Buy These 2 Small-Cap Stocks Before They Rebound

There's a certain thrill involved with holding small cap stocks in your portfolio. After all, given the relatively tiny size of their underlying businesses, these are the stocks which often hold the greatest prospects for growth over the long run.

To be sure, who wouldn't love to see his or her portfolio explode to the upside as today's small caps become tomorrow's massively profitable industry giants?

So what's the catch? Small-cap stocks tend to be much more volatile than their larger brethren. As a result, as long as nothing has happened to significantly change your buying thesis, you need to be willing to stick it out through thick and thin to realize truly substantial long-term gains.

With that in mind, here are two small cap stocks which are trading significantly below their 52-week-highs, and why I think you should buy them before they bounce back:

Company Market Cap % Below 52-Week-High Recent Price CAPS Rating
(out of five)

InvenSense (NYSE: INVN  )	$854 million	45%	$10.15	*****
MAKO Surgical (NASDAQ: MAKO  )	$532 million	74%	$11.27	*****

Source: Motley Fool CAPS

Sensing long-term opportunity
First up, shares of motion sensor specialist InvenSense (NYSE: INVN  ) are still reeling from a number of disappointing earnings reports and downgrades over the past year. The most recent "bad" news came from analysts at Maxim three weeks ago, who maintained their "Buy" rating on the stock, but lowered its price target to $12 per share, from $17. Even if Maxim is justified in its downgrade, however, I'm betting it's difficult to find too many investors who wouldn't be happy with an 18% gain should the stock reach the stated target

What's more, InvenSense boasts strong free cash flow, and a sterling balance sheet, with $193 million in cash and no debt. In addition, its shares currently trade at 20 times trailing earnings and just 13.5 times forward estimates -- a perfectly reasonable premium for a small-cap stock whose products have the potential to play an integral part in the fast-growing global market for mobile device sensors.

Robotic-assisted profits
I've made no secret of my optimism for shares of MAKO Surgical (NASDAQ: MAKO  ) , despite the company's gut-wrenching fall from grace over the past year; 2012 included one particularly brutal quarterly earnings report, which caused a single day drop of as much as 37%. Now, I'm a patient guy, but I have to admit that that one definitely made me think twice about selling what still remains one of my largest personal holdings. 

On one hand, MAKO management had undoubtedly overestimated its ability to sell expensive robotic surgery equipment to hospitals during one of the most challenging economic environments in recent history. As a result, they lost plenty of rapport with investors after twice being forced to lower their system sales guidance.

Even still, I remain convinced MAKO's punishment doesn't fit the crime, especially after management provided some solid answers to wary investors' questions during its most recent quarterly earnings call.

Foolish final thoughts
When the rubber hits the road, I think InvenSense and MAKO both represent fantastic small-cap stocks for patient long-term investors. If you can take the heat, these companies may just be able to help you absolutely thrash the broader market's returns.

However, if you'd still like to learn more about MAKO, Fool.com analyst and MAKO expert David Meier has authored a premium research report covering all of the must-know details on the company, including key areas to watch and risks looming in the future for the medical robotics company. Claim your copy by clicking here now.

The Weather Fouls It Up for Retailers -- Again

Retail sales figures from March started pouring in yesterday, and it looks like there are only a few winners. Gap (NYSE: GPS  ) saw comparable sales drop 1% in March. Buckle (NYSE: BKE  ) had flat sales, and even TJX (NYSE: TJX  ) had a 2% decline. The culprit -- if you feel obligated to look further than branding and management -- might be weather.

The weather mentality
Luckily, there are all sorts of interesting studies that people have done to indicate why we're prone to shop in one kind of weather and not in another. The unsurprising conclusion of this research is that we get thrown off easily. If it's supposed to be freezing cold and is, then we shop just fine. If it's supposed to be freezing cold but it's warm, we get flustered. It's like going to your favorite restaurant only to discover that they've changed the menu, and now it's all soy and things with tentacles.

So when March temperatures got stuck on "Arctic," shoppers pulled back. The kind of store they visited seemed to be unaffected. Gap and Buckle both have a heavy focus on jeans, but TJX's T.J. Maxx brand sells everything in equal measure, and it was one of the worst performers. The problem is one of expectations, and when consumer expectations aren't met, consumers lose their minds.

As an analyst from Retail Metrics told the Los Angeles Times, "The deck was stacked against both retailers and consumers alike." The only thing going in consumers' favor last month was the lower cost of fuel, which took a surprising turn in March. But that wasn't enough for retailers, and now investors seem to be suffering the consequences. Stupid weather.

The good news
The good news is that seasonal and weather-based trends are just that -- trends. A slowdown from a cold March isn't going to jeopardize TJX's plan to expand its store count by 50% in its current markets. It's not going to stop Buckle from paying out its yearly special dividend, and it's not going to put Gap off its continued international expansion plans.

While investors -- and this includes me -- jump all over the monthly sales figures from retailers, more and more companies are trying to even out their ride. Companies like Target and Macy's have realized that moving to a quarterly release schedule is better for everyone.

In the long run, that's probably a good guide for investors, as well. A solid investing thesis isn't going to go up in flames just because you can still skate on the local pond. As buy-and-hold investors, it's probably wise to let the weather happen, and worry more about the financials.

Is a rally in store for this retailer?
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

Apple Stock: The Next Run Could Come Sooner Than You Think

Apple (NASDAQ: AAPL  ) shareholders have understandably become very frustrated over the past seven months, as Apple stock has fallen nearly 40% from the all-time high it reached last September. Apple seems very cheap, at just 10 times earnings -- or 6.5 times earnings if you exclude the company's massive cash position -- but that hasn't managed to attract buyers. However, the negativity that has surrounded Apple recently may actually be setting the stage for another big run-up, which could reward the Apple shareholders who have been patient in the face of the stock's downward spiral.

