HTC Slashes Q4 View; Losing Out To Apple?

Taiwanese phone maker HTC (2498TW) this morning cut its Q4 forecast, both Dow Jones and Bloomberg Newswire services report, saying it will make only about $104 billion in New Taiwan dollars, down from a previously forecast range of $125 billion to $135 billion.

The company blamed the results on “weaker global demand” and “intensifying competition.”

Bloomberg’s Tim Culpan this morning cites Yuanta Securities analyst Bonnie Chang as saying HTC’s “growth streak has come to an end.”

HTC shares traded on the Taipei exchange closed down roughly 6% at 565.

Update: In a note to clients this morning, BMO Capital’s Tim Long writes that the cut in outlook is “company-specific,” and that in his opinion, HTC is losing share to Apple (AAPL), which he rates Outperform.

Sprint-Nextel, Long thinks, had the potential to sell 2 million to 2.5 million HTC handsets this quarter, but the introduction of Apple’s iPhone 4S last month probably cut that number in half. HTC is also being affected in North America and elsewhere by the roll-out of Samsung Electronics’s (SSNLF) “Galaxy S II” smartphone.

Long thinks Qualcomm (QCOM), which he also rates Outperform, may be at risk to up to $750 million of CDMA chipset revenue from HTC’s lower view, though he thinks the company can make it up in sales at other vendors.

Morgan Stanley Buys Indonesian Brokerage Seat

James Gorman, Morgan Stanley CEO, had said last year the firm wanted to move into Indonesia. (Photo: AP)

For a while, Goldman Sachs was interested in increasing its presence in Indonesia. But now it seems that, as Goldman's interest waned, Morgan Stanley's grew till it succeeded in purchasing a seat on the Indonesian stock exchange, where it will be able to trade securities and provide research once the deal has been completed.

Reuters reported Wednesday that although Goldman had originally pursued the seat, owned by local securities firm PT Tiga Pilar Sekuritas–seats on the Indonesian exchange are limited to 120, so companies wishing to trade must purchase an existing seat–its enthusiasm had been judged insufficient, according to a Jakarta-based source. Tiga Pilar's owners then turned to Morgan Stanley, whose enthusiasm was apparently sufficient.

On Wednesday, trading by Tiga Pilar was suspended pending the execution of the deal, which will give Morgan Stanley entrée to the biggest economy in Southeast Asia. Regulatory approval has not yet been granted.

According to the report, Morgan Stanley received an underwriting license in 2008, but wants to expand its presence by means of a full broker license. Goldman has neither in Indonesia. James Gorman, Morgan CEO, said in a November statement that the firm intended to establish an onshore presence in Indonesia in 2012, as well as a new equity brokerage operation in midyear, since it views the country as a strategic priority.

Unidentified sources cited in the report said that the company has hired James Brewis, former head of sales for the Indonesia unit of UBS, as head of its Indonesian equities. It also intends to expand, hiring additional salesmen, traders and research staff in the months to come.

Harry Su, head of research at Jakarta-based brokerage PT Bahana Securities, was quoted saying, "The level of competition is obviously going to be heightened, whether it is about underwriting and stock deals or human resources. I think brokerage firms will have a challenging time hiring across the board as they will aim to take many people from local firms, while there is a scarce supply of good brokerage professionals here."

Perhaps Morgan intends to challenge Citigroup, which purchased Indonesian brokerage Republik in 2010 and then supplemented staff with additional bankers and analysts. Citigroup also hired Ferry Wong from Macquarie to be its head of research. Since then, it has risen to second among global banks, behind Deutsche Bank, for underwriting equity deals; it led debt underwriting in 2011.

Amazon Kindle Reviews: Nice Price, But No iPad

TechCrunch.com offers a mixed, but mostly positive, review of the new Kindle Fire.

The newest Kindle e-reader from Amazon.com (AMZN) on sale, with its Google (GOOG) Android system, has a color touch screen and sells for $199.� It doesn’t compete with the iPad from Apple (AAPL), says Erick Schonfeld, a self-described “Apple Fan Boy” and Editor at TechCrunch.com.

In its Fly or Die video review, Schonfeld madly scratches on the thing, playing the Fruit Ninja game, and says the new Kindle can handle all his basic digital media consumption needs from music to apps.

“I don’t think of it as a competitor to Apple …. it doesn’t really stack up to the iPad, but it also doesn’t have to either,” Schonfeld says.

TechCrunch Gadgets Editor John Biggs says he wishes Kindle Fire had more storage so he could do more offline, like watch more movie selections on a plane. Without WiFi he says, no access to the cloud means no access to what you want from Netflix (NFLX) etc.

Walt Mossberg, the Wall Street Journal personal tech guru, thinks of the Kindle as a hardware front-end to cloud content,� “a good�though not a great�product and a very good value…”

“The Kindle Fire is much less capable and versatile than the entry-level $499 iPad 2. It has a fraction of the apps, a smaller screen, much weaker battery life, a slower Web browser, half the internal storage and no cameras or microphone. It also has a rigid and somewhat frustrating user interface far less fluid than Apple’s. But the Fire has some big things going for it. First, the $199 price … the brand … [and] a large, famous, easy-to-use content ecosystem that sells music, video, books and periodicals …”

This Oil Stock Looks Like a Huge Bargain

Since the release of its second-quarter results, Suncor Energy's (NYSE: SU  ) stock has nosedived almost 30%. This, I believe, is a classic case of market sentiments, rather than some fundamental weakness, driving the stock price. Read on and we'll see why.

Hindsight matters
There's no doubt the latest quarter results weren't too impressive. Downtime taken to maintain the company's oil sands operations ate into production, which averaged 243,000 barrels per day, compared with 295,500 bpd during the year-ago quarter. Additionally, divestiture of non-core assets has also played a role in decreased production.

However, this is exactly what I'd call good news. Such divestitures and housekeeping measures reflect management's intentions. Focusing on the long term seems to be the catchphrase here.

Actually, I'm not too surprised. In its 10-year growth strategy, Suncor plans to increase production to more than 1 million barrels of oil equivalent per day by 2020. The company plans an overall production growth of around 8% per year, which includes a 10% annual growth in oil sands production.

The real McCoy
Canada's oil sands have catapulted the nation into third place in terms of proven reserves. In 2009, Alberta's oil sands accounted for 50% of total crude oil produced. Given the rapid pace of development, this figure is only bound to grow. Suncor has strategically partnered with Total E&P Canada, a wholly owned subsidiary of Total (NYSE: TOT  ) , to develop the Fort Hills and Joslyn oil sands, which have the capacity to produce a huge 390,000 bpd.

How is the stock currently valued?
All these factors make me want to take a look at the stock and see how it stacks up against its closest peers:

Company

TEV/EBITDA
(TTM)

P/E
(TTM)

P/B

Suncor Energy 6.3 15.2 1.24

Canadian Natural Resources

(NYSE: CNQ  )

7.1 28.1 1.68

Imperial Oil

(NYSE: IMO  )

7.6 11.8 2.59

Cenovus Energy

(NYSE: CVE  )

10.4 24.9 2.79

Source: Capital IQ, a Standard & Poor's company; TTM= trailing 12 months.

Suncor's multiples look pretty impressive. Currently, it is among the cheapest, both in terms of its total enterprise value and its share price. Also, its price-to-book value is now at its lowest in the last five years.

This is where things look interesting.

Given the company's promising growth plans, its oil sands properties might still be way undervalued. This, coupled with the downward trajectory of its price-to-book value, makes me say that the stock is a huge bargain.

Foolish bottom line
Canada's huge reserves and politically stable environment make it the best bet among the top oil-producing countries. With technological advances and strategic partnerships in place, there's no reason why companies like Suncor shouldn't deliver on their plans. If you'd like to stay up to speed on the top news and analysis on�Suncor, add it to�My Watchlist.

Soda Slump: J.P. Morgan Downgrades Coke on Valuation

Amid tough macroeconomic conditions, many investors have turned to high-quality dividend payers like Coca-Cola (KO). Now some analysts are saying Coke’s valuation may have gotten ahead of itself.

J.P. Morgan downgraded Coke from Overweight to Neutral, citing negative revisions due to foreign exchange, interest income and a tough macro environment. The firm lowered its price target to $76 from $80.

“While Coke�s overall fundamentals are unquestionably amongst the best in our group, we think the valuation more than reflects that,” wrote analyst John Faucher, in a note.

Consensus will likely come down more than investors realize, with foreign exchange driving the reductions, Faucher added. J.P. Morgan is assuming that foreign exchange will be a 3% hit to 2012 earnings, versus its previous estimate of a 1% to 2% boost.

“With rates coming down and Coke lowering its Brazilian real exposure, we expect interest income to fall by $30 million sequentially in both Q3 and Q4,” Faucher wrote. “This hits 2011 by three cents and 2012 by another five cents.”

Coke is up almost 40% since July 2010, Faucher noted, outperforming the S&P 500 by more than 25%. Shares trade at 17 times J.P. Morgan’s 2012 estimate, which the firm considers too steep.

Coke shares were down 2.8% at $65.66 in afternoon trading.

Invest in Spain: We Carried on Regardless

According to a new Standard and Poor report Spanish house prices are set to fall for at least another 4 years, and could fall by up to 25% during this time. When you add to that the possibility that Spain could yet leave the Euro and leave owners with a home in a devalued currency, and the possibility that potential new capital controls could stop us moving money around Europe, then surely it is not a good idea to invest in Spanish property right now. That said, there are some great deals and great investment opportunities in Spain at the moment, can we afford to miss out on those over things that might never happen?

