands: Without Continued Pick Up In Economy, Stock Has No Further To Go

Las Vegas Sands (LVS) has had a nice post economic crisis recovery off its lows of less than $2 a share, a 30 bagger in just 3 years. That's something to keep in mind for the next market drought as levered casinos will see a significant fall and if they're able to stay afloat, a significant rally after the sell-off. A lot of risk but the reward potential is enormous. However, now, the stock seems to be in the right range as all of the metrics suggest that the stock is about at the ballpark of its fair valuation. However, a pickup in the economy (Chinese and/or American) that's better than expected will lead to valuation adjustments for economic sensitive stocks like casinos and will give it more upside than current valuation metrics suggest.

Recent results suggest that things are going very well for the company. In its Q4 release, the company said that "we are pleased to report record financial results for the fourth quarter and full year of 2011. Strong growth and record EBITDA margin at our Macao property portfolio, together with continued growth at Marina Bay Sands in Singapore and a solid performance from our domestic properties contributed to record revenue, operating income and EBITDA for the quarter." Below is an in depth look at the valuation metrics and stock chart.

Valuation: Las Vegas Sands' trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Las Vegas Sands' current P/B ratio is 5.4 and it has averaged 5.7 over the past 5 years with a high of 21.5 and low of 0.5. Las Vegas Sands' current P/S ratio is 4.5 and it has averaged 4.8 over the past 5 years with a high of 18.7 and low of 0.4.

Price Target: The consensus price target for the analysts who follow Las Vegas Sands is $63. That is upside of 9% from today's stock price of $57.91 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Las Vegas Sands is currently trading at about $58 a share with analysts expecting EPS of $3.13 next year, an earnings increase of 21% y/y, for a forward P/E ratio of 18.5. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Penn National Gaming (PENN) is currently trading at about $46 a share with analysts expecting EPS of $2.81 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 16.2. Wynn Resorts (WYNN) is currently trading at about $129 a share with analysts expecting EPS of $6.93 next year, an earnings increase of 16% y/y, for a forward P/E ratio of 18.6. Melco Crown Entertainment (MPEL) is currently trading at about $16 a share with analysts expecting EPS of $0.83 next year, an earnings increase of 26% y/y, for a forward P/E ratio of 18.8. The mean forward P/E of Las Vegas Sands' competitors is 17.9 which suggests that Las Vegas Sands is fairly valued relative to its publicly traded competitors.

Earnings Estimates: Las Vegas Sands has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -7 cents and 10 cents from consensus estimates or about -15.9% to 22.7% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.

Price Action: Las Vegas Sands is up 26% over the past year, outperforming the S&P 500, which is up 5.8%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $56.19 and above its 200 day moving average, which sits at $47.66.

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

Apple: Verizon Remarks Suggest iPhone Upside, Says UBS

In case you missed it, Verizon Communications’s (VZ) chief financial officer Fran Shammo yesterday afternoon remarked during an appearance at a Citigroup telecommunications conference that the company had sold more than 4.2 million of Apple’s (AAPL) iPhone last quarter.

The remarks follow similar comments by AT&T (T) in early Decmeber about strong iPhone sales.

A couple of Street fellows weighed in last night on the announcement.

UBS Securities’s Maynard Um reiterates a Buy rating on shares of Apple, and a $510 price target. He’s still expecting Apple sold 30 million iPhone units in total last quarter but that may be too low relative to historical patterns and the continued expansion of the iPhone worldwide:

Assuming 8mn iPhones from AT&T, 1.2mn from Sprint, & 4.2mn from Verizon, the US alone would make up ~45% of our 30mn unit est for CY4Q. US mix has not been this high since the June qtr of �09 & seems unlikely given the cont�d rapid expansion of int�l countries & carriers since that qtr. US mix in FY11 ranged between 25-29%. If US mix was similar to the high from FY10 of 38% for CY4Q, it would imply demand for ~35.3mn iPhones. Each incremental 1mn iPhones is ~$0.21 in EPS.

R.W. Baird’s William Power, meantime, took the opportunity to reiterate an Outperform rating on Verizon and a $42 price target, noting that the 4.2 million units was well above the 2 million iPhone units that Verizon sold in Q3.

He also notes that the 2 million 4G smartphones Verizon sold in the quarter was well above the 1.4 million it sold in Q3.

Power, however, lowered his Q4 EPS forecast to 54 cents from 57 cents, as the higher number of smartphones will cut into the company’s wireless margin by five to six percentage points, he figures. The consensus is 57 cents.

Overwhelmed By Student Loan Debt? Consider A Consolidate Student ..

A consolidate student loan is the perfect solution for people who need help managing their debt. If you have several different loan payments but want to make only one payment per month, you should apply for a Federal Consolidation Loan. With loan consolidation, your lender will combine your present loans into one single loan. If you do decide to get a consolidate student loan, you will pay interest on a fixed rate. The rate is determined by the average of your loans, and is averaged up to the nearest .125 percent. If you make direct loan electronic payments, you may get a lower interest rate. As student loan debt is usually not the largest debt a person has, it may make sense to include it in a consolidate student loan.

Tips on repaying your Consolidate Student Loan

Most people use student loan consolidation as a way to manage debts. Most often, a consolidate student loan will save money. Be aware that although a consolidate loan reduces monthly payments, it will likely raise the interest amount. Because of this, it is a good idea to try to pay off as much of your consolidate student loan as soon as possible. Do this by trying to increase your monthly payments. Be aware that there are certain deferment programs available. For example, unemployment or economic hardship may cause the consolidate student loan to be reduced.

Zynga: New Platform Positive Change to Biz Model, Says Piper

Shares of online games purveyor Zynga (ZNGA) are up 28 cents, almost 2%, at $14.75 after the company yesterday unveiled what it calls “Zynga Platform,” a way for other companies to develop games featured on Zynga.com, in a move to broaden away from being tied to Facebook for its success.

In a note to clients today, Piper Jaffray’s Michael Olson writes that the new offering may add to Zynga’s earnings following the June quarter of this year.

Olson, who has an Overweight rating on Zynga shares and a $16.50 price target, writes that the move could “alter the Zynga growth story,” he writes. For one thing, while Zynga.com “will rely on Facebook Connect,” nevertheless, “Zynga.com resides outside of the Facebook platform and, therefore, represents a new chapter in the two companies� partnership.”

More important, it makes Zynga a kind of “cloud computing” infrastructure for gaming, argues Olson:

Zynga.com represents a reclassification of Zynga�s business modelbusiness model by adding other small-to-mid sized developers as customers. We believe the Zynga.com service is analogous to Amazon Web Services and Fulfillment by Amazon as it opens Zynga�s existing technology infrastructure to third parties. This new model is also consistent with Zynga�s core competency of analytics and cross promotion.

Fin

LinkedIn — Get Ready for a Stock Flood

LinkedIn (NYSE:LNKD), which operates a social network for professionals, certainly is one of the year�s top IPOs. In mid-May, the company came public and saw its shares surge as high as 109% during the day. But since then, LinkedIn’s stock performance has been extremely volatile. LNKD is down about 3% since its IPO, and just last week, the shares fell 9.7%.

This drop came despite LinkedIn’s expectation-beating third-quarter report. Revenues surged 126% to $139 million, and the number of registered users increased by 63% to 131 million. The company adds about two members every second.

LinkedIn has been aggressive in expanding into foreign markets. And the company also has experienced lots of growth from the mobile platform. Page views are up 400% over the past year and account for 13% of overall member visits.

So with all the good news, why are investors skeptical? It really has little to do with the fundamentals of the business, which, all in all, should continue to be strong. In fact, LinkedIn raised its full-year revenue guidance to $508 million to $512 million, up from the prior forecast of $475 million to $485 million. Investors instead are concerned about the large amount of stock that will come onto the market.

LinkedIn plans to issue $500 million in shares in a secondary offering. While the timing is uncertain, it definitely will weigh on the stock price. Also, LinkedIn�s lock-up agreements will expire Nov. 21. This means the company�s employees and investors will have the right to sell their shares. In light of the fairly high market cap — at $8 billion — there is likely to be lots of selling. Why not snag some big gains?