Low expectations
The market's low expectations for revenue and earnings growth are one major reason for optimism about Apple stock going forward. Wall Street already expects tepid revenue growth and a sharp year-over-year EPS decline when Apple reports Q2 earnings later this month. While iPad unit sales will be boosted by the first full quarter of iPad Mini shipments, iPhone and Mac sales are expected to be fairly similar to last year's Q2 totals. Moreover, a combination of higher component costs and lower average selling prices will lead to a significant drop in gross margin; Apple's guidance in January implied that gross margin could fall as much as 990 basis points from the all-time high of 47.4% set in Q2 last year.

Apple's poor recent stock performance can be attributed in part to the company's long string of successes in the five years after the iPhone's launch in mid-2007. That raised the bar so high that the company was bound to disappoint eventually. When it finally happened, Wall Street quickly soured on Apple stock, as seen in the rapid fall of price targets from analysts such as Peter Misek, whose $900 price target of early December became a $420 price target by early March. With many market participants expecting Apple to struggle for a long period of time, any evidence of a return to growth could quickly reinflate Apple stock.

Big opportunities
Yet behind Wall Street's current scorn for Apple and low expectations regarding the potential for innovation there, Apple has a variety of potential catalysts on the horizon. First, new product lines could be released as early as this fall, with an "iTV" the most likely candidate. Rumors of an iTV have been rampant ever since the release of Walter Isaacson's biography of Steve Jobs, since Jobs told Isaacson that he had "finally cracked" the TV. However, Apple followers have been disappointed as purported iTV release dates have come and gone. Today, the market seems to be assigning no value to new product lines, based on the low Apple stock price. I don't know what Apple's next product will be or when it will be released, but I'm very confident that there will be one; Apple's R&D spending grew 40% in the last fiscal year, to $3.4 billion.

Furthermore, Apple will almost certainly release new versions of the iPhone and full-size iPad within the next three to six months. These will restore profit growth -- and hopefully boost Apple's stock -- for different reasons. The next iPhone, widely assumed to be called the iPhone 5S, is expected to be very similar to the iPhone 5, except for the possible addition of a fingerprint reader. The radical changes to the iPhone manufacturing process for the iPhone 5 caused a significant decline in Apple's gross margin. With fewer changes this time around, Apple's gross margin should return to the historically typical range of 41%-43%.

Apple Historical Gross Margin. Data by YCharts.

A return to higher gross margins later this year will probably drive 15%-20% profit growth for Apple, even with sluggish revenue growth.

Meanwhile, full-size iPad sales have fallen recently because of cannibalization from the iPad Mini. However, the next full-size iPad will probably be thinner and significantly lighter than the current model, which could reinvigorate sales by enhancing portability. I still expect the iPad Mini to be the top seller, but any increase in full-size iPad sales will boost Apple's bottom line, because the full-size iPad produces more profit per device.

New markets
New generations of the iPhone and iPad can briefly boost Apple's sales and profit, but they no longer generate enough growth to drive Apple stock consistently higher. However, many analysts believe that the iPhone 5S -- unlike previous iPhone models -- will be sold by China Mobile (NYSE: CHL  ) , the world's largest wireless carrier. While the iPhone is too pricey for most China Mobile customers, China Mobile has a lot of customers: more than 700 million! This large customer base creates an opportunity to sell tens of millions of additional iPhones annually. Capitalizing on this opportunity could increase EPS by $2-$3, enough to positively affect Apple stock. Apple is also targeting other wireless carriers that it has not previously worked with: most notably, T-Mobile USA, which on Friday began selling the iPhone 5 for $579.99 -- roughly $70 below the official unlocked price.

.

The iPhone 5 (courtesy of Apple).

Longer-term, while Apple will never offer a low-end iPhone, it's likely to target the mid-range smartphone segment with a phone priced around $300-$350. This would be more expensive than many Google Android phones, but many people are willing to pay a premium for Apple devices. The problem today is that the cost of an iPhone is just too far out of reach. A $300-$350 iPhone would appeal to those individuals while allowing Apple to maintain generous profit margins.

Foolish conclusion
There are numerous catalysts that could drive Apple stock up from its current rock-bottom valuation. New product lines, higher margins resulting from new product releases, higher sales from new carrier partners such as China Mobile and T-Mobile, and long-term growth based on a cheaper iPhone are all potential earnings growth drivers. Some may not pan out this year, but in all likelihood, others will. Apple's valuation implies permanent earnings decline, which seems far-fetched in light of the company's opportunities. We are likely to learn more about what's next for Apple at the company's Worldwide Developers Conference in June. As Mr. Market starts to focus on some of these opportunities rather than Apple's challenges of the moment, Apple stock could begin its next big rally.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

3 New Ways Getting Married Can Raise Your Taxes

One peculiar aspect of American tax law is that getting married can dramatically affect a couple's total tax bill. Many couples, especially those in which one person earns the vast majority of the couple's income, benefit from the tax treatment on married couples. But many others, especially two-income families where each spouse's earnings are roughly equivalent, can end up paying a whole lot more in tax -- a phenomenon known as the marriage penalty.

The tax compromise that lawmakers agreed to at the beginning of 2013 made several substantial changes to the tax laws, and a few of those changes actually made the marriage penalty worse for some couples, especially high-income couples where both spouses work and have considerable income. Let's look at these three provisions and how much they'll boost the marriage penalty's impact in 2013 and beyond.

1. The new Obamacare tax.
Obamacare created two new taxes: a 0.9% tax on wages and other earned income for high-income earners, and a 3.8% tax on investment income. For both taxes, the threshold is $200,000 for single filers and $250,000 for married couples.

So if two single people each earned $200,000, they wouldn't be subject to the Obamacare tax at all. But if they got married, then $150,000 of their total income of $400,000 would get taxed, with an additional tax liability of $1,350. Similar situations with investment income could lead to a much larger marriage penalty, as the investment tax rate is more than quadruple the rate for wages. Investors in dividend-oriented ETFs Vanguard High Dividend Yield (NYSEMKT: VYM  ) , SPDR S&P Dividend (NYSEMKT: SDY  ) , and iShares DJ Select Dividend (NYSEMKT: DVY  ) should therefore take care to consider tax-favored investment vehicles for their investments.