The answer to that question is really a personal one; a great deal is in the eye of the beholder, a great investment is relative to what the investor is looking to achieve and everyone has their own opinions on what will and won't happen to Spain, the Euro and Spanish house prices – or at least listens to different people. However, as most foreigners buy in Spain for lifestyle reasons with investment being a secondary consideration, we can asses it from that angle.

I'll Get Out My Crystal Ball...

Firstly, let's look at whether these things will happen, I'll get out my crystal ball and... Of course I don't know and I can only predict the future with the same educated guesswork that anyone can, at the moment such predictions instil little confidence in anyone, let alone property buyers. What I will say is this: according to S&P Spanish house prices could fall up to 25% in the next 4 years, and have already fallen 22%, this is a total of 47% since the peak. Right now, bank owned properties in Spain are readily available to the public through Polaris World at discounts of 50% and above.

As for the chances of Spain leaving the Euro, the fifth biggest economy in the EU and if Spain goes it is likely that Italy will follow then we are up to the fourth biggest, at which point France is probably safe but above that the UK is still shaky. It is my belief that Spain's departure would be the beginning of the end for the EU, so either some country (yes Germany I'm looking at you) or grouping of countries and/or bodies will find the money to completely save the EU, that is to safeguard investments in the troubled countries, or every Euro country will be in the same boat of having a new currency anyway.

So we can either not buy another car or asset for god knows how long it takes for decisiveness or we can carry on living now in the belief that the world's largest monetary union either will out, or that new currencies will be balanced at around the same weight anyway.

Great Investments – What?

As for the potential to find good investments in Spain we need look no further than Murcia. I cover Murcia in each of these articles, because at the moment few can question its investment potential. The foundation stone has just been laid for the new paramount theme park in the region, and it is also home to a new international airport. This will bring in millions more tourists to an already popular area. In most Spanish locations you have to look for areas that aren't over developed, but in Murcia you have the knowledge that even if some areas have been over developed any oversupply will be more than absorbed by the increasing tourism.

This rental occupancy slam dunk comes at a time when Murcia is awash with bank owned properties at heavily discounted prices of 50% and above, and with finance of up to 100% readily available. The advent of such a world class brand opening a new theme park makes Murcia an easy choice for investors, occupancy is already strong in Murcia resorts and the new theme park is really a certainty to bring in millions more renters, not to mention massively boosting property values in the area. It takes a lot of the risk out of buying property in Murcia leaving only the many benefits. Right now there are dozens of bank owned properties in Murcia including CAM bank repossessions in Spain to choose from.

Grow Your Personal Wealth By Piggy-Backing on Emerging Markets

It may be hard to believe that people are getting wealthier these days, but they are - just not in the United States.

No, the growth in personal wealth that we're seeing today is taking place in emerging markets half way around the globe - far removed from the employment and debt problems plaguing the West.

Brazil, Chile, China, Colombia, India, Indonesia, Malaysia and South Africa over the past decade have all posted annual gains in individual wealth of more than 10% - and some well in excess of even that figure.

That compares to growth of just 5% in that period for the United States, Japan, and Europe.

What these growth ratessignal is a trend toward steadily increasing purchasing power - as well as consumption and investment - among the people in the world's emerging nations. That means growing markets and increased profits for businesses and financial institutions.

It also means more moneymaking opportunities for savvy investors with the foresight to ride the trends along with them.

Where's the Wealth Growing? To uncover the best ways to profit, we must first find where the wealth is growing the most - and where it will keep rising.

The McKinsey Global Institute (MGI), a consulting firm specializing in management and economic research, maintains an index of the world's leading urban centers, known as the City 600. MGI reports the 600 cities in that group - 380 of which are in developed nations, including 190 in North America - currently generate just more than half of global gross domestic product (GDP).

However, by 2025, that percentage will increase to 60% of global GDP, and 136 new cities will move into the top 600. All 136 will be located in developing nations - with 100 from China alone - displacing North American and European cities. Another recent report from CLSA Asia-Pacific Markets, Asia's leading independent brokerage group, predicts wealth growth rates will increase even faster among high net worth individuals (HNWI), defined as those with investible assets of $1 million or more. CSLA forecasts an increase in Asian HNWI from 1.2 million today to 2.8 million by 2015 - a 140% increase - with roughly 60% of those coming from China.

So, if you truly want to target growing individual wealth, look toward Asia.

To be specific, the country with the largest rise in average personal wealth over the past decade is Indonesia.

After getting hit hard in the Asian financial crisis of 1997, Indonesia's average personal wealth jumped from about $2,300 in 2000 to $12,109 this year. Indonesia has plenty of room to grow since only 2% of its population has a net worth of more than $100,000, compared to a worldwide average of 9%. The biggest future growth will be in the country's number of high net worth individuals, expected to increase 25% by 2015.

Another Asian nation with a rapidly rising rate of personal wealth is India.

Individual wealth in India almost tripled over the past decade, rising from $2,000 at the turn of the century to more than $5,500 in mid-2011. The country's total wealth per individual is still low due to India's large population - roughly 735 million adults - but its middle class will continue to enjoy rising incomes.

And as expected, China is high on the list of countries getting richer.

China's average adult wealth has risen from $6,000 in 2000 to $21,000 this year - despite a 20% decline during the 2008-2009 financial crisis.

The Chinese yuan's slow rise relative to the U.S. dollar contributed to the increase, but it mostly resulted from actual economic expansion - a boom that lifted China to third place in terms of total household wealth worldwide, behind only the United States and Japan.

In fact, China is expected to surpass Japan to become the world's second wealthiest country by 2016, with total personal wealth rising by about $18 trillion to almost $39 trillion.

Profit from the Personal Wealth ShiftInvestors can profit from these global changes with the following four individual companies, all poised to benefit from the shifting wealth patterns:

  • Patni Computer Systems Ltd. (NYSE ADR: PTI), recent price $13.58 - A wealthier populace demands more information and better technology, and Patni helps provide both. It supplies IT consulting and software development services to a variety of Indian companies - including those outsourced call centers we all love so much. The company also operates in North America, Europe, Japan and the rest of the Asia-Pacific region. Patni earned $1.20 a share over the past year, giving it a Price/Earnings (P/E) ratio of 11.4, with estimates for $1.35 in the coming year and a potential price target of $21 a share - a 55% premium to where it's trading now.
  • PT Telekomunikasi Indonesia ADR (NYSE: TLK), recent price $34.05 - State-subsidized PT Telekomunikasi, with its nine subsidiaries, is Indonesia's largest provider of phone, data-transmission and connection services and Internet access. This will be a popular industry as Indonesians have more purchasing power. The company is expected to earn $2.81 a share this year, with an increase to $2.98 in 2012. That equals a projected P/E of 11.1, with analysts offering an average one-year price target of $38.43.
  • Seaspan Corp. (NYSE: SSW), recent price $12.71 - A growing and increasingly wealthy population quickly looks abroad for products it can't get at home, and many of those imported goods will arrive on container ships chartered from Seaspan. The company's 58 vessels (with three more leased and seven on order) also carry a huge volume of developing world exports to the West. The global downturn hurt Seaspan's revenue the past three years, and high oil prices reduced operating margins, but the new ships will improve fleet efficiency and rising demand will increase charter rates. This year's projected profits are $1.08 a share, with $1.40 projected for 2012, giving Seaspan a forward P/E of 10.1. The average analysts' price target is $18.88, and the 76-cent dividend provides a healthy 5.3% yield.
  • Pearson PLC ADR (NYSE: PSO), recent price $18.28 - With increased wealth comes increased literacy, and London-based Pearson caters to that market. The company provides both printed and online reading materials (including The Financial Times, a share of The Economist and Penguin Books) to more than 60 countries worldwide. That includes China and Brazil, where demand for educational supplies has skyrocketed. Pearson has a hefty cash flow and generated earnings of $1.03 a share over the past 12 months, with $1.28 projected for fiscal 2011 and $1.36 for 2012. It has a variable dividend, but has paid 76 cents over the past year for a 4.0% yield.
For investors looking for a broader focus, here are three exchange-traded funds (ETFs) targeting regions with the greatest personal wealth growth and middle-class demand:

  • Global X FTSE ASEAN 40 ETF (AMEX: ASEA), recent price $15.14 - With a current market cap of $22.5 million, this fund tracks The Financial Times index of 40 companies in four Southeast Asian countries. It was hit fairly hard in the August/September sell-off. However, it rebounded nicely in October and should easily regain its 52-week high of $17.51 if the economic recovery in the region continues at its present pace.
  • Market Vectors Indonesia Index ETF (AMEX: IDX), recent price $29.27 - This is a passive fund tracking an index of the leading stocks trading on the Indonesia stock exchange, with a current market cap of $455.3 million. The fund is well off its 52-week high of $34.99, but has been in a steady uptrend since mid-September.
  • EGShares Emerging Markets Consumer ETF (AMEX: ECON), recent price $22.81 - As noted earlier, increasing wealth translates into more consumption, and this EGShares fund is designed to benefit such improvements. It tracks the Dow Jones Emerging Markets Consumer Titans 30 Index, a ranking of 30 of the largest consumer-driven companies in the developing world. With $239 million in assets, ECON shares traded at $24.93 early this year, then pulled back in the market sell-off, but have rallied from a late-September low near $19.50.


Cal-Main FYQ2 Beats, Stock Up 4%

Egg producer Cal-Maine Foods (CALM) is up $1.19, or 4%, at $32 this morning after the company announced fiscal Q2 sales below estimates but beat profit expectations.

