Pace of Mutual Fund Flows to Slow, FRC Study Says

Mutual fund net sales posted a record-high year in 2009 and despite their strong flows year-to-date through April this year ($187 billion), Financial Research Corporation (FRC) expects they will slow down overall by the end of 2010, according to the fourth edition of FRC's Mutual Fund Market Sizing study, released Monday, June 7.

Findings in the study indicate that investors appear to have stopped chasing equity market performance and are shortening their average mutual fund holding periods. FRC predicts flows into mutual funds will begin to normalize in 2011 and continue rising through 2014. This study is based on an analysis of FRC's database of mutual fund assets and net sales, FRC IMPACT, and FRC's Advisor Insight Series, as well as data from various industry sources, including the Investment Company Institute (ICI).

"Generally speaking, we do not expect 2010 to be a repeat of 2009's record-breaking performance," said Bridget Bearden, the study's author, in a statement. "However, we do expect 2010 net sales to remain high relative to the period prior to the financial crisis of 2008."

The study said there were several factors shaping the marketplace, including risk adversity within the larger investor population, not just with retirees, and declining levels of asset "stickiness."

Examining the factors that drove mutual fund inflows to new highs in 2009, FRC noticed that although equities rebounded strongly during 2009, investors didn't respond like they have during historical equity market upticks and were simply unwilling to take on more risk at the time.

"Investors are still too risk averse to invest new money into products that are traditionally associated with higher risk levels," commented Bearden. "Generally speaking, what we are seeing is a lull in investor performance-chasing behavior."

FRC also analyzed average long-term mutual fund holding periods, identifying that they reached their high in 2005 and 2006 at an average holding period of 4.4 years, and subsequently declining to 3.8 years at the end of 2007 followed by a 2.9-year holding period at the end of 2008.

"The huge drop in 2008 is indicative of the anomalous and tumultuous market environment; however, we also anticipate holding periods to continue to decline through the rest of 2010," noted Bearden.

Other findings in FRC's study:

Declining Advisor Headcounts -- The advisory landscape has shifted dramatically over the past year. The number of retail advisors declined 17% between 2009 and 2010. Specifically, advisors in the independent channel declined due to consolidation and closures of independent broker/dealers, while advisor headcount in the insurance channel fell due to insurance firms spinning off non-core brokerage arms.

Advisors Still Drive Fund Sales -- Despite a reduction in the advisory force, retail advisors still represented nearly 60% of total mutual fund gross sales for 2009, representing the channel's stability as a core mutual fund distribution channel.

RIAs Largest Opportunity for Asset Managers -- In addition to being the largest generator of mutual fund gross sales among intermediary channels, FRC projects the RIA channel to more than double its mutual fund assets by 2014.

Read a story about Strategic Insight's mutual fund report from the archives of InvestmentAdvisor.com.

December Natural Gas Production Sets New Record

 

Last year ended with another record-setting month for the world's largest natural gas producer, as the U.S. produced all-time record amounts of both gross withdrawals and dry production (consumer-grade gas) in the month of December, according to new data released this week by the Energy Information Administration (see chart above).  The record-setting gross volume in December (2.56 trillion cubic feet) was above its year-earlier level by 7.1%; and the all-time high for monthly dry gas production was 8.2% above last December, and surpassed two trillion cubic feet for only the second month ever.

Over the last five years as unconventional shale gas has become increasingly more available due to advanced extraction techniques (fracking and horizontal drilling), domestic production of natural gas has increased by more than 30%. Welcome to America's new age of energy abundance with enough natural gas to last into the 22nd century, according to some estimates. 

According to a study by PricewaterhouseCoopers, "Shale Gas: A Renaissance in U.S. Manufacturing?" the global consulting firm predicts that abundant, cheap shale gas will spark a U.S. manufacturing renaissance over the next several years, with the potential to create a million new jobs by 2025 and reduce annual energy costs for American manufacturers by almost $12 billion over the next decade.   

*Post courtesy of Mark J. Perry at Carpe Diem.

 

The Credit Effects Of Debt Settlement And Ban..

Debt settlement programs offer a viable, and often preferable, alternative to bankruptcy. In some cases, bankruptcy may be the best option available to a consumer but debt settlement provides a way of repaying unsettled debts, reducing those total debts, and becoming debt free within three years or less. Bankruptcy should never be looked on as being an easy way to eliminate debt because it carries serious negative side effects on your credit rating, emotions, and personal circumstances.

Bankruptcy Types

There are two types of individual bankruptcy claims that can be filed - chapter 7 and chapter 13. Chapter 13 bankruptcy requires that you use all of your income, after the courts have calculated an average living allowance, to repay some or all of your debt over a period of three to five years. Chapter 7 bankruptcy is the most extreme and requires liquidation of assets and the proceeds of this liquidation is used to repay a portion of your debt.

Bankruptcy And Credit History

Regardless of the type of bankruptcy you file, it will remain on your credit history for 7 years in the case of chapter 13 and 10 years for chapter 7 bankruptcy. This will make it very difficult, or even impossible, to gain any credit during that time. Even though chapter 13 bankruptcy is looked on in a better light to chapter 7, the typical consumer will still have serious problems gaining any form of credit during this period.

Future Employment

There are further problems you should consider that are not directly related to your credit score but will have a major impact on your life. When applying for jobs you will be required to declare any bankruptcies you have filed and a potential employer can refuse your application based on this information. You may, therefore, find it difficult to get a new job in the future although some employers will still employ you even with a bankruptcy against your name.

Debt Settlement Programs

Debt settlement programs will impact on your credit history in some way. If you currently have a good credit rating, and are meeting your regular repayments, then enrolling in a debt settlement program will have a negative effect - your credit rating will get worse. The likelihood of a consumer enrolling in debt settlement when they have good credit rating, though, is low.

If your credit rating has already been hit because of late or missed payments and you frequently default on payments then debt settlement is unlikely to have a negative impact on your credit rating. Once you start making the new renegotiated repayments, your credit rating may actually improve.

Default Payments

When you initially start a debt settlement program you willingly cease making payments to creditors while the debt settlement company negotiates on your behalf. This obviously leads to default payments. However, a good debt settlement company will also ensure that once a renegotiated debt figure is fully repaid, the lender will report that your debt has been paid in full. This is reported to the credit agencies and marked against your credit rating - often seen as a positive mark compared to the alternatives.

Once a debt settlement program is complete, those that had poor negative rating should be on their way to rebuilding a reasonable credit score and being able to apply for new lines of credit such as mortgages and car loans. In contrast to the seven to ten years minimum that it will take to start rebuilding your credit score after bankruptcy this is a much shorter period.

Top Stocks For 4/23/2012-8

IPG Photonics Corporation is the world leader in high-power fiber lasers and amplifiers. Founded in 1990, IPG pioneered the development and commercialization of optical fiber-based lasers for use in a wide range of applications such as materials processing, advanced, telecommunications and medical.

IPG Photonics Corporation (NASDAQ:IPGP) recently announced preliminary financial results for the fourth quarter ended December 31, 2010. The Company expects sales for the fourth quarter of 2010 to be approximately $100 million compared with the previously guided range of $80 to $86 million, and earnings per diluted share to be in a range of $0.53 to $0.56 compared with previous guidance of between $0.30 and $0.35. For the fourth quarter of 2009, IPG reported sales of $54.3 million and earnings per share of $0.07. As IPG Photonics� year-end audit is not complete, these preliminary results are subject to adjustments from the audit.

�We expect to report more than 80% year-over-year growth in revenues and a seven-fold increase in earnings per share for the fourth quarter of 2010,� said Dr. Valentin Gapontsev, IPG Photonics� Chief Executive Officer. �Our exceptional sales performance this quarter was driven by broad-based demand strength. Geographically, China and Europe were the stand-out performers for the quarter, although we experienced significant year-over-year sales increases across nearly all regions. Materials processing, communications and advanced applications were the strongest end markets and high-power and pulsed lasers both reported triple-digit year-over-year growth. Our expected bottom-line increase was due to the excellent leverage in our business model, resulting in further improvements in gross and operating margins.�

�We continue to see strong order flow into Q1 and expect the first quarter to show robust quarterly year-over-year revenue and earnings growth, even after taking into account historical seasonal patterns which typically result in lower sequential quarterly revenue in Q1. We enter 2011 with great momentum and expect to continue to capitalize on the demand for our fiber lasers and benefit from the leverage in our business model,� concluded Gapontsev.

National Health Partners, Inc. (NHPR.OB)

National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called �CARExpress.� NHPR was founded in 1989 and is headquartered in Horsham, Pennsylvania

National Health Partners provides their members with access to over 1,000,000 healthcare providers through our agreements with CareMark, Aetna Dental Access NetworkSM, Optum, Integrated Health, Three Rivers and International Med-Care, which are some of the largest and most prestigious national healthcare networks in the country. These providers represent more than 70% of all practicing doctors and surgeons, 65% of all acute care hospitals and 95% of all pharmacies in the United States.

The US healthcare sector includes more than 780,000 hospitals, doctor offices, emergency care units, nursing homes, and social services providers with combined annual revenue of more than $2 trillion. (Source http://www.marketresearch.com/product/display.asp?productid=6069723 )

National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called �CARExpress.� CARExpress is one of the largest networks of hospitals, doctors, dentists, pharmacists and other healthcare providers in the country and is comprised of over 1,000,000 medical professionals that belong to such PPOs as CareMark and Aetna. The company�s primary target customer group is the 47 million Americans who have no health insurance of any kind. The company�s secondary target customer group includes the millions of Americans who lack complete health insurance coverage. The company is headquartered in Horsham, Pennsylvania.