2. New high-income tax brackets.
The marriage penalty has existed in tax brackets for a long time. The bottom two tax brackets don't include a marriage penalty, as they're designed so that the amount of income married couples can earn is exactly twice what singles can earn to stay within a given bracket. But for the 25% tax brackets and above, the married brackets kick in at far less than twice the single amounts, with the 35% bracket kicking in at exactly the same amount for singles and couples.

The tax compromise created a new 39.6% bracket that kicks in for high-income taxpayers. The way the law was drafted, that 39.6% rate applies to single filers making more than $400,000 and joint filers with income above $450,000. What that means is that if two unmarried people each make $400,000, they won't be subject to the new provision, with taxes topping out at 35%. But if those two people get married, then an additional $350,000 in income will get taxed at the higher rate. In this example, a couple would pay more than $16,000 in additional taxes solely because of the marriage penalty in the tax brackets.

Similar provisions affect capital gains tax rates, with a higher 20% maximum rate applying above the income threshold compared with 15% below it. With the S&P 500 (SNPINDEX: ^GSPC  ) having set record highs during the past week, capital gains could be substantial for those selling off or rebalancing holdings in their portfolios.

3. Reductions in itemized deductions and personal exemptions.
The tax compromise brings back provisions that reduce the amount that high-income taxpayers can deduct for personal exemption allowances and on itemized deductions. Again, the thresholds at which these provisions kick in include a marriage penalty, with singles above $250,000 of adjusted gross income and couples over $300,000 not being able to reduce their taxable income by the full amount of their exemptions and deductions.

Here, the impact of the marriage penalty could mean that every penny of personal exemptions is taken away, even if none of them would be removed if the couple remained unmarried. Similarly, reductions in itemized deductions could increase their tax bill by more than $2,375 at top rates.

Why a marriage penalty?
The policy reason put forth for allowing a marriage penalty tends to be that couples can live more cheaply than singles. But with no rules preventing unmarried taxpayers from living together and reaping the same living-cost savings, it'll be interesting to see how many couples choose not to tie the knot in order to save on their tax bills going forward.

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Potential Acquisition Candidates For GE, Exxon And Others

"History must repeat itself because we pay such little attention to it the first time." (Blackie Sherrod, sportswriter born 1919 and still "kicking")

On April 8th, we learned that General Electric (GE) would be acquiring Lufkin Industries (LUFK). The deal is one of the three largest in the oilfield machinery and equipment industry during the past decade, and sets the stage for further acquisitions in this sector. Investors should start considering which companies might be next.

Bloomberg had been saying since September 2012 that LUFK was a takeover target when its stock had fallen to the lowest price in 3 years. "Lufkin will more than double GE's share of the artificial lift segment and give it about 15 percent market share," Julian Mitchell, an analyst at Credit Suisse in New York wrote in a note to clients.

Companies like GE have access to billions of dollars at low-to-zero interest rate cost-of-borrowing. The LUFK deal is only one of the energy-related purchases that it has been making, and it won't be the last. That's why I've written this article, so we investors can begin looking for the next likely takeover targets of companies like GE and Exxon Mobil (XOM).

The oil and gas sector has become GE's fastest-growing division, with sales since 2009 up 57 percent to $15.2 billion. Its strategy is based on the premise that a shale-oil bonanza is poised to make the U.S. the world's largest crude producer and that natural gas prices have recovered.

Which companies will GE (and perhaps other big players such as Exxon Mobil) go after next? Which shareholders will be as fortunate as Lufkin's, who'll receive $88.50 per share in cash, which is 38 percent more than Lufkin's $63.93 close on April 5th, the Friday before the announcement?

Chart Industries (GTLS), which reports earnings on April 22nd, has been bandied about for months as a takeover target. It manufactures and supplies engineered equipment used in the production, storage, ! and end-use of hydrocarbon and industrial gases in the United States, the Czech Republic, China, Germany, and internationally.

With its relatively small market cap of only $2.37 billion, it could easily be gobbled up. Remember, GE is offering to pay around $3.3 billion for LUFK.

The downside to the GTLS idea is that its shares are selling at near its 52-week high of $83.69. Yet when we consider that it has a Price-to-Earnings-to Growth (PEG) rate of less than 1 and a forward PE ratio of around 18, GTLS may still be considered a good value.

Concerning this topic, I'd encourage you to watch this video, but please wait till you finish reading what I have to say. Just because a famous "talking head" considers a company an acquisition target doesn't make it so.

Chart Industries is one of the global leaders in the production of the equipment that liquefies natural gas, yet there are some privately-held companies that compete with it. The premium for those privately held businesses may be more tempting.

That's said, I'd also consider Atwood Oceanics (ATW) an even more irresistible acquisition bulls-eye. This Houston, Texas firm is an offshore drilling contractor that engages in the drilling and completion of exploratory and developmental oil and gas wells.

ATW, with a PEG ratio of only 0.50, owns a fleet of approximately 11 mobile offshore drilling units primarily located in the United States, Gulf of Mexico, the Mediterranean Sea, offshore West Africa, offshore southeast Asia, and offshore Australia. It also has three ultra-deep-water drill ships, and two high-specification jack ups under construction.

At $49.34-a-share, ATW is selling at a Price-to-Book value of 1.6 and a forward (1-year) PE ratio of only 8.23. It's priced like LUFK was back in September 2012, and its trailing twelve month operating margin (39%) and profit margin (33%) are too good to pass up.

ATW, which next reports earnings on May 1st, has a market cap of only $3.32 billion,! which is! bite-size for a XOM or a GE. Another one-swallow menu item for these behemoth acquirers is a company like Clean Harbors, Inc. (CLH), which steps into the earnings confessional on April 29th.

