Red Hat Shares Poised for Earnings Pop

The earnings calendar is unusually busy this week, with a number of big names on the schedule. Any time you can find Nike (NYSE:NKE), FedEx (NYSE:FDX), and Oracle (NASDAQ:ORCL) in the same week, things could be interesting.

One of the smaller names on the docket this week is Red Hat (NYSE:RHT). The open-source business software maker reports on Wednesday after the close.

Analysts expect RHT to post earnings of 24 cents a share, a 33% increase from a year ago. That�s in line with the growth seen last quarter. RHT hasn�t missed an earnings estimate in — well, we�re not really sure. Our data goes back more than six years, and we haven�t seen the company come up short yet.

The stock usually performs very well after these solid earnings reports. In the past four quarters, the shares have gained ground three times, popping an average of 10% in the day following each report. The one loss was modest � just 2.5% in the subsequent day.

RHT�s chart shows a stock in the midst of a strong one-month run after the shares hit a 52-week low in mid-August. Since then, the stock has added more than 25%, taking out its 20-day and 50-day moving averages in the process. But there�s plenty of room to run higher. The stock�s 2011 high around $48 represents about 20% of upside potential.

RHT�s business model of providing inexpensive software platforms has resulted in a steady rate of growth and a track record of beating analyst earnings expectations. The problem with this growth is that expectations feed off themselves and become greater. But while expectations for RHT are high, they haven�t yet reached an onerous level. Growth projections are still in line, and the stock is well off its highs and the average analyst price target is around $48.

With a record of beating expectations, we believe the stock has more upside potential this week. Buy the October 40 call for three bucks or less.

Have a great trading week.

 

3 Reasons Ford Is Still a Buy

Mr. Market's recent slump has treated quite a few big-name stocks unkindly, and Ford (NYSE: F  ) is one of them. Ford stock has looked primed to take off a few times in recent months, but the latest market swoon took the wind out of its sails.

Ford closed below $12 this past week for the first time since January, and despite a rally on Thursday, it was down in the $11s again in trading on Friday. Is there cause for concern, or is this an opportunity to add a strong company to your portfolio?

Back in February, I listed six reasons I thought Ford was a buy. Today I'll offer three reasons I still think it's a buy, along with two concerns that don't change my conclusion but will bear watching.

Reason No. 1: It's cheap again
Auto stocks have historically traded at around 10 times earnings, on average. At a moment when the economy is on an upswing, that might even be a little cheap, but Ford's stock is even cheaper right now. Ford's current price-to-earnings ratio is around 7.9, meaning there's quite a bit of upside left. Or put another way, there's room for gains even if, as Ford's current guidance suggests, the company's profits in 2012 end up about the same as 2011's.

Reason No. 2: The U.S. auto market is trending up
Ford has operations all over the world, but like ancient rival General Motors (NYSE: GM  ) , the U.S. market is the key driver of Ford's profits -- its "engine," as CEO Alan Mulally often says. Ford's auto business generated $6.3 billion in pre-tax profit in 2011, and nearly all of that was attributable to its operations in North America.

That's a big chunk of change, and Ford's sales in the U.S. are still growing, with the company taking care to focus on the most profitable sales. While Ford is unlikely to gain significant market share this year, and may even lose some relative ground as Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) recover from 2011's challenges, the overall market is looking strong. U.S. auto sales have been well below the historical trend ever since the 2008 financial crisis, but in recent months they've shown signs of strong recovery -- strong enough that companies from Ford to Volkswagen (OTC: VLKAY.PK) have revised their sales estimates upward in recent weeks.

Reason No. 3: Ford's product plan is just now coming together
Mulally's signature achievement since joining Ford in 2006 is the product plan that drove the company's turnaround. Called "One Ford," the essence of the plan calls for Ford to offer a single, consolidated line of top-notch products in markets all around the world. That's a departure from Ford's old way of doing things, when it would develop similar-but-completely different cars for different markets like the U.S. and Europe. With fewer new models to develop, Ford can give each one more attention -- and make updates and revisions more frequently. That means stronger, fresher products, which in turn allows Ford to sell them with fewer "incentives," or discounts. That, in turn, should improve Ford's margins.

That has been the theory, anyway, and as the company has brought more and more of its global products under the "One Ford" umbrella, it has worked out just as expected. With the advent of this year's all-new Fusion (called the Mondeo overseas, but the same car) and Escape (called the Kuga overseas), the long-anticipated "One Ford" lineup will be essentially complete, and the company's margins should start to trend further upward. That should improve profits, and good things for the stock price should follow.

Concern No. 1: Overseas operations lag
Ford's doing well at home, but overseas operations remain a work in progress. Europe's economy is hard on every automaker doing business there, and Ford is no exception. Ford's president for the Americas, Mark Fields, recently said that the company's losses in Europe in the first quarter could exceed the $190 million loss it posted in the fourth quarter of 2011. Fields also expects Ford's Asian operations to post a loss, as Ford has lost ground in China despite heavy investment.

There are bright spots, though: Ford is well positioned and investing for growth in Russia and India, two early-stage growth markets that could become massive in coming years. And despite its recent struggles, Ford is on track for significant growth in China by mid-decade.

Concern No. 2: Debt and pensions still weigh
While Ford's current debt is nothing like it was three years ago, when I described it as "surreal," it's still significant. Ford had $13.1 billion of "automotive debt" (its term for debt attributable to its auto business, rather than its financing arm) as of the end of 2011, and while it's well-structured and well-managed, it's probably still weighing on the stock to some extent.

Ford's pensions are also underfunded -- not quite to the same extent as GM's, but not trivially, as the company said its liability was about $15 billion as of the end of 2011. That may require cash infusions over the next few years. On the bright side, Ford had almost $23 billion in cash as of the end of the year, so such infusions are likely to be more of a drag than a crisis. But the liability could weigh on Ford's stock valuation until it's resolved.

The upshot: A good price for a good company with upside
Long story short, Ford is an exceptionally well-managed company with good market position in an industry that is likely to see solid growth as the world's economies continue to recover, with a stock that's selling for significantly less than its historical valuation. There are concerns, but time and patience are likely to resolve them -- and Ford's recent track record, more than anything else, should give investors confidence.

Ford's increased emphasis on China should help drive growth going forward, but it isn't the only American company looking to emerging markets for big growth. Quite a few American companies are finding strong growth thanks to savvy execution in fast-growing new markets like China and Russia. Motley Fool analysts have identified three big-name companies that are particularly well positioned to profit, and you can learn more right now with our new free report, "3 American Companies Set to Dominate the World." It's completely free for Fool readers, but only for a limited time -- so grab your copy now.

2010 Q4 Earnings: Federated Investors’ Reports Earnings Per Share of $0.45, Declares Dividend

Federated Investors Inc., a Pittsburgh-based money management firm, reported Thursday earnings per share (EPS) of $0.45 for the quarter ended Dec. 31, 2010, compared with $0.42 for the prior quarter and $0.51 for the same quarter last year. Net income was $46.4 million for Q4 2010 compared to $43.1 million for the prior quarter and $51.9 million for the same quarter in 2009.  

Revenue increased by $3.1 million, or 1%, over the previous quarter. However, revenue decreased by $19.5 million, or 7%, when compared with the same quarter in 2010. According to the company, the decrease in revenue primarily reflects a decrease resulting from lower average money market assets. This decrease was partially offset by the impact of increased average fixed income and equity assets.

Federated also recorded a non-cash impairment charge of $3.2 million or $0.02 per diluted share after tax related to intangible assets associated with a prior-year acquisition.

For the full year ended Dec. 31, 2010, Federated reported EPS of $1.73 compared to $1.92 for 2009.  For 2010, net income was $179.1 million compared to $197.3 million for 2009.

Federated's total managed assets were $358.2 billion at Dec. 31, 2010, up $16.9 billion, or 5%, from $341.3 billion reported at Sept. 30, 2010, and down $31.1 billion, or 8%, from $389.3 billion at Dec. 31, 2009. Average managed assets for the fourth quarter were $345.7 billion, up $7.1 billion, or 2%, from $338.6 billion reported for the third quarter, and down $42.4 billion, or 11%, from $388.1 billion reported for fourth quarter of 2009.  

"In the last year, the strategic balance of Federated's diverse product line again benefited our clients and shareholders," said J. Christopher Donahue, the company’s president and chief executive officer, in a statement. "In addition to bond asset growth, strong interest in the Federated Strategic Value Dividend Fund contributed to Federated's equity asset increase during the year as investors moved to classic dividend-paying stocks as a source of income."

Federated's board of directors declared a quarterly dividend of $0.24 per share.  

Operating expenses for 2010 decreased by $204.5 million, or 24%, compared to last year. The decrease primarily reflects lower distribution expenses from fee waivers and lower average money market assets, according to the company. Also contributing to the decrease in operating expenses was the recognition of insurance proceeds in the second quarter 2010.  

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

5 Reasons to Worry About Next Week

Is this what a correction feels like?

After a few robust weeks, equities are beginning to settle down.

