Here's What the Media Is Missing About Bank of America

In this video, Matt Koppenheffer makes the case for Bank of America as a good investment. While the media has focused on Bank of America's increased expenses and revenue uncertainty, what's missing is the progress Bank of America has made over the years. In 2010, Bank of America took loan charges of 4.4%, a huge number -- but this past quarter, it's down to 1.4%. The bank's balance sheet has improved significantly, and Matt believes Bank of America is a long-term investment story.

Check out the video for more details.

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

Why You Pay 235 Times More in Social Security Taxes

Social Security has become one of the most important sources of retirement income for millions of Americans. But along the way, Social Security has had to collect ever-increasing taxes to cover the benefits it pays out, and if you work, the odds are that those higher taxes are coming out of your pocket.

From modest roots to massive proportions
When Social Security first started back in 1937, the taxes the program collected were extremely modest. From each worker's paycheck, the government withheld 1% of wages to pay Social Security payroll taxes, and the employer was also responsible for paying an additional 1%.

In addition, the Social Security tax was established with built-in limits on how much income was subject the tax. Back then, the tax applied only to a maximum of $3,000 of income, meaning the most that any single worker would have taken out of their annual earnings was $30.

Fast-forward to today, however, and things have changed quite a bit:

As you can see, two things have happened to increase your potential Social Security tax liability. First, the tax rates have risen sharply, so that now, the government withholds 6.2% of your earnings for Social Security taxes. Moreover, the amount of wages subject to the higher tax has itself increased substantially, so that now, as much as $113,700 in earnings gets taxed for Social Security withholding purposes.

The net effect of those higher amounts is to increase the maximum potential tax you'll pay to $7,049.40 -- nearly 235 times what workers paid from 1937 to 1949.

What happened?
One of the biggest issues facing Social Security right now is demographics. According to the most recent data available, there were about 2.9 workers paying Social Security taxes for every person collecting benefits. That compares with a ratio of 159.4 workers for every recipient back in 1940. With roughly 55 times fewer workers funding each retirees' benefits, the program clearly needed more revenue from each worker in order to keep pace.

Corporations also pay a big part of the burden. With the typical Apple (NASDAQ: AAPL  ) employee making about $60,000 according to Fortune's 2012 CEO pay study, the company would pay roughly $3,720 per employee for its share of Social Security taxes, amounting to a total of as much as $270 million based on its employee count of 72,800 according to Yahoo! Finance. For Wal-Mart (NYSE: WMT  ) , lower average salaries of $22,100 lead to a per-worker Social Security tax liability of just $1,370, but its 2.2 million employees make that a potential $3 billion liability. Industrial giants Ford (NYSE: F  ) and General Electric (NYSE: GE  ) have potential Social Security tax liabilities of $685 million and $1.42 billion, respectively. Not all of those workers are located in the U.S., so actual liability amounts are lower, but the companies nevertheless pay a substantial share of Social Security taxes for their workers.

The bad news for Social Security is that the trend toward more recipients and fewer workers will only get worse as the population continues to age. By 2034, as the entire baby boom generation reaches retirement, the Social Security Administration projects that there will be only two taxpaying workers for every Social Security recipient.

Will taxes go up further?
What's unclear is how Social Security will change to meet new demographic challenges. Some lawmakers have proposed raising taxes or wage limits further, while others have suggested benefit reductions. Regardless, even just the natural progression of inflation adjustments to the wage base will keep Social Security taxes moving higher in the future -- even as those paying the tax have no assurance that they won't see their benefits cut before they ever receive them.

Apple pays a big share of Social Security taxes, but investors are more concerned about whether Apple's shares will keep plunging. 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.

Which States Are the Most Alternative Fuel-Friendly?

According to the Energy Information Administration, an alternative-fuel vehicle is any vehicle designed to run primarily on alternative fuels. So a vehicle that's built to run on 85% ethanol but can also use gasoline is considered an alternative-fuel vehicle, but an electric-gasoline hybrid is not, because the primary fuel source is gasoline. Based on this definition, let's take a look at the most alternative fuel-friendly states in the nation.

First, a few important notes. While the idea of owning an alternative-fuel vehicle can sound great, the simple truth is that we don't have the infrastructure to support universal adoption. The gain from paying $1.50 less per gallon by using natural gas instead of diesel can be easily wiped out if you have to go several miles out of the way to get it. The use of certain types of alternative fuels has developed more quickly than in others, and certain fuels have found their niche in different parts of the United States.

Source: Department of Energy.

It's easier to have an electric vehicle on the coasts ...

Source: Department of Energy.

... and an 85% ethanol blend engine in the Midwest ...

 

Source: Department of Energy.

... or, in some cases, none of the above.

The rankings are based on percentage of alternative fueled cars versus total cars, the percentage of alternative fueling stations versus total fueling stations, and growth of alternative-fueled cars on the road between 2010 and 2011.

5. California: Alternative vehicles, 0.62%; fueling stations, 18.36%; alternative-vehicle growth, 22.17%.

California has by far the most alternative-fueled vehicles by raw numbers, but the sheer size of the population means it will have to settle for fifth place. It should come as no surprise that California is near the top of the list. Its gas prices are some of the highest in the country, and some of the fastest-developing ideas in alternative fuel transportation are happening there. Aside from building one of the more successful electric cars to date, Tesla Motors (NASDAQ: TSLA  ) and Solar City (NASDAQ: SCTY  ) are collaborating on solar supercharger stations for Tesla vehicles. The facilities are expected to add a 150-mile charge to a car in 30 minutes, and the charge will be free. The first stations are being rolled out in -- you guessed it -- California, and the company plans to add stations nationwide in the next couple of years.

4. Hawaii: Alternative vehicles, 0.66%; fueling stations, 30.64%; alternative-vehicle growth, 23.4%.

Hawaiians have perpetually been saddled with high gas prices, and it doesn't look like things are going to get any better. Tesoro intends to shut down its facility in the island state, leaving Chevron (NYSE: CVX  ) as the only game in town. That, combined with the high costs to ship crude there, has gas prices well north of $4.00 a gallon. As gasoline prices remain high in Hawaii, don't be surprised if more and more drivers make the switch to alternative fuels 

3. Maryland; Alternative vehicles, 0.74%; fueling stations, 11.45%; alternative-vehicle growth, 41.35%.

Maryland has for the past couple of years developed several incentive programs to lure consumers toward alternative fuels. One of the largest of these incentives is the Maryland Natural Gas Voucher Program, which can be used to refund up to $20,000 of the purchase of a natural gas vehicle. While the state heavily subsidizes the upfront costs, it will still be some time before natural gas will be practical for everyday users. Clean Energy Fuels (NASDAQ: CLNE  ) just opened a new fueling station this week, but it's only one of three facilities in the entire state. 