For more information about this company please visit http://www.nationalhealthpartners.com

Proper Power and Energy, Inc. (PPWE.OB) is an independent exploration and production company. The Company�s operations are in Kentucky, which provides for low risk developmental drilling and production, and Utah, which the Company controls over 11,000 acres for its exploratory prospect.

PPWE reported the next stage of its Western U.S. operations. The Company met with the executives of Thrust Resources Inc. and EQ Resources Inc.. The meeting focused on a joint venture for the Central Utah Prospect between the Companies. This was the initial meeting between Clint Brower, CEO and Chairman of EQ Resources, and Andrew Kacic, the newly named President of Proper Power & Energy Inc. Their next steps will be circulating a memorandum of understanding followed upon definitive agreements.

Also, Proper Power & Energy, Inc. wholly owned subsidiary, American Resources, Inc. (ARI), has begun production on its 87.5 acres in Western Kentucky. American Resources, Inc. has completed the re-work on all 4 wells, with those wells online and pumping.

In the United States, oil sands resources are primarily concentrated in Eastern Utah. With a total of 32 billion barrels (5.1�10^9 m3) of oil(known and potential) in eight major deposits in the Utah counties of Carbon, Garfield, Grand, Uintah and Wayne.

Presstek Inc. (Nasdaq:PRST) announced that BlueCross BlueShield of Tennessee has placed an order for a Presstek 75DI digital offset press. BlueCross plans to utilize the four-color 75DI with aqueous coater to produce many of its own marketing materials and business communications. “Our on-site shop brings many advantages to the corporation including convenience, security, and lower costs,” said Robert Pettway, Manager, EDM & General Services for BlueCross. “In business climate on-site shops must prove that they add value to a company and operate more cost effectively than outsourcing. The Presstek 75DI will help us reach these objectives.”

Presstek, Inc., together with its subsidiaries, engages in the design, manufacture, sale, and service of digital imaging solutions to the graphic arts industry worldwide.

Energy Focus, Inc. (Nasdaq:EFOI) announced that its research and development team has recently been selected to receive a $1 million Ohio Third Frontier Photovoltaic’s Program (”PVP”) grant to develop high performance stand alone solar powered outdoor lighting solutions. Roger Buelow, Energy Focus CTO commented. “We’re excited about being selected for the Third Frontier grant. This funding will allow us to combine our advanced solar photovoltaic and LED lighting technologies to create an exciting new product category for Energy Focus. Present outdoor lighting fixtures typically use 75-250 watt HID bulbs for illumination — significantly more power than can be generated and stored cost-effectively with solar. With only a fraction of the power required, our high performance solar powered LED solutions become practical.”

Energy Focus, Inc. engages in the design, development, manufacture, marketing, and installation of energy-efficient lighting systems principally for commercial/industrial lighting and pool lighting markets.

BioSante Pharmaceuticals, Inc. (Nasdaq:BPAX) announced that it will provide a LibiGel safety study update, and is supporting two clinical symposia at the Annual Meeting of The International Society for the Study of Women�s Sexual Health Meeting (ISSWSH) being held from February 10-13, 2011 at the Doubletree Paradise Valley resort in Scottsdale, Arizona. More than 300 experts and practitioners in women�s health and female sexual dysfunction (FSD) are expected to attend the meeting.

BioSante Pharmaceuticals, Inc., a specialty pharmaceutical company, develops products for female sexual health and oncology.

JC Penney: Finally, A Peek Inside Ron Johnson’s Mind

Ron Johnson’s arrival at JC Penney (JCP) was greeted with great enthusiasm. Johnson, who is now CEO of the retailer, had headed up Apple’s (AAPL) tremendously successful retail operations, and he was courted by hedge funds with big interests in JC Penney to come and save the moribund franchise. Well, for the first time, investors are getting a look inside Johnson’s brain as he works to remake JC Penney.

Today, JCP announced that it will take buy 16.6% stake in Martha Stewart Living Omnimedia (MSO) by paying $38.5 million for 11 million shares of newly issued stock, at $3.50 per share. Martha Stewart stock closed at $3.12 on Tuesday. Under a 10-year agreement, JCP will set up mini-Martha-stores within JC Penney outlets where consumers can get advice and tips from trained staff who have studied the famed decorator’s handbook. The new stores will start to launch in February 2013. The two companies will also set up an ecommerce site in 2013. Johnson clearly wants to associate JC Penney with a widely recognized brand, so shoppers don’t simply lump it in with the half-dozen other traditional department stores out there.

“The Martha Stewart brand embodies quality, beauty, inspiration and possibility and we intend for Martha Stewart stores to be a key centerpiece of our new strategy to transform jcpenney into America’s Favorite Store,” Johnson said in a statement.

Despite the myriad talents of its founder, Martha Stewart stock has mostly been a bust for the past five years. A series of partnerships with retailers has failed to jumpstart the brand, and at first glance the market clearly likes Martha’s side of the deal more than JC Penney’s — Martha stock is up 31%, JCP is down 0.8%. For Martha, the deal plays to the company’s strengths — its merchandising unit has outperformed its magazines and other divisions — and this deal could replace a previous deal with Sears Holdings (SHLD) that expired last year.

But of course, people have doubted Johnson before and have been forced to eat their words. One thing the partnership could address: with traditional retailers increasingly getting undercut by companies like Amazon.com (AMZN), the mini-stores could offer consumers an experience they can’t get online — you know, a chance to actually talk to a human being. Getting people out of their homes to go shopping is only going to get harder, so retailers will probably have to continue creating “experiences” worthy of a drive to the store.

Clearly the deal will depend on Martha Stewart’s staying power. Will her style still be relevant in five years?

What Jim Chanos Is Missing On Coinstar

Jim Chanos mentioned on CNBC on the morning of 4/12/12 that he is short Coinstar (CSTR). The rather obvious thesis was that streaming would someday supplant DVD rentals. He put Coinstar in the bucket of companies threatened by technological obsolescence.

Fair enough, someday in the future it is likely that streaming overcomes physical distribution of media for movie rentals. But, that day is very far into the future.

There are a few things that Mr. Chanos is missing in his analysis. Given the seeming similarities, Mr. Chanos is likely using the MP3 vs. CD analogy as justification for his belief. I believe that the fundamentals of the movie and music businesses are drastically different, thus altering the pace of obsolescence of physical media for the DVD rental market.

Let's look at the simple fact that movies are often rented. Were CDs rented? No. Why would billion dollar businesses be built around the rental of movies, but not around music? Doesn't that point to a significantly different consumer usage model, and thus partly discredit the MP3/CD vs. movies analogy? I think so.

CDs cost $13.99 or so when MP3s came on the scene, while pulling up two new Redbox releases, Iron Lady and The Descendants on Amazon, shows they can be acquired for $14.99 (or you can buy the digital version for $14.99 on iTunes). So, the upfront cost of the movie is roughly the same as a CD. However, one typically views a movie once or twice, whereas one may listen to an album 20-30 times, or even more. So, on a price per unit of time basis, music is enormously cheaper. Hence, there is a rental market for movies where there was none for music (consumers effectively "share" the purchase of the movie via a rental market). This value relationship is unlikely to change, therefore, I believe that it is a certainty that we can count on a rental market for movies in the future.

Why is this important? Admittedly, physical DVD purchases will be cannibalized more quickly by their digital counterparts (similar to MP3s once bandwidth improves and storage devices become mainstream). But, it is unlikely that the rental market will move that direction at a quick pace. How come? Well, there is this Supreme Court ruling often called the "First Sale Doctrine".

Very importantly, for our purposes here, it only applies to physical media. It effectively caps how much a company (like Redbox or Netflix) has to pay for the physical media version of a movie. For, if the studios try and charge too much to Redbox or Netflix for the physical media, Redbox or Netflix can legally buy a physical copy at retail or through wholesale channels and rent that version. This is not relevant for the digital version of the same movie. Hence, there is a massive difference in the pricing structure for physical vs. digital in the rental market for DVDs. The studios can price the streaming version wherever they want, whereas there is a cap of the retail price for the physical version. That's why right now Netflix will send you this week's new releases, The Descendants or Iron Lady, but good luck finding them on Netflix's streaming service. It's also why Redbox will rent those movies to you for $1.20 a night, whereas a 48-hour rental on Amazon.com3) or 24-hour rental on iTunes will cost you $3.99. Yes, it is 3.3X as expensive to rent the digital version vs. the physical version at Redbox. Amazon isn't known for their price gouging, so it is likely that the studios are charging Apple and Amazon somewhere near $3.50 for the digital version (per stream) that Redbox pays about $.60 for per rental night. In other words, there is a massive price difference in digital vs. physical for movie rentals that is not likely to change anytime soon.

The studios have zero incentive to lower the price of a rental stream, especially of new releases, which are the bread and butter of the physical DVD rental market.

The studios rely on sales of the movie to consumers (digital or physical) for a large chunk of profits. Making rentals streams too cheap would cannibalize this very profitable segment of their business.

The studios don't want to provide an unlimited streaming option of new releases to streaming providers (like Netflix) as again that would take away their profit on movie sales (especially in the new release window when they do the bulk of their sales volumes).

As is, they are able to charge a fortune to Netflix and Amazon and Google for their old library content that doesn't include their new releases. Don't expect the studios to cut prices on rental streams anytime soon. And, until that pricing difference changes, expect Coinstar to do just fine, and physical DVD rentals to remain a prominent feature of the market.