Q2 revenue for the three months ended November 28 fell 4% to $229 million, yielding profit per share of 67 cents. Analysts were expecting $233.65 million and 66 cents.

Management remarked egg supply and demand are respecting to be in favorable balance.

The company will pay a 17-cent-per-share cash dividend on February 11 to shareholders of record on Jan 27, it said. The company began a variable dividend policy on November 30, 2007, to replace its prior fixed dividend policy.


A Number Of Tips for Your Passive Source of Income

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If you need to produce a continuing revenue from your computer a blog a very good idea. Choose a subject you are interested in, a cause you wish to support or perhaps an area in which you are an expert. Set up your blog site with everything you need and create internet affiliate marketing, ads, attachments with other sites and start filling it with info, articles, news and pictures of your subject.

While you gather a lot more readers and they use the ads, products and then click bank, the internet site will quickly produce passive income. Even when you are sleeping, your blog site continues to earn money and produce a residual income. Additional tips are producing a sales site, advice site, consultation, make a donation button, internet shop front and many other computer ideas to match your lifestyle while delivering income all the time.

Anybody can become involved in this quest. It is a great way to enhance your revenue in hard times for that little extra you will need for the utilities, gas in the car, family surprises or one more medical bill paid. Do not sit on the side and complain about the economy, take action. Begin to with a little investigation and study for your second income.

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Futures Defy Weak Overseas Sentiment; Target, JCP in Spotlight

Overseas stocks were mostly down on Wednesday, particularly in Hong Kong, but U.S. index futures pointed higher early on Wednesday. It’s a curious situation given the pattern of the past two weeks — U.S. stocks have tended to trade on European sentiment.

My colleague Brendan Conway sees a possible shift in sentiment, with some investors trading emerging market risk for U.S. risk. Barrons.com Editor Randall Forsyth also quotes Richard Russell saying that investors may simply be picking up some oversold stocks given that the market has been down 10 of the last 11 days. Either way, “risk-on” is peeking its frightened little head out this morning.

Housing starts rose in April, and March numbers were revised upwards, which gave U.S. stocks an extra jolt.

Dow futures rose 61 points to 12,666; S&P 500 futures rose 7.8 points to 1,336.

Target (TGT) rose 1.7% in pre-market trading on better than expected earnings.

JC Penney (JCP) plunged 15% after a very messy earnings report in which it withdrew its GAAP guidance and suspended its dividend.

General Electric (GE) rose 2.7% after GE Capital resumed paying a dividend to the parent company.

General Motors (GM) rose 3.9% after Berkshire Hathaway (BRKB) revealed a new stake in the company

Abercrombie & Fitch (ANF) fell 5.9% after the retailer’s same-store sales declined on weakness in Europe.

This afternoon we’ll be posting updates from the Ira Sohn investment conference in New York, where top investors like John Paulson, David Einhorn and Bill Ackman are expected to speak and give their latest investment ideas. Stocks tend to move based on presentations at the conference. We’ll also have more on what top investors have been buying and selling, based on 13f SEC filings that were released late on Tuesday.

Safeway Jumps as Fuel Boosts Same-Store Sales

Safeway (SWY) shares jumped 5.5% in early trading after the supermarket chain posted better than expected earnings results and growing-same store sales.

Safeway posted 38 cents of EPS, three cents better than expectations. Same store sales jumped 4.9%, or 1.5% after excluding fuel. The company’s gross profit margin narrowed to 27% from 28.2%. The company said that margins were lower because of higher fuel sales (presumably those margins are weaker) and a change in accounting for gift cards. The company also said operating expenses fell by 100 basis points to 24.5% as it attempts to control expenses on the face of escalating food costs.

Same store sales should rise about 1% for the year, Safeway said in reaffirming its guidance. The stock is down 16% for the year.

Short Portfolio Update: Covering Amazon, Shorting Research In Motion

At the end of October, I started a theoretical short portfolio as a way to show which names I feel will perform the worst going forward. I had one formal update last month, and here's how things stood at that point in time.

Company Shares Price Value
Amazon (AMZN) 700 $197.14 $137,998
Sprint (S) 60,000 $2.62 $157,200
Netflix (NFLX) 1,600 $78.06 $124,896
National Bank of Greece (NBG)* 50,000 $2.45 $122,475
Suntech Power (STP) 44,500 $2.34 $104,130
Green Mountain Coffee (GMCR) 2,800 $51.69 $144,732
Orbitz (OWW) 63,000 $3.07 $193,410
*Since last update, company executed a 1 for 5 reverse split. Share and price data reflect split.

Now, I've maintained most of these holdings without any changes recently, but I did recently make one swap to reduce my exposure to Orbitz, which unfortunately had grown rather large thanks to its constant rallying. As I posted in my Instablog, here were the changed I made on December 14th:

  • Covered 22,000 shares of Orbitz, taking a loss of $20,273.
  • Shorted additional 45,500 shares of National Bank of Greece for a total position of 95,500 shares.
  • Realized losses after these moves: $23,947

Now since my last update, six of the seven holdings have gone done, good for me. Orbitz has continued higher, but I think it will fall back down eventually.

So today I'm deciding to make another change. I'm deciding to take a nice profit on Amazon. I have made nice gains on the stock and I feel that at this point, there is more room for upside than downside. Amazon's Kindle Fire has done extremely well, even starting to take away some market share from Apple's (AAPL) iPad. Now we all know that the two are not completely similar products, but I'm expecting a strong holiday season from Amazon. Recent good news out of delivery company FedEx (FDX) has only brightened my mood. I think both Amazon and Apple can have great holiday seasons. Two things I want to point out. One, Apple usually has a pre-earnings rally, and I think it will drag Amazon up with it. Second, Amazon is trading at about 1.6 or so times expected sales this year, and that's well below the average of 1.87 it traded at from 2004 to 2010. Amazon doesn't trade off of earnings, so I'm really not concerned with the high P/E at the moment.

To make up for Amazon's exit, I will add a new short position in Research in Motion (RIMM). The company recently reported a terrible earnings report, prompting me to write about Research in Backward Motion. On Wednesday, the stock rallied hard amidst a series of analysts upgrades and buyout rumors. There have been multiple rumors out that RIMM has squashed potential takeover attempts from the likes of Amazon, Apple, and Nokia (NOK). I think at this point takeover attempts are useless, as the large size of RIMM would make a buyout rather cumbersome for the acquirer. If RIMM does not turn things around, I think it could eventually be taken out, but I don't see that happening anytime soon. I'll take Wednesday's jump as a way to get in, and will try to ride this position down to $10.

So here are the moves that will be made in the portfolio. In addition to the Amazon cover and Research in Motion short, I will also be shorting more Netflix and covering a small portion of National Bank of Greece. The last two moves are to reset the portfolio to roughly the $1,000,000 start balance that it resets to each time a move is made.

  • Covering 700 of Amazon.
  • Shorting 10,000 of Research in Motion.
  • Shorting 500 of Netflix.
  • Covering 500 of National Bank of Greece.

Overall, the portfolio has $6,132 in realized gains, and $64,445 in unrealized gains for a total gain of $70,577. That is a 7.6% since the start of this portfolio, which is more than double the S&P 500's loss of 3.22%. It is doing well, but I don't like the fact that Orbitz has nearly doubled since the start. I'm hoping that position comes back down. The next move I will most likely make is to cover Green Mountain in the low $40s if it reaches those levels.

I will update you again on my next moves, but remember, this is a theoretical portfolio. It does not take into account costs of transactions or costs to borrow shares. Remember that shorting stocks is very risky, and is not right for all investors. I will leave you with the current portfolio's holdings.

Company Shares Price Value
Research in Motion 10,000 $13.78 $137,800
Sprint 60,000 $2.33 $139,800
Netflix 2,100 $70.97 $149,037
National Bank of Greece 95,000 $2.00 $190,000
Suntech Power 44,500 $2.28 $101,460
Green Mountain Coffee 2,800 $45.30 $126,840
Orbitz 41,000 $3.78 $154,980

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

AAPL: Overly Pessimistic Assumptions Mar Stock, Says Bernstein

Sanford Bernstein’s Toni Sacconaghi this morning penned a think piece on Apple (AAPL) shares, pondering the question of why the stock trades at a discount to the market “despite staggering growth.”

Sacconaghi bills this as the first of a two-part report.

Sacconaghi in summary believes that the stock is “not only less expensive that it appears, but that its valuation implies a set of fantastically pessimistic assumptions.”

For one thing, Sacconaghi thinks Apple doesn’t get credit for a more strict approach to paying taxes:

Apple’s tax policy remains relatively conservative, resulting in a tax rate that is 280 bp higher than the average large cap tech company. Moreover, interest rate yields of <80 bp are 200 bp below the average since 2001. Put these together, and Apple’s earnings power is currently understated by 8%.

He also thinks the stock is pricing in a drop of 2% in free cash flow “in perpetuity.

But such a model would mean something very extreme — and bad — would have to happen to Apple’s sales of the iPhone, all else being equal, he writes:

If we assume reasonably conservative assumptions on Apple’s other products (iPad, Mac, iPod, etc) and no pressure to margins, this scenario implies a -27% revenue CAGR on the iPhone from 2012-15. If Apple kept iPhone pricing unchanged vs. FY12 � thereby choosing to grow slower than the smartphone market � its valuation implies iPhone share decreasing dramatically from 18%+ in FY12 to <5% by FY15. Even more strikingly, iPhone unit sales would decrease from an estimated 116M in FY12 to just 45M by FY15 � which appears nearly implausible. Even extremely conservative growth projections for the iPad nevertheless imply greatly reduced iPhone share.