It would sure look responsible for a big integrated energy company like XOM or Chevron (CVX) to acquire the leading provider of environmental, energy and industrial services in North America. The company serves a diverse customer base, including a majority of the Fortune 500 companies, thousands of smaller private entities and numerous federal, state, provincial and local governmental agencies.

Through its Safety-Kleen subsidiary, Clean Harbors also is a premier provider of used oil recycling and re-refining, parts washers and environmental services for the small quantity generator market. No wonder last quarter it reported a stunning 62% year-over-year growth in earnings-per-share (EPS).

When the company reports on Monday April 29th, the analyst community is anticipating an average EPS number that is 43% below the previous quarter (which included the earnings generated by the massive clean-up after Superstorm Sandy). Yet the same group of analysts is anticipating a 55% increase in sales growth and revenue.

CLH is currently priced with a PEG ratio (5-year expected) of around 1.6 and a forward PE ratio of 17.5 with a market cap of $3.54 billion. From many perspectives, it's priced-to-buy and acquire, yet it's trading well below its 52-week high of $69.25.

Some other names to consider as takeover targets would include FMC Technologies, Inc. (FTI), which provides technology solutions for the energy industry worldwide and hit a 52-week high on April 11th. Another less conspicuous target is the diversified chemical company FMC Corp. (FMC), which has a market cap of only $8 billion plus a forward PE of less than 13.

Another lesser-known possibility is Atmos Energy (ATO), the $3.93 billion (market cap) company that engages in the distribution, transmission, and storage of natura! l gas in ! the United States. As of the last quarter of 2012, its year-over-year EPS growth was 17.5%.

Unlike many of the other names, ATO pays a 3.23% dividend. It would be a good fit for a large company that produces natural gas such as Chesapeake Energy (CHK) or XOM that may want to expand its ability to handle, transmit and store natural gas.

Besides its regulated distribution operations, Atmos Energy owns a regulated transmission and storage business within Texas. Atmos Pipeline -- Texas is one of the largest intrastate systems in the state. Its Gas Supply and Services Group provides gas supply and transportation support for our six regulated distribution divisions.

ATO's nonregulated operations constitute a significant and growing part of its business growth. Organized under Atmos Energy Holdings, they include Atmos Energy Marketing, Atmos Pipeline and Storage, Atmos Gathering Company and Atmos Power Systems.

These are the kinds of companies that are likely to be scooped up in easy-to-finance arrangements that will make shareholders delighted when the announcements are made and the stocks' prices soars. It's just a matter of time, so do your due diligence and start accumulating.

Disclosure: I am long GE, CVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Ford Declares Dividend for Q2

Like a car gliding on cruise control, Ford (NYSE: F  ) is keeping its quarterly dividend steady. For its Q2, the company will distribute $0.10 per share of both its common and class B stock on June 3 to shareholders of record as of May 3. That amount matches the previous disbursement, which was handed out in January. Prior to that, the carmaker paid $0.05 per share.

This marks the sixth consecutive quarterly payout for the company since it restarted its dividend payments in January 2012. It had suspended them following the April 2006 distribution of $0.10 per share.

The current dividend annualizes to $0.40 per share. That yields just under 3% at Ford's most recent closing stock price of $13.53.

More Expert Advice from The Motley Fool

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.

Ask a Fool: What's Up With Google Fiber?

In the following video, Motley Fool research analyst Lyons George takes a question from a Fool reader, who writes, "I hear Google (NASDAQ: GOOG  ) is expanding its 'Free Internet' project from Kansas City to Austin, Texas. Should we expect 'Fiber' to keep growing...and what does it mean for Google's business?"

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Why GlaxoSmithKline Beats AstraZeneca and Shire

LONDON -- After offering my pick of our telecom companies last week, today I'm turning my attention to the FTSE 100 Pharmaceuticals and Biotechnology sector. This time there are three companies that make the top flight -- GlaxoSmithKline  (LSE: GSK  ) (NYSE: GSK  ) , AstraZeneca  (LSE: AZN  ) (NYSE: AZN  ) and Shire  (LSE: SHP  ) .

I'll start with a few fundamentals:

Company GlaxoSmithKline AstraZeneca Shire

Market cap	76.9 billion pounds	41.5 billion pounds	10.9 billion pounds
Share price	1,576 pence	3,308 pence	1,992 pence
Share price growth	13%	19%	-1.3%
Historic EPS growth	-1%	-12%	-14%
Forward EPS growth	2%	-18%	68%
Historic P/E	11.8	7.0	21.6
Forward P/E	13.5	9.6	13.3
Historic Dividend	5.5%	6.3%	0.6%
Historic Cover	1.5x	2.3x	7.7x
Forward Dividend	5.1%	5.5%	0.6%
Forward Cover	1.5x	1.9x	11.8x

Share price growth is over the past 12 months, historic figures are for December 2012, forward figures are based on December 2013 forecasts.

Shire
I'm going to reject Shire, for a couple of reasons. Firstly, it isn't paying any meaningful dividends yet, and if I'm considering investing in top FTSE 100 shares, I want to see mature companies offering decent annual income.

Shire also seems a little too specialized to me, with a large proportion of its annual turnover coming from just a couple of relatively minor therapeutic areas.

The giants
That brings me to the battle of the giants, and at the moment I can see only one winner. AstraZeneca has been suffering falling earnings in recent years, largely because of the famous "patent cliff" of losing intellectual protection for some of its blockbuster drugs, and increasing competition from generic drug manufacturers.

AstraZeneca has also lagged GlaxoSmithKline in expanding into new areas of biotechnology, with its acquisition record not being a glowing success.

Last month, AstraZeneca announced a new strategy for returning to growth, and the firm's new chief executive, Pascal Soriot, does seem to be the sort of person to get things done. But to me, I thought the announcement lacked meat, and there were too many marketing buzz phrases in it -- "building a culture," "leveraging business development," "exploiting our unique combination of strengths," "maximizing the potential," and so on. The plan to expand more into specialty care products and to concentrate mainstream research on core areas sound concrete, but overall I thought I was reading "More of the same, only better."