There are other factors that point to the continued success of Redbox and a slow transition to digital in the rental market:

• Verizon teaming up with Redbox. Due to the First Sale Doctrine, and the essential monopolization of new release content by physical DVDs, Verizon knew their only chance to make an impact in the streaming video market was to team up with Redbox. Consumers want new and fresh content. Outside of buying Netflix, Verizon knew a JV with Redbox would be the best way to get consumer share of mind for their streaming endeavor. Without access to new releases, their streaming venture would have no competitive advantage versus all the others. Their only other alternative was to pay studios $3.50 per stream to "rent" new release content to consumers and charge $35 per month to make it work. Something tells me the consumer adoption of that model at such a price would be approximately 0. Given Redbox's positioning with consumers, and the desire of many companies to enter the streaming market, don't be surprised if Verizon ultimately pulls the trigger and buys Coinstar to solidify and bolster their competitive position. It would give them the most differentiated offering out there and essentially provide consumers a full-fledged alternative to the old physical+streaming Netflix. Many people who fled Netflix after the pricing gaffe, will probably flock to this alternative.
• Redbox's recent 20% price increase had a negligible impact on volumes. If there was going to be a transition away from physical DVDs, this should have greatly accelerated that move. It hasn't, which doesn't surprise me. After all, remember the pricing umbrella for a streaming rental is still 3.3X. Volumes in Q4 stayed strong after their pricing move, showing that the physical DVD rental market has much more underlying support than Mr. Chanos believes.
• If the physical market was really going to evaporate for rentals, wouldn't Apple have already made a bigger impact, more than four years (MacWorld Expo 2008) after they started renting movies on iTunes (and six years after they started selling movies)? They already have millions and millions of people accustomed to downloading content. They have a strong presence with devices like the iPad, making the viewing on non-traditional formats enticing. Frankly, it is very telling that Apple's movie rental service is not widely discussed despite Apple's dominance of all things digital and media related. Four years in and it still hasn't had a meaningful impact on Redbox. (Hint: it's likely because the prices are too high relative to Redbox. Apple would change that if it could, but it simply can't!)

In summary, using a physical to digital transition for rented movies modeled on MP3s and CDs is like comparing apples and oranges. It is based on false logic, as the movie rental market is completely different from the CD purchase market because of the First Sale Doctrine. Connecting the two is sloppy, as it completely overlooks the true structures of these markets. Sorry, Mr. Chanos, but I am pretty sure you can count on Redbox to see continued success with their enormously profitable model.

Disclosure: I am long CSTR.

A Devastating Blow in the 3-D Printing War?

The following video is part of our "Motley Fool Conversations" series, in which industrials editor/analyst Isaac Pino and consumer goods editor/analyst Austin Smith discuss topics across the investing world.

In today's edition, Isaac provides insight into the 3-D printing merger launched by major player, Stratasys, which acquired Israeli-based competitor Objet this week. Objet filed for an IPO in March, so the announcement caught many investors off-guard. Objet is now abandoning the planned $75 million IPO and teaming with Stratasys to expand the combined company's international reach.

From Stratasys' perspective, this merger could open up avenues for growth that never materialized as part of its relationship with Hewlett-Packard. The marketing agreement with HP boosted the stock when announced in 2010, but the high expectations tapered off when the relationship failed to goose Stratasys sales significantly. Could a new and improved team of 3-D printing companies take over in this fast-growing industry? Isaac and Austin weigh in on the outlook below.

While Isaac and many Motley Fool analysts are bullish on the 3-D printing revolution, The Motley Fool has identified another revolution that has already taken root: mobile computing. To expose our readers to the companies behind the mobile revolution, the Fool recently published a special free report. We made it absolutely free to our readers as well, so click here to access: "3 Hidden Winners of the iPhone, iPad, and Android Revolution." The report is free today but won't be forever, so check out your copy today by clicking here. Enjoy, and Fool on!

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A Solid 2009 for JoS. A Bank

More good earnings news for JoS. A. Bank Clothiers (JOSB). FY 2009 earnings-per-share came in at $3.84, up from $3.17 the year before and $2.72 the year before that. That’s very nice growth.

The company didn’t give quarterly results (those come out tomorrow) but by walking back the cat, I figure the fourth-quarter earnings come to $1.91 a share which is 12 cents more than Street expectations.

The odd thing here is that this is for Joe’s fiscal fourth quarter, which is November, December and January. In other words, it’s a long time ago. Since companies often take longer with their Q4 report, Joe’s next earnings report will probably be out in just nine weeks or so. Also, since their fourth quarter covers the holiday season, it accounts for about half their annual profit. This is a big deal and JOSB did well.

Net sales reached a record of $770.3 million in fiscal year 2009, representing a 10.7% gain as compared with net sales of $695.9 million in fiscal year 2008. Comparable store sales increased 6.3% during fiscal year 2009, while Direct Marketing sales increased 12.2%. The Company ended fiscal year 2009 with $21.9 million in cash, $169.7 million in short-term investments and no debt.

“We are pleased to announce another solid year of sales and earnings growth,” commented R. Neal Black, President and CEO of JoS. A. Bank Clothiers, Inc. “Our core strategy to provide our customers with high quality men’s clothing at a great value and to actively promote this value through a diverse advertising and marketing campaign has again produced favorable results for fiscal year 2009. We have continued to be successful in expanding our market share, growing our profits and controlling our expenses, while further strengthening our balance sheet. Additionally, with this quarter’s results, we have achieved earnings growth in 33 of the past 34 quarters when compared to the respective prior year periods, including 15 quarters in a row,” continued Mr. Black.

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Earlier than comparing savings account companies it is essential to build a financial savings plan. Financial expert, Suze Orman recommends establishing apart a minimum of 10-percent of income. She additionally endorses viewing savings contributions as a monthly bill. Conserving for the long term is simply as crucial as spending monthly bills.

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Those who put off conserving now will discover it tricky to get ahead in the long term. Today is the day to consider control of personal finances. Begin by introduction a elevated interest financial savings account that can help your cash grow and provide money once you most need them.

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On the Sidelines for Long?

One of the main signs that investors remain skeptical about the so-far-anemic economic recovery is that plenty of money remains on the sidelines, sitting in cash instruments or under virtual mattresses. A new survey suggests, moreover, that the skittishness of the American investor caused in particular by the markets' swoon in 2008 may have quite long lasting effects among investors of all kinds, even higher-net-worth ones.

The "Americans' Investing Outlook Post-Financial Meltdown" survey, conducted in late August on behalf of the international consulting firm AlixPartners, found that 49% of those who identified themselves as "previous investors" said they had either stopped or reduced investing in stocks or mutual funds. A further 26% of those surveyed reported they "had no intention of investing" in either stocks or mutual funds in the next three years, while 27% said they were unsure whether they will invest over the next few years.

Those feelings were stronger among higher-income people, and the intention not to invest was greater among women than among men. For those who reported having annual incomes of more than $75,000, 21% of previous investors reported having stopped investing altogether in stocks or mutual funds. As for gender differences, 32% of female investors said they were more likely not to invest over the next three years, compared to 21% of men.

Clarence Hahn, AlixPartners' Financial Services practice co-lead, said in a statement that "Investors who had placed their trust in the investment industry are cross, cautious, and confused," and as a result, advisory firms have two major challenges: "to figure out who really is going to start investing again; and to win back trust by building into their offerings a level of oversight, due diligence, and risk management that will eradicate the possibility of similar meltdowns in the future."

Has Sanofi Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Sanofi (NYSE: SNY  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many areas, including these important factors:

• Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
• Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
• Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
• Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
• Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
• Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Sanofi.

Factor	What We Want to See	Actual	Pass or Fail?
Growth	5-Year Annual Revenue Growth > 15%	3.5%	Fail
�	1-Year Revenue Growth > 12%	9.4%	Fail
Margins	Gross Margin > 35%	70.3%	Pass
�	Net Margin > 15%	16.2%	Pass
Balance Sheet	Debt to Equity < 50%	27.4%	Pass
�	Current Ratio > 1.3	1.53	Pass
Opportunities	Return on Equity > 15%	10.8%	Fail
Valuation	Normalized P/E < 20	13.61	Pass
Dividends	Current Yield > 2%	4.7%	Pass
�	5-Year Dividend Growth > 10%	8.7%	Fail
�	�	�	�
�	Total Score	�	6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Sanofi last year, the company has seen its score drop by a point. The company's dividend growth has slowed just a bit this year, but it still has a formidable yield, and the shares have done reasonably well in the past year.

Overall, Sanofi has done a reasonable job keeping its sales figures up despite some big challenges. Several of its drugs have seen major competition open up, with its Taxotere prostate cancer drug seeing big sales declines due in part to the emergence of Dendreon's (Nasdaq: DNDN  ) rival treatment, Provenge. Similarly, sales of Sanofi's blood clot preventer Lovenox have declined as Momenta Pharmaceuticals (Nasdaq: MNTA  ) has had its own generic version. Even worse is this year's loss of patent protection on blood thinner Plavix.

Sanofi's answer to those challenges has been its buyout of Genzyme. The pickup was largely motivated by orphan-drug opportunities. Orphan drugs have a limited number of patients who need them, but they can still be extremely quite lucrative. Certainly, the acquisition route to bolster pipelines has become increasingly popular lately, as Gilead Sciences (Nasdaq: GILD  ) spent $11 billion for Pharmasset. Although Gilead got an entry into the red-hot market for hepatitis C drugs, Sanofi may have gotten a better deal.