Keep in mind that only about 9.5% of the outstanding shares are trading on the market now. But with the lock-up expiration and secondary offering, the number of shares could easily double in the next few months, putting enormous pressure on the stock price. Short sellers are alert to this, as their positions already represent 31% of the float.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of �All About Short Selling� and �All About Commodities.� Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.

German Vote, Falling Jobless Claims Send Futures Higher

Stock futures jumped after Germany voted to add money to the European bailout fund, sending European markets higher. Jobless claims also dipped to 391,000, and second quarter GDP was revised up to 1.3% from 1%.

Dow futures rose 124 points to 11,100. S&P 500 futures 12.7 points to 1,161.4.

Advanced Micro Devices (AMD) fell 5% after lowering its third-quarter sales forecast. Rite Aid (RAD) rose 4% after releasing strong sales numbers. Financial stocks were higher, with Citigroup (C) and Bank of America (BAC) each gaining 3%.

Is Netflix Earning Enough for You?

Margins matter. The more Netflix (Nasdaq: NFLX  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Netflix's competitive position could be.

Here's the current margin snapshot for Netflix over the trailing 12 months: Gross margin is 36.3%, while operating margin is 12.0% and net margin is 7.2%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Netflix has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Netflix over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

• Over the past five years, gross margin peaked at 37.2% and averaged 35.4%. Operating margin peaked at 13.1% and averaged 10.5%. Net margin peaked at 7.4% and averaged 6.6%.
• TTM gross margin is 36.3%, 90 basis points better than the five-year average. TTM operating margin is 12.0%, 150 basis points better than the five-year average. TTM net margin is 7.2%, 60 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Netflix looks like it is doing fine.

• Add Netflix to My Watchlist.

Today In Commodities: Oil Also Up For Week

As of this post crude is just above $101/barrel and will close out the week positive after back-to-back losing weeks. We still favor scaling into bearish exposure looking for depreciation to follow. For the last two weeks natural gas has largely been contained in a 20 cent range. We view natural gas as a coiled spring and have advised clients to get positioned long anticipating an upside breakout. A 5-6% appreciation in stocks is likely over done but the concerted effort of central banks was likely the biggest contributing factor. The lack of follow through the last two sessions leads me to believe that further upside may be limited. Clients have no position currently. The 100 day MA at $1723 should support while we see resistance just under $1,790 ... I wish I could be more help.

Support is eyed in March silver just above $32 with resistance just under $34. My bias short term is neutral in both metals therefore clients have no exposure. The dollar closed higher today for the first time in six sessions finding support at the 34 day MA. All crosses closed lower today after positive action in recent sessions. We suggest moving to sidelines or lightening up if long with profits. Clients in December yen options will hold into next week looking for a further breakdown. The bad news is the time decay is really kicking in so on a new low regardless of premium we will be looking for an exit door.

Cocoa got slammed another 2.6% today, dragging prices down for the last seven days. As we approach two year lows we feel we’re buying value but don’t get too large of a position because we have yet to see signs of a bottom. Our clients will be advised to add to their position once they are showing a profit ... stay tuned. Coffee is back in sell mode as prices have traded back to support after today’s 2.6% decline. On a new low momentum traders will likely beat this position down ... add on a fresh low.

Treasuries bounced today, so continue to use the 20 day MA as your pivot point. In 30-year bonds at 142’13 and 130’15 in 10-year notes. On a higher trade we will be trying to re-establish bearish plays in 2013 euro-dollars for clients.

Mixed bag in grains with corn lower and soybeans and wheat higher. We have told clients to wait for a trade higher and then we will be issuing bearish trade ideas ... stay tuned. Live cattle ended lower the last two sessions but we’re still expecting more downside before getting long with most clients. Those already long should be willing to let go at a loss on a settlement below 122.75 in February. Lean hogs continued lower, losing 1.6%, closing below the 20 day MA for the first time in two weeks. Stay short as prices should continue south.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

4-Star Stocks Poised to Pop: Kennametal

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, industry tool manufacturer Kennametal (NYSE: KMT  ) has earned a respected four-star ranking.

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

Kennametal facts

Headquarters (Founded)	Latrobe, Penn. (1938)
Market Cap	$2.6 billion
Industry	Industrial machinery
Trailing-12-Month Revenue	$2.4 billion
Management	Chairman/CEO Carlos Cardozo Vice President/CFO Frank Simpkins
Return on Equity (Average, Past 3 Years)	4.1%
Cash/Debt	$204.57 million / $316.05 million
Dividend Yield	1.5%
Competitors	Allegheny Technologies (NYSE: ATI  ) Carpenter Technology (NYSE: CRS  ) Illinois Tool Works (NYSE: ITW  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 95% of the 281 members who have rated Kennametal believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars BudandMolly and RedandBlack, both of whom are ranked in the top 5% of our community.

Earlier this summer , BudandMolly listed several of Kennametal's positives:

Dominate their field of specialized tools for industry. Broad customer base and excellent pricing ability. Good long term investment. Buy on significant dips.

In fact, Kennametal currently sports a cheapish forward P/E of 7.9. That represents a discount to listed rivals like Allegheny (9.8), Carpenter (13.6), and Illinois Tool Works (10.1).

CAPS All-Star RedandBlack expands on the outperform argument:

The fears of a double dip recession have hurt KMT who supplies cutting tools and equipment to machine shops. The company has cut cost the last few years and is improving their returns of invested capital. I really like the repeatable purchase nature of their business. Once their machines are installed customers must repeatedly buy the expendable components to go with it.

What do you think about Kennametal, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Delay Social Security, Increase Your Benefits

It's usually best, for most things in the financial world, to act now rather than wait around. The notable exception is in applying for Social Security benefits. We've discussed it before, but it is an important point that needs more emphasis. As you'll see from the table below, if you were born after 1943 (that's you, boomers!) you can increase the amount of your Social Security benefit by 8% for every year you delay getting benefits after your full retirement age.

If you are delaying your retirement beyond FRA, you'll increase the amount of benefit you are eligible to get. Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay -- which can be an increase of as much as 32.5% if you delay until age 70 and were born in 1941, when your FRA is 65 years and eight months and the increase amount is 7.5% per year at that age. Look at the increase amounts per year based upon birth year:

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So you can see the impact of delaying receipt of retirement benefits -- it can amount to more than 50% of the Primary Insurance Amount when you consider early benefits versus late benefits. Of course, by taking benefits later, you're forgoing receipt of some monthly benefit payments; given this, early in the game you'd be ahead in terms of total benefit received. This tends to go away as the break-even point is reached -- in your mid-70s to early 80s in most cases, which we'll review in a later article.Here's an example of the benefit of delay in action: You were born in 1954, and as such your FRA is age 66. According to the benefit statement you've received from Social Security, you are eligible for a monthly benefit payment of $2,000 when you reach your FRA (which would be in 2020). If you delayed applying for your benefit until the next year, your monthly benefit payment would be $2,160 per month -- an increase of $1,920 per year. If you delayed until age 68 (two years after FRA), the monthly payment would be increased to $2,320, for an annual increase of $3,840. At age 69, delaying would increase your annual benefit by $5,760 and, at age 70, your monthly payment would be $2,640 for an annual benefit of $31,680 -- $7,680 more than at FRA. This amounts to a 32% increase in your benefit by delaying receipt of the benefit by four years!It's important to note that this is not a compounding increase -- that is, your potentially increased benefit from one year is not multiplied by the increase for the following year. The factor for each year (or portion of a year) is simply added to the factor from prior years. You also don't have to wait a full year to achieve the benefit; this delay is calculated on a monthly basis, so if you delayed by six months your increase would be 4% over the FRA amount. The biggest benefit of this is that you can not only increase the amount you will get over your lifetime, but also the survivor benefit your spouse will get upon your passing. For some folks this can make a huge difference as they plan for the inevitable.RELATED STORIES: >>Have Choice of Social Security Spousal Benefits>>File, Suspend Gets Spouses Most SSA Benefits>>A Crash Course in Basic Retirement PlanningFollow TheStreet on Twitter and become a fan on Facebook.

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Intuitive Surgical Could Be A $700 Stock

Shares of surgical robot maker Intuitive Surgical (ISRG) are currently trading near 52-week and all-time highs. Recently, the company blew out earnings expectations again, something it has done with high frequency. This high growth company, sometimes questioned for its lofty valuation, has continued to be a great investment for those that have held it over time. The medical device leader was one of the best performers of 2011 and is well positioned for another great year in 2012. But there is still plenty of room to grow, and this name could fetch $700 within the next two years. Here's why.