Either that, or Apple’s gross margin would have to collapse by 1,000 basis points (10 percentage points), which he also thinks is unlikely.

Sacconaghi reiterates that Apple shares are his “top pick” and he maintains his price target of $575.

Apple shares today are down $2.92, or 0.7%, at $390.70.

Insiders are Scooping up this Cash Machine

There are literally thousands of companies that have been built on how people behave. Most of the time, these companies exist to serve people's demands for something convenient, necessary or entertaining.

But some companies exist because everyone is prone to mistakes. These are the kinds of investments Peter Lynch always sought out, because they are seen as being somehow distasteful. One such "distasteful" investment is in household budgeting. Most people just plain stink at it. If they aren't prepared when disaster strikes, they need a helping hand.

That's where World Acceptance Corporation (Nasdaq: WRLD) comes in. The company has been around for more than 40 years and is one of the last remaining companies to offer unsecured installment loans. Some may remember companies like Beneficial or AVCO, which provided unsecured personal credit lines. All those companies got eaten up by larger financial entities, leaving players like World Acceptance to stay the course. It's done so in a very profitable manner.

 

World's success isn't just based on the fact that people fail to make ends meet -- poor budgeting gets them into World's offices. But what keeps them there are three great aspects to World's loan structures.

First, World offers loans that are large enough to make a difference. Unlike the payday lender, which offers loans of around $500 for a period of two weeks, installment loans last an average of nine months at World (although the term is usually twelve months), and the average principal is about a thousand bucks.

Second, World uses the "Rule of 78s" when calculating a borrower's payment. Under this model, the customer makes the same size payment each month, but the interest is front-loaded. For a 12 month loan, 12/78ths of the finance charge is assessed as the first month's portion of the finance charge, 11/78ths of the finance charge is assessed at the second month and so on until the 12th month, when 1/78ths of the finance charge is assessed.

This is important because it plays into the third great aspect of World's business -- frequent refinancing. More than 70% of World's customers refinance their loan in the first few months. So if a customer refinances after three months, World has collected 33/78ths (42%) of the interest on the original twelve-month loan and issues a new loan again with front-loaded interest.

World Acceptance has been aggresively expanding during the past few years, almost doubling the store count (from 579 to 949) and receivables portfolio (from $352 million to $770 million) since 2005. Management has been extremely cautious about opening stores in states that aren't friendly to the business from a regulatory standpoint, so it has faced very few legislative battles (and because payday lenders get all the attention). The company has also dipped its toe into Mexico and plans to open 15 offices there in 2011.

Management has deployed capital wisely and enjoys superior credit terms with its backers. The company has drawn down $99 million of a $238 million credit facility at a mere 4.25%. Considering it then turns around and lends this money to customers at APR's exceeding 100%, it's no wonder the company has pumped out $450 million in free cash flow during the past three years. World has also bought back $150 million of its own stock during the past 10 years. In fact, when the stock hit a speed bump in April and May, one insider scooped up more than 360,000 shares.

5 Pharmaceutical Stocks To Consider Now

Pharmaceutical companies remain under pressure as they deal with increased competition from each other, which threatens their market share. Many of them are losing the exclusive patents they have for their products as more drugs are becoming generics. This is forcing the companies to increase spending for research and development to come up with new products. The problem is that decreasing revenues leave them with fewer dollars to invest in such measures. We look at five of the top pharmaceuticals and examine some of the problems they face as they try to maintain their foothold in the industry.

AstraZeneca PLC (AZN): At the time of this writing, the company was trading around $47. Its 52-week trading range was $40.59 to $52.24. At the current market price, the company is capitalized at roughly $63 billion. The company's revenues were $33.6 billion, while net income was $10.1 billion.

Competition in the generic market caused AztraZeneca to lose about $450 million. In early February, the company announced that it would cut 7,300 jobs from its workforce to help reign in spending. The company's revenues are under pressure, as several of the key drugs in its pipeline will be made available in generic form over the next few years. These include Crestor and Nexium.

Earnings per share for the last year were $1.25. It paid a dividend of $1.70, yielding 3.5%. This yield was less than some of its competitors, such as Pfizer Inc. and Merck & Co., Inc., which had yields of 4.1% and 4.4%, respectively. AstraZeneca did have better operating and gross margins than its competitors. Its operating margin was 41.06%, which is higher than many of its competitors. Its gross margin is 82.14%, which is also higher. However, those margins have declined in recent years, indicating the company has less money to spend on research and development.

The gross margin for the industry was 50.64%, and the operating margin was 11.84%. While the company's yield is attractive, its margins are problematic. This stock is a hold.

Bristol-Myers Squibb, Co. (BMY) Shares are trading around $32 at the time of writing. Its 52-week range is $24.97 to $35.44. Bristol-Myers earned $21.2 billion in revenues last year. It paid a dividend of $1.36, yielding 4.2%.

Its earnings per share were $2.16 last year. The company announced that its GAAP earnings per share rose 79% to $.50 in the fourth quarter and its non-GAAP EPS rose 13% to $.53. Its net income was $3.71 billion and its marketing capitalization is $54.7 billion.

2011 was a stellar year for Bristol-Myers. The company received several product approvals, which contributed to its solid operating performance. Also, it is making strides to continue its product lines. In January, it agreed to pay $26 a share to buy Inhibitex, which makes a drug to treat hepatitis C. This was an all-cash deal valued at $2.5 billion. Bristol-Myers' operating margin was 32.75%, and its gross margin was 74%. Company officials believe these accomplishments, along with a dividend increase and an ongoing share repurchase program, show it is committed to driving shareholder value in 2011. BMY is a buy.

Eli Lilly and Company (LLY): With shares trading around $40 at the time of writing, Eli Lilly was closing in on its 52-week high of $42.03. Its low was $33.46. Eli Lilly has a market capitalization of roughly $44 billion. Its earnings per share is $4.18. Recently, the company suffered the loss of one of its patented drugs, which the company says caused its fourth quarter 2011 revenues to decline by 2%. The patents for Zyprexa and Gemzar have expired. The company's finances were particularly affected by declines of Zyprexa, which is an antipsychotic drug. The drug's revenue dropped 44% in the fourth quarter to roughly $750 million. To help maintain financial stability, the company will freeze the salary of most of its employees.

The company reported that its 2011, fourth quarter gross margin decreased 4.6% to about $4.7 billion. The gross margin was 78.1%. The lower sales of Zyprexa was the main culprit, while Gemzar's sales impacted the margin to a lesser extent. The operating margin was 27.06%. Eli Lilly acknowledged that the margin decreased 19% during the 2011 fourth quarter because of the company's lower gross margin and increased marketing, selling and administrative expenses. That was offset by increases in spending on research and development.
Eli Lilly's continued commitment to R&D and its strong yields make it a buy.

Merck & Company, Inc. (MRK): Shares are trading around $38 at the time of writing. This is approaching the company's 52-week high of $39.43. Its low was $29.47. The company recently reported that, although its revenues missed expectations for the 2011 fourth quarter, its earnings per share for that period came in slightly higher than the estimates. Merck is the second largest pharmaceutical company in the U.S. Its revenues may be further improved if it decides to acquire companies to boost its hepatitis C drug pipeline. Fourth quarter 2011 revenues were roughly $12.9 billion, while the estimate was about $12.5 billion. Earnings per share for the quarter were $.97, which was higher than the $.95 per share that was predicted. Its earnings per share were $1.37. Merck pays a dividend of $1.68, yielding 4.4%, which is in line with some of its competitors. For example, Eli Lilly and Co. and Pfizer Inc. paid yield of $1.96 and $.88, respectively. That yielded 4.9% for Eli Lilly and 4.10% for Pfizer. Merck increased the quarterly dividend 11% to $0.42 per share.

The company reported full-year and fourth-quarter double-digit worldwide growth for four of its top selling drugs - Januvia, Janumet, Isentress and Gardasil. The company credits sales from these drugs as the main reason revenues increased. It plans to file for approval for five products it deems "major" between 2012 and 2013. Revenues for 2011 were $48 billion, which was a 4% increase over 2010.

The company has made investing for the long term a priority, which should bode well for its future earnings. It has a $117.1 billion market cap and a net income of $4.2 billion. Gross margins expanded and operating margins dropped. Its gross margin was 69.42%, and its operating margin was 25.87%. While the gross margin was better than the prior year's, the operating margin was worst. Its price to earnings ratio is 28.10, which is twice as strong as the industry's average of 14. Merck's commitment to increasing its pipeline make it a buy.

Pfizer Inc. (PFE): Shares are trading around $21 at the time of writing, when the company announced a major recall of one of its birth control pill products. The recall stemmed from a possible under dosage or over dosage in the pill called Lo/Ovral 28. Pfizer announced in late January that it was voluntarily recalling the oral contraceptive, and that the cause of the problem had been identified and corrected. It remains to be seen how the recall could affect the company's earnings. It may face lawsuits from users of the pill becoming pregnant because of they received an incorrect dosage.

Pfizer pays a dividend of $.88, yielding 4.1%. Its 52-week trading range is $16.63 to $22.17. Its operating margin is 27.49% and its gross margin is 77.7%. Its price to earnings ratio is 14.66. Pfizer has a market capitalization of $162.3 billion, and its sales are the largest in the world. Earnings per share were $1.44. The company says it is committed to repurchasing approximately $5 billion of its common stock in 2012 under its recently authorized $10 billion share repurchase program. It plans to pay more than $6 billion in dividends.