For Sanofi to get closer to perfection, it simply needs its long-term strategy to bear fruit. Investors will get a nice dividend while they wait to see how the company does, but if Sanofi can't make its acquisition work in the long run, then its importance in the pharmaceutical industry could start to fade.

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No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Sanofi may not be a perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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Top Stocks For 2012-1-13-17

DrStockPick.com Stock Report!

Friday August 21, 2009

Ann Taylor Stores Corporation (NYSE: ANN) today reported results for the second quarter of fiscal 2009, ended August 1, 2009, which reflected a solid gross margin rate, significant expense savings and better-than-anticipated sales at LOFT.

JDA(R) Software Group, Inc. (NASDAQ: JDAS) today reported that in connection with its hiring of Executive Vice President, Sales & Marketing Jason B. Zintak on August 18, 2009, the compensation committee of the Company’s Board of Directors approved equity awards to Mr. Zintak consisting of 50,000 restricted stock units of the Company, one third of which will vest 12 months from the date of hire, with the remainder vesting ratably over a 24-month period commencing 12 months from the date of hire. Mr. Zintak also received 50,000 restricted stock units of the Company, which vest in tranches 45 days following the attainment of certain performance milestones that will be determined within 90 days of the effective date of employment. Additionally, Mr. Zintak’s inducement awards allow him to earn a target performance share award equal to 30,000 shares (up to a maximum of 37,500 shares) of the Company’s common stock, which will be based upon the achievement of the Company’s 2009 annual EBITDA target, as previously established by the Company’s Board of Directors. In the event of a change in control of the Company, the vesting of all outstanding unvested equity awards granted to Mr. Zintak will accelerate as of the date of the change in control unless the acquiring company assumes the equity awards or provides substitute equity awards. These awards have been granted outside of the terms of the Company’s 2005 Performance Incentive Plan by the Compensation Committee of the Company’s Board of Directors in reliance on NASDAQ Marketplace Rule 5635(c)(4) as an inducement to Mr. Zintak to join the Company.

Rodman & Renshaw, LLC, a subsidiary of Rodman & Renshaw Capital Group, Inc. (NASDAQ: RODM), today announced that former news anchor for the CBS Evening News, Dan Rather, will moderate “A Conversation” with Dr. Alan Greenspan, former Chairman of the Board of Governors of the Federal Reserve System, at Rodman & Renshaw’s Annual Global Investment Conference. The “Conversation” will open the Annual Global Investment Conference on Wednesday, September 9, 2009 at 8:15 A.M. and cover critical topics facing our global economy.

The replay of the LMP Capital and Income Fund Inc. (NYSE: SCD), conference call, held live on August 11, 2009 at 4:15 p.m. (Eastern Time), is now available. Harry “Hersh” Cohen, Peter Vanderlee and Michael Clarfeld of ClearBridge Advisors discussed the Fund’s recent portfolio manager changes and concluded with a question and answer session.

It wasn’t just the athletes getting exercise at this year’s National Senior Games in Palo Alto, Calif. Over the 15 days of the games, Humana’s (NYSE: HUM) Freewheelin bicycle-sharing program recorded more than 2,400 rides in excess of 11,000 miles. Humana, a leading health benefits company and the presenting sponsor of the Senior Games, teamed with the city of Palo Alto to provide 120 bikes for use during the games.

Yasheng ECO-Trade Corporation (OTCBB: YASH) announced today that it and Yasheng Group, an agriculture conglomerate, have signed a Memorandum of Understanding (”MOU”) with Pfau, Pfau & Pfau LLC (”Pfau”) to establish a joint venture to develop and operate three properties currently owned by Pfau, one of which includes roughly 28,000 acres in Central California.

Stocks to Watch: Yahoo!, Barnes & Noble, Boeing

Yahoo!'s (YHOO) board has quite a lot to consider.

The latest: Alibaba, Softbank, Blackstone Group(BX) and Bain Capital are reportedly in advanced talks to make a bid for all of Yahoo!, according to a report from Bloomberg.

See if (BKS) is in our portfolio

That news followed a report earlier Wednesday that Silver Lake and a consortium of investors are bidding for a minority stake Yahoo! that would value shares at $16.60 each. Bloomberg also reported that private-equity firm TPG Capital may have submitted a higher bid for Yahoo! than Silver Lake.The stock rose 4% to $16.33 in premarket trading Thursday. Barnes & Noble(BKS) the book and e-book retailer, posted a net loss of $6.6 million, or 17 cents a share, a surprise miss compared with analysts' expectations for net income of 3 cents. Revenue of $1.9 billion was also below the Wall Street consensus of $1.98 billion. In the same quarter last year, the bookseller lost 22 cents a share. Total sales were lower year over year. The company guided to full-year earnings at the low-end of its previously provided range of $210 million to $250 million, stating in a release that while the company" has seen and continues to expect increases in retail earnings from plan, it plans to invest more heavily in customer acquisition activities to fuel NOOK digital growth." The company recently launched its Nook tablet and insisted its tablet was better than Amazon's(AMZN) Kindle Fire. The company predicted a robust holiday quarter, stating that over the three-day holiday weekend comparable-store sales increased 10.9% at Barnes & Noble stores, on top of 17% comparable store growth last year. Shares were down by less than 1% in premarket trading. Kroger(KR), the retailer and food manufacturer, reported third-quarter earnings and revenue ahead of the Wall Street consensus and raised its full-year earnings outlook. Earnings per share of 33 cents beat the consensus call of 31 cents, while revenue of $20.6 billion topped the Wall Street call for revenue at $20.4 billion. Net income was lower by 1% to $195.9 million versus last year, when the company earned 32 cents a share. The supermarket operator guided to a range of $1.95 to $2 in earnings per share, versus a previous estimate of $1.85 to $1.95. Kroger shares were higher by 3% to $23.89. Lululemon Athletica(LULU) shares tanked in premarket trading Thursday after its fiscal third-quarter earnings showed slowing sales growth, even as it beat Wall Street's earnings expectations. Earnings of 27 cents a share were higher than the same quarter a year ago, when the company earned 18 cents, and ahead of the analyst consensus of 25 cents. Revenue improved to $230 million from $176 million a year ago, but was below the analyst call for revenue at $235.7 million. The retailer forecast earnings in the range of 40 cents to 42 cents a share in the fourth quarter, versus an analyst estimate of 42 cents.Shares were lower by 15% to $42.23. Aeropostale(ARO), the casual apparel retailer, gave a disappointing forecast for its fiscal fourth quarter. Aeropostale said it expects to earn 35 cents to 38 cents a share in the three months ending in January, below the current average estimate of analysts polled by Thomson Reuters for a profit of 43 cents.. The company said market conditions remain "incredibly promotional" with many of its competitors in the teen retailer space "increasing both the depth and breadth of their promotions." The Machinists union of Boeing(BA) and the aerospace company said they have tentatively agreed to a landmark deal that extends their contract, locates construction of the new 737 MAX in Renton, Wash., and ends a bitter dispute over whether Boeing can build 787s in South Carolina. The deal appears to reverse what had been a combative relationship and provide a global solution to a series of contentious issues that have troubled both parties. Costco(COST) said same-store sales for November rose 9%, exceeding analysts' forecasts of up 6.5%.Net sales for the month rose 11% to $7.51 billion from $6.78 billion a year earlier. Limited Brands (LTD) said comparable-store sales for November rose 7%. Analysts were expecting a gain of 4.4%.Net sales fell 2.3% to $872.6 million.The retailer also declared a special dividend of $2 a share. Finisar(FNSR), the optical networking equipment maker, posted mixed fiscal second-quarter earnings and gave a below-consensus outlook. Finisar reported a non-GAAP profit of $21.6 million, or 23 cents a share, for the quarter ended Oct. 30 with revenue totaling $241.5 million, a sequential increase of 5.8%. The average estimate of analysts polled by Thomson Reuters was for earnings of 22 cents a share in the period on revenue of $242.2 million. For its fiscal third quarter, Finisar forecast non-GAAP earnings of 20 cents to 24 cents a share, below analysts' expectations of 26 cents. Its revenue outlook of $250 million also was shy of estimates. -- Written by Joseph Woelfel>To submit a news tip, send an email to: tips@thestreet.com.Goldman Sachs' 9 Best Stocks for 2012

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CEO Gaffe of the Week: Research In Motion…Again

This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I plan to highlight both the current CEO of Research In Motion (Nasdaq: RIMM  ) , Thorstein Heins, as well as former co-CEOs, Jim Balsillie and Mike Lazaridis.

The dunce cap
Yeah, it's this trio again -- Wall Street�s version of The Three Stooges.

Research In Motion�s gaffes probably deserve their own 10-part documentary on CNBC but, for the sake of time and RIM shareholders worldwide, I want to focus strictly on a filing with the Securities and Exchange Commission two weeks ago regarding severance pay for former co-CEOs Mike Lazaridis and Jim Balsillie.

If you recall, after failing to innovate its line of BlackBerry smartphones for the growing consumer market, and having its market share eaten alive by Apple�s (Nasdaq: AAPL  ) iPhone and Google�s (Nasdaq: GOOG  ) Android operating system, both former co-CEOs reduced their annual salary to just $1, presumably to save costs and reflect the poor performance of RIM�s stock.

Fast forward to the SEC filing two weeks ago and what do we find -- (quick, grab something to bite into, punch and/or mangle) -- a nearly $12 million severance package, which RIM referred to as a "transition package," consisting of roughly $4 million for Mike Lazaridis, and about $7.9 million for Jim Balsillie.