Consistent Growth:

Intuitive Surgical continues to grow at a fast pace and there are still plenty of opportunities ahead. Here are some key income statement numbers over the past few years.

Income Data	2008	2009	2010	2011
Net Sales	$874.9	$1,052.2	$1,413.0	$1,757.3
Gross Profit	$620.8	$751.1	$1,030.0	$1,273.8
Operating Income	$310.8	$377.4	$555.2	$694.8
Net Income	$204.3	$232.6	$381.8	$495.1
EPS	$5.12	$5.93	$9.47	$12.32

In three years, the company has doubled its revenues and more than doubled its net income. While it is not growing at the 40% or so numbers it was a few years ago, there is still plenty of growth to be had. Analysts are currently expecting 18.2% revenue growth in 2012 and another 15.5% growth in 2013. Given the company's ability to consistently beat analyst expectations, the company could have more than $2.5 billion to $3.0 billion in revenues in 2013, while estimates right now are only for $2.4 billion. Earnings are also increasing, and in the latest quarter, the company posted an EPS number that beat by 40 cents per share (11.9% beat).

Now there was some concern after the Q4 report showed that sequential growth was slowing, but this company is maturing. A Collins Stewart report last week that made it to Seeking Alpha's page on ISRG noted that the Japanese Ministry of Health will support reimbursements of prostatectomies using Intuitive's Da Vinci system. Intuitive and Japanese partner Johnson & Johnson (JNJ) are likely to seek approval for more procedures using the systems. This is pleasant news for the international side of Intuitive, and its always nice to have a large partner like Johnson & Johnson. Intuitive's systems performed approximately 360,000 procedures in 2011, which was up 29% from the previous year.

Both Sides of the Business are growing:

Intuitive is not a one trick pony. There is not just one segment of the business that is growing. Both product sales and service sales are increasing, and here's how the numbers look for product sales.

Products	2008	2009	2010	2011
Sales	$748.3	$879.9	$1,189.1	$1,478.9
Costs	$200.1	$237.6	$297.3	$382.3
Gross Margin	$548.2	$642.3	$891.8	$1,096.6
Gross Margin %	73.26%	73.00%	75.00%	74.15%

Product sales counted for 84% of total revenues in 2011, which is great because they are the higher margin part of the business. While the company is heavily reliant on sales of its robotic systems, it's not like sales are slowing down, and the company has been able to maintain high margins for this segment. Now let's look at services sales.

Services	2008	2009	2010	2011
Sales	$126.6	$172.3	$223.9	$278.4
Cost	$54.0	$63.5	$85.7	$101.2
Gross Margin	$72.6	$108.8	$138.2	$177.2
Gross Margin %	57.35%	63.15%	61.72%	63.65%

While services only account for 16% of the business, they are still growing at a faster rate than product sales. The company has also been able to improve its gross margin percentage for the service business. Given the company's leadership position in this industry, it is not crazy to assume that it can get service margins above 65% in the next year or two.

It's a High Margin Business:

Would you rather have a company that makes 5 cents for every dollar of sales, or 25 cents? While it does depend on the business, there aren't a lot of companies that can boast margins as high as Intuitive Surgical, and they are improving.

Margins	2008	2009	2010	2011
Gross	70.96%	71.38%	72.89%	72.49%
Operating	35.52%	35.87%	39.29%	39.54%
Profit	23.35%	22.11%	27.02%	28.17%

Gross margins did decline a little in 2011, but they still are at extremely healthy levels. Intuitive Surgical has kept its costs in check, which helped its operating margins to increase by 25 basis points despite the decline in gross margins. Also, as the company has sold on a more global basis, it has benefited from the lower tax rates that foreign countries do provide. This has helped the company lower its effective tax rate, which has really helped the numbers on the bottom line. Barring a setback that I don't see currently, I think that the company will break the 30% profit margin level by 2013. There aren't too many companies in this high margin club, and another one that has done similarly well for investors is Apple (AAPL). Think about the comparisons, which I'll detail later on.

A Very Healthy Balance Sheet:

Intuitive has a very strong balance sheet, with almost no debt. The company has great financial flexibility, which can be seen below.

Financials	12/31/08	12/31/09	12/31/10	12/31/11
Cash, Investments*	$901.9	$1,172.0	$1,608.9	$2,171.8
Current Assets	$703.9	$847.1	$1,275.8	$1,466.3
Total Assets	$1,474.6	$1,809.7	$2,390.4	$3,063.1
Current Liabilities	$164.5	$202.8	$273.8	$320.6
Total Liabilities	$207.9	$272.4	$353.0	$417.5
Cash From Operations	$278.2	$392.2	$545.8	$677.6
Current Ratio	4.28	4.18	4.66	4.57
Working Capital	$539.4	$644.3	$1,002.0	$1,145.7
Debt Ratio	14.10%	15.05%	14.77%	13.63%

*Includes both short term and long term investments.

The company has less than 14 cents of liabilities per dollar of assets. You can't find many companies that can say that. While the current ratio did decline slightly in 2011, it was just due to simple math. Because Intuitive has such low liabilities, an extra million or so in current liabilities can have a huge number on the current ratio. However, the company increased its working capital, so it is still increasing current assets faster than current liabilities. Companies that have high debt loads find it tough to grow or see interest payments kill their potential net income. Intuitive doesn't have that problem, and this balance sheet will allow for plenty of future growth.

Because of the above mentioned financial flexibility, Intuitive has been able to buy back its shares, which helps earnings per share numbers and helps the stock to rise over time. Intuitive started its buyback program in 2009 and the board has authorized multiple increases since then. The company bought back $150 million in 2009 and $198.6 million in 2010. But that number rose sharply to $331.8 million in 2011, and it is likely to increase further in 2012. The company has almost $570 million remaining on its current share repurchase program, which will likely be increased in the next year or two. Given the company's financial flexibility and strong balance sheet, share buybacks will continue for the indefinite future.

A Stock Split - The Next Leg of Growth:

I've maintained my opinion that Intuitive will split its stock this year, and that action will create the next leg of growth higher for the stock.

Consider the following scenario, Google (GOOG) versus Baidu (BIDU). In early 2010, Google and Baidu were both trading above $500 per share. Baidu announced that it would split its stock, 10 for 1, which brought it back down to about $70 after the split. In fact, the first day it traded after the split, Baidu shares rose nearly 10%. More people can buy shares at $75 than they can at $750, it's just the way things are.

Look at the following Baidu/Google chart over the past two years.

Click to enlarge:

Now yes, Baidu is growing faster than Google, but Google still had roughly 50% revenue and net income growth in 2011 over 2009 numbers. What has the stock done? Basically nothing. Baidu made its shares more available to investors, and they decided to buy buy buy.

I bring up this example because at times I have decided against buying companies like Intuitive and Google at such high dollar prices. I have bought and traded all three names in the past, and have made money off all three.

A stock split for Intuitive could spark another rally. Think of the Baidu-type scenario. A 10 for 1 split gets this name to $50. A lot of people could come into the name at that price. While the math is the same, you would think investor psychology would make it a lot easier to go from $50 to $70 than it would from $500 to $700. Baidu has doubled since it split its stock, and I think Intuitive could do the same. I've made a similar argument for Apple splitting its stock, but I think Intuitive will split before Apple does.

Valuation:

Intuitive has been questioned for its lofty valuation, but I think I've given enough reasons above why it is justified. Let's look at the valuation history, based on high and low share prices for the year and the actual earnings per share for that year.

P/E	2006	2007	2008	2009	2010	2011
High	74	97	70	52	42	38
Low	45	23	22	14	26	21
Avg.	59.5	60.0	46.0	33.0	34.0	29.5

Those may seem high, and the physical number is, but you are paying for a low debt, high margin, solid growth company that really doesn't have any competition.

Now Intuitive is trading at roughly 40 times the past twelve months earnings, which appears to be at the high end of the range. However, those numbers above are based on actual year earnings and the highest price of the year.