2. Arizona: Alternative vehicles, 1.06%; fueling stations, 15.86%, alternative-vehicle growth, 32.99%.

It probably isn't a coincidence that one of the top solar-powered states also happens to be one of the largest users of alternative-fueled vehicles, specifically electric. Of the 314 alternative fueling stations in Arizona, more than two-thirds of them are for electric vehicles, in part because of the gains in solar efficiency. First Solar's (NASDAQ: FSLR  ) recently acquired Macho Springs project in New Mexico will sell electricity to El Paso Electric for 5.79 cents per kilowatt-hour, less than half of El Paso's current coal power deals. These kind of efficiency gains will be critical as solar tries to create a stronger foothold in the alternative-energy space. 

1. District of Columbia: Alternative vehicles, 5.45%; fueling stations, 31.8%; alternative-vehicle growth, 41.43%.

The state in the top slot isn't a state at all. Much like Hawaii, D.C. has some of the highest gas prices in the country, and one of the few ways out is through alternative fuels. One of the major drivers of the push within the District has been the incorporation of alternative-fuel vehicles into the city's fleet vehicles. More than 20% of the city's vehicles are now powered by alternative fuels. Companies such as Clean Energy Fuels see fleet vehicles as one of its most lucrrative markets. To bring larger fleet-vehicle customers onboard, it will cover the upfront costs for installing fueling stations. 

What a Fool believes
Alternative-fuel vehicles have a long road ahead of them before they start to take a big chunk out of gasoline vehicles. But the combination of regional price disparities on either gasoline or alternative fuels and governmental incentives are giving these vehivles some legs to stand on, for now. One of the keys to make these kinds of vehicles successful is to provide a comparable network of fueling stations to that of gasoline vehicles. This is why you see moves like Tesla Motors' to expand its supercharger facilities and Clean Energy Fuels' to put a lot of capital expenditures into its Natural Gas Highway. Once the inconvenience of owning an alternative-fuel vehicle goes away, the market will have lots of room to run.

One sector that seems poised for the quickest conversion is the trucking industry, and Clean Energy Fuels' strategy is to be the backbone behind this movement. It's poised to make a big impact on an essential industry. Learn everything you need to know about Clean Energy Fuels in The Motley Fool's premium research report on the company. Just click here now to claim your copy today.

Will eBay Keep Bidding Its Earnings Higher?

On Wednesday, eBay (NASDAQ: EBAY  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

The eBay name is synonymous with online auctions, but that portion of its business has increasingly declined in importance compared to its PayPal division. With big innovations in the electronic payment industry, eBay is having to keep up with the fast pace of change to protect PayPal's strong position. Let's take an early look at what's been happening with eBay over the past quarter and what we're likely to see in its upcoming report.

Stats on eBay

Analyst EPS Estimate	$0.62
Change From Year-Ago EPS	12.7%
Revenue Estimate	$3.77 billion
Change From Year-Ago Revenue	14.9%
Earnings Beats in Past 4 Quarters	4

Source: Yahoo! Finance.

Will eBay's earnings keep rising this quarter?
Analysts have generally kept their views on eBay's earnings stable in recent months, cutting their estimates for the just-ended quarter by $0.01 per share but boosting their full-year 2013 call by the same amount. The stock, meanwhile, has seen reasonable gains of almost 9% since early January.

eBay has evolved well beyond its original auction format to become a dominant online marketplace for goods of all sorts. With much of its volume coming from Buy It Now direct sales, eBay competes more with Amazon.com (NASDAQ: AMZN  ) and its own third-party merchant network than with other auction sites. Amazon gets nearly 40% of its sales from third-party sellers, so the niche is an important one, and eBay has sought to distinguish itself by noting that unlike Amazon, it isn't in direct competition with its sellers. eBay has also started to extend small-business loans through PayPal to encourage high-volume sellers to do business on the site.

But the real key to eBay's success is PayPal, the current leader in online payments. A new partnership with Discover Financial (NYSE: DFS  ) should help PayPal realize part of its growth potential, as Discover hopes to use the association with PayPal as a selling point for its less-prominent card network. The move will also help PayPal keep up with competition from privately held Square and other competitors, as well as opening up a whole new way for Discover cardholders to consider using online payments as part of their overall spending strategy.

Meanwhile, eBay remains smart about making the most of its business. It recently announced it would raise its final value fee on casual sellers from 9% to 10%, while also increasing rates for eBay Stores subscribers in some cases.

In eBay's quarterly report, be sure to pay attention to what Fool contributor Tim Beyers identified as the key figures for the company's success: the number of payment transactions it processed and active PayPal accounts it has on the books. Those will be the keys to the company's overall growth both now and in the immediate future.

Even eBay understands how big a threat Amazon is, but can Amazon keep investors happy? The Motley Fool's premium report will tell you what's driving Amazon's growth, and fill you in on reasons to buy and reasons to sell Amazon's stock. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

Click here to add eBay to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Under Armour Protects Its House With Better-than-Expected Earnings

Shares of Under Armour (NYSE: UA  ) started the day almost 5% higher after the apparel company reported better-than-expected earnings for the first quarter of the year, though they were sold off throughout the day, leaving the stock slightly below breakeven as of 2 p.m. EDT.

Under Armour's top-line performance was particularly impressive. For the three months ended March 31, it notched sales of $472 million. That equated to a 23% increase over the same time period last year, during which it sold $384 million worth of product. The improvement, according to the company's earnings release, was largely attributable to the "introduction of new Baselayer product and strong sales of Fleece."

On the bottom line, Under Armour earned $8 million, or $0.07 per share. While this was 47% less than the prior-year period, the decline was the result of the "planned timing of marketing expenditures." This was reflected in analyst estimates, which called for earnings of $0.03 per share.

In a prepared statement, the company's founder and chief executive officer, Kevin Plank, remarked:

In the first quarter, we drove growth in excess of 20% for the 12th consecutive quarter in total revenues and the 14th consecutive quarter in apparel revenues. This growth is the direct result of our enhanced design and innovation, including new and improved HeatGear Sonic Baselayer and the attention-grabbing UA Alter Ego line, featuring iconic superheroes such as Batman and Superman. Our Youth product is stronger than ever and we continue to see traction with our expanded Women's lines in Studio and ArmourBra. Momentum is also evident in Footwear with solid sell through of our latest product in the running platform, Spine Venom.

Earlier this year, The Motley Fool picked Under Armour as one of America's best-run companies -- click here for the article announcing its selection. With sales growth like this, it's easy to see why.

Expert advice from The Motley Fool
Profiting from our increasingly global economy can be as easy as investing in the U.S. of A. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

What Rudolph Technologies's Earnings Headlines Didn't Tell You

How to Trade the Next Move in Natural Gas

 Commodity prices have collapsed.

 

Gold has lost $200 over the past week. Oil is down 10% this month. Copper is almost 18% below its February high. And wheat and other agriculture commodities have dropped 20% since November.

 

Natural gas, however, has bucked the trend...

 

 The price of natural gas is nearly 25% higher this year. Most of that gain came after we suggested the price trend was turning bullish seven weeks ago.

 

But by the look of the following chart, natural gas may be ready to join the busted commodity party. Take a look...