The S&P 500 has closed lower in eight of the past dozen trading days, and yesterday saw the tech-heavy Nasdaq -- the leading major market metric during last quarter's huge run -- post its biggest single-day drop of the quarter.

This comes at a time when the economy is seemingly humming along. Company earnings are improving, and new jobs are being created.

However, it's not as if corporate America is playing along completely. There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.

Company	Latest Quarter EPS (estimated)	Year-Ago Quarter EPS	My Watchlist
Alcoa (NYSE: AA  )	($0.04)	$0.28	Add
Titan Machinery (Nasdaq: TITN  )	$0.52	$0.57	Add
Layne Christensen (Nasdaq: LAYN  )	($3.77)	$0.45	Add
LDK Solar (NYSE: LDK  )	($0.72)	$1.09	Add
JPMorgan Chase (NYSE: JPM  )	$1.15	$1.28	Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Alcoa.

As the world's leading producer of primary and fabricated aluminum -- and the largest miner of bauxite and refiner of alumina -- Alcoa's an industrial juggernaut. With 61,000 employees across 31 different countries, its reach is broader than the "Aluminum Company of America" moniker that's been shortened to Alcoa.

Unfortunately, all of its size and the global demand for sustainable aluminum won't be enough to keep Alcoa from reversing a year-ago profit when it reports on Tuesday, according to analysts.

Titan Machinery runs a network of full-service agricultural and construction equipment stores. Titan watches over 96 dealerships across the United States and another 10 locations in Romania and Bulgaria. Investors can expect the dealership count to continue growing. This is a highly fragmented niche, and Titan is making the most of its status as a public company in gobbling up smaller players.

Acquisitions and organic growth should help propel top-line growth of nearly 18% in its latest quarter, but pressure on margins will likely send profitability going the other way.

Layne Christensen is a provider of industrial services that include drilling, water treatment, and construction services. This may seem like a steady business, but the company warned last month that it will be taking a huge noncash impairment hit, resulting in a loss of $70 million to $80 million for the quarter.

The accounting hit explains the sharp deficit that Wall Street's expecting. However, even if we were to back out the effect of the impairment charge, Layne Christensen is only near breakeven results for the period.

If you've checked out any of the solar energy companies that have been reporting this season you know that this is a sector getting hammered. It's not just LDK Solar's bottom line that's going the wrong way. Analysts see revenue falling by more than half. There will definitely come a time for solar to shine, but it will have to wait until the European crisis truly sets.

Finally, there's JPMorgan. The financial services giant has meaty interests in traditional banking, investment banking, and credit cards. The company has been one of the better performers in the money business, but the pros still see it taking a small step back on the bottom line when it reports a week from today.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

If five reasons to worry aren't enough, let's make your future No. 6. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever so check it out now.

The Best Income Investor of 2010?

One of the oldest financial jokes around asks the question, “How does one make a small fortune on Wall Street?” The answer, of course is “Start with a big one!”

While the law of large numbers may be at work here, the title of Best Income Investor of 2010 doesn’t go to the money machine at Goldman Sachs (GS), any of the big banks, or the deep thinkers at PIMCO. Nope, once again, the prize goes to one Ben Bernanke as his little “fund” – also known as the U.S. Federal Reserve – produced the tidy sum of $80.9 billion in investment income during 2010.

This means that Bernanke & Co. has handed over somewhere in the vicinity of $78.4 billion to the U.S. Treasury. This is a record payment from the Fed to the Treasury and is a massive increase over last year’s $53.4 billion, which was the prior record.

Granted, Mr. Bernanke and his merry band of central bankers do have an investment pool (i.e. the Fed’s “balance sheet”) worth something north of $3 trillion (and expanding daily) to work with. But if my math is accurate, this means that the yield on the Fed in 2010 was about 2.7%. However, it is a safe bet that based on the performance of most debt class securities last year, that the overall total return on investment was several times that amount.

It is also important to keep in mind that Mr. Bernanke has likely employed another Wall Street cliché to perfection over the past 3 years: Buy low and sell high. Since the Fed was the buyer of last resort for what was then termed “toxic securities” during the depth of the credit panic, the Fed’s basis on many of their investments has to be at or near “bargain basement” levels.

According to the Federal Reserve, the 52% increase in interest income generated in 2010 was attributable to a boost in earnings from the securities it purchased during the credit crisis. Apparently some of these securities started to return to form last year.

“The increase was due primarily to increased interest income earned on securities holdings during 2010,” the Fed said in a statement. In short, the investments in the GSE’s (think Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB)) became more productive as these securities kicked off $76.2 billion in income in 2010 versus the $48.8 billion seen from the same investments in 2009.

The bottom line appears to be that if you have a large enough fund, producing a return of more than $80 billion isn’t all that tough – especially if you are willing to lend money to companies when no one else on earth is willing to.

Disclosure: None

In Taxes, Lindsay Lohan Is No Kim Kardashian

Image via destylou.com

Lindsay Lohan has far bigger legal problems than a $94,000 tax lien, and surely one of her handlers will handle it. In contrast, Kim Kardashian is criticized for planning too well and not paying enough. In Taxes, Kim Kardashian is More Buff Than Buffett. Still, it�s embarrassing to have the IRS file public documents indicating you�re a tax deadbeat. See Lindsay Lohan � IRS Cracking Down Over Massive Tax Debt.

The Oops relates to LL�s 2009 income taxes which the IRS wants to collect. Reports suggest Lohan changed management teams and bills got lost in the shuffle. That seems likely when you�re facing much bigger legal troubles including morgue duty for criminal charges, a lawsuit over a Hollywood limo incident and more.

Mistake? Are tax liens ever filed by mistake when you don�t really owe the taxes? Yes, but there is probably a pile of paperwork somewhere that you should address to straighten out the confusion.  See Got A Tax Notice? Here�s What To Do. Usually you�ll know about the debt.

In fact, the IRS can file a Notice of Federal Tax Lien only after:

• IRS assesses the liability;
• IRS sends you a Notice and Demand for Payment telling you how much you owe; and
• You fail to fully pay the debt within 10 days after that notice.

Whether or not the IRS files anything, it has a lien. The IRS files notice to notify creditors to beware. Then the IRS has a claim against all your property, even property acquired after the lien notice is filed. This notice is used by courts to establish priority, as in bankruptcy proceedings or sales of real estate.

10 Long Years. IRS liens last 10 years, and usually release automatically if IRS has not refiled them. However, you�re better off to get them removed immediately.

Releasing a Lien. Getting the IRS to release a lien usually involves: (1) paying the tax, interest and penalties; or (2) posting a bond guaranteeing payment. Even then the IRS may take 30 days. State or local government charges to file and release the lien are added to the amount you owe. See IRS Publication 1450, Request for Release of Federal Tax Lien.

Suit? If the IRS knowingly or negligently fails to release a Notice of Federal Tax Lien when it should be released, you may sue the federal government for damages. However, you can�t sue IRS employees.

Respond to Every IRS Notice! Take tax notices and letters seriously, and follow the procedural steps outlined. With prompt and proper tax representation of tax notices and bills, the IRS might agree no taxes (or smaller taxes) are due, thus avoiding all the trouble. See Received An IRS Notice? 10 Simple Tips.

IRS liens hurt credit ratings, scare customers and vendors, prevent real estate closings and more. If possible, don�t let it get to the lien filing stage. If you have cash-flow crunches and can�t pay you can try to convince the IRS not to file a Notice of Lien. That�s a tough sell, so if you owe significant amounts, expect the lien filing.

Kinder Gentler? In the wake of tough economic times, the IRS has liberalized some lien rules. See IRS �Fresh Start� for Tax Liens and Installment Deals? Yet it doesn�t look like they help Lohan.

For more, see:

Most investors read news reports to evaluate a company's prospects. Bullish or bearish articles naturally impact our perception -- and positions. Yet in most cases we interpret the news in the wrong way. News headlines are, by definition, a lagging indicator. And because stocks often don't act the way news suggests they "should," we should skip the headlines and monitor the markets themselves.

Also See

• Penny Stocks Aren't Worth a Dime
• A Pure Play Inflation Bet
• The Top Foreign Stock Funds

Case in point: shipping stocks, where the news has gone from bleak to downright grim. This, even as a rally in risk assets has pushed the Dow Jones Transpiration Index to within 6% of its all-time-high. Last year the billionaire chairman of supertanker operator Frontline (FRO) predicted the shipping rates would soon "collapse."

The Baltic Dry Index, which measures the cost of transporting goods by ocean freight and was discussed in this column last year, has dropped as much as 63% in 2012, hitting a 25-year low, including a 33-day run in which the index fell every single day.

Even now shipping costs remain unsustainably low. Because large tankers can deteriorate more rapidly docked than in use, some fleet owners are now actually paying users to rent its vessels. According to published reports, Global Maritime Investments chartered a vessel to commodities trader Glencore International for a rate of negative $2,000 a day, essentially paying the company to ship its own grain.

Yet amid these dour reports, many shipping stocks, including the Guggenheim Shipping ETF (SEA) we wrote about last month, are actually outperforming. Since the beginning of 2010, the fund has gained about 16%, not including a nearly 6% annual dividend, powered by components like Alexander & Baldwin, Seaspan (SSW), Nippon Yusen (NPNYY) and Teekay Corporation (TK) .