Analysts are currently calling for $14.49 in earnings for 2012. That implies a P/E of approximately 34. But that's only looking at current expectations. What if the company does $15 this year, or even more? Given its ability to beat, I don't think it is out of the question for Intuitive to do $15.50 at this point, and that could even be low. Remember, the company beat expectations by 40 cents in the previous quarter, and it has beaten by a dollar in the past four reported quarters. At $15.50, the valuation is under 32, and I think that's rather fair for now. Given that the high valuation could trade up to say 36 to 40, that implies a high price this year of $558 to $620, and for this argument, I'm assuming that the company doesn't split the stock. If it does, all bets are off.

Looking into 2013, analysts currently call for $16.94 in earnings. I think that's extremely low, given the growth potential and share buybacks. Take a look at the following value chart, with the top row being earnings per share and the left column being the P/E multiple.

Value	$16.50	$17.00	$17.50	$18.00	$18.50
20	$330.00	$340.00	$350.00	$360.00	$370.00
25	$412.50	$425.00	$437.50	$450.00	$462.50
30	$495.00	$510.00	$525.00	$540.00	$555.00
35	$577.50	$595.00	$612.50	$630.00	$647.50
40	$660.00	$680.00	$700.00	$720.00	$740.00

Estimates are currently for $17 in 2013, and we still are only in February. Before Intuitive's last report, estimates were for just $16. They've come up $1 already, and that trend is likely to continue. I've only gone up to $18.50 in earnings for 2013, and that number may look extremely conservative in the end. What if Intuitive end up doing $20 a share, or more? The stock wouldn't need a sky high valuation to hit $700, and again, I'm not even counting a stock split here.

Analysts have always been late to the party when it comes to Intuitive, which is why the average price target currently is just $487. One firm raised its number from $520 to $560 after the latest quarter, and that is now the high number on the street. I think it is time for some analysts to check their numbers, and perhaps we'll see some price targets raised in the near future.

Conclusion - This Name Goes Higher:

Would you like to buy a stock that has 70%+ gross margins, almost 30% net margins, is virtually debt free, is buying back stock, the leader in its industry, that is growing at a nice clip with no real competition? Then Intuitive Surgical is for you. I had Intuitive as one of my top growth picks for 2012, and that is an exclusive list. Anytime you can be picked alongside Apple, you know you are doing well. If you think about it, the companies have decent comparisons. Great growth, leader in their industry, high margins, great balance sheets.

I called the price reaction crazy when this name traded below $430 after earnings, and if you bought then, like I did, you've made some nice money. Yes, Intuitive does carry a high valuation and is trading near 52-week highs, so if you think you can get it lower, at say $475 or even $450, you might want to wait. Sure, it has had a nice run and a pullback could come. Or the analyst parade could start and we could be at $525 before you realize what is going on.

Intuitive's growth story is well intact and is one of my favorite names. I don't own any currently because I am a trader, so I usually play this name around earnings. However, for anyone looking to add a solid healthcare name to their portfolio, Intuitive is your stock. I see this name having the potential to hit $700 in the next year or two, or a stock split would send this name higher. The company's growth speaks for itself. You don't need to rely on a split to make money in this name, but if you get one, it will certainly help your chances. We go higher from here.

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

The "Best-Managed Bank in America"

The largest savings and loan in the United States said second-quarter earnings were up 16% from last year. Net income rose to $127.9 million, or 26 cents a share, compared with $110.7 million, or 22 cents a share, last year. The results were a penny better than analysts had forecast. Overall loans increased by $1.28 billion.

Hudson City Bancorp's (Nasdaq: HCBK) shares have performed exceptionally well since the beginning of the credit crisis. HCBK is up 15% since June 2007, while the Keefe Bruyette & Woods Mortgage Finance Index has fallen almost 82%. HCBK trades at 13.3 times earnings, a little less than its average, but the key there is "earnings." Many publicly traded banks don't have any.

 

Hudson City has been able to withstand the worst of the financial crisis by lending conservatively. It has stayed out of the subprime mortgage market, doesn't make auto or credit card loans, and has not taken any TARP money.

The bank's main business is writing "jumbo" mortgages for well-to-do clientele in the wealthy suburbs of New York, New Jersey and Connecticut. These loans require a minimum 20% down payment. Hudson City does not write adjustable-rate mortgage loans.

The bank also invests in mortgage-backed securities backed by the U.S. government. It holds $25 billion worth of these securities.

Hudson City originated $1.7 billion in loans and purchased $1.2 billion of first mortgage loans for the second quarter. A "first mortgage" loan has priority over other liens on a property in the event of a default.

Out of the bank's $30.7 billion loan portfolio, 96% are secured by first liens. This is what makes Hudson City different. About 55% of Bank of America's and about 40% of Wells Fargo's mortgages are first liens. By maintaining a first-lien position on most of its loans, Hudson City is shouldering less risk.

In fact, it doesn’t look like Hudson takes any risk, judging by the number of loans that go bad. Nonperforming loans, or loans that haven't had payments for 90 days, increased to 1.4%. The industry average for S&Ls is 4.0%. That means 98.6% of Hudson City's loans are still performing -- a remarkable number in these conditions.

The company charged off $9.6 million in loans for the quarter. First-quarter charge-offs for 2009 were $4.7 million. So, compared with a $30.7 billion loan portfolio, charge-offs from the first half of the year only amount to a fraction of a percent. That was head and shoulders above S&Ls overall charge-off rate of 1.5% and 1.9% for all banks.

Hudson City has been able to make good loans and collect on them while its peers are struggling. It should continue to thrive despite industry-wide concerns about an increase in loan losses.

Three Years Later: Best Performing ETFs Since Markets Bottomed Out

For many investors, March 9, 2009 was a major turning point; on that day the Dow Jones Industrial Average closed below 6,550, capping a disastrous stretch that had erased billions of dollars from portfolios around the world. Fortunately, that proved to be the low point of the recent recession; the next day markets rallied, and continued to move generally higher throughout the end of the year.

So it should be no surprise that most ETFs offering exposure to risky asset classes now boast impressive three year return figures; most are well into positive territory, and many have more than doubled over the past 36 months or so. What is perhaps surprising is the list of the best performers in the three years following the depths of the recession; some of the ETFs that have delivered the most impressive returns over this period are not household names, and cover asset classes that might not have been expected to climb quite so high:�

10. Global X Colombia ETF (GXG): Up 209%

This ETF offers exposure to Colombian stocks, holding a portfolio of about 20 stocks from the South American country. Colombia has been the star of Latin America for the past several years, delivering significantly better returns than Brazil or any other country in the region. Once viewed as a gangland for drug wars, Colombia has seen its economy flourish thanks to campaigns to weed out narcotics and corruption, and legislation designed to encourage international investment and fuel domestic consumption [see LatAm-Centric ETFdb Portfolio].

9. WisdomTree SmallCap Earnings ETF (EES): Up 211%

This ETF is one of several that offers exposure to small cap U.S. stocks, an asset class that can exhibit significant volatility. What makes EES unique is the methodology behind the underlying index; the WisdomTree Small Cap Earnings Index is a fundamentally weighted benchmark that includes small cap stocks that have reported positive cumulative earnings over the past four quarters. The index is earnings weighted, meaning that the companies with the largest reported earnings get the biggest allocation.

8. First Trust Consumer Discretionary AlphaDEX (FXD): Up 219%

This ETF is one of several that allows investors to tap into consumer discretionary stocks, a cyclical segment of the market that has potential to exhibit big swings in both directions. Because the underlying companies sell items that are often viewed as luxuries, demand can strengthen considerably at the beginning of a recovery.

FXD utilizes the AlphaDEX methodology that underlies a number of First Trust ETFs; this “enhanced” indexing strategy involves applying a quantitative model to identify consumer discretionary stocks that are deemed to have the greatest potential for capital appreciation [see AlphaDEX ETFdb Portfolio]. In this case, the approach was quite successful at generating alpha; though FXD is a bit more expensive than XLY, it has more than justified the additional fees by delivering significantly higher returns than the cap-weighted consumer discretionary ETF.

7. Retail SPDR (XRT): Up 240%

This ETF offers exposure to a targeted sub-sector of the consumer discretionary space, focusing on stocks that maintain retail operations in the U.S. Though targeted in that sense, XRT includes a number of different types of retail stores: apparel, automotive retail, food retail, internet retail, general merchandise, and drug retail [see XRT Holdings].