 

 

Natural gas is tracing out a rising-wedge pattern – where the distances between the highs and the lows grow closer together. Most of the time, charts break this pattern to the downside. And the resulting decline usually takes back 50%-100% of the height of the wedge.

 

We saw a similar pattern around this time last year... Back then, natural gas broke the rising-wedge pattern to the downside. The price fell 20%, and the decline erased about 60% of the height of the wedge.

 

If something similar happens today, shorting natural gas may work out to be a lucrative trade.

 

 There's still some room inside the wedge for natural gas to push higher. The weekly natural gas inventory report will be released this morning. If there's an unexpected decline in the inventory level, natural gas could pop up toward the resistance line of the wedge. At that point, it would be set up for a low-risk short trade.

 

Traders could short natural gas around $4.30 and look to cover that short for a small loss if the chart breaks the wedge to the upside.

 

Aggressive traders can use the ProShares Ultra Natural Gas Fund (NYSE: BOIL) to trade the trends in natural gas prices. Please note... BOIL is a leveraged fund. So it's volatile and not for the faint of heart. Daily moves of 5% or more are common.

 

Best regards and good trading,

 

Jeff Clark

Rite Aid's Earnings: A Bandage, Not a Cure

Drug store chain Rite Aid (NYSE: RAD  ) sailed to new highs this week as the company reported in its earnings release a return to annual profitability. The $2 billion company is trading up over 40% in the last year, and 60% since the beginning of 2013. The thing is, earnings did not show much to celebrate in the operating business, and its black bottom line was more the result of cost-cutting efforts and margin enhancement. At more than 20 times forward earnings, the market clearly is expecting some degree of sales growth down the line. Is this an accurate assumption, or should investors exercise caution?

Headline numbers
The Street was expecting a loss for the fourth quarter of 2012, even though the company had achieved profitability in the prior quarter -- against analyst estimates. Instead, Rite Aid posted earnings per share of $0.13. This helped lead the company into its first profitable year since 2008, to the delight analysts. In the prior year's quarter, the company posted a loss of $0.18 per share.

While the headline numbers look appealing, investors need to read between the lines. Fourth-quarter revenues were actually down by $600 million, though partially due to the prior year's fifty-third week. More importantly, same-store sales sank 2% year over year, due, in part, by more generic drugs at the pharmacy. Management was eager to point out that generic drugs tend to drag down sales, but prove helpful to gross profit.

For the year, the company earned $0.12 per share, with an adjusted EBITDA of $1.13 billion. Same-store sales dropped a negligible 0.3%. The company closed 44 underperforming stores, and remodeled over 500. It did not open any new stores.

What investors need to focus on
I'm a sucker for turnaround stories, but this one has yet to ring a positive tone for me. The return to profitability is commendable, and clearly, management has taken action to get the company on a growth track -- like its peers Walgreens and CVS. But remember that these seemingly positive figures are not indicative of sales growth or any other organic factor. In the coming quarters, investors need to keep an eye on two crucial metrics: same-store sales and sales per square foot. With the massive remodeling (and closure of unsalvageable stores), we need to see these numbers swing up in a material way. Store remodelings are great, but only if they result in more customers and more sales. At this point, we just don't know if that's the case.

For 2014, EBITDA is projected to come in at just over $1 billion, with net income between $0.04 and $0.20 per share. This guidance is likely hinged upon the efficacy of continued cost-saving measures, and the upward performance of newly remodeled stores.

Investors intrigued by Rite Aid's recent rise may want to wait until more data is available regarding the remodeled stores. The company's cost cutting and reorganization has been effective, but at some point, sales growth must take the front seat.

More from The Motley Fool 

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Boeing's Proud Insitu ScanEagle Tradition

The Navy League's Sea-Air-Space Exposition is the largest maritime expo in the U.S., and brings together dozens of defense contractors and military decision-makers. The Motley Fool's Rex Moore was at the event in National Harbor, Maryland, and saw demonstrations of several technologies. In the video below he chats with Ryan Hartman of Boeing's (NYSE: BA  ) Insitu subsidiary about how the company's ScanEagle technology -- an unmanned intelligence, surveillance, and reconnaissance craft. In tomorrow's video, they talk about how that technology led to the Integrator unmanned aircraft platform.

Is Boeing a buy?
Boeing operates as a major player in a multi-trillion-dollar market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. In our premium research report on the company, two of The Motley Fool's best minds on industrials have collaborated to provide investors with the key, must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.

Learning From the Beer Pioneers

When Boston Beer (NYSE: SAM  ) founder Jim Koch decided to start up a brewery in 1984, his inspiration came from his family -- in a reverse sort of way. As the well-told tale goes, Jim's dad -- a fifth-generation brewer -- tried to steer him away from a business he saw as too tough because of the ongoing wave of consolidation.

But today Jim's company is the largest craft brewer in the nation, with almost 1% of total beer sales. Many at the recent Craft Brewers Conference count Boston Beer among their most-admired companies. Our Rex Moore took on the tough assignment of covering the conference, and asked about other companies these brewers learned from. Today, Port City Brewing founder Bill Butcher talks about fellow craft beer maker Sierra Nevada.

A Boston buy?
Boston Beer's Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's risks and opportunities. Just click here now to find out whether Boston Beer is a buy today.

Is Intel's Cloud Story Leaking Air?

By now, you should be well aware that Intel (NASDAQ: INTC  ) has arrived late to the mobile computing party. In an effort to justify its tardiness, Intel has hinted that it still benefits from the rise of smartphone and tablet computing. Intel believes that 122 tablets or 600 smartphones creates enough Web traffic to occupy one server. In other words, Intel's server sales should theoretically be correlated to smartphone and tablet sales, which remain heavily reliant on cloud computing.

Breaking it down
During the fourth quarter of 2012, worldwide smartphone shipments increased by 67 million devices year over year, and tablet sales increased by and 22.6 million units. Based on Intel's estimations and its roughly 90% share in the server market, it would imply that an additional 267,000 servers would have shipped during the quarter. However, during the fourth quarter, Intel's server unit volume actually declined by 1% year over year, suggesting that either Intel grossly overestimated the impact of mobile computing devices on its server business, the data center is evolving away from the monolith, or perhaps none of the above.

There could easily be a quarter or so of lag between mobile-device shipments and corresponding server demand. It may prove wise to compare Intel's first-quarter results against mobile-device shipment data from the fourth quarter to see if there's any correlation. Yesterday, Intel reported its first-quarter results, showing that its data-center group experienced a 6% rise in unit volumes year over year yet experienced a 6% sequential decline in volume. For me to give this storyline credibility, I'd like to see both sequential and year over year increases in unit volume, since mobile device adoption has been on a tear.

Truth be told
Unfortunately, there doesn't seem to be enough supporting evidence to suggest that Intel indirectly benefits from the rise of mobile devices. Ultimately, if Intel wants to benefit from the rise of mobile computing, it should probably make its way into more mobile computing devices than talk about the data center.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.