In terms of sales, Pfizer is the largest pharmaceutical company. It had been the exclusive maker of one of its top selling drugs - Lipitor. The extent of the impact on the company's overall sales remains to be seen. This coupled with the mishap with the oral contraceptive and possible lawsuits present financial challenges. This stock is a hold.

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

10 Stocks to Make You Green With Profits

T. Rowe Price

Click to EnlargeT. Rowe Price (NASDAQ:TROW), which was founded 75 years ago, enters 2012 on a strong note, notching record annual average assets under management, annual net revenue, net income and earnings per share for 2011. Assets under management rose to $489.5 billion. The company�s popular target-date retirement funds accounted for $66.9 billion of T. Rowe�s assets under management at year-end.

Running up short-term records is something any company can achieve by taking on enough risk and debt. But at T. Rowe Price, management focuses on the quality of earnings. The company carries no debt.� It also holds $1.7 billion in cash and mutual fund investments — that�s over a tenth of its market capitalization.

But not only is the fundamental case for investing in T. Rowe Price strong, the technical case is as well. You can see on my chart for TROW shares that the stock�s 50-day moving average has crossed over its 200-day moving average and is headed upward. That�s a bullish sign. T. Rowe Price has increased its dividend in each of the last 24 years. Over the last five years, the dividend has been increased at a compound annual growth rate of 16%. Buy T. Rowe Price today.

3M

Click to EnlargeThis is 3M�s (NYSE:MMM) 100th year in business and 100th year of innovation. 3M uses its research and development teams to churn out new products for its customers. One of 3M�s newest innovations is an ingenious patch that injects immunizations using hundreds of micro-needles. The invention allows injections without intimidating syringes. To create the micro-needle patches, 3M repurposed micro-replication technology it had pioneered to enhance the visibility of reflective road signs. 3M�s breakout over its 50-day moving average is a strong signal. Buy.

Illinois Tool Works

Click to EnlargeThe simple 80/20 business model at Illinois Tool Works (NYSE:ITW) generates success. It�s called the ITW Toolbox. The system behind the Toolbox is to focus investment and resources on the 20% of subsidiaries that generate 80% of revenues. It then focuses on the 20% of customers that generate 80% of the revenues.

If a company can keep focused on these main drivers of success, it will prosper. This strategy is working because, over the past 25 years, ITW has provided shareholders with a compounded annual return of 15%. Look at the breakout on my price chart for ITW. The stock�s sharp jump above its 200-day moving average is a bullish sign. Buy.

Sysco

Click to EnlargeAmerica�s largest foodservice company is Sysco (NYSE:SYY), which operates out of 180 locations nationwide. Sysco serves around 400,000 customers including hospitals, schools, restaurants and hotels. My relative strength chart for Sysco shows a positive trend developing. Buy.

Plum Creek Timber

Click to EnlargePrices for lumber are improving after a big drop in early 2011. Plum Creek Timber (NYSE:PCL) took advantage of the increased export demand from China last year by increasing its harvest by 40%. When lumber prices fall, timber companies can wait out the hard times with assets (the trees) that keep increasing in value. My price chart for Plum Creek shows a nice breakout around its 200-day moving average. Buy.

Boeing

Click to EnlargeAt its top-secret labs and testing facilities, Boeing (NYSE:BA) is developing a �bunker buster� bomb known as the Massive Ordnance Penetrator (MOP) for the seemingly inevitable U.S. attack on Iran�s nuclear facilities. The MOP is a 30,000-pound guided bomb designed to destroy the world�s deepest bunkers by carving through earth, bedrock and concrete reinforcement to detonate inside. The bomb carries 5,300 pounds of explosive in a 20.5-foot long chassis. One estimate of the final development cost of each bomb is $20.6 million.

My long-term chart shows Boeing�s price reverting to its trend. Buy before it does.

EnCana

Click to EnlargeYou can see on my relative strength chart what is likely a bottom in EnCana (NYSE:ECA) shares. With EnCana�s competitor Chesapeake Energy (NYSE:CHK) announcing natural gas production cuts, it�s only a matter of time before other production companies do the same. The slowdown in drilling activity should put a bottom on the price of gas. The effect has translated into a bottom on EnCana Corp shares. Buy EnCana Corp. today and lock in a yield near 4%.

Union Pacific

Click to EnlargeUnion Pacific (NYSE:UNP) has paid a dividend on its shares every year for 112 years. On Nov. 17, Union Pacific�s board announced a dividend increase of 26%. That was the second dividend increase of 2011, raising the quarterly dividend to 60 cents a share, up from 38 cents at the beginning of the year. Union Pacific is aiming to pay out more.

Take a look at the long record of outperformance on my relative strength chart for UNP. Over the last five years, UNP has outperformed the S&P by over 150%.

Diageo

Click to EnlargeShortly after Diageo‘s (NYSE:DEO) success in Africa, the company announced the acquisition of Meta Abo Brewery in Ethiopia. Meta Abo is the second-largest brewery in Ethiopia. Its purchase will give Diageo access to the country and a lead-in for its premium spirits brands.

You can see on my price chart that a strong trend in Diageo�s price has developed after the financial crisis. Buy Diageo shares today.

Canadian Pacific Railway

Click to EnlargeWith the Obama administration�s denial of pipeline transportation routes to the south, Canadian oil producers are looking to rail to transport their crude out of Alberta. Canadian Pacific Railway (NYSE:CP) has signed a deal with NuStar Energy (NYSE:NS) to bring oil from the refiner�s Saskatchewan terminal to the coastal cities of Canada for export to emerging markets. CP has a fleet of 1,700 cars for transporting oil.

My long-term chart shows CP shares reverting quickly to trend. Buy.

Why I Think These 2 Commodity Stocks Will Make You Money

Investors have been fretting about a weaker economy and the implications for economically-sensitive assets such as steel, copper, iron ore and other commodities. Indeed, the underlying spot prices for several key commodities are at multi-year lows and stock prices of commodity-sensitive companies have also been quite weak.

  Yet I continue to think such a backdrop spells opportunity. 

That's why I added Alcoa (NYSE: AA) to my $100,000 Real-Money Portfolio at the start of the year, and then added copper and gold producer Freeport-McMoran (NYSE: FCX) to the portfolio in April 2012.

Did I think these stocks were poised for an imminent rally? No. I only believed they represented the chance for great multi-year gains and, equally important, likely carried a solid degree of downside protection. How has this view played out?

Even as the global economic outlook has weakened considerably since the start of the year, this economically-sensitive stock has fallen less than 10%. Crucially, with this stock price near tangible book value (of about $8.25 a share) I don't see a lot more downside. I'll take that. And though I doubt shares will hit the $40 mark anytime soon (which is where they traded back in 2007), a move to $15, $20 or even $25 looks to be in the cards in a year or two. This kind of positioning is in keeping with my portfolio strategy: "Look for stocks with limited downside but potentially long-term upside."

What about Freeport-McMoran? Since I added this stock to my portfolio in late April, copper prices have fallen from roughly $3.65 a pound to a recent $3.35. Shares have fallen from $37 to $32 since then, which I'm not happy about, but also see as a small downward move in the context of a potentially more robust long-term gain. 

Completely different drivers
Though both of these commodity-sensitive stocks are surely affected by the current scary economic picture in Europe, the factors that will help determine future performance are quite different. 

For Alcoa, a rebound could only come when global aluminum demand exceeds supply. I recommended this stock in January precisely because the Chinese government was signaling plans to curtail domestic aluminum output, as the manufacturing process is very energy-intensive. Alcoa, which has the lowest-cost smelters in the world, stood a chance to greatly benefit from supply reductions by rivals. 

The company even showed its own industry leadership by announcing capacity cuts back in February. Trouble is, China never followed through on its promise, so supply has not been cut to the extent that I had expected. Yet it's crucial to note that Alcoa is currently operating at break-even in the context of current spot aluminum prices (of about 82 cents per pound), while major rivals are operating at a loss, due to their higher-cost smelters. As a result, I still expect to see industry capacity cuts in coming quarters and eventually a solid rebound in demand. When that happens, this stock will likely go considerably higher, perhaps 100% of 150% above current levels.

The global picture for Freeport McMoran differs. The copper market is actually quite undersupplied right now and key copper inventories are dropping. The fact that copper prices -- and this stock -- are falling is solely due to fears of an ever-deeper economic slowdown. 

Yet even a drop in demand may still keep this market undersupplied, so copper prices should stage a solid rally when commodity traders come to see that a copper glut has not emerged. That should light a fire under this stock, though I caution that it may not come before 2013. And this stock could slip into the upper $20s before any such rally kicks in.

A shared virtue
The key appeal for these two stocks is the nature of their assets. Alcoa operates the world's most advanced network of aluminum smelters and a set of appealing downstream businesses as well. Freeport-McMoran owns some of the most productive copper mines in the world, and notably, geologists believe we'll be past the peak point of supply for copper within a few years as the world's most productive copper mines start to play out. So Alcoa and Freeport-McMoran are sitting on a world-class set of assets, which again, provides support to shares in scary economic times. 

Risks to Consider: Though Alcoa appears to have solid support in the current $8.25-8.75 range, Freeport-McMoran is a bit more volatile and, as noted earlier, could move another 10% to 15% lower from here before any eventual rebound.

> On these companies' upcoming quarterly conference calls, listen closely for discussions of industry supply and demand. Alcoa has deep insights into global supply trends, so management's commentary will likely set the tone for the rest of the year. Freeport-McMoran is likely to continue to highlight the fact that copper demand still exceeds supply, even as the global economy stinks. 