6. Rydex Equal Weight Consumer Discretionary (RCD): 241%

Consumer discretionary funds have reserved a big portion on this list, and RCD is an ETF from Rydex that has the same holdings as XLY but gives an equal allocation to each. That results in a heavier allocation to small cap stocks, a bias that has served RCD quite well during the recovery [see also�Equal Weighted ETFdb Portfolio].

5. Rydex S&P MidCap 400 Pure Value ETF (RFV): Up 248%

This ETF might be a bit of a surprise as one of the best performers over the last three years, as RFV focuses not on a red hot emerging market but on a rather “plain vanilla” asset class: mid cap U.S. stocks. As shown below, the last three years have been an ideal environment for the “pure style” ETFs offered by Rydex; the portfolios focusing on the securities that exhibit the strongest value characteristics have outperformed their peers by a wide margin [see The Truth About Alternative Weighting Methodologies].

Many value ETFs maintain rather broad portfolios, excluding a small number of stocks that exhibit strong growth characteristics instead of focusing on the true value stocks. RFV utilizes a much more strict definition of “value stock”, and therefore has a much smaller portfolio than funds such as the iShares S&P MidCap 400 Value Index Fund (IJJ). The “pure value” difference has been significant recently, as shown by RFV’s stellar performance.

4. iShares MSCI Thailand Index Fund (THD): Up 267%

The emerging markets of Asia have been one of the most compelling stories in recent years, establishing themselves as the primary contributors to GDP growth and attracting a growing amount of interest from investors around the globe. Though economies such as China and India have been impressive, it is the smaller and lesser-known markets that have delivered the best returns.

THD maintains a portfolio of about 85 different stocks, and has a meaningful tilt towards financials (32%) and energy (26%). Thailand makes up only about 2% of the MSCI Emerging Markets Index, meaning that ETFs such as EEM and VWO have almost no allocation to this country.

3. Rydex S&P 500 Pure Value ETF (RPV): Up 291%

Similar to RFV, this ETF utilizes the “pure value” approach to segmenting the large cap U.S. stock market; RPV holds the components of the S&P 500 Index that exhibit the strongest value characteristics. And this methodology also translated into a significant advantage among larger companies; RPV outpaced ETFs that implement similar techniques by a wide margin over the last three years [see Talking ETF Weighting Methodologies With Tony Davidow].

2. Rydex S&P SmallCap 600 Pure Value (RZV): 291%

Completing the trifecta for the pure value suite of ETFs is RZV, which targets the value stocks from the universe of small cap U.S. stocks. Once again, the difference between this ETFs and other peers in the Small Cap Value ETFdb Category is significant; RZV delivered returns that come close to doubling many products that appear to maintain very similar investment objectives [see RZV Realtime Rating].

1. Market Vectors Indonesia ETF (IDX): Up 313%

The biggest winner over the past three years from the ETF universe is Indonesia, an emerging Asian economy that has thrived thanks to a strong relationship with China, a rapidly growing middle class, and a surge in interest from international investors [see Asia-Centric ETFdb Portfolio].

IDX is one of two ETFs to offer exposure to Indonesia, having been recently joined by a competing iShares ETF (EIDO). Unfortunately, this economy receives a very small weight in many portfolios; Indonesian stocks make up less than 3% of the MSCI Emerging Markets Index.

Today's Big Stock Trade

Seabridge Gold Inc. is engaged in acquiring, exploring and developing gold deposits. The company’s principal projects are located in Canada. Seabridge holds six properties with gold resources and its material properties are its KSM Project and its Courageous Lake Project. The KSM project consists of two contiguous claim blocks in the Iskut-Stikine region in British Columbia, approximately 20 kilometers southeast of the Eskay Creek Mine. The Courageous Lake project is a gold project covering approximately 67,000 acres located in the Northwest Territories, Canada. Its proven and probable reserves total 38.5 million ounces of gold and 10 billion pounds of copper.Please take a look at the 1-year chart of SA (Seabridge Gold, Inc.) below with my added notations:

The most important level to watch on SA now is the $25 resistance (navy). You can plainly see how $25’s importance goes back as far as June of last year. A break above this level should mean higher prices for the stock. A potential support area for the stock might be on a pullback to the internal level of $23 (brown). Lastly, if SA were to suffer a more significant pullback, the $20 level (green) would be worth watching for a trade. The Tale of the Tape: SA is sitting below its $25 resistance. A long trade should be made if the stock breaks above this level, with a stop placed below $25. If the stock were to pullback to $23 first, a long trade could also be made in preparation for a potential breakout through $25. A break below $23 should signify a drop back down to the $20 level, thus providing another potential opportunity for a long trade.Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500.

EU Treaty Fallout: 9 Stocks That May Buck the Trend

EU leaders are imposing waves of spending cuts and tax hikes to show investors that they're serious about improving their balance sheets and to encourage them to buy eurozone sovereign debt -- but is this wise?

Reuters' Carmel Crimmins and Gavin Jones note, "the austerity zeal risks tipping the continent back into recession ... meaning further austerity is required."

"You don't cut your way to growth," adds Stephen Kinsella, professor of economics at the University of Limerick.

So where's the confidence fairy to correct this negative cycle? That was supposed to come from the EU Summit in Brussels last week. Except it failed to instill much confidence at all.

Bond yields
Italy sold 3 billion euros of five-year bonds at a 6.5% yield, "doing little to dispel concerns about the country's longer-term financing sustainability." The five-year yield is at its highest in 14 years, up from 6.30% just a month ago.

The Rome-based Treasury sold the bonds at a 6.47% yield, up from 6.29% at the last auction on November 14.

The EU expected stronger demand and lower yields, but shouldn't have been surprised by the less-than-enthusiastic response from global investors.

"Obviously 5-year funding rates of 6.5 percent are unsustainable and the cost of funding will become a crucial factor in the first quarter of next year," said WestLB rate strategist Michael Leister.

Reuters reports benchmark 10-year Italian yields were flat at 7.13%, with yields on the September 2016 bond auctioned almost 13 basis points lower on the day at 6.73%.

Investing ideas
Many investors believe that if Europe hold together and pulls through, there should be considerable upside for stocks.

With that in mind, we created a universe of European companies trading on the U.S. market exchange and looked for names with the most significant levels of institutional buying in the current quarter.

It seems institutional buyers, such as hedge funds, think these names have much to gain from a rebound -- or that they might simply power through whatever comes their way. Do you agree? (Click here to access free, interactive tools to analyze these ideas.)

1. VimpelCom (NYSE: VIP  ) : Operates as an integrated telecommunications services provider, offering voice and data services through a range of wireless, fixed, and broadband technologies. Market cap of $12.52B. Country: Netherlands. Net institutional shares purchased over the current quarter at 19.0M, which is 6.64% of the company's 286.26M share float.

2. ICON (Nasdaq: ICLR  ) : Provides outsourced development services to the pharmaceutical, biotechnology, and medical device industries primarily in Ireland, the United States, and rest of Europe. Market cap of $966.73M. Country: Ireland. Net institutional shares purchased over the current quarter at 3.2M, which is 5.51% of the company's 58.10M share float.

3. Ternium (NYSE: TX  ) : Engages in manufacturing and processing a range of flat and long steel products for construction, home appliances, capital goods, container, food, energy, and automotive industries. Market cap of $3.49B. Country: Luxembourg. Net institutional shares purchased over the current quarter at 2.3M, which is 4.71% of the company's 48.88M share float.

4. ASM International (Nasdaq: ASMI  ) : Engages in researching, developing, manufacturing, marketing, and servicing equipment and materials used to produce semiconductor devices. Market cap of $1.43B. Country: Netherlands. Net institutional shares purchased over the current quarter at 1.9M, which is 4.33% of the company's 43.89M share float.

5. Sensata Technologies Holding (NYSE: ST  ) : Develops, manufactures, and sells sensors and controls primarily in the Americas, the Asia Pacific, and Europe. Market cap of $4.74B. Country: Netherlands. Net institutional shares purchased over the current quarter at 3.1M, which is 4.15% of the company's 74.71M share float.

6. Altisource Portfolio Solutions (Nasdaq: ASPS  ) : Provides services related to real estate and mortgage portfolio management, asset recovery, and customer relationship management primarily in the United States. Market cap of $1.18B. Country: Luxembourg. Net institutional shares purchased over the current quarter at 540.4K, which is 3.85% of the company's 14.04M share float.