The Keys to Honeywell's Earnings

On Friday, Honeywell (NYSE: HON  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Honeywell does business in everything from helicopters to brake pads, with its fingers on the pulse of the industrial heartbeat of the global economy. That leaves the company potentially vulnerable to adverse macroeconomic trends, as we've seen recently from emerging-market slowdowns in China and recessionary conditions in Europe. Let's take an early look at what's been happening with Honeywell over the past quarter and what we're likely to see in its quarterly report.

Stats on Honeywell

Analyst EPS Estimate	$1.14
Change From Year-Ago EPS	9.6%
Revenue Estimate	$9.44 billion
Change From Year-Ago Revenue	1.5%
Earnings Beats in Past 4 Quarters	4

Source: Yahoo! Finance.

How will Honeywell find new profits this quarter?
Analysts have gotten slightly more optimistic about Honeywell's prospects over the past few months, raising their earnings calls on the just-finished quarter by a penny per share and adding $0.02 to their earnings-per-share calls for the full 2013 year. The stock has also done reasonably well, rising about 10% since early January.

Honeywell is a much more broadly diversified company than many investors give it credit for, with its automation and control systems business earning the most revenue of its four main divisions. As part of a coalition with companies including Emerson Electric (NYSE: EMR  ) , Praxair, and General Dynamics, Honeywell will participate on a $10 million contract from the Department of Energy to further clean-energy manufacturing. That contract is obviously small, but the prospects of clean-energy industry are much larger, and the project should help Honeywell gain valuable expertise in the area that it can put to more profitable use going forward.

But as Honeywell's most profitable segment, the aerospace industry still holds the most promise for the conglomerate, with strong prospects on multiple fronts. On one hand, as a supplier, Honeywell benefits from the trillions of dollars in revenue that Boeing (NYSE: BA  ) expects to see from new commercial aircraft orders in the next 20 years. Moreover, Honeywell expects strong helicopter sales throughout the world, with Latin America leading the way with a projected 34% increase in sales volume. The company has recently reaped further rewards from its presence in Latin America, as Embraer (NYSE: ERJ  ) awarded Honeywell a $2.8 billion contract to provide avionics for the next-generation E-Jet line.

To some extent, Honeywell is vulnerable to defense-related budget cuts. Yet the company has done a better job than many companies that receive defense contracts in broadening its revenue base well beyond government funding sources.

In Honeywell's report, one area to focus on is how the company's relationship with Textron's (NYSE: TXT  ) Cessna division is progressing. By diversifying beyond Boeing, Honeywell has the greatest chance to ensure its future regardless of which aircraft manufacturers perform the best.

Still, Honeywell will continue to rely on Boeing for a big chunk of its business. That raises the question of whether Boeing will live up to its potential. In our premium research report on Boeing, two of The Motley Fool's best minds on industrials have collaborated to provide investors with the key, must-know issues surrounding the aerospace giant. They'll be updating the report as key news hits, so don't miss out – simply click here now to claim your copy today.

Click here to add Honeywell to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Why Diageo Is Up 34% During the Last 12 Months

LONDON -- Diageo  (LSE: DGE  ) (NYSE: DEO  ) has advanced 34% to 1,987 pence during the last 12 months, making the share one of the best performers in the FTSE 100.

The company, which holds a hefty lineup of renowned brands in the drinks industry, such as Guinness beer, Baileys Irish cream, and Jose Cuervo tequila, seems to have impressed investors with a series of strong statements.

During May last year, Diageo announced nine-month results that highlighted organic net sales had advanced 7%, with revenue within Africa, Asia, and Latin America up between 10% and 18%. Underlying sales in Europe, however, fell by 1%.

During August, Diageo's final-year results revealed sales had climbed 6% to almost 11 billion pounds and profits had gained 9% to 3.2 billion pounds, helped in part by the acquisition of Turkish firm Mey Içki. Free cash flow came in at 1.6 billion pounds, which supported an 8% dividend lift to 43.5 pence per share

Then in January, Diageo disclosed interim results that revealed operating profits had climbed 9% to surpass 2 billion pounds. Also up by 9% was the half-year dividend, sitting comfortably at 18.1 pence per share.

Paul Walsh, Diageo's chief executive, said:

These results reflect the global strength of our strategic brands, our leadership in the U.S. spirits market and our increasing presence in the fastest growing markets of the world. Our expanding reach to emerging middle class consumers in faster growing markets was the key driver of our volume growth, while net sales growth was driven by our pricing strategy and premiumization, especially in the U.S. This drove gross margin expansion, which together with our continued focus on operating efficiencies, delivered operating margin improvement.

Walsh also said the strong half-year results underpinned the group's medium-term prospects and guidance.

Diageo's third-quarter results for 2013 will be published on April 18, which may reveal further positive news that can encourage investors.

If you already own Diageo shares and are looking for additional blue-chip winners, this exclusive wealth report reviews five particularly attractive FTSE possibilities. Indeed, all five suggestions offer a mix of robust prospects, illustrious histories and dependable dividends and have just been declared by the Fool as "5 Shares You Can Retire On"!

Just click here for the report -- it's free.

link

Is Windows 8 Microsoft's Biggest Failure Ever?

Is Microsoft a good tech investment? In this video, Andrew Tonner gives a few reasons he'd steer clear:

The PC market is shrinking, and Microsoft hasn't adapted well to mobile technology. Windows 8 is a dud. The company had to write off $6 billion for an acquisition that went bad, the latest in a string of failed acquisitions.

Although Microsoft pays a nice dividend for a tech company, Andrew argues that it hasn't returned much else to investors for the past 10 years, and it doesn't appear poised to adapt to a changing future. 

Check out the video for more details.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Here's Why Actuant's Earnings Are Worse Than They Look

It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Actuant (NYSE: ATU  ) .

Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Actuant for the trailing 12 months is 78.3.

For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

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

Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Actuant, consult the quarterly-period chart below.

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

On a 12-month basis, the trend at Actuant looks less than great. At 78.3 days, it is 5.5 days worse than the five-year average of 72.7 days. The biggest contributor to that degradation was DPO, which worsened 4.9 days when compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at Actuant looks OK. At 79.3 days, it is 5.5 days worse than the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With both 12-month and quarterly CCC running worse than average, Actuant gets low marks in this cash-conversion checkup.

Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding underappreciated home run stocks.

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Add Actuant to My Watchlist.

Under Armour Isn't the Only One Being Sued

A little over three weeks ago, I wrote about a new trademark infringement lawsuit filed against Baltimore-based athletic apparel specialist Under Armour (NYSE: UA  ) .

The plaintiff, a privately held footwear company named Gravity Defyer, is claiming Under Armour purposefully named select new styles of shoes to sound similar to its own trademarked G Defy line of products. As a result, the company says consumers are being "misled" into buying Under Armour's footwear when they may have instead been searching for Gravity Defyer's wares.