The winner
My pick, obviously, is GlaxoSmithKline -- and I already have it in the Fool's Beginners' Portfolio. Back in June, I reckoned Glaxo had been preparing for the blockbuster drugs pipeline crunch better, and had been more successful in biotechnology expansion and acquisition.

Earnings forecasts, albeit short term, are better -- there's a 9% growth in earnings per share forecast for 2014, with AstraZeneca's still expected to be falling. And though the shares are on a higher P/E multiple, I think that rightly reflects a greater level of confidence in Glaxo's future.

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But the report will only be available for a limited period, so click here to get your hands on these great ideas -- they could set you on the road to long-term riches.

United Tech Subsidiary Wins Ballistic Armor Contract

With a stock price that's up 0.8% after Wednesday trading, Hartford, Conn.-based United Technologies (NYSE: UTX  ) looks bulletproof today. Helping it get that way is a new contract that UTC subsidiary LifePort just won from the U.S. Air Force.

On Wednesday, UTC announced that USAF Special Operations has contracted with LifePort to outfit its fleet of Sikorsky HH-60G PAVE HAWK helicopters with a bulletproof Improved Ballistic Armor Sub System to protect helicopter pilots from ground fire. The PAVE HAWK is a variant of UTC's famed UH-60 Black Hawk helicopter, preferred by U.S. special forces.

According to UTC, LifePort is currently "the only company in the marketplace today able to" manufacture "qualified armored flight seat pallets based on strict USAF specifications." It's also apparently able to manufacture them quickly. UTC says it will have the entire USAF HH-60G fleet outfitted with the new ballistic armor before the end of September.

Financial terms of the contract were not disclosed.

How the Dow's Pharma Stocks Have Fared in 2013

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) isn't just for industrial stocks anymore. You can find all sorts of companies in the venerable average, with the Dow representing a nearly all-inclusive cross-section of the entire U.S. economy.

Pharma stocks aren't a huge part of the Dow, with just two of its constituents focused solely on the space and a third reaping a substantial portion of its revenue from pharmaceuticals. Yet pharma stocks have made a big impression on investors because of their lucrative dividend yields. Let's take a look at how these companies have fared so far in 2013 and what their prospects are for the rest of the year and beyond.

JNJ Total Return Price data by YCharts.

You may not think of Johnson & Johnson (NYSE: JNJ  ) as a pharmaceutical company, as it's far better-known for its consumer products. But the health care conglomerate also produces proprietary drugs and medical devices, giving it a broad reach over the entire health care industry. Lately, even as the company has faced liability from recalls of its artificial hip replacements, Johnson & Johnson has gotten help from its pharma division, as the approval of its type 2 diabetes drug Invokana represents a big step forward in diabetes treatment that could produce the company's next blockbuster.

Meanwhile, pure pharma stocks Pfizer (NYSE: PFE  ) and Merck (NYSE: MRK  ) have both dealt with patent expirations of high-profile drugs over the past couple of years, including Merck's Singulair and Pfizer's Lipitor. Yet while revenue has predictably fallen since generic competition hit the market, both companies have held up better than pessimists had expected.

For Pfizer, anticlotting drug Eliquis, which it co-developed with Bristol-Myers Squibb, has the potential to generate billions in sales over the next decade, having several advantages over rival drugs designed to replace the existing warfarin treatment for atrial fibrillation. Merck still faces some patent-cliff problems, with Vytorin, Nasonex, and Zetia coming off patent over the next four years. But with the combination of existing diabetes drugs Januvia and Janumet and up-and-coming development-stage drugs like insomnia treatment suvorexant and osteoporosis drug odanacatib, Merck has good prospects looking forward.

Keep looking for healthy results
With the pharma industry having turned the patent-cliff corner, pharma stocks should continue contributing to the Dow's overall success. Given the emphasis on dividend income, the big yields that Pfizer and Merck pay will likely remain big drawing points for years to come.

As big as Johnson & Johnson is in health care, some critics are convinced that the company is spread too thin. Is Johnson & Johnson overextended, or is it a well-diversified health-care giant that deserves a place in your portfolio? Find out our view by checking out the Fool's new premium report. Inside, our analyst outlines the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now. 

Sirius XM Keeps It in the Liberty Media Family

Sirius XM Radio (NASDAQ: SIRI  ) is shaking up its board for the second time this year.

Liberty Media (NASDAQ: LMCA  ) is making sure that everyone knows that it's the one calling the shots, as Liberty Media CEO Greg Maffei will replace Los Angeles Times CEO Eddy Hartenstein as chairman of the satellite radio provider. Hartenstein will remain on the board as its lead independent director.

There will also be two changes from the board appointments that Liberty announced earlier this year.

It was disclosed in an SEC filing last night that Liberty Media mastermind John Malone, and executive Charles Tanabe, won't stand for re-election during next month's annual shareholder meeting. Malone has been on the board since Liberty Media offered Sirius XM critical financing support four years ago. Tanabe has only been on the board since January.

Dr. Evan Malone -- John's son -- and Discovery Communications CEO David Zaslav will step in for the two departing board members.

They have to be voted in next month, but who are we kidding? Liberty Media does have majority control of the company.

Critics will argue that there are too many board members with connections to Liberty Media, but it's not as if the eclectic media empire would do anything to sabotage Sirius XM. It has more at stake in the company than everybody else combined.

Next month's annual shareholder meeting -- on May 21 -- will definitely be an interesting one. The market still isn't sure about Liberty Media's intentions now that it has gained control of the thriving satellite radio provider.

A little color will be welcome, especially as the shares are within sight of a fresh five-year high.

Sirius respect
Despite Sirius XM being one of the market's biggest winners since bottoming out three years ago, there's still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in The Motley Fool's brand new premium report. To get started, just click here now.