7. Intercontinental Hotels Group (NYSE: IHG  ) : Owns, manages, franchises, and leases hotels and resorts. Market cap of $4.82B. Country: United Kingdom. Net institutional shares purchased over the current quarter at 10.0M, which is 3.56% of the company's 281.09M share float.

8. Tornier (Nasdaq: TRNX  ) : Operates as a medical device company that designs, manufactures, and markets devices for joint replacement and soft tissue repair that enable surgical specialists to improve patients' lives by restoring motion and physical vitality. Market cap of $701.18M. Country: Netherlands. Net institutional shares purchased over the current quarter at 458.6K, which is 3.53% of the company's 13.00M share float.

9. Mettler-Toledo International (NYSE: MTD  ) : Manufactures and supplies precision instruments and services worldwide. Market cap of $4.61B. Country: Switzerland. Net institutional shares purchased over the current quarter at 945.7K, which is 3.06% of the company's 30.86M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

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Kapitall's Rebecca Lipman and Alexander Crawford do not own any of the shares mentioned above. Institutional data sourced from Fidelity

Finisar Passes This Key Test

There's no foolproof way to know the future for Finisar (Nasdaq: FNSR  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Finisar do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Finisar sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. As another reality check, it's reasonable to consider what a normal DSO figure might look like in this space.

Company	LFQ Revenue	DSO
Finisar	$241	65
Intel (Nasdaq: INTC  )	$14,233	23
Avago Technologies (Nasdaq: AVGO  )	$603	43
Ixia (Nasdaq: XXIA  )	$77	79

Source: S&P Capital IQ. DSO calculated from average AR. Data is current as of last fully reported fiscal quarter. LFQ = last fiscal quarter. Dollar figures in millions.

Differences in business models can generate variations in DSO, so don't consider this the final word -- just a way to add some context to the numbers. But let's get back to our original question: Will Finisar miss its numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, Finisar's year-over-year revenue grew 0.2%, and its AR grew 1.9%. That looks OK. End-of-quarter DSO increased 1.6% over the prior-year quarter. It was down 0.9% versus the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

• Add Finisar to My Watchlist.
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Video Games Boost Time Warner, Among Other Media Stocks

The numbers haven’t painted a beautiful portrait of the video game industry recently. However, the games divisions for a number of major media corporations have been bringing more than a few smiles to shareholders as second quarter earnings reports continue to roll out. One of the biggest winners was Time Warner (NYSE: TWX).

So what�s the story? May’s video game sales, compiled by NPD Group, showed a business environment plagued by declining software sales, the only good news coming in the form of strong momentum for publishers like Take-Two Interactive (NASDAQ: TTWO), whose Red Dead Redemption has all but kept the industry afloat in the second quarter. Microsoft Corp. (NASDAQ: MSFT), Sony (NYSE: SNE), and Nintendo (PINK: NTDOY) enjoyed healthy hardware sales, but overall, the industry was flat throughout May and June. 2010 just hasn’t been a great year for game makers.

On the other hand, Time Warner’s Filmed Entertainment division, which includes games division Warner Bros. Interactive and whose second quarter ended June 30th, saw an 8% rise in revenue over 2009, pulling in $2.5 billion thanks to strong sales of Lego Harry Potter: Years 1-4. (It should be noted that Lego Harry Potter, which released on every major game platform, didn’t hit the market until June 27th).

Viacom (NYSE: VIA) also benefitted from its place in the videogame space.� The company’s Media Networks division, home to the MTV and Harmonix-made, Electronic Arts (NASDAQ: ERTS) Rock Band game franchise, finally cut its losses at the end of the second quarter. Revenue was up 6 percent over 2009, up to $2.09 billion, thanks to lowering losses on Rock Band branded games. This comes after Viacom’s poor first quarter of 2010, where the company pointed at Rock Band as the cause of significant losses in ancillary revenues.

Despite declines in the games market during the economic downturn over the past two years, Time Warner and Viacom’s games divisions are solid proof that continued investment in videogame development is a wise move for major entertainment corporations. Not to mention an increasingly important venue for generating revenue.

Disney (NYSE: DIS), whose major game release this past spring, Split/Second, failed to perform as well as expected, continues to invest more and more in the game space. Disney recently acquired the social games developer Playdom for the massive sum of $763.2 million.

That just goes to show video games are more than child�s play on Wall Street.

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

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Chinese manufacturing slows down

NEW YORK (CNNMoney) -- Chinese manufacturing slowed down in November, its anemic growth slipping into a contraction, according to published reports on Thursday.

China's official PMI, the index that tracks purchasing managers' activity in the manufacturing industry, slid to 49 from 50.4 in October. This means that it slipped from a position of mild growth to a level of decline.

Capital Economics' chief Asia economist Mark Williams and China economist Qinwei Wang said a slowdown was forecast by a separate but similar report from HSBC and Markit last week. But the official Chinese report was a bit worse than expected.

"Most had thought that today's PMI would be weak, after last week's flash reading from HSBC and Market," said Williams and Wang, in a published report. "But the reality was even worse than expected."

The official PMI's decline was the weakest performance since February 2009, they said.

HSBC released its own reading on Chinese PMI that was slightly different, but told the same basic story of slowing growth. HSBC revised the report on Thursday.

The November HSBC manufacturing PMI was revised down slightly to 47.7 from the initial flash reading of 48, "pointing to a sharp deterioration of business conditions," according to the report.

The HSBC report, co-authored by Qu Hongbin, co-head of Asian economics research, and China economist Sun Junwei, said this is the lowest PMI level since March 2009 and the steepest monthly drop since August 2008.

The report highlighted the European sovereign debt crisis as a major impediment that is "set to increasingly weigh upon global exports growth."

China steps on economic accelerator

"Looking ahead, growth is set to overtake inflation as Beijing's top policy concern, calling for more aggressive easing into the next quarter," said the HSBC economists.

In an effort to spur the economy, the People's Bank of China said Wednesday it would cut the amount of money that banks need to hold in reserve, freeing those funds to stimulate the Chinese economy.

The central bank said it will lower its reserve requirement ratio for financial institutions by half a percentage point. It was the first such cut in the ratio since 2008, and a change in course after the ratio was raised five times this year. 

$50B Lawsuit Against Bank of America Looms: Report

A $50 billion lawsuit against Bank of America(BAC) that arises from the bank's acquisition of Merrill Lynch in 2008 is making its way in Federal District Court in Manhattan, according to The New York Times.

The plaintiffs -- which include the Ohio Public Employees Retirement System and a Netherlands pension plan -- contend Bank of America engaged in a deliberate effort to deceive the bank's shareholders, the Times said.

See if (BAC) is in our portfolio

The plaintiffs say former CEO Kenneth Lewis and Joseph Price, former chief financial officer, began to learn of large losses at Merrill Lynch in early November 2008, months before the acquisition closed.The plaintiffs claim that Price and other senior Bank of America executives sought to keep quiet about the losses, estimated at up to $10 billion. Bank of America most likely will try to settle the litigation, according to the Times. The settlement value appears to be in the billions.-- Written by Joseph Woelfel>To submit a news tip, send an email to: tips@thestreet.com.

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Renren Deep in the Red

Despite massive growth, China's very own "Facebook," Renren (NYSE: RENN  ) , came out with third-quarter revenue figures below analyst expectations. Let's take a closer, Foolish look to see why this happened.

Show me the money
Renren saw its total revenues jump by 57.1% to $34.2 million from the previous year's quarter. The company's online advertising revenues shot up by 91.8% to $19.6 million due to the expansion of its user base and ramp-up in user activity, with an increase in the number of active users from 103 million to 137 million from the year-ago quarter.

Revenues from the company's Internet VAS, or value-added services, saw a 26.3% increase to $14.6 million, mainly due to a 23.6% increase in its online gaming revenues and a 35.2% increase in other value-added offerings, which include Nuomi.com, a social commerce website.

Renren's heavier losses can be attributed to a number of relatively higher expenses that eroded top-line growth. First of all, the company's cost of revenue shot up by 62.3% to $6.7 million. In addition, the operating expenditure skyrocketed by 145.9% to $34 million.

Operating expenses included high advertising campaign expenses for Nuomi along with higher promotional expenditure for the launch of new online games such as Plants vs. Zombies. Elevated spending on R&D also played its part due to an increase in the number of employees.