But the retailers? Really?
Now, Gravity Defyer just announced it has revised its lawsuit to name more than a dozen additional online retailers for their participation in the trademark infringement, including Finish Line (NASDAQ: FINL  ) , Foot Locker (NYSE: FL  ) and its Champs Sports subsidiary, Nordstrom, Dick's Sporting Goods (NYSE: DKS  ) , Sport Chalet, Amazon.com  (NASDAQ: AMZN  ) and its Zappos subsidiary, Backcountry.com, Rogan's Shoes, Road Runner Sports Retail, MonkeySports, Holabird Sports, Eastbay, and Dodds Shoe Company.

Now I'm no lawyer, but that massive list of defendants begs the question: Is Gravity Defyer overreaching here? I mean, I can at least grasp Gravity Defyer's beef with Under Armour for having similarly named products. Heck, Under Armour might even know the feeling, considering it sued Nike in February, claiming the larger company's advertising slogans were too close to its "I will" catchphrase.

But in Gravity Defyer's case, should the companies who sell Under Armour's shoes online really be held responsible for that trademark infringement? After all, I can't exactly see Under Armour stepping out to add television networks and websites to its own trademark lawsuit because they ran Nike's advertisements in question.

Of course, it's also safe to say most folks expect they're purchasing high-quality products from a great company when they pick up gear made by Under Armour -- and that's one of many reasons I bought more of its shares for my personal portfolio just last week. Meanwhile, Gravity Defyer isn't exactly a brand many people know by name.

Foolish final thoughts
In the end, then, I can't help but wonder whether Gravity Defyer is now using Under Armour's alleged infraction as a way to garner as much publicity as possible through this suit. As the saying goes, any publicity is good publicity, right?

But who knows? Maybe Gravity Defyer's products really are as revolutionary as they claim, and if that's the case, they should be able to rise to the top by legitimately competing with the big boys. However, if it turns out Gravity Defyer is simply drawing attention to this case for the wrong reasons, the company will be in for a rude awakening when it realizes it takes much more to build a sustainable business over the long run.

What do you think? Does Gravity Defyer have a case? Feel free to let us know your thoughts in the comments below.

Looking for another promising apparel stock?
lululemon athletica has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.

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.

Collapse, Consolidation, and Accidental Greatness

On this day in economic and business history ...

On April 14, 2000, all but the most hopeless optimists probably sensed that the era of endless dot-com gains was finally over. That day, a four-day streak of losses became a five-day market rout as investors reacted to unexpected growth in consumer prices by selling off en masse.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) lost 616.23 points -- a 5.7% plunge -- narrowly avoiding a 700-point drop but nevertheless setting what was then an all-time record for losses in terms of points. The losses became so bad so quickly during the day's trading that circuit breakers tripped at the New York Stock Exchange, leading us to wonder how much worse the drop might have been without this protection. The once red-hot Nasdaq Composite (NASDAQINDEX: ^IXIC  ) collapsed, losing more than 9% in its largest one-day drop on record, capping a week that had shaved off a full quarter of its value. Over the course of the week, investors in American stocks lost $2 trillion in total wealth.

As is often the case at the beginning of a serious bear market, some traders and pundits found it hard to believe that the crash was closer to its beginning than to its end. Brian Finnerty of C.E. Unterberg Towbin told CNN, "They're selling the good with the bad because they can ... and that's irrational, but that's also when a bottom is formed." Bill Meehan of Cantor Fitzgerald said: "I think you'll see healthier and broader advances in the market. Now is the time for optimism."

They were, of course, very wrong. The stock slide continued for more than two years, reducing the Dow's value by nearly 30% more and absolutely destroying the Nasdaq, which collapsed another 66% before finding its real bottom. The Dow eventually recovered, but the Nasdaq never did -- its April 14, 2000, closing value of 3,321.17 remains higher than any closing value reached in the subsequent decade.

A patented breakfast product
Kellogg (NYSE: K  ) can trace its origins to 1894, when Dr. John Harvey Kellogg and Will Keith Kellogg invented corn flakes by accident. That invention gained legal legitimacy on April 14, 1896, when the U.S. Patent Office granted Dr. Kellogg a patent for the new "flaked cereal." For several years, the two brothers tried to market the product together under the banner of the Sanitas Nut Food Company, which defended the corn-flake patent vigorously against imitators.

Dr. Kellogg formed Sanitas -- possibly named after the Battle Creek Sanitarium in Michigan, where corn flakes were invented -- in 1899 and brought brother Will on to help manage the business, which would sell the cereal through mail order. A number of copycats sprang up, so numerous that more than 40 factories were thought to be operating near the Battle Creek Sanitarium making similar breakfast cereals by 1902. In 1903, the Kelloggs sued one of the largest copycats, the Voigt Milling Company and its subsidiary Voigt Cereal.

The lawsuit failed, but it taught Will Kellogg a valuable lesson regarding the power of branding in a largely commoditized market. Sanitas, owned by Dr. Kellogg, has since vanished, but the Battle Creek Toasted Corn Flake Company, founded in 1906 and operated by Will Kellogg, became a huge success through advertising. In its first year of operation, the company eventually to be known as Kellogg had spent $90,000 on advertising. By 1912, it was spending a million dollars on ads.

Great friction arose between the two brothers, however. Will Kellogg often used his name, or simply "Kellogg's," to advertise the cereals, which undermined Dr. Kellogg's request that his name not be used for promotional purposes, as it might damage his reputation as a physician. A complicated series of corporate events took place between 1908 and 1910 that resulted in a lawsuit between a rebranded Sanitas and Will Kellogg's cereal company over the use of the Kellogg name. The outcome was decided in Will Kellogg's favor with a licensing agreement, but Dr. Kellogg was not satisfied. He would file suit again in 1920 for the same reasons, and it would be rejected largely on the basis of the earlier licensing agreement.

Will Kellogg gained exclusive use of the Kellogg name to market cereal, and the Kellogg Toasted Corn Flake Company was cleared for success on the back of a bold marketing strategy. Sanitas, Dr. Kellogg's cereal company, would soon vanish, as would many copycats that failed to make marketing a cornerstone of their competitive strategy.

British leadership for Middle Eastern oil exploration
The Anglo-Persian Oil Company was established on April 14, 1909, following the discovery of oil in modern-day Iran in 1908. Eight years of work and more than 500,000 British pounds had been sunk into exploring the Iranian desert before a gusher spouted into the sky, narrowly averting the total financial failure of William D'Arcy and the Burmah Oil Company. The formerly wealthy D'Arcy and the diminished Burmah Oil negotiated with many other parties for months over the best way to pursue their find, leading at last to the creation of Anglo-Persian Oil nearly a full year after the gusher had been tapped.

Created with an initial capitalization of 2 million British pounds (equal to about $250 million today), Anglo-Persian Oil quickly turned into a popular stock on the London markets. It became both a key supplier of the British Navy and majority-owned by the British government in 1914, thanks in large part to the modernization efforts of future Prime Minister Winston Churchill, who commanded the Navy at that time.

The British government held a majority of the company's shares until 1967. By the end of World War I, Anglo-Persian was earning 2.65 million British pounds of profit per year (equal to $305 million in present value) on more than 1.1 million tons of Iranian oil production. Production doubled in only two years, but the glut of oil kept prices depressed, and Anglo-Persian didn't approach a doubling of its postwar profits until 1927.