Positive price action combined with negative headlines? As one part of a risk portfolio, I'd consider that a winning bet.

—Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in many of the securities mentioned.

GE Capital Releases Dividend; Earlier, Larger Than Expected?

General Electric’s (GE) finance arm, GE Capital, will pay the parent company a $4.5 billion special dividend this year. GE Capital suspended the dividend in 2009, during the depths of the financial crisis.

It’s another sign that the company’s balance sheet is strong — the Fed needed to approve the payment — and that shareholders can expect to be getting more cash back. For now, GE is planning to “accelerate its common stock buyback starting in the second quarter, depending on market conditions.”

Sanford Bernstein analyst Steven Winoker told clients that the dividend payout was bigger and came earlier than he had expected, calling it a “positive surprise,” according to Bloomberg. He had expected the announcement to come in the second half of the year and for the dividend to be about $3.2 billion.

Dividend payouts from GE itself have been a catalyst for the stock in recent quarters, although GE shares have been stuck in a tight range of late and are down 4.7% over the past year. Shares are up 2.5% on today’s news.

�As we have stated, our goal has been to resume the GE Capital dividend to GE in 2012,� GE Chairman and CEO Jeff Immelt said. �With this announcement, GE Capital will return cash to GE beginning this quarter. This action demonstrates the strength of GE Capital and the significant actions taken to strengthen its liquidity, capital, asset quality and profitability. These actions have included increasing liquidity to $76 billion, increasing Tier 1 capital to 10.4%, reducing ending net investment to $436 billion and increasing net income in 2011 to $6.6 billion.�

Amazon’s Kindle Success Isn’t Safe Yet

Amazon.com (NASDAQ:AMZN),said last week that it has sold 105 digital books for every 100 printed books since April 1. For perspective, consider that the company has been selling print books for 15 years and books for its Kindle e-reader for less than four years.

And there’s more good news According to research firm Caris & Co., e-book sales at Amazon are expected to top $7.96 billion in 2012.

But the celebrations need to be tempered with caution as competitors such as Apple (NASDAQ:AAPL) raise the bar in the digital media sweepstakes in terms of �affecting margins in the publishing industry.

Low e-book production costs have taken publishers out of the equation, and at the same time bringing higher royalties for authors and a near monopoly for Amazon to the extent that $9.99 had become the de facto price for e-books.

Until the iPad came along, that is.

The iPad can be used for several activities, including reading. And despite the back-lit display, the tablet experience, with its touch-screen technology and color pages, is superior to the e-reader experience.

The iPad sells at a relatively higher price (it costs about four times as much as a Kindle) but it hasn’t done too badly for itself as a Kindle competitor.� The device, which was launched last year, racked up 5 million book downloads within its first 65 days and cornered 22% of the e-book market.

What’s more, Apple CEO Steve Jobs has said the iTunes library already has credit card details of 125 million users, thus making impulse purchases at low price points that much easier.

As if that wasn’t enough, Apple is also challenging Amazon’s hegemony as price arbiter for e-books by pricing its books at publishing model of $14.99 for many best-selling hardcover titles. The increased price, which was agreed to as a way to get major publishing houses on board, will fund Apple’s move into the distribution channel and recoup publisher costs. Needless to say, publishers are already lining up behind Jobs with book publisher Macmillan firing the first salvo.

Add the iPad’s already phenomenal popularity (7.3 million of the devices sold during the last quarter of 2010 alone as compared to Kindle’s 6.6 million devices sold in the entire year) and Amazon has an e-book battle on its hands.

As of this writing, Rakesh Sharma did not own any position in the stocks listed above.

Interest Rates, Deficit Reduction: Sleepy Market Ready for Big Move

Two April 13 stories may help the market hold near some key levels. The bears have been in control for almost a week now, but the bulls got some good news from England and President Obama is scheduled to describe his ideas to reduce the deficit on Wednesday.

With the markets jittery about the end of QE2 and Federal Reserve Chairman Ben Bernanke due to participate in his first press conference on April 27, any news that decreases the pressure to reign in extremely loose monetary conditions is a positive for stocks. According to Bloomberg:

Bank of England Governor Mervyn King won respite from pressure to end record low interest rates as soon as next month after inflation unexpectedly slowed and retail sales plunged.

Deficit reduction also can reduce pressure on long-term interest rates. According to the Wall Street Journal:

In a midday speech in Washington, Mr. Obama will propose a plan that includes cuts to entitlement programs such as Medicare, limits on military spending and an overhaul of the tax system designed to bring in more revenue.

While the bears picked up the pace of selling on Tuesday, the market (SPY) has been basically asleep since April 1 with tight trading ranges and low volatility. Periods of low volatility are often followed by periods of higher volatility.

Welles Wilder developed the Average Directional Index (ADX) to measure the strength of a trend, without regard to the trend’s direction. In the chart below, Wilder’s ADX is at the top and the S&P 500 Index is at the bottom. The thick black ADX line rises as a trend strengthens and ADX falls as a trend weakens. When the red ADX line is above the green line, as was the case at the close on April 12, the bears have the upper hand. When the green ADX line is above the red line, the bulls have the upper hand.

Our description of the chart will move from left to right. Notice how when the ADX black line moves up from low levels (see orange arrow left), the stock market often makes a sharp move (see orange line bottom left). Similarly, when the black ADX line moved up from low levels in the middle of the chart (see green arrow), a strong uptrend followed. The takeaway for us today is near the blue arrow; ADX is at low levels, which is often followed by a “pop” in the market. The fact that the red line is above the green line does not necessarily mean the “pop” will be down – it is too early to tell.

How does all this help us? In case the big move is down, we took some profits off the table before the close on April 12, cutting back on energy (XLE), utilities (XLU), and technology (QQQ) – we still own all three positions, just not as much. If the big move is up, we are fine with that since we still have significant exposure to the markets. Our next move will use the incremental approach; if the bears regain control we will continue to step away from risk. If the bulls remain in charge we will consider redeploying some of our cash depending on how strong the advance looks and what type of news we get on the inflation, growth, and interest rate fronts.

As outlined on April 8, we remain tentatively bullish, but we are concerned about the approaching end of QE2 - a relatively rare circumstance that does not have much in terms of historical precedent. We are also concerned about recent sentiment readings which have come in excessively in favor of the bulls, which can be a contrarian indicator for stocks. Earnings are facing high expectations which can lead to disappointment.

Disclosure: I am long XLE, XLU, QQQ.

Disclaimer: Chris Ciovacco is the president of Ciovacco Capital Management, LLC (CCM), a Registered Investment Adviser with the SEC. Chris Ciovacco and CCM and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. This commentary does not constitute individualized investment advice. We have no way of knowing reader’s goals, risk tolerance, or financial situation. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

How Fairchild Measures Up With These 2 Metrics

Fairchild Semiconductor International (NYSE: FCS  ) carries $239.4 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be the case with Fairchild?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share.

It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Fairchild Semiconductor holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Fairchild Semiconductor has an intangible assets ratio of 12%.

This is below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value is simply what remains after subtracting goodwill and other intangibles from shareholders' equity (also known as book value). If this is not a positive value, Heiserman advises you to run away because such companies may "lack the balance sheet muscle to protect themselves in a recession or from better-financed competitors."

Fairchild Semiconductor's tangible book value is $1.1 billion, so no yellow flags here.

By the way, I asked Heiserman about the tendency for some large cap blue chips -- names like Procter & Gamble, IBM, and Altria -- to have a high intangible assets ratio and negative tangible book value. He says this can be OK, provided the company has 1) modest or no net debt, 2) persistent and rising levels of free cash flow, and 3) stock buybacks at a discount to intrinsic value.

Foolish bottom line
To recap, here are Fairchild Semiconductor's numbers, as well as a bonus look at a few other companies in its industry:

Company	Intangible Assets Ratio	Tangible Book Value (millions)
Fairchild Semiconductor International	12%	$1,063
International Rectifier (NYSE: IRF  )	10%	$1,192
NXP Semiconductors (Nasdaq: NXPI  )	51%	($2,233)
Texas Instruments (NYSE: TXN  )	37%	$3,352

Data provided by S&P Capital IQ.

Fairchild Semiconductor International appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

Facebook Coda: You’ve Got till Noon, Monday, to Settle ‘Offline’ Trades

If you had a hard time doing anything with Facebook�(FB) shares this morning — and apparently some did have a problem during the stock’s first hour of trading, because of Nasdaq glitches — the exchange wants you to know that you have until noon on Monday to get your order filled.

Nasdaq this evening sent around a missive saying trades put in between 11 am, Eastern, and 11:30 am, which were “offline,” did not go through. That was the period, you’ll recall, during which Facebook’s open was repeatedly delayed. The stock finally started trading at 11:30.