So despite the impressive rise in revenues, the company's earnings actually fell into the red with a net loss of $1.2 million against a profit of $7.3 million in the year-ago quarter.

While Nuomi is the main cause of Renren's current financial woes, even if you exclude Nuomi's operational results, Renren's third-quarter net profit figure would still show a decline by 14% to $6.2 million. This is because of the higher promotional expenses for online games coupled with higher compensations for personnel and increased commissions for advertising sales.

On the other hand, a look at peer Baidu.com (Nasdaq: BIDU  ) shows a different story, one of soaring revenues and profits along with a strong revenue guidance for the coming quarter, which is expected to exceed expectations. But steeper losses aren't the only problem facing Renren.

China cracks the whip
China has promised to up the ante in terms of monitoring and controlling online messaging and social networking sites like Renren. The law would strictly punish the publication of supposedly "harmful information" that goes against the government. This also applies to peer SINA (Nasdaq: SINA  ) , which runs Weibo, a microblogging service, and Tencent Holdings, which runs QQ, an instant-messaging service.

Getting more social
Setting all this aside, Renren recently announced the $80 million acquisition of 56.com, a leading video content website in China that features user-generated content, similar to Google's (Nasdaq: GOOG  ) YouTube. Sites like 56.com have been increasingly popular among social-networking site users. Thus, the acquisition, which is expected to close in the fourth quarter, would further help Renren's users upload and share their personal videos.

The Foolish bottom line
Renren is still in start-up mode, so investors may cut it some slack as long as it's showing fast revenue growth, as it has for the past three quarters sequentially. Ultimately, as it scales up, the company will have to show that it can make, as well as spend, money.

So, what do you Fools think about Renren's performance? Leave your comments in the box below. You can also stay up to speed with Renren by adding it to your very own�watchlist. It's free, and it keeps you up to date on the latest news and analysis for your favorite companies.

Sysco Beats Estimates on Top and Bottom Lines

Sysco (NYSE: SYY  ) reported earnings on Feb. 6. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q2), Sysco beat slightly on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded, and GAAP earnings per share dropped.

Margins dropped across the board.

Revenue details
Sysco reported revenue of $10.24 billion. The nine analysts polled by S&P Capital IQ expected revenue of $10.06 billion. Sales were 9.2% higher than the prior-year quarter's $9.38 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions.

EPS details
Non-GAAP EPS came in at $0.46. The nine earnings estimates compiled by S&P Capital IQ averaged $0.45 per share on the same basis. GAAP EPS of $0.43 for Q2 were 2.3% lower than the prior-year quarter's $0.44 per share.

Source: S&P Capital IQ. Quarterly periods. Figures may be non-GAAP to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 18%, 60 basis points worse than the prior-year quarter. Operating margin was 4.2%, 50 basis points worse than the prior-year quarter. Net margin was 2.4%, 40 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $10.38 billion. On the bottom line, the average EPS estimate is $0.47.

Next year's average estimate for revenue is $41.90 billion. The average EPS estimate is $2.02.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 1,278 members out of 1,325 rating the stock outperform, and 47 members rating it underperform. Among 451 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 448 give Sysco a green thumbs-up, and three give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Sysco is hold, with an average price target of $30.

While many retailers continue to struggle in these tough economic time, a select few are changing the face of the business, and reaping outsized rewards. Is Sysco the right stock for you? Read "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail" and decide. Click here for instant access to this free report.

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Merrimack IPO Falls Out Of The Gate

By Marie Daghlian

Merrimack Pharmaceuticals (MACK) raised $100 million in the only U.S. life sciences IPO in March. But its shares had fallen 13.7 percent at the close of trading on March 28. The Cambridge, Massachusetts-based biotech sold 14.3 million shares at $7 per share, valuing the biotech at $647 million. It was a long struggle for the targeted cancer drug developer. It postponed an IPO attempt in February through an offering of 16.7 million shares at a range of $8 to $10 a share, which if it had been successful would have raised as much as $150 million and valued the company at $853 million.

Merrimack has four targeted investigational cancer compounds in clinical development, two of which are in late stage development: MM-398, a nano-encapsulated formulation of the chemotherapy drug irinotecan being studied as a treatment for metastatic pancreatic cancer in patients who have failed treatment with gemcitabine; and MM-121, a fully human monoclonal antibody that targets the ErbB3 cell surface receptor, known to mediate communication inside and outside cells. MM-121 is being developed in collaboration with Sanofi-Aventis (SNY) which holds exclusive global rights. Merrimack is developing MM-398 with PharmEngine, which holds commercialization rights in Taiwan.

Merrimack joins six other life sciences companies that went public during the first quarter of 2012. All but one lowered their expectations to become public companies. Except for Merrimack, the life sciences IPO class of 2012 is trading an average of 20 percent above the initial offering price, a reflection of the Nasdaq Composite Index, which is up 18.7 percent since the beginning of the year.

Although aftermarket performance has improved, capital raised through U.S. IPOs is down 7.9 percent in the first quarter of 2012 compared to the same period last year, with seven companies raising $480 million in 2012 and eight companies raising $521 million in 2011. Outside the United States, there have been six IPOs so far this year, three in China and three in France, which raised a total of $404 million. This is a 50 percent drop in activity from the same period in 2011 when 12 companies raised $1.3 billion.

French biotech DBV Technologies made its public debut just before the end of the month through an IPO on the Euronext Paris exchange and a concurrent private placement. The company raised $53.6 million through the sale of 4.6 million shares at $11.80 a share, the low end of its target range, valuing the company at $157.1 million. DBV is developing allergy treatments that are delivered through the skin. Its investigational treatment for peanut allergies is in mid-stage testing in children and adults.

How Motorola, Dell, Amazon and Others Can Crack the iPad Market

To say that the tablet market favors�Apple Inc. (NASDAQ:AAPL) and its iPad is an understatement.

Here’s the breakdown: Based on analyst estimates, Motorola (NYSE: MMI) has sold between 25,000 to 120,000 of its Google (NASDAQ: GOOG) Android-powered Xoom tablet PCs since the debut in February. Research in Motion (NASDAQ: RIMM) sold around 250,000 BlackBerry PlayBook tablet PCs in one month, but Wedbush Securities analyst Scott Sutherland is predicting that the company will sell just 450,000 by the end of the second quarter, 50,000 fewer than previously expected.

Apple (NASDAQ: AAPL), meanwhile, sold 4.5 million iPads in the first quarter of 2011 … and that’s after experiencing supply problems.

What’s the deal? It can’t be the Google software hurting the Xoom, considering the popularity of Motorola’s Android-powered phones. The same could be said of the PlayBook. The BlackBerry has lost ground to Google and the Apple iPhone, but it’s still a potent brand with businesses.

The answer is simple: For the general public, the iPad isn’t a tablet PC. It is its own entity. Much in the way that an iPod was distinct from other MP3 players last decade, so too is Apple’s new hit.

So how can other stocks like Motorola, RIMM, as well as traditional PC manufacturers like Hewlett-Packard (NASDAQ: HPQ) and Dell (NASDAQ: DELL) finally crack Apple’s grip? Here’s how:

Price

Samsung, Motorola, and RIMM have all made the same crucial error in bringing their tablets early to the market to try and steal dollars from Apple: None of them beat Apple on price. Acer, the #3 PC manufacturer in the world, is taking this strategy with its new Iconia tablet. Released at the end of April at $449, Acer’s Android-powered tablet undercuts the lowest-end current iPad by $50. Acer is planning to deliver a model compatible with AT&T‘s (NYSE: T)new 4G network this summer, so it won’t be clear until the last quarter of the year whether price really is the secret to beating the iPad.

Business

The Wall Street Journal reported in February that even though Apple’s focus with the iPad has been consumers, 65% of Fortune 100 companies have either started using the tablet or are actively looking into equipping its employees with the device. This doesn’t mean that there isn’t a serious opportunity to capture the business market with a tablet, especially when coupled with other business services. RIMM may have asked for too much in closely pairing the PlayBook with BlackBerry phones and business services to make headway against Apple. Given the strength of Dell’s business services though, that company might be able to serve an audience with its Microsoft (NASDAQ: MSFT) Windows tablet, the Latitude, in ways the iPad doesn’t.