If I were a shareholder, I�d be downright ticked off, especially considering that the company recently announced that it would report an operating loss in its upcoming quarterly release. Also, what happened to the company�s tough money-saving decision making? It apparently didn�t last too long under Thorstein Heins� reign.

To the corner you Stooges
But wait, there�s more!

One area in which �RIM doesn�t disappoint is annoying its shareholders. Not only did RIM greatly reward its former co-CEOs, but it released this "blurb" directly below the "transition agreement" in the SEC filing (page 43 for those interested):

Lazaridis and Balsillie revolutionized the worldwide wireless industry with the introduction of the BlackBerry and forever changed how the world communicates. Under their leadership, the Company successfully navigated many challenges and quickly scaled to become a global company and industry leader with sales in over 175 countries and more than 17,000 employees worldwide. Over the last decade, the Company experienced tremendous growth, with annual revenues increasing from $294 million to just under $20 billion.

I, however, feel that �they left some key parts out. Like how their lack of innovation is costing the company both consumer and enterprise market share, how its BlackBerry PlayBook flopped almost as badly as Hewlett-Packard�s (NYSE: HPQ  ) TouchPad when they went toe-to-toe with Apple�s iPad, how sales decreased 33% sequentially, and how the company reported a $518 million operational loss last night, and outlined a plan to lay off 5,000 workers. I�ve heard of paying CEOs for past performance, but we�re really stretching the limits of the rearview mirror with this statement.

The one and only saving grace for RIM may be its patent portfolio, but even that isn�t as cut-and-dried as you might expect. Most of RIM�s patents are shared with Apple or Microsoft (Nasdaq: MSFT  ) stemming from their consortium bid of $4.5 billion, when they collectively purchased Nortel�s patent portfolio in bankruptcy court. This makes a potential RIM buyout even trickier to navigate.

Sometimes you can�t win for trying, and RIM�s management certainly isn�t trying very hard.

Do you have a CEO who you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.

If you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

Also, if you would rather read about a company creating massive amounts of shareholder value, and whether our top tech analyst thinks there�s room yet to go, check out our brand new premium report on Apple.

Crude and Stocks Rise; Morgan Stanley, UnitedHealth, Walgreen Moving Early

Stock futures rose on Thursday following another raft of earnings reports, although news on the jobs front crimped gains; weekly jobless claims rose by 34,000 to 386,000 last week. Large-cap stocks have risen in three of the last four trading sessions, and oil prices are also on the rise. Nymex futures crossed back over $90 per barrel today and were recently trading at $90.97, up 12%.

Dow futures rose 39 points; S&P 500 futures rose 5 points.

Morgan Stanley (MS) fell 3.9% after reporting disappointing earnings results as revenue fell and the bank adds billions in collateral to account for a two-notch credit downgrade by Moody’s.

United Health Group (UNH) rose 2.5% after beating earnings expectations and raising its ful year outlook. Revenue rose at its health benefits and health services businesses and it posted a lower than expected medical loss ratio.

Walgreen (WAG) jumped 12% after saying it has made a new deal with pharmacy benefit manager Express scripts (ESRX). Walgreen had seen sales fall after the company stopped filling ESRX prescriptions.

IBM (IBM) shares rose 2.6% afterbeating earnings expectations and raising its full-year outlook, even as revenue slipped.

Philip Morris International (PM) rose 1.2% despite reporting a drop in second-quarter earnings as lower cigarette volume and foreign exchange hurt revenue.

Yum Brands (YUM) fell 2.7% as its profits in China fell amid lower restaurant margins.

Clothing maker VF Corp (VFC) rose 2.4% to $145.21 after it reported second-quarter earnings that beat forecasts and raised its yearly forecast.

Auto retailer AutoNation (AN) rose 1.9% after beating second-quarter estimates amid improving sales of new and used vehicles.

Miner Freeport-McMoRan Copper & Gold (FCX) rose 1.2% despite reporting lower second-quarter earnings amid a drop in copper and gold prices.

– with additional reporting by Johanna Bennett

Health care stocks: A Supreme decision

A decision regarding the constitutionality of the health care reform law is expected by the Supreme Court in mid-June 2012.

Below, we discuss some potential actions by the Court and the impact we think they could have on various health care industries. We also look at the impact on Health Care Select Sector SPDR Fund (XLV), the largest health care ETF by far with $4.4 billion in assets.

There are three potential scenarios arising from the Court decision, says Jeffrey Loo, head of health care equity research for S&P Capital IQ.

The best scenario for the health care industry, he says, would be a ruling that the individual mandate is constitutional, allowing the health care reform law to be implemented as scheduled.

Under this scenario, the health care sector would benefit from approximately 32 million additional insured customers (phased in from 2014 to 2019), positively impacting health care facilities, managed health care companies, health care service providers, and health care distributors.

Another scenario is the Court rules the individual mandate unconstitutional and cannot be severed from the rest the Court would invalidate the individual mandate along with the rest of the health care reform law package.
S&P Capital IQ believes this scenario would have a neutral impact on the overall health care industry. In spite of losing its largest potential growth driver (the 32 million additional insured Americans), burdensome concessions, regulations, fees, and taxes would likely be dropped as well.

The last scenario is the Court ruling the individual mandate is unconstitutional, but leaving the rest of the health care reform law package intact. S&P Capital IQ believes this would be the worst-case scenario for health care companies.

Under this scenario, the concessions, regulations, fees, and taxes various sub-industries agreed to in exchange for the potential of 32 million additional insured Americans would remain, unless new legislation scales them back.

The Congressional Budget Office estimates that if the individual mandate is struck down, only 16 million additional Americans would obtain insurance, with the vast majority coming from the expansion of Medicaid (assuming the Court determines the expansion of Medicaid is lawful anyway).

Medicaid customers generate the lowest margins for the health care sector. Loo believes the companies most adversely impacted would include health care facilities, pharmaceuticals, managed health care, and health care services.

As of April 2012, 51% of the assets in XLV were in pharmaceuticals, including five of its 10 largest holdings: Abbott Laboratories (ABT), Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE). These stocks all earn our buy rating.

Herman Saftlas, the equity analyst who covers these stocks for S&P Capital IQ, believes that pharmaceuticals would be among the groups most affected by any decision, with the likely impact less pronounced for the managed care and hospital areas.

Overall, Saftlas favors the aforementioned stocks for their growth potential and generous dividend yields.

The next two largest sub-industries in XLV are health care equipment (16%) and biotechnology (11%). S&P Capital IQ equity analysts are more positive on the fundamentals of biotechnology than equipment and have a buy recommendation on Amgen (AMGN).

Rounding out the five largest sub-industries for XLV are managed health care (9%) and health care services (5%), with respective holdings such as S&P Capital IQ buy recommended UnitedHealth Group (UNH) and strong buy recommended Express script Holdings (ESRX).

Overall, despite the overhang of the Supreme Court review of healthcare reform, we think the Health Care Select SPDR Fund is worthy of investor attention.



Related articles:

• Cerner: 'Riding the wave' in healthcare
• Triple play in managed care
• Vanguard Health: Aging boomer bet
• Johnson & Johnson: For every investor

4 Stocks to Watch in 2012

The following video is part of our nationally syndicated Motley Fool Money radio show, with host Chris Hill talking with Seth Jayson, James Early, and Ron Gross about what investors should expect in 2012. In this segment the guys discuss the stocks they believe could be poised for a strong 2012, including companies from the industrial and telecom sectors.

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Hungover at Work: Drinking Costs U.S. Economy $200 Billion in Production

How do you unwind after a long day at work? Do you listen to music? Exercise? Take a nap? These are all well and good, but a very large majority of us hit the bottle. And it's now coming to the attention of countries – and their economies-- that perhaps we have a global drinking problem...

Now before you assume the next words are, “we brought you here because we love you and are concerned about your drinking,” don't worry, this is no intervention.

Recent studies have shown that work productivity and drinking have considerable connections and a “major negative impact” on overall productivity.

In England, researchers found that 14 million working days are lose each year, at the cost of £6.4 billion ($10.1 billion), due to lost productivity and absenteeism because of excessive drinking.

From The Telegraph,

Around 10 [million] men and women in England drink above the recommended guidelines and every day, about 200,000 people go to work in the U.K. with a hangover.

The charity Alcohol Concern of the U.K. has warned FTSE 250 companies about brushing aside drinking problems among their workers, as it can have a serious impact on overall work ethic and health.

The charity says that companies are doing very little beyond enabling the “obvious” rule prohibiting employees from being drunk at work. They are trying to convince companies to take a closer look at their financial losses incurred through workers' reduced performance caused by alcohol and create formal responsibilities to address these problems.

Alcohol Concern chief executive Eric Appleby says “it's costing the economy billions each year... The evidence is that boards are not taking the issue seriously.”

According to one source, alcohol related hospital visits are going to rise by 1.5 million in the next few years if the government does not take better action toward the issue in the U.K, which can result in £3.7 billion ($5.8 billion) in costs to the government's National Health Services. 

This is a worldwide issue. With inflation rising across the globe, economies still trying to rebound-- or continuing to collapse-- and work demand soaring across all industries, drinking is a venting outlet. And the alcohol industry is one of the few sectors that continues to boom thanks to sinking morale.

An old adage is, “when all goes to hell, invest in gambling, tobacco, and alcohol” which it looks like many around the globe are doing.

Specifically in the United States, the Center For Disease Control and Prevention released a report on the economic costs of excessive drinking which addressed the adverse effects of excessive drinking on the economy.