I don't anticipate either of these companies delivering second-quarter results that will ignite shares. Instead, it will be the broad investor sense that the European crisis has (at least temporarily) been contained. Or it may be the expectation that the new round of Chinese economic stimulus will bolster commodity prices. In a nutshell, the backdrop for these stocks is simply lousy right now, which is why I find them so appealing. You only make money in commodity stocks when they are deeply out of favor.

Yahoo wins $610 million from lottery scammers

NEW YORK (CNNMoney) -- Congratulations, you've won millions in a lottery that you didn't enter! Just wire us some money first to cover fees, and we'll send you your winnings!

These fake lottery email scams have become ubiquitous, with scammers sometimes posing as well-known companies to boost their credibility. In 2008, Yahoo sued several "John Does" for using its name and logo as part of a scam.

On Monday, a federal judge awarded Yahoo (YHOO, Fortune 500) $610 million in damages from the Thai and Nigerian scammers that the company was eventually able to identify through Internet records.

Yahoo's complaint reveals that between December 2006 and May 2009, more than 11.6 million hoax lottery emails were sent through its email system. The court awarded Yahoo $50 per scam email, a total of $583 million, for its victimization through violations of the Can-Spam Act.

The remaining $27 million is an award for trademark infringement. Yahoo was also awarded attorneys' fees.

Yahoo could use the cash: The court's total award is about half of the $1.2 billion profit that Yahoo netted for 2010.

But Yahoo stands little chance of actually collecting. None of the defendants -- a group of Thai and Nigerian individuals, a Nigerian corporation, and a Taiwanese corporation -- have responded to Yahoo's complaint. Nigeria is a famous haven for e-mail scammers.

The New York district court judge, Laura Taylor Swain, noted in her ruling that "apart from minor variations in phrasing and style, the [individual] emails [in the scam] are strikingly similar."

Swain concluded that the "circumstantial evidence is sufficient to support the reasonable inference that defendants are co-conspirators." 

FedEx: Solid package for investors


Booming online sales for retailers helped drive a big increase in home deliveries and an associated jump in net income for international package shipping giant FedEx (FDX).

The stock -- a buy on our recommended list -- said that its earnings per share grew by 35% on a normalized basis for the fiscal 2012 second quarter, while revenue increased 10% from last year.

On an as-reported basis, FedEx earned $1.57 per share, which was up nearly 76%. Revenue for the quarter grew to $10.59 billion, which was in line with the consensus. Analysts were expecting the company to report $1.53 per share in profit.

Earlier this month, FedEx Ground and FedEx Home Delivery announced that shipping rates would increase by a net average of 4.9% effective January 2nd, 2012.

The full average rate increase of 5.9% will be partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage point. FedEx SmartPost rates will also increase.
The company also said that it repurchased 2.8 million shares of stock in September at an average price of $70. It currently has 2.9 million shares remaining for repurchase out of the total authorized.

The company guided for EPS in the current quarter to range from $1.25 to $1.45 per share and it maintained its full-year outlook that calls for profit per share to range from $6.25 to $6.75.

While far from a great quarter, FedEx delivered solid results with a modest earnings beat and operating results that were largely in line or slightly better than the Wall Street consensus.

Low expectations and unchanged guidance, meanwhile, were enough to send its shares higher. Online sales have been strong and FedEx has been a beneficiary of all those shipping promotions offered by retailers.

The company also did a good job of adjusting its capacity to deal with inventory de-stocking in Asia, which was one of our primary concerns heading into earnings given that it was an issue last quarter that helped lead the company to lower its full-year forecast.

The fact FedEx can maintain pricing and grow its yield at the same time its adjusting to reduced Asian volume is a testament to how well run this company is.

If the company's view of the global economy is accurate, FedEx's operating leverage should enable it to post solid results for the rest of its fiscal year.

We continue to like the FedEx story for investors with a long view, and if the global economy can get out of the doldrums, then the stock can really take off. We rate the stock a "Buy" with a target of $90.

Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.

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Merck CEO Pledges Drug Pipeline Will Yield Results in Both Short and Long Term

The nearly $6 billion Merck (NYSE:MRK) has agreed to pay to settle its Vioxx issues with both the U.S. government and with patients will look like a drop in the bucket if the company�s rich pipeline can live up to its potential.

Earlier this month at its annual R&D day, the Whitehouse Station, N.J.-based drug giant shared details with analysts and others about the programs and plans designed to give the company a much-needed boost. Investors will be the first to agree that Merck needs a shot in the arm. They�re growing impatient watching the former �Most Admired Company� tread water during the past few years.

At Friday�s close of $33.16, Merck is trading a few dollars below its share price of two years ago. One small consolation for investors is that the company is increasing its annual dividend to $1.68 per share, which translates to a healthy yield of more than 5%.

The company�s lackluster stock performance hasn�t been lost on management. At the R&D extravaganza, CEO Kenneth Frazier acknowledged that investors can�t be expected to wait for the company to achieve its long-term ambitions.

“I want you to know we intend to perform in the short term,” he said, according to an article on Xconomy.

To make good on Frazier�s promise, in the next two years Merck plans to seek U.S. approval for eight new medicines. They include drugs for chronic insomnia, hardening of the arteries, osteoporosis and reversal of anesthesia, plus an improved version of its blockbuster cervical cancer vaccine Gardasil.

In addition, the company has six novel candidates in various stages of development being evaluated for the treatment of atherosclerosis (anacetrapib), type 2 diabetes (MK-3102), prevention of herpes zoster (V212), psoriasis (MK-3222), hepatitis C infection (MK-5172) and Alzheimer’s disease (MK-8931).

All told, Merck has 19 candidates in late-stage human testing for a broad range of diseases.

Of course, new drugs are no guarantee of success. Look no further than 2011, in which Merck had gained FDA approval for five drugs. One of the most highly touted was the company�s hepatitis C treatment, Victrelis, which has been left in the dust by Incivek from Vertex (NASDAQ:VRTX).

Merck research head Peter Kim told analysts that two of the company�s experimental drugs — anacetrapib and MK-8931 — have the potential to usher in a new era of patient care. In a small trial study of 1,623 at-risk patients, the administration of anacetrapib in conjunction with regularly prescribed statins showed a 40% decrease in LDL, or harmful cholesterol, as well as a massive 138% increase in HDL, or �good� cholesterol. The drug currently is in Phase III testing with 30,000 high-risk patients and probably will be filed after the study is completed, sometime after 2015.

Merck also is enthusiastic about MK-8931�s potential in Alzheimer�s disease, one of the biggest market opportunities available. The compound inhibits an enzyme known as BACE1 that is implicated in the amyloid plaques that are linked with progression of the memory-robbing disease. The drug is scheduled to be tested in a mid-stage trial beginning next year.

As of this writing, Barry Cohen was long MRK.

Dodd, Dorgan Exit: Gut the Bank Bill?

Dow Jones Newswires writer Michael Crittenden surveys observers today regarding the announcements this morning by Senate banking committee chair Chris Dodd, Democrat, of Connecticut and Senator Byron Dorgan, Democrat, of North Dakota plan to retire rather than seek re-election. The conclusion is that the bowing out of both means more compromise, less of a populist tinge, to the Dodd-Shelby-Frank banking reform bill that Dodd was working to pass.

In particular, Dodd’s efforts to create a new independent banking oversight agency and a new independent consumer agency to watch banks could be at risk as the legislation gets pushed out beyond the mid-term elections this year.

Financials today are fairly strong, with Morgan Stanley (MS) up 40 cents, or 1.2%, at $32.44, JP Morgan-Chase (JPM) up 31 cents, or 0.7%, at $44, and Bank of America (BAC) up 32 cents, or 2%, at $16.52. Goldman Sachs (GS) is the standout decliner, its shares down $1.77, or 1%, at $174.37.

As mentioned earlier, Citigroup (C) is up about 4% today at $3.65, which may or may not be the result of short sellers scrambling to buy the stock.

What if the Doctor Is Wrong?

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Close Getty Images

Patients shouldn't hesitate to tell a doctor they want a second opinion, and they are entitled to their slides, pathology reports and other information to take elsewhere.

When a CT scan showed multiple tumors in Dawna Harwell's pelvis, abdomen and spine in 2008, her doctors in Dallas told her she might have ovarian cancer, which can be especially deadly.

A biopsy came back with inconclusive results, and Ms. Harwell wasted no time in seeking a second opinion at MD Anderson Cancer Center in Houston. "I went through every test in the book," says Ms. Harwell. Still, doctors couldn't be sure what she had. Finally, she underwent a surgical procedure to diagnose her case: It wasn't ovarian cancer after all, but a rare form of lymphoma. The 47-year-old horse trainer in Collinsville, Texas, underwent a rigorous regimen of chemotherapy that ended last spring. At her first six-month checkup in October, she received a clean bill of health.

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Close Brandon Thibodeaux for The Wall Street Journal

Dawna Harwell, a horse trainer at Kyle Ranch in Whitesboro, TX

Age: 47

Occupation: Horse trainer in Collinsville, Texas

July 2008: Diagnosed with tumors in abdomen, pelvis and spine. Ovarian cancer is suspected.

August 2008: Seeking a second opinion, Ms. Harwell meets with a gynecological oncologist at MD Anderson. Results of additional tests are inconclusive, and doctors say a surgical biopsy is needed for a definitive diagnosis.

September 2008: Results of an operation and surgical biopsy rule out ovarian cancer, but confirm Stage IV follicular lymphoma.

October 2008: Ms. Harwell begins chemotherapy, which continues through April 2011.