Television

Analysts have been predicting an Amazon (NASDAQ: AMZN) tablet since the iPad was announced. This was because Amazon’s Kindle was giving the web retailer a reputation as a serious player in consumer electronics. According to Boy Genius Report, Amazon is taking a two-fold approach to the market with a cheap tablet codenamed “Coyote” and a high-end processing powerhouse codenamed “Hollywood.” Hollywood’s processor would be about 500 times more powerful than the one in Motorola’s Xoom. What will Amazon do with all that power? Make what Computerworld‘s Mark Elgan describes as a “Kindle for movies.” The device would be positioned in the market as an all-in-one television and movie library, with a rental library bigger than Netflix (NASDAQ: NFLX) but with prices cheaper than those in Apple’s iTunes store. This could potentially be a hit, especially if purchasing an Amazon tablet gave customers access to the same content on TVs and their home PCs. If the price of Hollywood is too high though, Amazon will have a tough time finding its audience.

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.

Top Stocks For 6/14/2012-19

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TAXS, TaxMasters, Inc., TAXS.OB

TAXS,the IRS tax relief company, is the first publicly traded tax resolution firm in the United States. Started by Patrick R. Cox in 2001, TAXS offers services and counsel to taxpayers across the country facing seemingly insurmountable tax problems, and relief from substantial federal tax debt.

Employing over 300 tax resolution experts, TAXS leverages the expertise of ex- IRS agents, enrolled agents, attorneys, CPAs, and seasoned tax consultants ready to counsel and assist every day people with their specific tax issues today.

Earlier last month, TAXS reported financial results for the first nine months of 2009. Revenues totaled approximately $27 million, an increase of 87% over revenues of approximately $14 million in the same period of 2008. Net income for the nine month period was approximately $6 million, compared to approximately $1 million for the same period of 2008, an increase of nearly 442%. TAXS expects to report its financial results for the fourth quarter and full year 2009 on March 31, 2010.

In addition, TAXS has added 107 new employees in the last year, a 53% increase, bringing its total employees to 307. TAXS is staffing up to address expected strong demand for its tax relief services in the first quarter.

TAXS� strategic plan for 2010 will leverage the increased demand for tax preparation and relief services in the first quarter of the year ahead of the IRS�s April 15th deadline. Given the economic climate that plagued much of 2009 and recent moves in the IRS to attempt to improve revenue collection methods, TAXS expects demand for services to continue to increase beyond the first quarter and throughout 2010.

This plan includes a number of changes and initiatives designed to meet the TAXS� growth, including relocation to a larger office in the Houston area to accommodate new personnel and increased targeted advertising in 2010. TAXS will also continue to institute organizational changes begun in the second quarter of 2009 that are a result of its proprietary and internal Processes, Procedures, and Policies (P3) system. The resulting changes are designed to increase and streamline productivity, while also improving speed of service and customer service management.

With the April 15th filing deadline approaching rapidly, TAXS � Founder, President and Board Chairman Patrick Cox Shares Tips for Selecting a Tax Preparer for 2010 Tax Season:

Cox suggests the following steps when choosing a tax preparer:

Look for a robust and established practice: �Tax preparers that guarantee a return, or over promise what they can do for you should be a red flag for tax payers,� says Cox. �If what the preparer is saying to you seems too good to be true, it probably is.�

Look for someone familiar with your profession, industry or status: �The kind of deductions you qualify for can largely depend on what you do for a living,� Cox says. �Preparers who have experience dealing with police officers, teachers, consultants or military service people are going to best understand the deductions and be able to guide you on what to claim.�

Listen to word-of mouth and referrals: �A great way to find a reputable preparer is to ask a trusted family member or friend. People tend to refer others to tax preparers they can trust, or warn them if they caused problems,� says Cox.

More about TAXS at www.txmstr.com

Pepsico Lags Its Peers

Pepsico (PEP) has been on a tear lately but for the year still lags its peers by a very large margin. Pepsico intends to remedy its image with something for everyone: A major increase in advertising, and increases in dividends and stock buy backs. During the last month the market has taken notice as this hourly trading graph provided by Barchart shows:

During the last 50 trading sessions the stock has even outperformed the market. While the market was down by about 2% the stock was up 10%:

PepsiCo, Inc. engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products and other foods worldwide. It operates in four divisions: PepsiCo Americas Foods (PAF); PepsiCo Americas Beverages (PAB); PepsiCo Europe; and PepsiCo Asia, Middle East, and Africa (AMEA).

The PAF division offers Lay?s and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, branded dips, Fritos corn chips, SunChips multigrain snacks, and Santitas tortilla chips in North America; Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, and Quaker grits, Cap?n Crunch cereal, Life cereal, Rice-A-Roni side dishes, Quaker rice cakes, Pasta Roni, and Near East side dishes in North America; and snack foods under Marias Gamesa, Doritos, Cheetos, Ruffles, Saladitas, Emperador, Tostitos, and Sabritas, as well as Quaker-brand cereals and snacks in Latin America.

The PAB division manufactures beverage concentrates, fountain syrups, and finished goods under Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, 7UP, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist, and Mirinda brands; ready-to-drink tea, coffee, and water products; and concentrate and finished goods, as well as brands licensed from Dr Pepper Snapple Group, Inc. The PepsiCo Europe division offers snacks under Lay?s, Walkers, Doritos, Chudo, Cheetos, and Ruffles brands, as well as Quaker-brand cereals and snacks; and beverage concentrates, fountain syrups, and finished goods under Pepsi, Pepsi Max, 7UP, Diet Pepsi, and Tropicana brands, as well as ready-to-drink tea products in Europe.

The AMEA division provides snack food under the Lay?s, Kurkure, Chipsy, Doritos, Smith?s, and Cheetos brands; Quaker-brand cereals and snacks; and beverage concentrates, fountain syrups, and finished goods under the Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina, and Tropicana brands. The company was founded in 1898 and is headquartered in Purchase, New York. (Yahoo Finance profile)

Factors to consider:

Barchart technical indicators:

• 100% Barchart technical buy signal
• Trend Spotter buy signal
• Above its 20, 50 and 100 day moving averages
• 11 new highs and up 3.68% in the past month
• Relative Strength Index 67.88%
• Barchart computes a technical support level at 66.10
• Recently traded at 68.43 with a 50 day moving average of 65.78

Fundamental factors:

• Pepsico has always been on Wall Street's watch list where 13 brokerage firms have assigned 18 analysts to monitor the numbers
• Analysts predict revenue will increase by 2.40% this year and another 4.50% next year
• Earnings estimates are a decrease of 6.60% this year, an increase of 8.00% next year and an annual increase of 4.86% over the next five years
• These consensus estimates resulted in analysts issuing three strong buy, seven buy, seven hold, single under perform and no sell recommendations
• Brokerage analysts feel if the numbers are met investors could see an annual total return in the 14% - 16% range over the next five years
• The 15.40 P/E ratio is just about the same as the 15.30 P/E ratio of the market
• The 3.07% dividend rate is less than 50% of earnings estimates and above the market's dividend rate of 2.30%
• The company has an A++ financial strength rating
• Target markets of China and Brasil look promising
• Increases advertising should improve sales
• Increases in dividends and stock buy backs should increase the P/E ratio
• Positive comments by Jim Cramer, Tobin Smith, Barclays, UBS and Deutsche Securities should increase interest in this issue

General investor interest:

• Followed on Wall Street and followed by the readers of Motley Fool where 4,518 readers have offered an opinion on the stock
• Of those voting 97% think the stock will beat the market
• The more experienced and savvy All Stars voted 98% for the same result

Over the past year the market has favored Pepsico's peers. While Pepsico was down 4% over that period, Diageo (DEO) was up 19%, Anheuser Busch Inbev (BUD) was up 14% and Coca-Cola (KO) was up 12%:

Summary: If you own Pepsico I'd hold it and if it's in your IRA place it on a dividend reinvestment program. I think the increases in advertising will help revenue and the projected dividend increase coupled with a stock buy back program is a solid plan to increase stockholder value. Investors with new money should look at my standard advice: Always buy stocks with double digit projections of both sales and earnings. Pepsico is not one of those stocks. Holders should monitor the 100 day moving average or the lower 14 day turtle channel for exit points:

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DEO, BUD over the next 72 hours.