Of the total economic costs of alcoholic consumption in the U.S., which was $233.5 billion during their study-year 2006, over 72% was the result of binge drinking. The last time the CDC conducted the same research back in 1998, the cost was $185 billion, which is a 21% increase in costs solely related to drinking.

“While health-care made up 11 percent of the $223.5 billion cost and motor vehicle accidents was only part of the miscellaneous category totaling 7.5 percent, loss of productivity was a little more than 72 percent of the entire economic loss.”

The study estimates an economic impact of close to $1,000 per person with relation to excessive drinking.

"The researchers found that about $94.2 billion, or 42 percent, of the total economic cost of excessive alcohol consumption in 2006 was picked up by federal, state, and local governments.

Another $92.9 billion, or 41.5 percent, was absorbed by the drinkers and their families, largely in the form of lower household income."

The global alcohol industry's global business figures are scarcely reported, as the numbers vary dramatically depending on the source, but according to a handful of medical journals the industry creates over $150 billion in global business. Therefore the the cost-benefit ratio between economic revenue for alcohol is, in fact, significantly lower than the amount being put back into the workforce through productivity.

So the next time you have the urge to excessively cope with the struggling economy and the rest of life's worries by hitting the bottle, think about your particular impact on the global economy. Actually, don't think like that, it may make your head spin even more than it already does at that barstool...

*Quoted excerpt from Huffington Post

 

4 Reasons This Hated Pharma Stock is a Buy

Temporary setbacks at a company can often create profit opportunities for patient investors.

It's hard to believe BP (NYSE: BP) was caught in the middle of an environmental disaster just two years ago, responsible for an estimated 200 million gallons of oil dumped into the Gulf of Mexico. Burdened by cleanup costs and a public-relations nightmare, BP watched their stock downfall to the $20s range. Fast forward to 2012 and the company is now trading in the low $40s after reporting profits of $25.6 billion in 2011.

Investors lucky enough to capitalize on this opportunity experienced a 50% gain as the stock continues to grow. But let me tell you about another company experiencing a setback, but which I think could face a similar turnaround. 

 

U.K.-based GlaxoSmithKline (NYSE: GSK), the world's second largest pharmaceutical manufacturer, has been charged with marketing two popular drugs -- anti-depressants Paxil and Wellbutrin -- for unapproved uses and because it failed to report important safety data about a third drug (diabetes drug Avandia) to the U.S. Food and Drug Administration (FDA). Glaxo agreed to pay $3 billion in early July to settle criminal and civil charges brought by the U.S. Justice Department, the largest fine ever levied against a drug company.

Even for a company with a $113 billion market value like Glaxo, $3 billion is a huge hit to earnings and the taint on Glaxo's reputation could last years. In the days following the announcement, Glaxo's shares lost 4% and some analysts anticipate a further downward slide.

Despite this setback, Glaxo remains an attractive holding for income investors and any further share price slide just makes the stock even more appealing.

Here are four reasons why I think this stock is particularly attractive now…  

1. Glaxo has an industry-leading pipeline of new drugs.

Glaxo has 26 major drugs and vaccines in late-stage development, more than any other pharmaceutical company. Three years ago, Glaxo committed to improving its research and development (R&D) productivity and the progress since then has been impressive.

So far this year, Glaxo has secured FDA approval of a neuralgia drug and a combination vaccine for meningitis and Meningococcal disease. In addition, Glaxo has submitted six new drugs for FDA approval this year, including treatments for asthma and chronic obstructive pulmonary disease, sarcoma, hepatitis C, atherosclerosis and melanoma. Income contribution from new drugs has more than doubled in three years from 5% of sales in 2009 to 11% in 2011. Analysts expect new drugs to drive 28% growth in per-share earnings this year and 7% growth next year.

2. Glaxo is consistently more profitable than its peers.

Glaxo's five-year average operating margin is 27% and well above competitor average margins of 16%. Glaxo is also improving profitability through greater efficiency. In the past 12 months, the company's operating margin has risen to 31%, or roughly three times the 12% operating margin of industry peers.

Glaxo's 12-month return on assets (ROA) is 12.6% and nearly twice the 6% ROA posted by competitors Merck (NYSE: MRK) and Pfizer (NYSE: PFE) during the same period. In addition, even taking into account the $3 billion fine, ratings agency Moody's has given Glaxo's balance sheet "A1" (stable) grade. The company is also bargain-priced at the moment, with a price-to-earnings (P/E) ratio of  15 , which is below the industry average P/E of 16 and Glaxo's five-year average P/E of 26.  

3. Glaxo delivers consistent, safe dividend growth.

Glaxo generates enough cash flow to cover the dividend twice. The company has $9.1 billion in available cash and produced cash flow from operations exceeding $9.8 billion in the past 12 months. That is more than enough to cover $5.5 billion of annual dividend payments, with plenty left over for dividend increases, acquisitions and share repurchases. The company has grown its dividend on average 8% in each of the past five years and raised payments another 6% in April to a $2.20 annualized rate that yields about 4.7%.

Unlike other European companies, Glaxo pays quarterly dividends and there is no tax withholding. The only difference from U.S. dividend payers is that the amounts vary slightly, but in a predictable way. Glaxo pays a slightly larger dividend in the first and fourth quarters of the year.  

Glaxo is also using its strong cash flow to make more share repurchases this year. The company targets $3 billion worth of share repurchases in 2012. Buying back stock further increases the safety of the dividend and enhances future earnings-per-share growth.  

4. A major new acquisition could create synergies and broaden the pipeline.

In mid-July, Glaxo announced plans to acquire Human Genome Sciences (Nasdaq: HGSI) for $3.6 billion. Through this purchase, Glaxo gains full ownership of three potential blockbuster drugs, including Benlysta (an FDA-approved treatment for lupus), Darapladib (for cardiovascular disease) and Albiglutide (for diabetes). Glaxo had partnered with Human Genome Sciences on the development of these drugs. The acquisition price appears reasonable given analyst estimates that Benlysta by itself could generate peak sales exceeding $4 billion. Glaxo also expects to achieve at least $200 million in cost synergies by combining the businesses and adds that the deal will positively affect earnings per share next year.

Risks to consider: By making one large settlement, Glaxo resolves criminal charges that would have resulted in negative publicity for years to come. The company also eliminates what would have been an unknown cost burden holding back the share price. There are some fears that these charges are just the tip of the iceberg and indicative of broader mismanagement issues, but I don't think that is the case. All of the alleged misdeeds occurred during the tenure of the previous CEO (2000-08) and current CEO Andrew Witty has been recognized for his honesty and forthright approach to settling the charges.  

The Best Stock to Own for a Housing Recovery

Here's some good news, if you're up for it: I've found a stock that could return 200% or even more over the next three to five years.

These aren't the 1990s, though, so it isn't simply a matter of buying shares and then watching the price rise. Much more patience is necessary to reap the potential rewards of this stock because returns are heavily influenced by the housing market, which is expected to remain in a slump for a while longer.

  A sharp rebound could be just around the corner, though. The National Association of Home Builders (NAHB) predicts 800,000 housing starts (new residential building projects) in 2012, a 34% gain compared with the 597,000 forecasted for all of 2011. Moody's chief economist Mark Zandi says housing starts should jump by 49% next year, to about 1 million, based on factors like record corporate earnings and fewer mortgage delinquencies.

If the NAHB and Zandi are right, then the future looks very bright for Masco Corp. (NYSE: MAS), a Michigan-based building materials company.

Masco is big player in the home improvement products space, boasting name brands like Behr and Kilz paint, Kraftmaid cabinets and Peerless and Delta faucets. The company had a long history of profitability before 2008, but the recession and housing slump have taken a toll, as you may have guessed. Overall sales fell 36% in the past four years, from $11.8 billion in 2007 to $7.5 billion in the past 12 months. Diluted earnings per share (EPS) fell a whopping 394% during that time, from $1.05 in 2007 to a loss of $3.09 in the past 12 months. Investors have responded by punishing the stock, which is down 35% year-to-date and has lost an average of 22% for the past three years.

But when a housing recovery does occur, there may be no better way to play it than by owning stock in Masco. It's a solid firm that has been around for decades, and I think shares have been way oversold, especially since management has been taking meaningful steps to maximize profits the moment housing rebounds. A key strategy has been to improve cost-efficiency -- for example, by trimming $180 million in salaries and other fixed costs from the cabinetry, installation and specialty products segments. Together, these segments pulled in about 40% of revenue, or $3 billion, in the past 12 months. (Specialty products include things like windows, patio doors and staple gun tackers.)

Also, the company is almost finished with a series of hefty one-time charges against earnings totaling $2.7 billion. These charges date as far back as 2003 and are mainly related to the cost of acquisitions, such as the purchase of Erickson Construction in 2007, and to "goodwill impairment." Goodwill is an accounting term for intangible assets like brand recognition and customer loyalty. Since the tough economy has cost Masco many customers, the value of its customer loyalty has fallen precipitously (by an estimated $1.5 billion). One-time charges have to be accounted for on the company's financial statements, which should look much better going forward as these charges wind down.

Sales of decorative and architectural products such as paint, stains and hardware, which account for 22% of revenue, have barely suffered at all despite a tough economy because people are currently more inclined to do home improvements than buy new homes. Indeed, revenue in this segment is off less than 5% from the 2006 peak of $1.8 billion. Gross margins have also been resilient, only falling to 23.5% from the 2006 peak of 27.5%. Analysts say this segment is especially likely to achieve record sales with only a modest gain in housing activity. Decorative and architectural products tend to be cheaper, but they can make a big difference in a home's appearance, so consumers may initially spend more money on these products in a housing upturn. A stronger housing sector should also stimulate sales of kitchen and bathroom cabinetry, not only in new construction but also for renovations, since kitchens and bathrooms are the two most frequently remodeled rooms in peoples' homes.