Here’s the Nasdaq notice:

The offline matching process for orders entered in FB between 11:11 and 11:30 AM resulted in nothing done. As previously noted, clients may submit a formal accommodation request to NASDAQ using the normal process. This must be done in writing by noon on Monday, May 21st. Any offline matching requests will be honored as initial notice of an accommodation request, though further details must be provided. NASDAQ will provide further notice directly to firms regarding their requests.

Facebook shares ended their first day up 23 cents from the offer price, or 0.6%, at $38.23.

Peripheral Nations Are Making the Euro Pay Its Dues

Contagion fears in the Euro-zone continue to undermine the 17-nation currency. Italy and Spain are currently on the forefront of decimation by the market’s action as yields continue to rise through the roof. Italian 10-year bonds rose to the highest level since inception of the Euro-zone as rates hit 5.54 percent. Spain did not fare well either, as yields on 10-year bond increased to 5.92 percent.

Whenever yields of peripheral nations increase compared with those of the German Bunds, the market generally sells off the EUR/USD currency pair as investors seek safe havens. We believe that the EcoFin meeting will continue to bring more uncertainty to the market and yields of peripheral nations will continue to widen compared with safer German Bonds. The situation can be noticed in Greece, as yields on 2-year notes rose to 31.62 percent, a Euro-zone record. The yields between 10-year German Bunds and similar Greek bonds widened to 1,437 basis points.

Spain and Italy possess as much as €6.3 Trillion, in a combination, in public and government debts. In turn, the European community will not be able to grant a meaningful bailout if either of the nations will be seeking one. It is undoubtedly important to note that the size of the Spanish economy exceeds a combination of Portuguese, Irish and Greek economies. Any nuances of a potential downfall of either the Italian or Spanish economies could cause an even bigger impact on the Euro-zone. The situation in Greece, however severe it seems, is just the calm cool breeze before the summer thunderstorm. The Euro will be in for extremely harsh times if Italy or Spain, even hint at greater problems.

Nonetheless, the market participants are already betting against Italy. With a roaming EU bank stress test expected to show 15 out of 91 banks failing, government officials need to act before contagion pulls the rest of the Euro-zone into unclimbable well. If more than 15 EU banks fail the stress test, participants can take the Euro down to 1.38 against the United States Dollar in a short term. However, a passage of greater than anticipated numbers will cause a temporary relief on EU economic system. During the EcoFin meeting, members must converge on the solution to the Greek debacle. A lack of a definitive solution could further push the Euro-zone in a worse situation. Currently, markets are beginning to reflect the rationale that a partial default will need to be taken place. However, an involvement of the private sector needs to be thought out before the plan is initiated. Credit agencies, however, will not bide on the default in an optimistic fashion. Nonetheless, a solution needs to be presented in order to curb contagion fears roaming in the market place.We currently, hold that more downgrades of Portuguese credit standing will follow from remaining agencies. It is probable that Portugal, in turn, would require a second bailout. Currently, Greece is expected to receive additional funds in terms of a second bailout. Portugal, it seems will need additional funds in order to remain solvent. Italian Debt to GDP ratio is currently at 119 percent, or $2.6 Trillion of a $2.1 Trillion economy. An expansion of EFSF program is highly certain at this point. However, the EU needs to convince the German government to extend the EFSF program.

Despite the fact that the situation in the Euro-zone continued to magnify in its intensity, IMM positioning reflected an expansion of net Long EUR positions. CFTC Commitment of Traders showed that net long position in Euro extended to $7.8 Billion. Nonetheless, a squeeze of long positions could further accelerate downward pressure in the EUR/USD currency pair.

Citi Gaps Down on Payback Rumors

Citigroup (C), which had traded up at the open, are down about 9 cents, or 2.3%, at $3.82, amidst rumors the firm will announce an equity offering this week that would help it repay the TARP loans from the U.S. government. CNBC’s Maria Bartiromo cites anonymous sources this afternoon, writing that CEO Vikram Pandit has altered his travel plans and that an announcement could come as soon as Thursday, CNBC reports. CNBC also quotes Rochdale analyst Dick Bove as saying Citi’s capital raise won’t be as bad as the 20% dilution some investors fear, but rather something less than half that amount. Bove said the equity raise won’t entirely free Citi from the shackles of government oversight.

GLW: Piper Ups to Buy Following Analyst Day

Shares of Corning (GLW) are up 14 cents, or 1%, at $13.72 in early trading following the company’s investor meeting in New York on Friday.

The stock received one upgrade this morning, that I can see, from Piper Jaffray’s Jagadish Iyer, who raised his rating on the stock to Overweight from Neutral, and raised his price target to $16 from $13, writing that Corning will resume earnings growth next year, perhaps seeing 19% growth, to $1.60 per share, up from perhaps $1.35 this year.

Iyer raised his revenue estimate to $8.05 billion this calendar year, up from a prior $7.4 billion, and above the $8.03 billion consensus. For 2013, he sees the company making $9.09 billion in revenue, up from $8.25 billion previously, and above the consensus $8.74 billion.

Iyer also expects the company to be “more aggressive in its buyback, given its completion of 50% of its authorized $1.5 billion buyback.” The company has $3.4 billion in net cash and is “generating substantial free cash flow,” writes Iyer. He thinks perhaps the company will reduce diluted share count by 100 million (currently 1.52 billion shares outstanding), which would add 5 cents per share to calendar 2013 earnings.

Generac Holdings Outruns Estimates Again

Generac Holdings (NYSE: GNRC  ) reported earnings on Feb. 14. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Generac Holdings beat expectations on revenues and beat expectations on earnings per share.

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

Gross margins shrank, operating margins grew, net margins improved.

Revenue details
Generac Holdings reported revenue of $267.3 million. The seven analysts polled by S&P Capital IQ foresaw revenue of $227.8 million on the same basis. GAAP reported sales were 66% higher than the prior-year quarter's $161.0 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at $0.58. The three earnings estimates compiled by S&P Capital IQ predicted $0.41 per share on the same basis. GAAP EPS of $3.91 for Q4 were much higher than the prior-year quarter's $0.28 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 36.8%, 280 basis points worse than the prior-year quarter. Operating margin was 16.9%, 60 basis points better than the prior-year quarter. Net margin was 99.9%, 8,830 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $211.0 million.

Next year's average estimate for revenue is $858.1 million. The average EPS estimate is $1.18.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 38 members out of 42 rating the stock outperform, and four members rating it underperform. Among nine CAPS All-Star picks (recommendations by the highest-ranked CAPS members), nine give Generac Holdings a green thumbs-up, and none give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Generac Holdings is outperform, with an average price target of $25.50.

Over the decades, small-cap stocks, like Generac Holdings have provided market-beating returns, provided they're value priced and have solid businesses. Read about a pair of companies with a lock on their markets in "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Click here for instant access to this free report.

• Add Generac Holdings to My Watchlist.

iShares MSCI Turkey ETF Looks Delicious

By Stoyan Bojinov

Financial markets all over the globe have taken investors for a wild ride this year and many are still dizzy from all of the wild up and down swings that seem to be abundant across virtually every asset class. A sluggish economic recovery at home coupled with ongoing debt woes in the financially fragile Euro zone have all weighted down on investors’ confidence. Many have fled from emerging markets entirely, deeming them far too risky given the cloud of uncertainty that is plaguing even the most prosperous developed markets and concerns over slowing growth and inflationary pressures in developing economies. However, Turkey, which is often times overlooked when considering international investments, may offer investors a “bright spot” in the currently gloomy global economic environment.

Turkey, classified as an emerging market economy by the IMF, has been flying under the radar for many investors largely because nations like Brazil and China have been hogging the spotlight [see Forget BRIC ETFs: Look To VISTA Nations For Better Opportunities]. Turkey is one of the world’s newly industrialized countries and home to a fiscally conservative financial system; in fact, during the most recent financial crisis, not a single Turkish required “bailout” assistance from the government. Turkey’s GDP has grown by an average of 4.8% annually since 2002, and in 2010 the country had output of $1.1 trillion, making it the 16th largest economy in the world. The World Bank classifies Turkey as an upper-middle income country in terms of GDP per capita and the nation holds an important spot in the G-20 as well as the OECD.

The Appeal Of Turkey

Investing in Turkey may be appealing for several reasons: first and foremost, its economy is dominated by service industries, which separates it from many other emerging market countries which are dependent on the production and export of commodities. Turkey is also home to a well diversified industrial sector bolstered by a growing automotive industry, booming transport sector, as well as a leading shipbuilding and arms manufacturer.

Its tourism and finance sectors are also world renowned, and currently the Turkish banking sector is among the strongest and fastest growing in Europe, the Middle East, and Central Asia. The nation’s central location is also key to its economic prosperity; Turkey is an important trade corridor and energy terminal that connects to Europe, Eurasia, the Middle East, and North Africa. Ongoing investments to improve infrastructure, health care, and education in the country are helping pave the road to prosperity for this often times overlooked emerging market.

Investors who wish to establish exposure to the Turkish economy, at this time, unfortunately don’t have many choices in the exchange-traded universe. The only “pure play” Turkey ETF is offered by iShares, tracking the MSCI Turkey Investable Market Index. The MSCI Turkey Index Fund (TUR) holds a diverse portfolio of 100 stocks, although the top ten holdings account for almost two thirds of total assets. TUR is well diversified across companies of all sizes, offering exposure to large, mid, small, and even micro cap equities [see TUR Holdings].