October 2011: Her first six-month checkup shows cancer is stable with no signs of tumors.

Evidence is mounting that second opinions—particularly on radiology images and pathology slides from biopsies—can lead to significant changes in a patient's diagnosis or in recommendations for treating a disease. Some malignancies, including lymphomas and rare cancers of the thyroid and salivary glands, are notoriously tricky to diagnose correctly; test results can be inconclusive or return false results. After a decade of annual mammograms, more than half of women will receive at least one false positive recall on a breast-cancer screening, a recent study found. And nearly half of malpractice claims at Harvard University's medical institutions that resulted in serious patient harm or death in the past five years were diagnostic errors, according to its liability company Crico/RMF.

Thomas Feeley, vice president of medical operations at MD Anderson, says as many as 25% of patients who arrive at the center with diagnoses for certain cancers such as lymphoma may receive a different diagnosis. Overall, 3% of MD Anderson patients each year end up with a significant change that affects what treatment they receive. "When you get cancer, the first thing you may want to do is jump to get treatment with the first person you talk to," Dr. Feeley says. "But taking the time to get a second opinion about the diagnosis you have and a careful evaluation of what treatments there are can be lifesaving."

Kim Henderson, a paralegal in Houston, came to MD Anderson to be treated for cervical cancer after being diagnosed elsewhere. Pathologists performed another biopsy that revealed she had a noninvasive precursor to cervical cancer—and not the far more serious invasive type as previously believed. Although she still needed surgery, her doctors told her she could skip the radiation and chemotherapy that had originally been part of the treatment plan.

Getting A Second Opinion

Primary-care doctors can misdiagnose common symptoms. In a study, 202 patients most commonly complained about abdominal pain, fever, fatigue, shortness of breath and rash. Incorrect diagnoses included:

  • Benign viral infection 17%
  • Musculoskeletal pain 10%
  • Asthma/Chronic obstructive pulmonary disease 6%
  • Benign skin lesion 4%
  • Pneumonia 4%

Final correct diagnoses for patients misdiagnosed initially included:

  • Cancer 16%
  • Pulmonary embolism 6%
  • Coronary artery disease 5%
  • Aneurysm 8%
  • Appendicitis 6%

Source: University of Iowa; Journal of the American Board of Family Medicine

"I felt like it was a miracle and I was spared from this unnecessary treatment," says Ms. Henderson, who had lost a sister to cancer.

Second opinions are important for other diseases, as well. National Jewish Health, a Denver medical center, found in a study that more than half of patients it diagnosed with chronic obstructive pulmonary disease had previously been misdiagnosed with asthma, leading to inappropriate treatments. A form of dementia is often incorrectly diagnosed as Alzheimer's, and studies show that doctors may misdiagnose coronary artery disease as other conditions.

Not everyone should have a second opinion, of course. Health-care costs would soar if they did, says Robert Wachter, chief of the division of hospital medicine at the University of California, San Francisco. "There is also a risk you can get overwhelmed by conflicting opinions when you are in a terribly vulnerable position." In the end, he says, patients must pick a doctor they trust and go with his or her recommendation.

Changing the Diagnosis

Pathologists changed the diagnosis of 9% of 742 cancer cases in a recent study. Some original diagnoses—and the percentage of them that were changed on second opinion.

  • 16% of thyroid cancers
  • 10% of neck cancers
  • 11% of salivary-gland cancers
  • 9% of liver cancers
  • 8% of pancreatic cancers
  • 6% of lung cancers

Source: American Cancer Society; Cancer Cytopathology

Many health insurers require a second opinion before approving major surgery or expensive treatments. Patients shouldn't hesitate to tell a doctor they want a second opinion, and they are entitled to their slides, pathology reports and other information to take elsewhere. Major medical centers, including Johns Hopkins Medicine and MD Anderson, have second-opinion services that doctors can refer patients to, or patients can contact directly, to get an independent assessment.

Hardeep Singh, chief of the health policy and quality program at Michael E. DeBakey VA Medical Center in Houston, says a growing number of centers are requiring an internal second review of pathology reports to prevent misdiagnosis. If the second opinion differs markedly, a third opinion may be necessary to get a consensus on what course of treatment is best.

Brandon Thibodeaux for The Wall Street Journal

Ms. Harwell trains Appaloosas.

Misdiagnoses can come about for various reasons. Pathologists and radiologists may misread slides and scans or fail to use the latest tests or technology. Sometimes doctors may simply get stuck on the idea of one diagnosis and ignore or overlook evidence it might be something else. This month, the president of Argentina had her thyroid removed after being diagnosed with cancer from a biopsy, but the doctors announced after the surgery that she in fact had a benign condition.

Jonathan Lewin, chief radiologist at Johns Hopkins Hospital, says that on an annual basis, his group sees a significant discrepancy in diagnosis in about 8% of cases, such as a brain tumor mistakenly thought to be an infection or a stroke or multiple sclerosis that initially is diagnosed as a brain tumor. "The last thing a surgeon wants to do is take out a piece of brain and find out this isn't what we thought it was," Dr. Lewin says.

For Ms. Harwell, the Texas horse trainer, it took more than a month before MD Anderson finally identified her condition. Because certain markers for ovarian cancer weren't present, doctors began to consider a form of lymphoma, although tests for that were inconclusive. Lymphoma expert Rick Hagemeister says he told Ms. Harwell the only way to get a firm diagnosis would be from a surgical biopsy of the tumors massed in her pelvis.

What to Ask When Seeking A Second Opinion
  • Have you reviewed all the materials related to my case?
  • Was the lab test/image/biopsy specimen adequate to make a firm diagnosis? Would a repeat test give us more information?
  • Are we certain that this is the disease that I have? Could there be another explanation for these symptoms or results?
  • If you agree with the initial diagnosis, can you confirm or suggest modifications to the first doctor's proposed treatment plan?
  • Can you reassure me that we have explored all the options?

Ms. Harwell says gynecologic oncologist Kathleen Schmeler told her the surgery needed to be a hysterectomy, which would also be the treatment for ovarian cancer on the chance that was the problem. Seven days later, pathology reports from the procedure came back: follicular lymphoma, a rare form of the disease that would require eight rounds of chemotherapy regimen R-CHOP followed by two years of a maintenance drug, Rituxan.

Ms. Harwell says she was grateful that MD Anderson didn't begin treating her with what might have been the wrong regimen. Shortly after starting chemotherapy, Ms. Harwell showed at the Appaloosa World Show. When she took off her hat, a lot of her hair came off, too.

Write to Laura Landro at laura.landro@wsj.com

A Company that Profits When Bad Luck Strikes

Sometimes life throws a curveball into your windshield. Or a hurricane might sweep your SUV away. In either case, owning a piece of this company provides some additional insurance.

Such is the case with Copart, Inc. (Nasdaq: CPRT), which deals in what it euphemistically terms "automobile remarketing services." In other words, if your car is totaled, Copart finds a way to salvage it, auction it off to somebody else, and make money. Of course, if it was just for the poor average Joe, Copart wouldn't truly be exploiting the market. That's why they handle this remarketing service for insurance companies, banks, charities, car dealerships, fleet operators and vehicle rental companies. Copart doesn't just deal in smashed-up cars, either. If an insurance company recovers a stolen vehicle and has already paid out the owner, then the insurance company doesn't have much use for the vehicle. They ring up Copart to take it off their hands instead.

In the old days, and this is still the case for old-school salvage companies, the cars were auctioned at live events. Copart has converted its entire auction service to the Internet, thus saving enormous amounts of capital. It also increased the number of people who can bid on the cars. This internet strategy has opened up a whole new market for Copart.

Now, if you are looking to sell your used vehicle, you can do it through Copart. If you've ever slogged through the process of trying to sell to a private party, you'll understand why this is a great idea. Even dealers will sell trade-ins through Copart. Nor is Copart just operating in the USA: it's expanded into Canada and the United Kingdom with great success, and now operates 147 facilities where it collects and distributes cars.

  The key to success for this kind of business is to also offer all the other services one needs when buying or disposing of an automobile. Copart has managed to cover the range of everything a buyer or seller may need. This includes a salvage estimation service, insurance company repair estimates, transport services for cars to be picked up or delivered, vehicle inspection stations, on-demand reporting, DMV processing and a part search service.

There are risks with a company like Copart. First, as always, there is competition. All the major competitors are privately held, so there's no way to really assess their financials. It is also a heavily fragmented industry. Many of these companies have the advantage of buying cars directly from insurance companies instead of dealing with a salvage operator. The nature of any fragmented sector is that Billy Bob's Auto Salvage in Tyler, TX may have a long, personal relationship with all the insurance folks in the county. Other risks include the possibility that a major auto manufacturer decides to move into the sector, or that other competitors expand storage facilities, allowing them to become more efficient than Copart.

The truly extraordinary thing about Copart's operation is that it has been running for the past six years without incurring any long-term debt whatsoever. Given the historic credit crisis we've been experiencing, any company that can plow ahead without any fear of a credit facility being pulled has a tremendous advantage. Copart also has $162 million in cash on its books, providing the company with the flexibility to expand, to acquire other operations here and abroad, and to repurchase shares.

Copart's earnings are stellar. Trailing twelve month earnings have come in at $147 million while generating $180 million of free cash flow. Again, this gives Copart flexibility at a time when so many other businesses are restricted.

Mind you, times are comparatively tough. Copart was growing at +20% annually for awhile, but the company will post somewhere around +5% earnings growth this year. However, analysts predict a return to that +20% level in 2011, with +13% annualized growth during the next five years.