The plumbing segment, which generates about 35% of sales, has also held up reasonably well. Although revenue in this segment is currently about 20% below peak levels ($3.3 billion in 2006), analysts say things might have been even worse if not for strong sales of innovative new products such as Touch20 for faucets (a technology that lets the user adjust the flow of water by touching the faucet with a wrist or elbow rather than the hands.) Like cabinetry, plumbing supplies should also sell well when the housing market improves because of increased demand for new construction and existing home renovations.

Risks to consider: The biggest risk is the NAHB and Mark Zandi are wrong and housing continues to languish for another two or three years or more, depressing Masco's profits and stock price for longer than expected.

Questions for Ben Bernanke

Since he's going to take them, here are a few in no particular order:

• You testified in front of Congress, under oath that you would not monetize the Federal Debt. Yet one of the Fed Presidents, Mr. Hoenig, has said that you are, under any reasonable interpretation of reality, now monetizing federal debt. How was your previous statement, made under oath to Congress, not an act of perjury?
• In the lead-up to the crisis of 2007 and 2008 you emphatically stated on multiple occasions that you saw no material risk of recession or of the housing downturn becoming a widespread phenomena. Not only was the first economic call incorrect, the second was spectacularly wrong to the point of complete irrelevance, particularly given the recent Case-Shiller report. Why should anyone believe that similar claims of ability to avoid serious inflationary or other disruptive impacts of your monetary policy decisions, given your past track record of inaccuracy?
• How do you justify stealing essentially all of the income of Senior Citizens and others who are not in a position to take market risk? To put this in perspective the average rate on 1-year CDs were around 5.25% prior to the collapse in 2007. $1 million in such a CD would return $52,500 - enough money for a retired couple, along with Social Security, to have a reasonable lifestyle. Accumulating $1 million, while not particularly easy, was entirely possible for most working couples during their lifetimes. $50,000 is reasonably close to the median household income; as such a retired couple could thus live a decent middle-class lifestyle on this income without taking market risk.
  
  Today a 1 year CD yields, at best, about 1.25%. That same household now has an income from their CDs of $12,500. This is below the poverty line for a two-person household (currently $14,570.) Your zero-interest rate policy has literally resulted in the descent of an average-income retired household into poverty. Given that 13% of the population of the United States is over 65, how do you justify intentionally plunging those retirees into poverty?
• You have repeatedly claimed that your "QE2" program was intended to "help the economy." Yet it is clear that this bond-buying was, in fact, very close in size to the gross federal deficit during that time. How do you defend the obvious financing of the Federal deficit and when do you intend to stop doing so, given that everyone, including you in Congressional testimony, have stated that this deficit spending is unsustainable?

Those will do for a start.

Hate Swipe Fees? Start a new payment revolution!

A one-year-old start-up company based out of Des Moins, IA, known as Dwolla is all over the news these days. Launched by 28-year-old entrepreneur Ben Milne, Dwolla is a mobile payment platform that has the very real potential to turn the credit card industry on its ear. Milne was just included in the finance portion of Forbes Magazine�s annual �30 under 30� list. Equally impressive is the fact that Milne happens to have no educational background in finance.

Dwolla was born out of a self-described �obsession� with figuring out how he could escape paying interchange fees that Mine developed while he was running his own speaker manufacturing company.

�I was losing $55,000 a year to credit card companies�So I thought, how do I get paid through a website without paying credit card fees,� Milne revealed in a recent interview with SF Gate.

Dwolla enables customers to pay for purchases using their smartphone at the point of sale. The money to cover the transaction is taken from a prefunded account and the merchant incurs no fee greater than 25 cents for any transaction exceeding $10. Recently Dwolla did away entirely with the merchant fee for all purchases totaling less than $10.

And Dwolla is not done yet: they just revealed an additional groundbreaking payment service known as �Instant.� As long as an Instant user is able to connect to the internet via their mobile device, they can have access to up to $500 worth of cash any time anywhere they wish. Dwolla Instant subscribers must pay $3 monthly for the service. Should they not repay their debt to Dwolla by month�s end, a $5 penalty fee will be incurred.

Milne has indicated that he would like Dwolla users to regard Instant as a short term credit solution and emphasize that borrowers would be best serving themselves by paying down the debt in its entirety each month. For the moment, the company will make use of traditional credit scoring systems to determine the creditworthiness of users interested in Instant. However, in the future, Dwolla plans on using their own data compiled on user behavior to assess a borrower�s potential risk.

As for shifting the bulk of the fee burden onto the shoulders of consumers as opposed to merchants, it is Milne�s belief that as long as costs are kept entirely transparent users will be able to understand why they have to pay.

�There�s a cost to the network and we think everything should be apparent and upfront to everyone,� Milne explained recently, as reported by online news source All Things D.

 

The Ron Paul Plan: Kill 5 Agencies, Cut $1 Trillion

Ron Paul's plan to slash $1 trillion in federal spending begins and ends at the government bureaucracies he says are most responsible for the mess.

As part of his "Plan to Restore America," the Republican presidential candidate and firebrand congressman from Texas wants to cut out all foreign aid, end the wars in Afghanistan and Iraq, and eliminate five Cabinet-level departments.

Get alerts before Link and Cramer make every trade

"We are in the midst of the worst debt crisis ever in all of history, so I cannot see how we can get out of this by increasing the debt around the world," Paul said in a CNBC interview. "Nobody has proposed any cuts and I don't know how in the world you can get out of the problem of too much spending and too-big government by not cutting anything."Specifically, he wants to eliminate the departments of Energy, Housing and Urban Development, Commerce, Interior and Education.While taking an ax to agencies that have become part of Washington's bureaucratic fabric may sound extreme to some, Paul said voters he has met on the campaign trail approve."I get no grief over that," he said. "How does hiring a lot of bureaucrats in Washington and running a department up there make our system better? There's no indication it's happened. It's quite the opposite."Paul's plan differs from many of his rivals in that he does not propose reducing any benefits for massively indebted programs such as Social Security, Medicare and Medicaid."I see the Social Security as a contract that we should fulfill if at all possible," he said.Paul does believe those under 25 years old should be allowed to opt out of receiving -- and paying for -- Social Security benefits. Otherwise, he advocates going after government first.His plan comes at a time when polls are showing the Republican race at least on a national level coming down to a three-man contest: A pitched battle for the top position between former Massachusetts Gov. Mitt Romney and businessman Herman Cain, with Texas Gov. Rick Perry holding a solid third. The most recent Gallup poll has Romney at 20%, Cain at 18% and Perry at 15%. But Paul's candidacy, though registering just 8% support, has retained a populist base throughout, and the race to unseat President Obama is far from settled.Cain's 9-9-9 tax plan to establish a loophole-free 9% tax rate on businesses, individuals and sales helped catapult him to the front of the race, and Paul is hoping his plan takes root as well."In order to get back to growth again you have to get rid of all the mistakes, all of the malinvestments, all of the debt," he said. "You can't keep dumping the debt onto people."--

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Credit Card Banks Fall on JP Morgan Warning

JPMorgan Chase (JPM) is causing quite a bit of fallout in the market; the company’s earnings release this morning is arguably holding the entire market back despite some positive news out of Europe.

Banks that issue a lot of credit cards are feeling particular pain, after JP Morgan CFO Doug Braunstein warned on the company’s conference call that the decline in net charge-offs this quarter should continue in the fourth quarter, but could begin to flatten after that.

Braunstein highlighted the “4.34% chargeoff rate in the Chase portfolio. That is an improvement of almost 100 basis points over the last quarter. We also think net charge-offs could modestly improve again next quarter from the current quarter; but after that you shouldn’t expect much additional improvement.”

Capital One Financial (COF) fell 4.1% in midday trading; Discover Financial Services (DFS) was down 4.%, and Alliance Data Systems (ADS) dropped 4%.

Business Value Critical to Proper Estate Planning

Unfortunately, it’s very common for people to die intestate (without a will), which is a testament to people’s general unwillingness to plan for the future, so it shouldn’t be surprising that people also fail at proper estate planning when it comes to their businesses. A recent survey by TEC Worldwide shows that 43% of business owners do not conduct business valuations when they hire an estate planner, which is critical to the full accounting of assets and worth for estate planning. Failure to get a proper valuation, (or any valuation at all) could prevent heirs from recovering the full value of the decedent’s business assets, from which recovery after the fact is difficult if not impossible. For more on this continue reading the following article from JDSupra.

Business valuations are an important component of operating a company, especially for owners who plan to sell or merge with another business in the future. However, some small business owners who do not plan on making significant changes to their company may forgo valuations, which can have heavy implications for their estate planning.

Currently, only 43 percent of business owners who hire a valuation expert do so for estate planning purposes, according to a survey from TEC Worldwide. In addition, many who do value their companies may rely on professionals who are unqualified to conduct these valuations, such as certified public accountants, because they do not take into account all the factors that weigh on a company’s worth. Experts say the percentage of owners who conduct valuations is too low, which may lead to issues for the owner’s beneficiaries down the road for several reasons.

First, when a business owner dies, the IRS usually conducts an audit of the company’s tax returns and records to ensure taxes are collected on the fair market value of the business, and that the terms of the final will and testament comply with federal estate law.