From a sector breakdown perspective, TUR is dominated by financial stocks, which account for roughly half of the entire portfolio. Exposure to consumer staples, industrials, and telecom companies is also included, which allows for valuable exposure across various industries that are favorably positioned to grow as the nations positive demographic and economic trends continue. Investors should also note that TUR had a 30-Day SEC Yield (as of 10/31/2011) of 2.33%, increasing the appeal to investors who value a stream of current income payments as a means of cushioning volatility and enhancing bottom-line returns over the long haul.

Disclosure: No positions at time of writing.

Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.

Original post

Does It Still Make Sense to Diversify Internationally?

One class of investors will be only too glad to wave 2011 goodbye. If you had any money riding on overseas stock markets, chances are you�ve taken some pretty nasty lumps. This past year, the broadest measure of developed foreign markets, the iShares MSCI EAFE Index Fund (NYSE:EFA) lost 15.62% in dollar terms (excluding dividends).

The emerging bourses, according to the iShares MSCI Emerging Markets Index ETF (NYSE:EEM), fared even worse, skidding 21.12%. Painful indeed, especially when you consider that the headline U.S. stock indexes were either slightly above (Dow Jones industrials) or slightly below (S&P 500) the breakeven line.

So the question arises: Does it still make sense to diversify internationally? Or has another investment fairy tale gone “poof” at midnight?

Values Point to Profits Ahead

Tempting as it is to be cynical about a financial world that often seems broken, I don�t think we�ve seen the end of great profit-making opportunities in foreign markets. In fact, the recent weakness in overseas stocks is probably setting us up for exceptional returns once the current distress passes.

The main reason, of course, is valuation. As of mid-December, according to Bloomberg, the stocks in the Stoxx Europe 600 index were quoted at a slender 10.1 times estimated 2011 earnings, versus 12.2X for the Standard & Poor�s 500 index — a discount of 17%. The iShares MSCI Pacific ex-Japan Index (ETF) (NYSE:EPP), which normally trades at a sizable premium to the S&P because of Asia�s superior economic growth, was at 12.6X.

Some emerging markets are even cheaper. Brazi is selling for about 8X trailing 12 months� earnings, and India about 12X — both well below their norms for the past five years. Remember also that despite a recent slowdown, these countries are still growing much faster than the developed economies of North America or Europe.

For the opening months of 2012, I�m taking a cautious view of most foreign stock markets. Europe�s sovereign debt travails will weigh on economic activity around the world, but especially in the EU homeland. In addition, we�re picking up early signs that China�s credit-fueled boom may be due for a setback in 2012. Chinese purchasing managers report that the country�s manufacturing sector is now contracting at the steepest rate since early 2009.

From North to South

Accordingly, I recommend that you proceed slowly and judiciously with new commitments. In Europe, I advise you to favor recession-resistant health care and consumer-staples names, such as drug maker Novartis (NYSE:NVS) and food processor Nestle (PINK:NSRGY). Not so coincidentally, both are based in Switzerland — with its friendly business climate and sound currency.

Both stocks also throw off generous dividend yields: 4.07% for NVS, and 3.41% for NSRGY. Dividends are typically paid once a year, in April. Switzerland extracts a 15% withholding tax on dividends remitted to U.S. shareholders, but you can obtain a credit against this tax if you hold the stock in a taxable account (not an IRA).

Among the other developed markets, my top choice is Australia, whose tax law encourages corporations to pay out the lion�s share of their profits in the form of dividends. As a result, most Australian stocks yield considerably more than their U.S. counterparts.

Take Westpac Banking (NYSE:WBK). Strong and conservatively managed, this Aussie bank has boosted its dividend more than 400%, in dollar terms, over the past 10 years. Current yield: a mouth-watering 7.8%. Dividends are paid semiannually, in July and December. No withholding tax is currently imposed on U.S. residents.

For a diversified portfolio of Australian stocks, consider iShares MSCI Australia Index Fund (ETF) (NYSE:EWA). This ETF owns a large slug of financials (44% of the portfolio), but it also gives you exposure to Australia�s natural-resources sector. Current yield: 4.71%.

Submerged, Not Sunk

Given that emerging markets have taken it on the chin, I�m confident that Brazil and India, my two longtime favorites among the developing bourses, will eventually snap back to their 2011 highs and beyond. Before a lasting turnaround can occur, however, investors will need to get a sense that the growth outlook in these countries is stabilizing.

That will take time. So, I suggest dribbling cash into vehicles like iShares MSCI Brazil Index (ETF) (NYSE:EWZ) and PowerShares India Portfolio (ETF) (NYSE:PIN) in equal-dollar installments over a period of three to six months.

For the immediate future, emerging-markets bonds seem to hold greater potential than stocks. Unlike U.S. Treasuries, EM bonds offer worthwhile yields that exceed, in most cases, the dividends you could earn on stocks from the same countries.

The J.P. Morgan U.S. Dollar Emerging Markets Bond Fund (NYSE:EMB) is the safest pick, suitable for virtually all investors. If you want to shoot for a little more income, go with TCW Emerging Markets Income Fund (MUTF:TGINX), which invests mainly in private-sector bonds rather than governments. Current yield: 6.94%.

The Best Sector for 2012

The following video is part of our "Motley Fool Conversations" series, in which David Meier, advisor for Million Dollar Portfolio, and Fool analyst John Reeves discuss topics around the investing world.

In today's edition, David identifies technology as the top sector for 2012. He argues that we are consuming massive amounts of data and that trend is not going to stop. He also thinks innovation will be key, even if the economy remains sluggish in the coming year.

Please enable Javascript to view this video.

Looking for the technology trend set to define the next decade? We're creating 60% more data every year. That's an astounding growth rate that presents opportunity for investors who can find the leaders not only storing the data but also finding new, innovative ways of analyzing it. To take advantage of this gigantic technology opportunity, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained more than 200% since first recommended by Fool analysts but still has plenty of room left to run. Thousands have requested access to this special free report, and now you can access it today at no cost. To get instant access to the names of this company transforming the IT industry,�click here -- it's free.

ETF Sector Rotation Strategies: Beyond the SPDRs

ETFs may have originally been designed for investors interested in implementing long-term, buy-and-hold strategies, but the numerous advantages of the exchange traded structure, such as intraday liquidity and enhanced transparency, have attracted all types–including a much more active crowd. It’s no secret that ETFs have become popular among traders that measure holding periods not in years, but in hours and minutes. Many of the new products that have debuted in recent years have been explicitly designed for these sophisticated traders operating within a short time frame.

Joining the buy-and-holders and high-turnover day traders are those that fall somewhere in between: investors who make tactical tilts towards, or away from, various asset classes depending on current market prices and their outlook for the global economy. ETFs have become popular tools for implementing sector rotation strategies, techniques that essentially overweight or underweight various segments of the stock market depending on the risk and return of each.

The most common ETFs for investors looking to target a specific corner of the equity market are the Sector SPDRs, a suite of funds that debuted more than a decade ago and essentially segments the large cap U.S. equity market into nine groupings: financials (XLF), energy (XLE) and so on. These products have some obvious advantages; most notably, they are very cheap and very liquid. And while they may have been among the earliest sector-specific offerings, they are no longer the only game in town.

There are now other options available to investors that utilize different strategies, which may fit better with certain styles of investing. As many issuers have proven, market-cap weighting or large cap holdings are not always the way to go. For investors interested in a sector rotation strategy, the impressive innovation in the ETF industry over the last several years has resulted in a number of different options. Below, we outline various options to give investors a fresh take on the sector investing ETFs that are currently available:

Equal Weight ETFs
Ticker	Sector
RYE	Energy
RYT	Technology
RYH	Health Care
RTM	Materials
RGI	Industrials
RYU	Utilities
RCD	Consumer Discretionary
RHS	Consumer Staples
RYF	Financials

Equal Weight

Almost all funds available today, passive or active, weight their holdings by market cap, giving the big names like Exxon Mobil (XOM) heavy allocations while giving lesser known companies smaller weights. But recently, issuers have begun to poke holes in this methodology, as overvalued stocks tend to be overweighted and vice versa. Cap weighting can also result in top heavy funds like XLE, who’s top ten holdings account for more than 63% of the product. This leads to a skewed allocation, as a small number of companies dominate the performance of the ETF as a whole.

Equal weighting takes every stock and simply gives them an equal allocation regardless of market cap, resulting in a more balanced portfolio. And when it comes to the equal weight S&P 500 ETF, RSP, it has outperformed its big-league competitor SPY by a substantial amount. Looking to Rydex’s line of equal weight products, nearly half of the equal weight products have outperformed their SPDR counterparts in 2011.

Investors looking for alternatives to the nine SPDRs should consider these funds, as their diversity and performance make them some of the most enticing choices in the ETF space.