By the time the British government lost its controlling interest, Anglo-Persian had undergone two name changes, one of which you know better than the other. It became Anglo-Iranian Oil in 1935 after a contentious renegotiation of terms with a new regime that had renamed the country, and it changed again to British Petroleum (NYSE: BP  ) in 1954, after a 1951 military coup led to a brief nationalization of its assets.

At the time of nationalization it operated a fleet 140 oil tankers, but these ships proved unnecessary once the company lost access to Iranian fields. BP returned to Iran in 1954 with a multinational agreement that granted it a 40% stake in Iranian oil production, the profits of which would be split 50/50 with the Iranian government. This pact would last until the country's 1979 Islamic Revolution, at which point all foreign oil assets were seized and BP found itself shut out of the country for which it was originally created.

Today, BP is a far-flung multinational oil company, with operations in more than 80 countries that produce about 3.3 million barrels of oil equivalent per day. However, had it never lost its early control of Iran's oil production, BP would probably be much larger, even without its global operations -- the Iranian national oil company produces about 6.4 million barrels of oil per day.

Consolidation takes wing
Delta Air Lines (NYSE: DAL  ) proposed a $3.1 billion acquisition of Northwest Airlines on April 14, 2008. The long-awaited deal, proposed during a time of great stress for the airline industry, would combine the nation's third-largest and fifth-largest carriers into the world's largest airlines, with nine primary hubs serving more than 390 airports in 67 countries. Together, Delta and Northwest were projected to earn $35 billion in annual revenue while flying more than 800 airplanes.

By the fall of 2008, all regulatory and shareholder hurdles had been passed, and the new Delta began operating as a single carrier by the end of 2009. The two carriers' integration, however, has been far from flawless. Efforts were under way well into 2011 to unify contracts, repaint airplanes, combine processes, and merge computer systems -- some of which dated to the 1960s. Delta executive Peter Wilander offered The New York Times a brilliant and pithy Biblical comparison: "It's like Noah's ark out here ... we had two of everything."

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.

Shorts Are Piling Into These Stocks. Should You Be Worried?

The best thing about the stock market is that you can make money in either direction. Historically, stock indexes have tended to trend up over the long term. But when you look at individual stocks, you'll find plenty that lose money over the long haul. According to hedge fund institution Blackstar Funds, even with dividends included, between 1983 and 2006, 64% of stocks underperformed the Russell 3000, a broad-scope market index.

A large influx of short-sellers shouldn't be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let's look at three companies that have seen a rapid increase in the number of shares sold short and see whether traders are blowing smoke or if their worry has some merit.

Company

Short Increase March 15 to March 29

Short Shares as a % of Float

iShares Gold Trust (NYSEMKT: IAU  )	676.3%	N/A*
Hawaiian Electric Industries (NYSE: HE  )	348%	8.4%
HudBay Minerals (NYSE: HBM  )	102.2%	0.8%

Source: The Wall Street Journal.
*ETFs don't have a fixed share count.

Plenty of luster left in this ETF
The shiny yellow metal may be in the midst of an amazing 11-year ascent, but the past few months have been nothing short of ugly for physical gold, as the broad-based S&P 500 has reached new all-time highs and most investor fear has been placed on the back burner. Often viewed as an inflation and fear hedge, spot gold prices and miners have taken a dive. To add the icing on the cake, Cyprus, which is in the midst of receiving a sizable bailout from the EU, needed to liquidate some of its gold bullion position, which has pressured gold markets.

Despite the bearishness, I think now could be the time to start thinking about buying this iShares Gold Trust ETF. For one, I can hardly find anyone that's optimistic about the spot gold prices moving forward. As a Warren Buffett famous adage goes, this could be the perfect time to "be greedy when others are fearful."

Secondly, I can't help pointing out that economic data thus far has been good, but nowhere near great. Fourth-quarter U.S. GDP growth was just 0.4% and unemployment rates remain historically high, which bodes well that an eventual correction (and a heightened level of investor fear) could be around the corner.

Finally, it's a simple matter of scarcity and demand. Silver may have more practical uses than gold, but demand from rapidly growing China for gold use in electronics, as well as governments around the globe buying gold as a currency hedge (think Russia, China, and Switzerland) should continue to prop up its price. I'd suggest using Cyprus' bullion sale as a possible point of entry into this bullion-owning ETF.

An alternate in the energy sector
Want an easy way to tick off shareholders in the slow-but-steady-growth electric utility sector? Try pricing 7 million new shares on the market and netting $180 million. Although the dilution effect isn't immediate, shareholders in Hawaii Electric Industries, also known as HEI, still weren't pleased that the effective share count would eventually rise and possibly make their shares worth less.

However, it's also worth noting that HEI is a pioneer in alternative-energy innovation, right alongside NextEra Energy (NYSE: NEE  ) , and a share offering is probably not enough to derail the long-term opportunity here.

NextEra and HEI are in perfect position to benefit from policies being put in place by the Obama administration over the next decade and beyond, which are focused on promoting natural gas, solar, wind, and other alternative-energy sources as a way to remove America's dependence on foreign oil. NextEra is the largest alternative-energy provider in the U.S., boasting the nation's largest wind-generating capacity and a sizable solar farm. Where HEI differentiates itself, but also places itself among the elite in alternative-energy like NextEra, happens to be in its use of biofuels to run its Campbell Industrial Park generating station. Few utilities have been able to run a facility solely on biofuels, so this is a big (and cost-saving) step.

Let's also not forget that HEI has a veritable monopoly in Hawaii, which creates a near-impossible barrier-to-entry in the costly electric utility sector.

Shareholders may be disgruntled in the near term with the share offering, but this, too, shall pass.

If you build it, they will mine
As we've established, not many investors are happy with mining stocks at the moment -- and that goes double for any companies with big capital expenditure budgets related to mine buildout costs. HudBay Minerals is one such company working on a big expansion, but thankfully it has a silver heavyweight in its corner, providing some much appreciated financial backing.

In August, silver royalty interests company Silver Wheaton (NYSE: SLW  ) and HudBay agreed on a long-term contract that will supply Silver Wheaton 100% of HudBay's Constancia and 777 mine silver at a discounted price of $5.90 an ounce, as well as 100% of the gold production at its 777 mine at a discounted price of $400 an ounce until at least 2016. In return, Silver Wheaton injected HudBay with $500 million immediately to complete its Constancia buildout, with two additional $125 million payments to follow if certain measures are met by HudBay. The end result should be a win-win for both companies, with Silver Wheaton securing another long-term royalty stream and HudBay remaining healthfully net cash positive and profitable.

I can somewhat understand investors' apathy surrounding the deal, since Constancia isn't ready to be commissioned until the first quarter of 2015 at the earliest, but the company's updated precious-metal reserves, released three weeks ago, showed that Constancia's measured, indicated, and inferred mineral reserves rose dramatically in 2012. I believe short-sellers are digging in the wrong area looking for treasure by betting against HudBay Minerals.