City National Bank: 9 Critical Numbers

How Verizon Talked Steve Jobs Into an LTE iPhone

The first 4G LTE-enabled smartphone that Verizon (NYSE: VZ  ) Wireless launched was the HTC Thunderbolt, which was released back in March 2011. Over the next year and a half, the rest of the Google Android army would follow suit with a slew of LTE devices for Big Red's network. While the technology promised incredibly fast speeds, battery life dampened popularity since early LTE phones were prone to running out of juice prematurely.

It wouldn't be until September 2012 that Apple (NASDAQ: AAPL  ) would launch the iPhone 5, its first LTE smartphone. Many questioned Apple's competitive prospects in early 2012, saying the iPhone 4S couldn't compete with newer Android flagships due to the lack of LTE. In technologies where Apple isn't the first mover, its strategy is to perfect it. In the case of LTE, Apple's advances in battery engineering allowed the iPhone 5 to maintain respectable battery life.

Speaking at the National Association of Broadcasters conference recently, Verizon CEO Lowell McAdam provided some insight into how he was able to talk Steve Jobs into launching an LTE iPhone, even though the device wouldn't be released until a year after Jobs' death.

You had me at hello
McAdam notes that video content now comprises roughly 50% of all wireless traffic served up over Big Red's network. Verizon estimates that by 2017, that figure will climb to nearly 66%. With such overwhelming consumer demand for video streaming, 3G technologies were bottlenecking the experience since most video clips would need to buffer before properly playing back. With 4G LTE, streaming video could be viable.

The executive recalled how he convinced Jobs:

I was really trying to sell him and he sat there without any reaction. Finally, he said, "Enough. You had me at 10 Mbps. I know you can stream video at 10 Mbps." And Apple's next phone was LTE.

Naturally, knowing how important video streaming is played a factor in Verizon's partnership with Coinstar to launch Redbox Instant to challenge Netflix. Redbox Instant still isn't a match for the dominant video streamer, but it's a start.

There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Family Dollar Says Earnings Hurt by Delay in Tax Refunds

Getty Images Family Dollar reported a weaker-than-expected quarterly profit on Wednesday, blaming a delay in tax refunds for hurting sales at the end of January and early February.

The discount retailer also forecast full-year profit below Wall Street estimates.

Family Dollar Stores Inc. (FDO) shares were down 4.3 percent at $57.20 in premarket trading on Wednesday.

The company expects sales of discretionary items such as apparel and home goods to be under pressure heading into the rest of its year. It cited financial pressures facing customers and unseasonably cold spring weather.

"Our customers' discretionary spend is expected to remain constrained," Chief Executive Howard Levine said in a statement.

In the second quarter ended March 2, net income rose to $140.1 million, or $1.21 a share, from $136.4 million, or $1.15 a share, a year earlier. Analysts looked for a profit of $1.22 a share.

Sales rose 17.7 percent to $2.89 billion, meeting Wall Street expectations.

For the fiscal year, the company sees earnings of $3.73 a share to $3.93 a share, while analysts, on average, targeted $3.98 a share, according to Thomson Reuters I/B/E/S.

The retailer's margins have been pressured by sales of less profitable products that it added recently to compete against the likes of Dollar General Corp. (DG) and Walmart Stores Inc. (WMT).

Family Dollar began selling cigarettes and other tobacco products, soft drinks, gift cards, magazines and other high-turnover merchandise in recent months.

Selling the goods draws shoppers into its stores more often, but items like cigarettes typically carry lower margins than other merchandise such as apparel.

Why the Dow Jumped 128 Points Today

Still gathering momentum in anticipation of corporate earnings, the markets rallied again today. Wall Street got some help from the Federal Reserve, which released the minutes of its latest meeting earlier than expected today. Bulls cheered the release, which suggested the central bank will only slow quantitative easing efforts when the job market improves markedly. Ending at an all-time record close, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) added 128 points, or 0.88%, to finish at 14,802. 

Health care was one of the strongest sectors today, and Merck (NYSE: MRK  ) shares didn't disappoint, adding 2.9% to lead the Dow. A Jefferies analyst raised his price target on the shares to $48, citing his bullish view on pharmaceuticals, because of compelling valuation. The company also announced that the FDA will review Merck's application to market an antifungal drug it's trying to hawk in Europe as well.

It's no surprise that the FDA also played a role in Pfizer's (NYSE: PFE  ) 2.8% climb today; drug manufacturers often live and die by the rulings of the regulator. Shares soared after the FDA labeled an experimental breast cancer treatment as a breakthrough medicine, meaning the agency will give priority review to the drug, speeding up the process it requires to get to market.

With tech stocks also flying high today, Cisco Systems (NASDAQ: CSCO  ) advanced 2.4% Wednesday. Trading a little over 10 times forward earnings and paying a 3.3% dividend, Cisco shares offer compelling value in a Dow that's risen 13% this year alone. The company's new offerings with Microsoft to boost data-center productivity may also help send the stock higher if they catch on quickly.

But not everyone can be winners. Wal-Mart Stores (NYSE: WMT  ) , for instance, was one of only four decliners in the Dow, slipping 1% on PR-related negativity. The executive who called the retailer's sales "a total disaster" in February, sparking investor fear, is leaving the company. A Facebook group of Wal-Mart critics, "Making Change," derided the departure as "more of the same failure to address the real issues."

Once a high-flying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the low down on the routing juggernaut in The Motley Fool's premium report. Click here now to get started.

Today's 3 Best Stocks

Ralph Kramden of The Honeymooners would be proud today, because the broad-based S&P 500 (SNPINDEX: ^GSPC  ) went "Pow, straight to the moon!"

Today's rally had legs across almost all sectors and was ignited by an early release of the Federal Reserve's minutes, as well as continued strength in the early second-quarter earnings season. In particular, the Fed's minutes demonstrated that a good number of board members are in favor of tapering the bond-buying program later this year but would not do so until the economy was on firm footing. While a few investors would take that as concerning, because it could mean a rise in underlying lending rates, it suggests that the economy is improving enough to the point where the Fed board members can comfortably talk about the possibility of slowing or stopping its MBS and Treasury purchases.