Company owners who choose to transfer businesses to heirs so they can enter into retirement may also experience problems if they fail to value their business first, according to valuation firm AIW.

For example, transfers of ownership that are valued below fair market value may prompt the IRS to determine that taxes are owed. In addition, the tax agency may also enforce a penalty of up to 40 percent of the unpaid taxes, AIW reports.

For these reasons, small business owners who plan on keeping the company in the family may put their heirs – and their company – in a better financial position by having the enterprise valued by a valuation professional to avoid potential tax issues in the future.

Extract:  Business valuations are an important component of operating a company, especially for owners who plan to sell or merge with another business in the future.

LTXC: Long-Term Potential, Short-Term Risk

Heading into last Tuesday's earnings report, it was clear that LTX-Credence (LTXC) was facing a key inflection point. The maker of test equipment for semiconductors had already issued dire guidance for the October quarter in conjunction with fourth quarter earnings back in August. That guidance knocked the stock down 14% despite the company's conclusion of a successful fiscal year, with earnings of $1.19 per share ($1.12 non-GAAP), and nearly $3 per share in net cash. Coming into the week, LTXC, trading at just over $6/share, looked like a strong value play.

Unfortunately, on Tuesday the company reported a net loss of 10 cents per share (8 cents non-GAAP) -- the low end of the guided range -- on sales of $33.75 million, below the company's target of $35 to $39 million. That revenue figure was down some 56% year-over-year. Second quarter guidance was even worse: revenue of $26-$30 million, with a non-GAAP loss of 15 to 20 cents (roughly 17 to 22 cents GAAP). The stock closed down 7.4% on Tuesday, and over 19% for the week, finishing Friday's trading at $4.91.

The back-to-back earnings disasters have knocked much of the luster off of LTXC. At the midpoint of January guidance, trailing twelve-month earnings will be 41 cents per share (26 cents non-GAAP), and just 11 cents GAAP excluding a$15 million merger breakup fee paid by Verigy in March. Net cash fell in the quarter to $2.77 per share, as cash from operations was negative $3.5 million. The swiftness of LTXC's revenue collapse has radically altered the fundamental case for the stock -- and helps to explain why the stock is 50% off its 52-week high set back in February.

Despite the struggles, there was a surprising amount of optimism on the first quarter conference call. Analysts noticed that gross margins held up well -- two points above expected -- despite the sharp slowdown in revenue, and the company claimed that changes in cost structure would increase margins -- and profits -- during the next industry upturn. Management also seemed confident that the coming fiscal second quarter -- ending in January -- would represent the low point for sales. CEO David Tacelli elaborated on the Q&A portion of the call:

Christian Schwab – Craig-Hallum Capital

Perfect. And then lastly, as we call the bottom this quarter, instead of me trying to figure out the math, what do you guys believe the pace of the recovery is going to look like from here, then?

David Tacelli

That’s the $64 million question. If you go back to historical trends, it could be flat for a quarter and then rise slowly, and I’ve also seen rapid rise in the 20 to 30% range on a quarter-over-quarter basis. Which one this is going to be? I wouldn’t make a guess on right now; but based on the level of activity with programs, based on the level of activity with customers going into production using our equipment that they haven’t used in the past, I’m pretty confident that we’ll [see] some kind of rise. The pace, I couldn’t guess at this point, Christian.

If LTXC is correct, and the fiscal second quarter will be the "trough quarter," the stock could be putting in a bottom, as the (theoretically) forward-looking market anticipates the rebound in revenue. And a snapback could make the stock significantly undervalued: in FY2011, the company generated $70 million in free cash flow. That represents nearly 70% of the company's current enterprise value of $103 million (including $15MM in long-term liabilities). When the company can take advantage of an updraft in the semiconductor business, it can make money, and quickly. A bottom in the second quarter could mean a return to profitability in the spring, and a corresponding bounce in the share price.

The problem for LTXC investors is: how much confidence can we have in a semiconductor supplier that is calling the bottom? Firms across the industry seem to have been doing it for most of 2011, yet the sector continues to falter:

1-year chart Philly Semi Index (SOX); chart courtesy marketwatch.com

If the company is right, and calendar 2012 will be stronger, then LTXC looks undervalued. With over half of its market cap in cash, and the potential for substantial earnings leverage in a rebound, the stock could be an interesting long-term play.

But, in the meantime, LTXC stock seems to offer significant downside risk. Will the February report produce another round of disappointing guidance, and another 15-20% haircut? And will semiconductor stocks continue to struggle, perhaps breaking through the multiple support established over the last few months?

For now, it looks like LTXC should stay on value investors' watchlists, pending some kind of stabilization in the sector or good news from the company. Further decline in the stock price -- particularly toward the company's tangible book value of about $3.79 per share -- might provide an attractive entry point. But, right now, investors have to be wondering when the bottom is truly coming, and how much more damage will be done to the LTXC share price before their market finally turns around.

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

Kodiak Makes A Steal Of A Deal

KOG Makes Another Big Acreage and Producing Asset Buy, Announces Multiple Offerings, and Provides Big 2012 Guidance

The Basics: Kodiak (KOG) is paying $590 mm for 50,000 acres in the heart of the Williston Basin and 3,500 BOEpd of current production from a private operator (my guess would be that they bought the foundation blocks ofNorth Plains Energy (.pdf)).

Paying for the deal: KOG is set to pay $540 mm in cash and $50 mm in KOG stock (about 6 mm shares based on their deal math and my thoughts on a near end of year stock price) to the seller. They will then issue 37.5 mm shares to the public plus another 5.625 mm shares in the green shoe to raise a total of $284 mm assuming a 6% fee and a deal price of $7. It may turn out a little better for them than that. They are also selling $550 mm in senior notes to fund this acquisition, the last acquisition (from October) and set up the balance sheet with a little post transaction cash.

What they get:

• 50,000 net acres in Williams and McKenzie Counties.

  • 30,000 of the acreage is located adjacent to KOG's Koala area in an area known up until last month as southeast Rough Rider and where long term rates of KOG's Bakken and Three Forks wells have been trending towards exceptional levels. It is very "good real estate" and HES and CLR are quite active here.
  • The rest of the acreage is in a bit less de-risked part of northern McKenzie and southern Williams counties, ND but CLR, XTO, and a number of privates have met with some success using really short laterals so it's not like it's goat pasture.

• The properties are producing 3,500 net BOEpd with four more drilled but not yet completed wells to be tied in soon.

• Proved reserves of 19.7 mm BOE (81% oil) for a proved only reserve acquisition price of $29.95 per BOE, not at all expensive when you consider the upside of this as of yet lightly drilled acreage.

• Note that using SEC reserve valuation guidelines KOG put PV10 on the proved reserves alone at $464 mm.

How KOG Looks Post Deal (see table after the bullets as well):

• Their Williston acreage increases 48% to 155,000 net acres, 70 to 85% of it in what I'd call core, largely derisked territory.

• 2011 volumes were seen exiting the year at 10,500 BOEpd, and that rate shifts up to combined KOG Old Company plus October acquisition (now known as Polar and where they see EUR's as promising as the ones at Koala) plus this November acquisition (as of yet some unnamed type of bear, maybe Black?) exit rate of 17,000 BOEpd according to KOG.

• KOG also went ahead and initiated first guidance for the combined company for 2012 of 22,000 to 24,000 BOEpd with an exit target of 30,000 BOEpd, and just like that KOG is within 12 months of being bigger than BEXP was at their takeout.

• This comes with a big shift up in the capital budget. As they grow to 6 rigs by January and 8 over the course of the year, capex is driven from 2011's $230 mm (drilling only) to 2012's expected $585 mm.

• Given the growth in production and little to no improvement in oil price realizations, a far too conservative view by my macro model, EBITDA generation should easily top $450 mm next year which along with their pro forma balance sheet places them in the "no need for another deal" realm for about the next 12 months, barring further acquisitions, which of course is a catch as catch can business and I wouldn't hold another acquisition like this against them.

click to enlarge

Nutshell: In less than two months KOG has made two acquisitions which have increased their acreage footprint in the Williston by nearly 70% and increased production (and probably reserves and certainly potential reserves) by well over 100%. Large, contiguous acreage blocks in the core of the play are rapidly becoming scarce and my sense is that post Brigham (BEXP), OAS and KOG are the go to names for pure Williston Basin players, with their smaller size enabling rapid growth and the leverage that provides to investors who like high growth, repeatable success, and falling per unit cost metrics. While either would appear expensive on conventional metrics of TEV/flowing BOE, at present they are also rapidly growing into their valuations, and as such, positioning themselves as targets.

Other metrics like $/acre, which have been of somewhat limited use of late except as relative position markers within the group, are also cheap as we look only a short distance into the future on a production adjusted basis. Furthermore, these metrics yield negative acreage valuations in only a year using a $100K/flowing BOE multiples for KOG. As more names leave the field, investors have fewer choices that offer significant play specific leverage, and I would expect the remaining few like OAS, KOG, NOG, TPLM and others to see an increasing bid.

Larger players are beginning to explore concepts beyond just middle Bakken and Three Forks, like CLR is planning with tests of multiple non-communicative benches within the Three Forks, not to mention the Heath, Nisku and other potential producing formations under those same acres. Stacked pays are a beautiful thing. I continue to own KOG as a full core position in the ZLT with a trading position on top and will likely add more on a deal related dip this week as I expect any such retrenchment in the share price to be short lived and KOG's secondary offering to be in high demand.

Disclosure: I am long NOG, OAS, KOG, TPLM.