June Video Games Sales Decline 6% On Weaker Software Sales

U.S. video game industry sales in June fell 6% to $1.1 billion from $1.17 billion a year ago, market research firm NPD reports. While hardware sales were up 5%, to $401.7 million, and accessories were up 6% to $169.6 million, software sales fell 15% from a year ago, to $531.3 million.

All categories were up from May levels, however, when total sales were $823.5 million.

Among the console platforms:

  • The Sony PlayStation 3 sold 304,800 units, nearly double the 154,500 sold in May, and up from 164,700 a year ago.
  • The Microsoft Xbox 360 sold 451,700 units, well over 2x the 194,600 sold in May, and well above the 240,600 sold last June.
  • The Nintendo Wii sold 422,500, up from 334,800 in May, and 361,700 a year ago.

Among the handhelds:

  • The Sony PSP sold 121,000, up from 59,400 in May, but down from 163,000 a year ago.
  • The Nintendo DS sold 510,700, up from 383,700 in May, but down from 766,500 a year ago.

Here�s a look at the 10 best selling software titles for June; NPD provides actual unit data only for the top 5:

  • Red Dead Redemption, Take Two Interactive, for the Xbox, 582,900 units.
  • Super Mario Galaxy 2, Nintendo, for the Wii, 548,400 units.
  • Red Dead Redemption, Take Two, for the PS3, 383,300 units.
  • New Super Mario Bros., Nintendo, for the Wii, 200,900 units.
  • Just Dance, Ubisoft, for the Wii, 174,800.
  • Wii Fit Plus w/Balance Board, Nintendo, for the Wii.
  • Toy Story 3, Disney, for the DS.
  • UFC 2010: Undisputed, THQ, for the Xbox.
  • Lego Harry Potter: Years 1-4, Warner Bros. Interactive, for the Wii.
  • UFC 2010: Undisputed, THQ, for the PS3.

Forex Patterns & Probabilities: Trading Strategies for Trending & Range-Bound Markets (Wiley Trading) (Hardcover)

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Boom! Dollar Rebounds Vs. Euro

Despite decent economic data this morning — consumer sentiment and October home price declines — that should keep the dollar under pressure, the greenback reversed course in late morning trading versus the Euro. DJ Newswires pegs the rebound to Moody’s downgrade of the Abu Dhabi Commercial Bank’s credit rating to A1 from Aa3.

Whatever. The dollars now up slightly at $1.4341 per Euro after spending much of the morning in the $1.44 territory. That’s a slight appreciation for the dollar from yesterday’s $1.4378. Futures, too, are pointing to a stronger dollar, with the ICE U.S. Dollar Index futures contract for March up 0.3% at 78.22.

So much for the “Dollar Falls as Risk Appetite Grows” headlines.

Fodder for bull and bear, no doubt. Bloomberg runs a piece quoting pundits Marc Faber and Barton Biggs, who both see a strong U.S. dollar in 2010, up as much as 10%. “I don�t see any reason why we can�t have a further rally in the dollar,” Biggs told BB television, “and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”

Why RPM International May Be About to Take Off

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at RPM International (NYSE: RPM  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is RPM International doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue increased 8.5%, and inventory increased 9.3%. Comparing the latest quarter to the prior-year quarter, the story looks decent. Revenue increased 14.0%, and inventory increased 9.3%. Over the sequential quarterly period, the trend looks worrisome. Revenue dropped 15.5%, and inventory grew 1.3%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at RPM International? I chart the details below for both quarterly and 12-month periods.

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

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, raw materials inventory was the fastest-growing segment, up 17.7%. On a sequential-quarter basis, raw materials inventory was also the fastest-growing segment, up 2.7%. RPM International may display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

  • Add RPM International �to My Watchlist.

Auto Sales Jump, but Investors Punish GM

Automakers posted strong sales in March, growing more than 15% over last year, according to preliminary data.

Chrysler once again had a huge month, boosting sales by 34%. The result was the company’s best in four years. Toyota’s (TM) sales rose 15%, with sales of the Prius hybrid jumping 54%. With gas prices soaring, fuel-efficient vehicles have become attractive again.

Ford (F) posted 5% sales growth, its best March since 2007. Nissan (NSANY) saw sales rise 12.5% and Volkswagen (VLKAY) posted 35% growth, its best March gain since 1973.

General Motors (GM) said sales rose 12%, with small and compact car sales rising 62%, but the market was clearly looking for a better result. Shares fell about 5% in midday trading. Most other automakers were trading flat to slightly down, although Volkswagen fell 2.5%.

4 Apple Options Trades to Play the Latest Hype

Apple’s (NASDAQ:AAPL) relatively unsurprising product announcements at today’s WorldWide Developers Conference reinforce not just my view of the company and its performance over the next five years, but something I tell any trader who will listen: If you do not own Apple shares, or sell Apple puts, or own Apple shares and sell calls against those shares, you are losing money every day.

5 Reasons to Be an Apple Bull

1. Apple has the number one brand in the world (or number two, depending on what company did the survey and analyses) based on the brand’s value.

2. Apple is the market leader in laptops, mobile phones and tablets in in terms of product quality, product features and product perception.

3. Apple has small to tiny market share — less than 5% in computers and less than 3% in cell phones. And if you add low-end laptops and netbooks to tablets, it dominates less than 25% of that market. In other words, Apple has enormous room to run.

4. Apple prints money� the company has just �less than $100 billion in cash, annual growth is conservatively estimated to be above 25% and profits we’re up more than 90% quarter over quarter.

5. The stock is a tribute to the insanity of the current market and the inability of Wall Street money managers to understand anything more than their next trade or paycheck. The stock is selling at a serious discount to the S&P 500. Pundits keep saying it is near the average value of an S&P stock, but they neglect to factor in growth — and that makes it undervalued to other S&P growth stocks by more than 50%. Admittedly, the stock is held back due to its massive market cap. But this cannot last over time as the company increases revenues and earnings.

So, how should you play AAPL from here?

4 Apple Options Trades to Consider

Trade #1: Buy AAPL now and sell the June AAPL $575 calls. If you had done this today and sold the weekly call — which is actually the June call, all monthlies expire this Friday — you would have generated a 0.86% return. Small potatoes, you say? Do it fifty times a year and you bank a 43% return even if the stock stays flat.

Trade #2: You can also sell a long-dated AAPL call. If you sell the January 2013 $630 call, you will get around $39 for it. Add that to appreciation in the stock if you are called out, and you wind up with $84 per share. That is more than a 16% return and an annualized return of around 30%. And you can always roll the call forward and keep generating cash while hanging on to the stock.

Trade #3: If you are willing to own the stock at $570 and sell the June AAPL $570 puts, you can generate around $5.75 per share. And if the stock does not move, this is a return of 1% or 38% a year.

Trade #4: If you really want to avoid owning the stock when selling puts, sell the January 2013 AAPL $525 put — that is a ridiculous price and a very strong support price — and you will net around $42 per contract. That is a return of 8%, an annualized return of 15%-16%. And as the stock rises, you can buy it back and sell it again.

Am I an Apple bull? You bet I am. My target price is $1,200 in the next 1-3 years. And I love generating weekly income from selling calls and puts.

For purposes of disclosure, Michael Shulman owns shares of AAPL.

Michael Shulman is editor of Options Income Blue Print. Learn more about trading weekly options in this free short video.

Facebook to Raise $5 Billion in IPO

Finally, the wait is over for investors. Facebook, the social networking giant, late Wednesday, filed for an initial public offering (IPO). The company plans to raise $5 billion in its much awaited IPO.�

According to data from Dealogic, Facebook�s IPO will be the largest global IPO ever by an Internet-focused company. Google Inc.�s (NASDAQ: GOOG) IPO is currently the largest U.S. Internet IPO. Investors have been waiting for Facebook�s IPO for over a year now. Experts believe that the company could be valued between $75 billion and $100 billion.�

Currently, Facebook has more than 800 million active users, with majority of those in the U.S. The company filed a 197-page prospectus with the U.S. Securities and Exchange Commission late Wednesday. The filing includes some interesting details on the company.�

The filing confirms that Facebook is very profitable and is growing. Facebook�s revenue has risen from $777 million in 2009 to $3.7 billion last year. The company�s earnings have also grown at a strong pace in the same period. The company�s earnings have grown from $122 million in 2009 to $668 million last year.�

Facebook also has significant cash on its balance sheet. The company ended 2011 with $3.9 billion in cash on hand.�

But the big question investors are now asking is that can Facebook continue to grow at the same pace. Facebooks�s rise has been fueled by expansion of its users, which makes it a more attractive marketing vehicle for ads. Advertising revenue accounts for most of the company�s revenue at the moment.�

Facebook generates nearly $4.39 in revenue per user, which according Tim Loughran of University of Notre Dame is a surprisingly low number. Google, which has annual revenue of approximately $38 billion, generates revenue of $30 per user of its services. This is certainly one are where Facebook can grow. According Loughran, Facebook needs to find more ways to get revenue from its users.�

In the filing, Facebook said that its most promising expansion opportunities as Brazil, Germany, India, Japan, Russia and South Korea. The California-based company also hopes to make its service available in China.�

The filing suggests that Mark Zuckerburg will sell an unspecified number of shares in the IPO to cover a tax bill for exercising a stock option to acquire 120 million shares. Zuckerburg currently owns 534 million shares in the company.�

Facebook�s IPO follows a series of Internet-related IPOs last year, including that of LinkedIn Corp. (NYSE: LNKD) and Groupon Inc. (NASDAQ: GRPN)