For the day, the S&P 500 ended a whopping 19.12 points (1.22%) to close at a new record high 1,587.73. The move higher was definitely impressive, but not nearly as impressive as the moves in the following three companies despite a lack of primary news.

Memory-chip maker Micron Technology (NASDAQ: MU  ) was today's biggest gainer, tacking on 5.4% despite no company-specific news. If you recall, Credit Suisse talked about Micron positively just a few weeks ago, following a second-quarter revenue beat. The fact that Micron's manufacturing costs are forecast to drop while its margins expand is providing more than enough impetus to send the share price higher. Keep in mind, though, that Micron is the type of company you buy when sentiment couldn't get any worse, and you sell when all fear appears to be gone. It appears we're much closer to a top than many might think.

For-profit education company Apollo Group (NASDAQ: APOL  ) also advanced 4.9% without any primary news. The thought process for investors here -- other than piling into a company that tends to be more volatile than the S&P 500 on a very big up day -- is that an improving economy should encourage people who've previously given up on finding employment to attempt to retrain themselves through online education. I, on the other hand, still think much of the sector will continue to see declining enrollments and fewer subsidies from the U.S. government, which makes Apollo an extremely risky bet.

Finally, fiber-optic components maker JDS Uniphase (NASDAQ: JDSU  ) vaulted higher by 4.8%. Investors have been particularly supportive of the fiber-optic sector of late, as demand from China, as well as infrastructure upgrades from domestic service providers, portends growth that should continue throughout much of 2013. JDS is unquestionably a cyclical company, but it appears ripe for further appreciation based on the optimistic forecasts of its peers.

Another top stock to consider
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Wednesday's Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include new buy ratings for IBM (NYSE: IBM  ) and Toyota Motor (NYSE: TM  ) . But it's not all good news, so let's start off with a look at why one analyst is ...

Pulling the plug on Netflix
Stock markets are up this morning, but over at Netflix (NASDAQ: NFLX  ) , all investors are seeing is a static. Thanks in part to an initiation at "underweight" by Evercore Partners today, Netflix shares are sitting out the rally, and actually are down a fraction of a percent in late morning trading.

Why? In a word: competition. Evercore worries that even if it was the top dog and first mover in streaming video, the market is big enough to support more than one major player. If Netflix has to contend with one or more rivals, it will have to bid higher prices to license content from creators. This will raise the company's cost of business. Meanwhile, price competition on the delivery end will prevent the company from passing higher content costs on to consumers. Thus, Netflix will see its profit margins squeezed on both ends.

All of this adds up to limited potential from profit growth at a company whose shares already cost 575 times earnings. With a 20% expected growth rate, that share price was always in danger. Now, Evercore is warning investors that the danger is even greater than we thought. The analyst thinks it's best to lighten up your exposure to Netflix now, and I agree.

Go big with Big Blue? 
Looking for a better bargain? UBS thinks it's found one in the shares of IBM, which the Swiss banker just upgraded to buy Wednesday morning.

The analyst here thinks IBM shares could be worth $235 within a year, and while I don't think UBS is right about that, it's at least in the ballpark. Here's why:

IBM shares currently cost about 14.7 times earnings. That's not a whole lot to pay for a stock growing earnings at close to 11%, and paying a 1.6% dividend. On the other hand, though, IBM isn't generating quite as much cash as its income statement suggests. It generated only about $15.5 billion in true free cash flow last year, versus reported "net income" of $16.6 billion. Large numbers either way, but the one isn't as big as the other, and to me, this suggests that IBM's about 7% more expensive than it looks -- or even more, once you factor the company's $22 billion debt load into the picture.

All in all, I see IBM as a great company, but one that's not worth the 16.5 enterprise value to free cash flow ratio that its current share price implies. While UBS's promised 10%, one-year profit from the shares could happen, I wouldn't bet on it.

Have you driven a [Toyota] lately?
Toyota and Ford (NYSE: F  ) are feuding today over Ford's claim that its "Focus" became the world's top-selling sedan in 2012. (Toyota says the winner is Corolla). This morning, though, analysts at Guggenheim came out firmly in favor of the incumbent.

Regardless of whether Ford took top honors for sales of a single class of car, Guggenheim thinks Toyota stock is a buy, and initiated coverage of Toyota with this rating Wednesday. But is Guggenheim right?

On the surface, the case seems open and shut. Toyota shares, at 17.6 times earnings, cost nearly twice as much as Ford at a 9.1 P/E. Toyota's also carrying a bigger debt load, and paying a dividend yield less than half of Ford's generous 3.1% payout. Advantage: Ford.

On the other hand, Toyota has a few factors in its favor as well. The company generated $6.6 billion in positive free cash flow last year, which was nearly twice Ford's $3.6 billion cash haul. And most analysts polled see Toyota growing its profits in excess of 40% per year over the next five years as it rebounds from a sales slump, and capitalizes on an export-friendly, weakened Yen. Ford's projected growth rate, in contrast, is a relatively plodding 10.5%.

In short, if growth estimates prove out in both cases, Guggenheim probably has a point here. Ford looks like the cheaper stock today -- but Toyota's future is brighter.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Ford and Netflix. The Motley Fool owns shares of Ford, International Business Machines, and Netflix.

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A Short Guide to Understanding Bitcoin

Zcopley, Flickr.com

"Bitcoins" either sound like a futuristic, implantable, laser-guided and rocket-pack equipped form of money, or the latest coin-shaped chocolate snack. In reality, it's probably a bit of both. The bitcoin, a digital currency, started the year worth about $15. Less than four months later, one bitcoin now trades above $70. While this past performance may be enticing and a sign of its legitimacy as a future currency, the bitcoin market is full of risks -- risks that may make bitcoins worth as much as a foil-wrapped piece of sugar.