Foolish roundup
This week's theme is all about alternative thinking. No one likes physical gold or its miners at the moment, which could make for a perfect entry into the iShares Gold Trust or even the well-financed HudBay Minerals. As for HEI, it's a simple case of its alternative-energy program leading long-term costs lower and it maintaining a monopoly in Hawaii's electric-generating business.

What's your take on these three stocks? Do short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.

One metal play that continues to shine
If you are looking for a company whose success is determined by the metals market, but without involving itself in the risks of physically mining the metals, then Silver Wheaton provides a unique play on the future of silver. SLW chooses to finance the mining of silver; it has grown sales and net income every year since 2008, and also has increased competitive advantages over its limited peer group. To learn more about Silver Wheaton, click here now to access The Motley Fool's premium research report on the company.

1 Private Company That'll Kill Your Confidence

While China's e-commerce market is set to grow to half a trillion dollars by 2016, that doesn't mean that Amazon  (NASDAQ: AMZN  ) and Dangdang  (NYSE: DANG  ) are bound to benefit the most. In the video below, Fool contributor Kevin Chen explains why it's not that simple, and why Alibaba -- the one company foreigners can't invest in -- should scare investors.

As a private Chinese company, Alibaba is the 800-pound gorilla in the room, commanding 20 to 30 times the market share of Amazon and Dangdang. Because of the economics that surround Ailbaba's market dominance, it's perhaps the only company that will really benefit from China's continued e-commerce boom.

And so far, that's remained true. While Groupon  (NASDAQ: GRPN  ) seemed poised to boost its profits with Chinese growth, Alibaba's own group-buying website, Juhuasuan, may have been one reason Groupon had to close the China door.

Is there a company that can survive Alibaba's full-frontal assault and profit from e-commerce growth? 

Well, there may be one in Mecox Lane. To learn more, click on the video below.

Although Amazon may not have a future in China's e-commerce market, it is still-arguably-the king of the U.S. retail world right now. But at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of competitors'. The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes. To access it, just click here now.

Thermo Fisher Buying Life Technologies for $13.6 Billion

No sooner had Life Technologies Corp. (NASDAQ: LIFE  ) announced its successful purchase of KDR Biotech last week, then out came Thermo Fisher Scientific (NYSE: TMO  ) with a $13.6 billion bid to buy Life Technologies itself.

This morning, Life Technologies announced that it has signed a definitive agreement to sell itself to Thermo Fisher for $76 per share, or about $13.6 billion in total plus assumption of $2.2 billion in net debt. That assumption raises the deal value to $15.8 billion in total, easily trumping what was being reported last week as an estimated $11 billion bid for Life Technologies from private equity powerhouses Blackstone, Carlyle Group, and KKR.

The deal must be approved by shareholders and needs regulatory approval.

Thermo Fisher CEO Marc N. Casper was quoted in the company press release as saying that "Life Technologies enhances all three elements of our growth strategy: technological innovation, a unique customer value proposition and expansion in emerging markets." Life Technologies and Thermo Fisher say the deal will build on their "technological strengths to accelerate results for life sciences customers working in proteomics, genomics and cell biology."

As of this writing, investors had bid up Thermo Fisher shares 2.8% today. Based on just the sticker price, and before factoring in debt, the $13.6 billion Thermo Fisher is anteing up values Life Technologies at 3.6 times 2012 revenues, or more than a 50% premium to the 2.3-times-sales valuation that investors place on Thermo Fisher's own shares.

Life Technologies shares were up 7.6% in morning trading, to roughly $73.15 as of this writing.

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How the Dow's Conglomerates Have Fared in 2013

For those seeking the biggest, most stable stocks in the market, the Dow Jones Industrials (DJINDICES: ^DJI  ) includes the leaders of many different industries. But you'll also find a wide range of companies that avoid specializing in particular areas, instead aggregating businesses from different industries in an attempt to create broadly diversified holding companies.

Conglomerates in the Dow are particularly interesting because they provide a window into what diversified businesses see as their best profit opportunities. Let's look at how the Dow's conglomerates have fared so far in 2013 and what their prospects are for the rest of the year and beyond.

Dow conglomerates total return price data by YCharts.

Conglomerate stocks have performed quite well recently, with all three of these companies having outpaced the Dow's overall return. But a big part of the reason has to do with the pace at which many conglomerates are straying from their diversified histories to concentrate more on high-growth industries.

United Technologies (NYSE: UTX  ) has gone through the biggest transformation recently. Its massive $16.5 billion acquisition of Goodrich represented a big commitment from United Tech to look to the aerospace sector as its primary means of making profits. Since the takeover, United Tech has sold off non-core assets to satisfy regulators, raise cash to help pay down the debt it incurred in the buyout, and refocused its efforts toward a single industry. Yet it has still retained its Otis elevator business along with other industrially focused units, such as its Carrier HVAC division, that give the company some diversification.

For General Electric (NYSE: GE  ) , the trend has been to de-emphasize its financial business in returning to its industrial roots. But that hasn't stopped the company from moving in interesting new directions, broadening its energy focus to include both traditional fossil-fuel and renewable-energy infrastructure. Moreover, GE's foray toward mining equipment will challenge some of the biggest companies in the business.

Finally, 3M (NYSE: MMM  ) is best known for its consumer products, but it makes a huge array of goods for industrial use. Its purchase of ceramics specialist Ceradyne expanded its business, with a particular emphasis on defense- and energy-related applications that the company offered 3M. With health care, safety and security, and electronics also within 3M's portfolio of businesses, the company is looking now toward restarting its innovation engine in all of its focus areas.

Will conglomerates de-conglomerate?
Historically, conglomerates have gone through cycles of popularity, with periods of big mergers and diverse combinations eventually giving way to periods of corporate break-ups and spinoffs. Right now, we're in an anti-conglomerate phase, but with merger activity picking up in some industries, it'll be interesting to see if that trend reverses itself. Meanwhile, shareholders have to be happy with the results that the Dow's conglomerates have produced lately.

GE is the ultimate conglomerate, but it's making huge strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

The Intelligent REIT Investor Was Not Swayed By Mr. Market This Time

Investopedia defines risk as:

The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment.

To address risk in a modern sense, the noted "margin of safety" author and investor, Howard Marks (in his book, The Most Important Thing) wrote:

Great investing requires both generating returns and controlling risk. And recognizing risk is an absolute prerequisite for controlling it.

Marks went on to explain:

When you boil it all down, it's the investor's job to intelligently bear risk for profit. Doing it well separates the best from the rest.

The Intelligent REIT Investor Recognizes Mispriced Risk

Two weeks days I wrote a Seeking Alpha article (3 Healthcare REITs With Mispriced Risk) in which I warned that several REITs were becoming risky based in underlying income fundamentals. As I explained:

It's clear to see that these "higher risk" assets are also driving the returns, and it's important for investors to understand the risks and the value proposition of investing in lower quality vs. higher quality assets. Simply said, OHI, MPW, and AVIV have all turned in outstanding total returns in recent months; however, there is reason to believe there is a lower margin of safety when there is mispriced risk.