Small Cap

While large caps represent a stable investment, they have their fair share of issues. Large caps can often miss out on the trends and growth of an individual economy as these giant firms are typically multinational companies with global operations. Small caps, on the other hand, come with their share of added risk, but get investors closer to the ground and allow them to make more of a “pure play” on a sector or market. Small caps also maintain a greater growth potential as these companies have yet to hit their peak growth, and have the potential to become one of the next biggest firms in their respective market. Because the SPDRs are almost entirely large cap, they miss out on key exposure in each respective sector.

While the large cap SPDRs slice and dice the S&P 500, a suite of nine funds from PowerShares segments the S&P SmallCap 600, giving investors the opportunity to make a small cap play on their favorite segment on the U.S. economy. The list is as follows:

• S&P SmallCap Consumer Discretionary Portfolio (PSCD)
• S&P SmallCap Consumer Staples Portfolio (PSCC)
• S&P SmallCap Energy Portfolio (PSCE)
• S&P SmallCap Financials Portfolio (PSCF)
• S&P SmallCap Health Care Portfolio (PSCH)
• S&P SmallCap Industrials Portfolio (PSCI)
• S&P SmallCap Information Technology Portfolio (PSCT)
• S&P SmallCap Materials Portfolio (PSCM)
• S&P SmallCap Utilities Portfolio (PSCU)

AlphaDEX

First Trust maintains a stable of products linked to enhanced AlphaDEX benchmarks–indexes that use quant-based methodologies to select component companies with the most promising return potential. The objective here is to generate alpha relative to funds such as the sector SPDRs, but this quant strategy comes with a drawback; it is considerably more expensive than its more traditional counterparts [see also ETFdb Category Kings: Best Performers From First Half Of 2011].

Where XLF charges fees of just 0.20%, the Financials AlphaDEX ETF (FXO) charges expenses of 0.70%. Some investors may find this difference in expenses to be of little concern given that FXO is outperforming XLF on the year by more than 400 basis points. In fact, investors will find that AlphaDEX products have out performed several of the SPDRs, which may make these expenses worth it in the long run.

Ex-U.S.

Recent years have developed the trend of investors avoiding investments in the U.S., as many feel there is little growth potential left in our home country. For investors looking to avoid the U.S. entirely, iShares offers a suite of sector-specific ETFs that segment the international economy, featuring countries like the U.K., Germany, Switzerland, and many others. The line features ten products, with the extra sector coming from an information technology fund, a unique investment that the traditional SPDRs neglect.

Emerging Markets

Emerging markets have become increasingly popular over the past few years, as investors seek to find high growth opportunities that developed nations simply cannot offer. While these products are inherently risky, their potential returns are enormous, and they certainly have a place in every investment portfolio. EG Shares has a line of sector-specific products that grant exposure to popular emerging markets like China, Brazil, India, and many others [see also Seven Factors Every Investor Needs To Know About Emerging Market ETF Investing].

• Financials GEMS ETF (FGEM)
• Consumer Goods GEMS ETF (GGEM)
• Health Care GEMS ETF (HGEM)
• Industrials GEMS ETF (IGEM)
• Basic Materials GEMS ETF (LGEM)
• Energy GEMS ETF (OGEM)
• Technology GEMS ETF (QGEM)
• Telecommunications GEMS ETF (TGEM)
• Utilities GEMS ETF (UGEM)
• Consumer Services GEMS ETF (VGEM)

Disclosure: No positions at time of writing.

Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.

Original post

A GameStop Tablet: Crazy, or Crazy Smart?

Trying to enter the consumer technology market right now is risky business no matter what you’re looking to sell. Want to sell self-published electronic books at low prices to try and cut in on Amazon‘s (NASDAQ:AMZN) action? If you do, you’re taking a big risk. The same goes for Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK). Trying to take on Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the mobile market is no small task. But there’s a difference of scale between these examples.

Plenty of opportunity still exists to find an audience in the digital service market — streaming video, downloadable books, music and games — whereas the portable device market for downloading that media — tablets and smartphones — is closed off at this point. iTunes doesn’t own digital media distribution, but the iPad does own the tablet market. GameStop‘s (NYSE:GME) latest venture then is both risky in a promising way and risky in a completely mad way.

The video game retailer announced Monday that it plans to sell its own branded tablet PC which runs on Google’s Android operating system. The new tablet will be marketed as a gaming device first and a multipurpose tablet in the iPad mold second. To date, would-be contenders for the tablet crown have tried to mimic Apple’s device in their breadth of features rather than trying to cater to a specified niche.

At first blush, GameStop’s plans to enter the device market seem insane, but the company plans to mitigate some of the risk by licensing the use of a tablet that’s already on the market. Speaking with website Games Industry.biz, GameStop president Tony Bartlett explained his company’s pragmatic approach: “I don’t see any need to create a new (tablet) with the three hundred or so already on the market. We have a refurbishment center and we can bring in product and preload certain games onto it. It’s an Android device.” Bartlett’s statements at least rule out the possibility that GameStop had bought up Hewlett-Packard‘s (NYSE:HPQ) stock of the undying TouchPad tablet, but they do beg the question: Whose tablet is GameStop buying up?

Bartlett said the company is testing a variety of tablets and even intimated that multiple manufacturers will be behind this “GameStop-certified gaming platform.” What is clear is that the company hopes having this device on the market will help solidify its multiple digital distribution businesses that it has invested heavily in developing during the past 18 months. It’s in that market that GameStop is taking the least risk as its products are in demand and stand a good chance of finding their audience. Outlet’s like the web portal Kongregate, which GameStop purchased in early 2010, and digital PC games downloaded from GameStop’s store website online earned the company $98 million in the second quarter of this year, almost 42% of its profits. Having a device to help push these services will only help grow those earnings.

Most promising for GameStop and its shareholders, though, is the company’s proposed cloud-based streaming games service. The still-unnamed, still-in-testing service will allow users to play Microsoft Xbox 360 and Sony (NYSE:SNE) PlayStation 3 games on a PC by running them on GameStop’s servers and streaming them to the audience — a sort of Netflix (NASDAQ:NFLX) streaming option for video games.

Bartlett said GameStop is testing a game controller add-on for its new tablet so consumers can specifically play games like Activision Blizzard‘s (NASDAQ:ATVI) Call of Duty: Modern Warfare 3. If GameStop can find a way to sell its tablets at a low cost and manage to give audiences access to both high-profile retail releases and light, cheap App Store-style content at equally low costs, this tablet might just be a serious win for the company.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at�@ajohnagnello�and�become a fan of�InvestorPlace on Facebook.

New Jobless Claims Fall Sharply to Four-Year Low

The number of Americans filing new claims for unemployment benefits last week fell sharply to the lowest level in four years, a hopeful sign for the struggling labor market, government data showed on Thursday.

Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 350,000, the Labor Department said.

The drop, which brought new claims to their lowest level since March 2008, was much steeper than Wall Street economists expected.

The prior week's figure was revised slightly higher to 376,000 from the previously reported 374,000.

Hiring by U.S. companies slowed dramatically in the second quarter as employers grew worried about Europe's snowballing debt crisis, which is weighing on the global economy. Many employers also are concerned over the possibility the U.S. government may cut spending and let tax cuts expire next year, which could send the economy into recession.

The level of new claims for unemployment insurance was the lowest since March 2008 -- the early days of the 2007-2009 recession.

The fall in claims data suggests that while employers are holding the line on hiring, at least they aren't picking up the pace of layoffs. That could boost hopes the stalling in job creation might prove temporary.

Still, the jobless claims data had an important caveat.

Gallery: Top 10 Companies Hiring

A Labor Department official noted that part of the drop might be due to some auto manufacturers keeping their plants open during the first week of July to meet demand.

Normally plant closures during that week would lead to a spike in jobless claims, but they did not materialize. That suggests part of the strength in the labor market last week might be due to temporary factors.

The four-week moving average for new claims, a better measure of labor market trends, fell 9,750 to 376,500. That is still a significant drop, although the average is only at its lowest since May.



(Reporting by Jason Lange; Editing by Neil Stempleman)

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2 Sunny Signs for Cloud Peak Energy

Cloud Peak Energy (NYSE: CLD  ) carries $36 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be this be the case with Cloud Peak Energy?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share. It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible, after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Cloud Peak Energy holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Cloud Peak Energy has an intangible assets ratio of 2%. This is well below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value, which is simply what remains after subtracting goodwill and other intangibles from shareholders' equity (also known as book value, see box). If this is not a positive value, Heiserman advises you to run away because such companies may "lack the balance sheet muscle to protect themselves in a recession or from better-financed competitors."

Cloud Peak Energy's tangible book value is $673 million, so no yellow flags here.

Foolish bottom line
Cloud Peak Energy appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

Keep up with Cloud Peak Energy, including news and analysis as it's published, by adding the company to your free, personalized watchlist.

The Myth of Commodities Investment

One of the oft-cited reasons for investing in commodities is that they have historical returns comparable to stocks while having a low correlation to the stock market. The problem is that this statement is patently false.

Yes, commodities used to have low correlations to stocks. But that was before the era of “financialization” and securitization. In their 2011 paper “Index Investment and Financialization of Commodities,” Princeton University Professor Wei Xiong and Renmin University of China Professor Ke Tang prove empirically what many of us in the profession have long suspected: Commodities and commodity stocks are becoming more highly correlated to each other and to other asset classes.