Bitcoin: A Crypto-Currency

Bitcoin is based around the idea of a currency created and transacted through cryptography instead of issued and tracked through a central bank. And to add to its mystique, the creator of bitcoin only goes by a pseudonym and has never been positively identified.

Instead of any legal authority, bitcoin transactions are verified through peer-to-peer interactions. If a user sends bitcoins to another user's "wallet" file, that transaction is verified through other users, and is written into the collective transaction log. And given the ease of transactions, any fees for transfers are minimal.

Instead of a mint, bitcoins are created through a process called "mining," where computers attempt to solve for a certain number, and once found, are rewarded with new bitcoins. The rewards decrease with time, however, and there will only ever be about 21 million bitcoins created, three-quarters of which by 2016, and all by 2140.

Even if you don't understand any of the above, the recent jump in valuation probably still has your interest. But there are plenty of reasons to continue to educate yourself before attempting to trade in bitcoins.

bitcoincharts.com

Glitches

Not having any legal regulation, bitcoin has attracted plenty of thieves through the websites that create trading markets: In 2011, the third-largest trading site, Bitomat, lost its wallet file, which held 17,000 bitcoins worth more than $200,000 at the time. In the same year, the exchange MyBitcoin lost 51% of its users' deposits, amounting to 78,000 bitcoins worth over $1 million at the time. In 2012, Bitcoinica was hacked and lost $220,000 worth of customer funds. Two months later, it was hacked again and lost another $90,000. As Bitcoinica attempted to repay claims, the company was hacked a final time for another loss of $320,000. In the fall of 2012, in what might have been the first Bitcoin Ponzi scheme, the creator of Bitcoin Savings and Trust promised returns to investors. The founder has since disappeared with 500,000 bitcoins. Price Instability

The market forces behind the bitcoin are far from solid and predictable. There is a large demand from speculators while actual use of bitcoins for trading goods and services is small. Just last week, a young Canadian became the first to list his home in exchange for bitcoins, and most other places that accept bitcoins remain small online businesses. And as bitcoin's value continues to swing wildly, it makes it hard for businesses to accept bitcoins with confidence.

Meanwhile, established companies have taken notice of bitcoin. The popular blogging platform WordPress announced last November that it would accept bitcoins, while deriding eBay Inc.'s (EBAY) PayPal platform for blocking access from over 60 countries: "Some are blocked for political reasons, some because of higher fraud rates, and some for financial reasons. Whatever the reason, we don;t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can't control." If bitcoin ends up taking the role of PayPal in those blocked countries, future growth for eBay could be limited.

Other companies have been fighting to become the consumer's digital wallet. Visa Inc. (V) launched its V.me platform last November, which allows users to pay online without repeatedly entering in credit card and shipping information. Google Wallet breaks away from purely digital shopping, and allows users to use their phone, if it has near-field communication technology, to pay for goods in-store. Unfortunately, many phones -- like the iPhone -- have yet to come equipped with NFC, and less than 10% of retailers are estimated to use NFC.

Legality

As bitcoin has gained popularity, the U.S. Treasury's Financial Crimes Enforcement Network recently issued a statement clarifying that even virtual currencies like bitcoin are subject to regulation. As bitcoin can be exchanged between anonymous parties, it could be used for illicit activities with little trace. Bitcoin is already a popular currency on what's called Silk Road, a website accessible only through anonymous Internet connections that acts as a marketplace for many illegal substances.

In addition, bitcoin is the first major digital currency with no backing from a state nor physical presence. Unlike gold, which exists in physical form and has some actual applications, bitcoin is made up of data, and all value is solely what we perceive. If world governments decide to fight the currency, it could severely hurt any value bitcoin holds. If humans begin to change their mind on what these bits of data are worth, then it could also hurt bitcoin's value.

Worth Watching

Bitcoins are fascinating, for mathematicians, economists, traders, investors, politicians, regulators, and anarchists. And while watching the currency develop is entertaining, the experimental currency is no place for serious investing given the risk versus reward. Attempting to trade in established currencies is difficult enough.

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More Evidence That Samsung Cares More About Marketing Than About Product Innovation

Much of Samsung's rise to the top of the global smartphone market can be tied directly to the size of its marketing budget. The South Korean company has pulled out all the stops when it comes to building its Galaxy brand. Its U.S. marketing budget jumped more than five times last year, surpassing the ad spending of primary rival Apple (NASDAQ: AAPL  ) .

Even as Samsung is now the No. 1 smartphone vendor, many onlookers wonder where its priorities lie. The company has seemed content to dramatically increase its advertising campaigns, while many question its interest in building higher-quality products. Even its high-end flagship devices remain encased in plastic; many rivals in the market segment have begun to place a higher emphasis on build quality.

Here's more evidence that Samsung cares more about marketing than it does about product innovation.

Money is where the heart is
Resource allocation can tell investors a lot about what a company values. At the same time, that spending is expected to yield tangible results in the form of innovative features. Samsung unveiled a slew of new features in the Galaxy S4, such as Air Gesture and Smart Scroll, but early reviewers considered most of them novelties.

Looking at how much Apple and Samsung each spent on advertising and marketing compared with research and development paints a clear picture.

Sources: Apple 10-K and Samsung Investor Relations. Fiscal year ending September shown for Apple. Samsung figures translated from South Korean won at current exchange rates.

Samsung put more money into its global marketing and promotional campaigns than it did into R&D last year, while Apple spent more than three times as much on R&D as it did advertising. In absolute dollars, Samsung vastly outspent its rival from Cupertino in R&D, but Samsung also has countless other divisions that it needs to sustain.

Last week, a Samsung spokesman told Reuters, "We'll keep boosting our R&D spending, while marketing will be executed flexibly according to market conditions."

Apple is also generally known to spend rather efficiently when it comes to R&D, which comprised just 2.2% of fiscal 2012 revenue. Samsung's R&D spending for 2012 amounted to 5.7% of sales.

Just because marketing works doesn't mean it's more important than innovation.

There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.