Furthermore, while the prices of individual commodities have always been volatile, commodity prices as a whole have also become far more volatile in recent years. The question begs to be asked: Why?

Tang and Xiong place the blame on the slew of ETF and mutual fund products that offer stock investors passive, indexed access to commodities. Whereas the equity and commodities markets used to be populated by very different types of investors and traders, there is now almost total overlap. It’s hard to find a traded commodity that doesn’t have an ETF or ETN that tracks it; the commodities market has become the stock market, and volatility in the one spills over into the other. The end result is that virtually all commodities track the price of oil now, and oil in turn tracks the stock market.

Take a look at these charts. Prior to the mid-2000s, energy and non-energy commodities had very low correlations (the line hovers near zero). The economic factors that drove oil prices were very different from those driving the price of, say, cattle. But after 2004, correlations started to rise.

[Click all to enlarge]



We can see this in two commodities as seemingly unrelated as crude oil and soybeans, via the chart in the middle. Correlations hovered around zero for decades before suddenly spiking upwards.

It’s easy enough to understand why. As commodity investments became popular in the mid-2000s, investors started buying and selling commodities as a homogenous block in index ETFs and mutual funds rather than buying and selling individual futures contracts. Fundamental analysis of the supply and demand characteristics of individual commodities no longer matters when they are collectively bought and sold in a lump.

It has become common to blame the increased rise in correlations on the emergence of China and other developing countries. China is consuming more of everything; therefore, the price of everything is rising together.

The problem, again, is that this simply isn’t true. The final chart at the bottom compares the correlations between indexed and non-indexed commodities. Indexed commodities — those that are included in popular indexes that the commodity ETFs are based on — have much higher correlation than those commodities left off the index. Furthermore, the professors point out that the Chinese commodities markets — which are off-limits to foreigners and index funds — have been far less correlated than the American markets.

This is what George Soros describes in his Theory of Reflexivity. Soros is highly critical of the Ivory Tower view that markets are efficient and that prices reflect fundamentals, insisting instead that fundamentals also reflect prices in a circular feedback loop. In other words, in trying to buy assets with low correlations to each other, investors have unintentionally caused the correlations to rise.

When academics first suggested commodities as a portfolio diversifier, they failed to understand how a massive increase in investor interest in the sector would affect the relationships between stocks and commodities and between the various commodities themselves. Call it the "Heisenberg Uncertainty Principle of Finance," if you will.

For investors today, this means that one of the primary reasons for including commodities in a diversified investment portfolio — the low correlation to stocks — is now largely moot. Talented speculators can still make a bundle trading commodities, of course. But longer-term investors would be better served allocating their funds elsewhere.

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

Akamai Shares Gain For Second Day On Takeover Rumors

Akamai (AKAM) shares are higher for the second-straight day on takeover speculation.

Bloomberg reported that activity in AKAM options were 3-4x the daily average yesterday; Reuters also picked up on the increased trade in AKAM options.

Standard & Poor’s analyst Scott Kessler this morning took note of the activity, asserting that the content delivery network company has “one of the more attractive collections of businesses and assets in the Internet segment, with strong growth prospects and financials.” But he also notes that the stock is not cheap.

And indeed, given the current market cap of $8.5 billion, a bid at the 60% premium Intel is paying for McAfee would put the price tag of the company at about $13.6 billion. Just who might be willing (and able) to pay that kind of price for Akamai isn’t exactly clear.

AKAM, which yesterday rose 56 cents, or 1.3%, today is up another $1.81, or 4%, to $46.82.

The Iron Ore End Is Nigh

I've been writing profusely about the dangers that lurk in the steel, copper and iron ore markets, due mainly to three factors related to the China slowdown:

• The drop in auto production in China;
• The drop in home prices in China, which portends a drop in residential construction;
• And the approaching drop in shipbuilding, due to incredibly low freight rates.

I've already shown that steel prices are locked in a down trend, which is confirmed by another look at the steel contract traded on the LME:

But now, beyond these speculative factors, there is something new: Bloomberg updates the stocks of iron ore on Chinese ports every Monday, and what did we see this Monday? This ...

We've seen a spike in inventories, although not quite as large as the one seen in May which broke the iron ore uptrend that existed up until then, and then led to the plunge in iron ore prices seen below, but still a relevant spike.

Also, this spike in inventories can be seen as part of a much larger trend toward higher inventories, a part of which is certainly warranted by the increased steelmaking activity, but leaves the problem as to what will happen if and when such steelmaking activity drops - as it is predicted to do now.

Conclusion

Iron ore prices should resume their downtrend in the short term, with negative implications for the quoted iron ore suppliers, namely Rio Tinto (RIO), VALE S.A. (VALE) and BHP Billiton (BHP).

These companies, known as the big three iron ore suppliers, trade at seemingly low valuations (TTM P/Es of 6.1, 7.6 and 9.6 for VALE, RIO and BHP respectively). However this should be a value trap, as the companies are very levered to the iron ore price and said price is expected to plunge due to the fall in Chinese steel production and the accumulated inventories discussed here.

Regarding the timing, the negative impact should be immediate. As for a positive cycle, a positive turn on automobile production in China could happen within months, but the residential construction slump as well as the shipbuilding slump will probably take a couple of years to sort themselves out.

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

Novartis to cut nearly 2,000 U.S. jobs

NEW YORK (CNNMoney) -- The Swiss drugmaker Novartis is cutting nearly 2,000 jobs in the United States, anticipating the impending loss of patent protection on its blockbuster drug Diovan.

Novartis (NVS) said it is reducing its "field force" by 1,630 positions, primarily sales reps, and cutting an additional 330 jobs at its headquarters. Though the company did not specify where exactly these job cuts would take place, its U.S. headquarters is in East Hanover, N.J., and it also has facilities in Massachusetts and California.

Altogether, Novartis employs about 121,000 workers worldwide, including 30,000 in the United States.

Diovan, a blood pressure medication, is the company's top products, bringing in more than $6 billion in revenue in 2010, the most recent year for sales data.

But Diovan will lose its patent protection in September 2012. When that happens, it will open the market for generic production by competing drugmakers such as Teva Pharmaceutics (TEVA) in Israel and Barr Pharmaceuticals in New Jersey, which will cause the price of the drug to plummet.

That's great news for patients with cardiovascular problems, but bad news for Novartis. The company has an ample supply of billion-dollar blockbusters, but none of them come close to Diovan.

OxyContin: Purdue's painful medicine

After Diovan, the Basel-based drugmaker's top-selling medications are the cancer drugs Gleevec and Glivec, with nearly $4.3 billion in 2010 sales. Novartis has three other billion-dollar blockbusters, including Lucentis, a treatment for vision loss, at $1.5 billion in 2010, as well as the cancer drugs Zometa, also at $1.5 billion, and Femara, at nearly $1.4 billion.

Novartis is reacting to a failed study, announced in December, involving the drugs Rasilez and Tekturna for diabetics. The failure of the late-stage "altitude" study dried up another potential sources of sales for Novartis.

The job cuts will take place in the second quarter, the company said. 

7 Stocks Expected To Post Large Gains This Week

After two weeks of predicting stocks, we are 11/14 and although last week was nothing to brag about, my picks are still trading with gains. Last week I predicted that the market would finish either flat or with slight movement and for the most part I was correct. However, I believe that this week (December 12-16) will provide large gains, potentially 300 points on the Dow Jones. The summit wasn't as affective as we wanted, yet it should provide some stability and allow U.S. markets to trade on fundamentals rather than Europe's financial crisis. Therefore, I will choose stocks this week that ended last week with momentum that I believe have the potential to post large gains if the market trends higher.

During the last 4 months banking stocks have been reluctant to rise when the market trends higher but quick to fall with any negative news from Europe. I believe that people are so fearful of another recession similar to 2008 that investors have chosen to avoid banking stocks as a whole during Europe's financial crisis. And although Europe still has problems it did make strides in the right direction during the summit, and did establish that we wouldn't be seeing another Lehman Brothers.

Therefore, I expect for the markets to trade on fundamentals during this week and for Citigroup (C) and Bank of America (BAC), the two most undervalued banking stocks by book value per share, to post large gains. I expect for this week to be the start of a new rally among banking stocks that includes these two stocks regaining some of its losses, since we should enjoy a quite period from Europe. There are many investors watching these two stocks who are just waiting for a good opportunity to capitalize on the value that's present. And I expect that a domino effect will occur this week and lead to large gains among these two stocks, and others alike.

I was expecting a much larger reaction from the news of Ford's (F) dividend than what was returned in the stock's gains. However, the company did announce the yield during a sell-off within the market which pushed the stock lower. The company's made substantial improvements over the last few months including incredible monthly sales in November, which I believe will contribute to the stock's large gains over the next couple weeks. The auto industry is very similar to the banking industry, and we as investors associate recessions with the auto industry since the largest of companies performed so dreadful during the recession, which is still very fresh on the mind's of investors. In my opinion, this week will be a time of reflection and we will look back on the fundamental progress of the last four months that's been so blindly ignored. And since Ford is definitely one of the more undervalued stocks that's shown fundamental improvements, it will post large gains during the next week.

Diamond Foods (DMND) had fallen by more than 60% over the last three months before posting a gain of 52% on Friday. The stock had fallen so abruptly after questions surrounding its accounting practices and its likelihood of purchasing Pringles became unlikely. However, its large gains were a result of these issues being put to rest after an article from Reuters silenced the questions and put to rest the unlikelihood of the company purchasing Pringles. I believe the news is huge and the potential gains are even larger. The stock is currently trading 50% lower from its price before the rumors took place and from what I can tell, the rumors were the only catalyst pushing the stock lower. And now that the future appears bright, I believe the stock could post very large gains in the coming days. Before the downtrend began to occur the stock had been trading in a steep uptrend during the previous five years -- and I believe the trend will continue -- and that this would make a great short and long-term investment at its current price.

I have been bullish on Alcatel-Lucent (ALU) ever since the stock fell when the company lowered its guidance in Europe as a precaution. The company has improved its margins and earnings by a drastic measure and is well positioned to capitalize on some of the largest underdeveloped markets in the world. Yet, its stock's declined by nearly 70% over the last six months and I believe it will break through its price range and trade near $2 during this week. The stock posted a gain of nearly 10% on Friday after an upgrade on the stock was initiated and because of its reaction I believe it's likely that its gains will continue. This is a stock that I would most definitely watch over the next few days because it has the ability to post large gains in a short period of time.

A $100 price is a significant milestone for a stock, and I believe that both Caterpillar (CAT) and McDonald's (MCD) will surpass the $100 milestone during this week. The fundamental growth of both companies is remarkable and neither company is showing any signs of slowing growth. McDonald's has trended higher throughout the last six months despite turmoil in Europe, with a 20% gain. And CAT which initially dropped by nearly 40% during the sell-off within the market has been on a consistent uptrend since October 3 with a gain of 35%, and is now trading even during the last six months.

Both stocks are trading with momentum and are very close to $100, and I believe that if either of the two stocks can surpass this level that both will trend high above the level. And since I'm making my predictions based off the assumption that stocks will trade off fundamentals during this week I believe the chances for both stocks to post very large gains is highly likely.

Disclosure: I am long CAT, MCD.

New Residential Construction Data: Housing Remains Weak

Today’s New Residential Construction Report showed a notable gain for single family permits and a notable decline for single family starts which, considering the truly depressed level of new home construction activity, appears to suggest that housing is continuing to remain historically weak.

Single family housing permits, the most leading of indicators, increased 5.5% on a month-to-month basis to 440K single family units (SAAR) but declined a notable 14.9% below the level seen in December 2009 and an astonishing 75.53% below the peak in September 2005.

Single family housing starts declined 9.0% to 417K (SAAR) units, dropping 14.2% below the level seen in December 2009 and a whopping 77.13% below the peak set in early 2006.

With the substantial headwinds of rising unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Click to enlarge charts

How to Go Farther on Less Fuel

Two weeks ago, we asked our readers for their advice on how to save money at the pump. In the more than 1,500 responses that followed, we found a lot of creative solutions, covering everything from retrofitting your car to selling it and buying a bicycle.Our first gas advice post, which ran earlier this week, explored your suggestions for economizing. Today's piece looks at maintenance and new vehicle purchases that will help you go farther on less fuel.

Hybrids and Electrics and Diesels ...

Not surprisingly, one of the most popular suggestions for cutting down at the pump involved in buying a more fuel-efficient car. The Toyota Prius was especially popular among DailyFinance readers and, as "TM Souza" found, the car's efficiency more than offset its cost: "I sold my Toyota Sequoia for a Toyota Prius and went from 14.1 miles per gallon to 50 miles per gallon the savings in gasoline pays for my new vehicle."

However, the Prius was far from the only new car option that readers praised. "Mel" noted that his 2008 Toyota Camry hybrid makes him "a happy camper," "Jim" praised his 2008 Civic hybrid, and "Chuck" proclaimed that his Nissan Leaf means that "We don't need to buy no stinkin' gas!"

But hybrids and electric cars aren't the only cost-saving options out there. "Jim D." claimed that his 1969 912 Porsche averages "in the mid 30 mpg's." He went on to write that "I'm also seeing a lot of 50 and 60 VW's on the road that get great mileage. In California you need to bring a spare shirt on hot days, but it's worth it."

"Paul" endorsed the Geo Metro five-speed, and "TFodel" praised the 1979 VW Rabbit diesel, but the ultimate in gas-sipping retro drivers may be "EldonFlorence," who wrote that "I dusted off my one-cylinder 1904 Oldsmobile Curved Dash," which "gets about 50 miles to the gallon."

Take the Bus ... or the Harley

Of course, nothing's as cheap as the car that you don't buy, and many readers pointed out the wonders of public transportation. "Vcgh2000" but it bluntly, noting "Want to bring gas prices down??? Take the train."

Meanwhile, "Crgphillips5" noted the relaxing effects of public transportation, stating that "I take the bus often ... by leaving options available besides the car, I relax myself and drive less...with no time lost and money saved." Overall, however, "Nocstreet" was the boldest defender of public transportation, stating that "I told my husband if he bought another tank of premium gas, I'd take his car away." Luckily, she notes, "Oregon's Portland metro area is continuing to work on a great transit system. Hope they don't let anyone convince them it's not worth it."

Many areas don't have a strong public transportation infrastructure, though, and in those that do, using it requires people to adjust to a bus, train or subway schedule. However, many readers noted that bicycles and motorcycles let them maintain their freedom while cutting down on their gas expenditures. For example, "Rob" noted that his 1984 Honda motorcycle gets between 52 and 55 miles per gallon, which means that "$11.30 will last eight days on a tank .... So sorry to make all you Chevy Tahoe and Escalade owners weep." Similarly, "Harleydavid105" endorses American motorcycles, pointing out that his Harley Davidson Dyna Wide Glide gets "45 miles per gallon and keeps America working."

Of course, motorcycles have problems of their own. "GJ Meyer" complains that, because of neighborhood restrictions, he has to "drive an electric cart a mile and a half to get my motorcycle." And, as "chzyrider" admits, motorcycles aren't great in the rain: "There are days when the weather is totally unfavorable, and I will drive on those days." However, he emphasizes that, for "trained, safe" riders, motorcycles are "legitimate, feasible and FUN."

Get Under the Hood

Given the vast array of gas-saving tools on the market, it's not surprising that many readers suggested ways that car customizing could lower gas consumption. On the simplest level, this involved taking things out: While some readers endorse taking out floor mats and spare tires, "Ray" took this to an extreme, pulling out his car's seats (except the driver's!), ash trays, speakers, radio, sound deadening material, interior trim "and anything else not integral to the vehicle's driving ability." This reduction of his car's weight, he claimed, helped him get 50 mpg out of his 1995 Nissan Sentra.

"Ron" agreed that drivers should "Take off your hubcaps, take out your backseat, door panels, carpeting and everything else that isn't needed." However, he went a step further, noting that installing a "cold air intake," adding "dual exhaust with flow-master mufflers" and using "the lightest-weigh oil your engine can stand" will all add miles per gallon to a tank.

Many readers suggested using a high-flow air filter. "DVilla4940" especially endorsed K&N filters, which he said "will give you about 2 more miles per gallon." "Mr. Terrific" suggested using gas chips, claiming that the 5-minute installation "added 90 miles to a tank of gas."

While most drivers aren't quite ready to pull out their car's back seat or switch over to a cold-air intake system, Daily Finance's readers suggest that there are lots of ways to increase gas efficiency ... as well as fun!

EnergySolutions Goes Red

EnergySolutions (NYSE: ES  ) reported earnings on March 14. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), EnergySolutions beat expectations on revenue and missed expectations on earnings per share.

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

Margins contracted across the board.

Revenue details
EnergySolutions logged revenue of $468.5 million. The six analysts polled by S&P Capital IQ predicted revenue of $426.2 million on the same basis. GAAP reported sales were 4.5% higher than the prior-year quarter's $448.5 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at -$0.66. The four earnings estimates compiled by S&P Capital IQ predicted $0.11 per share on the same basis. GAAP EPS were -$2.28 for Q4 compared to $0.24 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was -8.4%, 2,080 basis points worse than the prior-year quarter. Operating margin was -16.1%, 2,080 basis points worse than the prior-year quarter. Net margin was -43.3%, 4,800 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $507.0 million. On the bottom line, the average EPS estimate is $0.05.

Next year's average estimate for revenue is $1.78 billion. The average EPS estimate is $0.37.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS. Among 200 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 198 give EnergySolutions a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on EnergySolutions is outperform, with an average price target of $6.69.

Over the decades, small-cap stocks like EnergySolutions have provided market-beating returns, provided they're value-priced and have solid businesses. Read about a pair of companies with a lock on their markets in "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Click here for instant access to this free report.

• Add EnergySolutions to My Watchlist.