I went on to explain:

I'm not a trader. I'm an investor and I claim to be an "Intelligent REIT Investor." I have written detailed articles on both MPW and OHI and I have loved watching the performance records of both REITs. However, I am feeling like the risk of owning lower quality assets (that means higher cap rates) does not adequately reflect the premium of the risk-adjusted shares, especially when compared with the higher quality peers.

In a follow-up article I warned about mispriced risk again when I wrote:

Often mispriced risk can be a signal that it's time to rebalance your portfolio. That process ! of selling your winners can be driven by instinct or analytics, or a combination of both. For some, rebalancing can be as simple as a gut check since nobody wants to sell stocks when they're soaring or buy them when they're plunging.

It's wise to resist the urge to plow money taken from mispriced REIT stocks into higher-yielding REITs since the mispriced REITs have already had a big run, and investors should consider rebalancing out of the riskier holdings. Conversely, intelligent investors should consider a safer strategy of taking advantage of the mispriced risks of the REIT preferred sector.

Last Friday, Seeking Alpha reported the following:

A Bank of America (BOA) downgrade sends Medical Properties Trust (MPW) tumbling. The bank cut the shares to Underperform from Neutral citing the REIT's YTD outperformance relative to the sector overall (it has outpaced healthcare REITs two to one). Put simply, funds from operations "multiple expansion has exceeded fundamental trends." SA contributor Brad Thomas claims MPW is an example of mispriced risk.

As Howard Marks wrote (in The Most Important Thing):

Successful investors manage to acquire that necessary "trace of wisdom" that Benjamin Graham calls for.

What Caused the Recent Medical Properties Trust Pullback?

Back in November (2012) I wrote an article on Medical Properties Trust (or MPW) and I recommended the stock at a price of $11.40 per share. Since that time and up until my article (on April 4th), the shares grew by 41.57%.

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Then last week, shares of MPW fell from a high of $17.00 to a Friday close of $15.00 - a 12% pullback.

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Clearly, BofA analyst Jana Galan felt that MPW! had beco! me a riskier priced stock as her downgrade from Neutral to Underperform was reflected in her report (source: benzinga.com):

We are downgrading MPW to an Underperform rating from a Neutral rating based on valuation. Year to date, MPW has been one of the best performing stocks in the REIT sector, returning +38% compared to +19% for health care REITs and +13% for all REITs. We now expect 0% total return from our $16 price objective. We think FFO multiple expansion has exceeded fundamental trends. MPW is now trading at 14.8x for 2013 FFOx, near its peak FFO multiple, compared to its 5-year and 10-year averages of 10.7x. In addition, expectations for accretive acquisitions are very high for the stock.

Also, MPW had some tough news later in the day when one of its tenants, Florence Hospital at Anthem, filed for Chapter 11 reorganization. The 96,000 square foot hospital facility has 36 beds and was built by MPW for around $30 million in 2010 (source: SNL Financial). The Florence facility represents around 1.3% of MPW's total assets.

The Florence Hospital at Anthem facility, owned by MPW and operated by Visionary Health, filed bankruptcy reorganization (in early March) and it appears that all rents have been paid up to filing and is seems that rents are still being paid. In addition, MPW has several months collateral if rents are halted or if company needs to transition to new tenant.

The troubled hospital's CEO David Wanger explained (source: Casa Grande Disptach) that the hospital has never missed a payment on its secured debt nor has it missed a payment to its landlord and he added that

We've never been an hour late paying the landlord.

Florence Hospital at Anthem is hoping to control costs and increase its profit margins; however, this is a "black eye for MPW as the Arizona facility - used by prisoners and civilians - was built just around 2 ½ years ago and has barely produced a return on investment.

Let's Dig Deeper Into MPW

As noted above, I prev! iously wr! ote an article on MPW so there is no need to provide a detailed analysis on the company. However, I want to take a closer look at some of the latest trends.

Let's start with properties. As of the latest quarter (Q4-12), MPW owned 68 properties.

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In previous years, MPW had never acquired more than $425 million in any one year (and averaged around $300 million a year) however, in 2012, MPW's acquisitions and commitments exceeded $800 million - producing a 34% increase in assets from 2011 to 2012. (snapshot below in $US billions):

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As the only health care REIT with a "hospital-focused" platform, MPW is a relatively new REIT that was formed (in 2004) to lease from many of the nation's leading hospital operators, including Prime Healthcare Services, Kindred Healthcare (KND), HealthSouth (HLS), Health Management Associates (HMA), Community Health Systems (CYH), Vibra Healthcare, Ernest Health Inc., and IASIS Healthcare.

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MPW's focus is its differentiated platform on the most critical components of U.S. healthcare delivery - general acute care, long-term acute care, and inpatient medical rehabilitation. Accordingly, the "pure play" investment strategy produces recession resistant income that provides durable predictability of cash flows and dividends.

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Here is a snapshot of MPW's "pure" hospital exposure compared with its peer group:

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Here is a snapshot of MPW's "pure" hospital assets compared with its peer group (in $US millions):

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In a previous article I explained MPW's "wide moat" investment strategy:

A critical component for every community is an area hospital which provides essential services. There are over 5,000 hospitals in the U.S. and less than 1% closes in any year (source: MPW Oct. 2012 Investor Presentation). In addition, hospitals have exceptionally long life spans - many decades old. Accordingly, hospitals have tremendous "barriers to entry" as a new hospital today requires various regulatory approvals, permits, certificate-of-need, and of course, funding.

One other unique characteristic with hospital properties is that the license goes with the facility, not the operator. Consequently, other service providers and doctors cluster near the facility making relocation extremely difficult. Conclusively, MPW's lease structure provides for a "wide moat" protection of earnings and dividends.

Although we have seen tremendous cap rate compression among most asset sectors (see my article here in triple net cap rate compression), the hospital sector has not seen much compression in rates. The reason is that there is less demand for owning hospitals simply because the facilities involve substantial risk related to permitting and highly intensive capital allocation.

Last year MPW acquired several facilities leased to subsidiaries of Ernest Health, Inc. pursuant to a master lease agreement. These leases had 20-year terms with three five-year extension options and were acquired for an initial cap rate of 9%, with consumer price-indexed increases, limited to a 2% floor and 5% ceiling ann! ually the! reafter.

So, in a nutshell, we have seen MPW grow in less than ten years from around $300 million to around $2.179 billion (Q4-12). So let's see how the earnings have grown…

You Are Right Because the Data and Reasoning are Right

The prominence of overall income risk for MPW boils down to the company's tenant-level risk. Specifically, I believe that MPW's tenants pose the greatest risk associated with reimbursements in long term acute care hospitals (or LTACHs).

LTACHs appear to be the most vulnerable due to changes in Medicare reimbursements because they typically generate about 60% of revenue from Medicare. Consequently, the uncertainty of federal efforts to reduce health care spending subjects several of MPW's tenants to federal regulatory risk.

Although many of MPW's tenants are private, I did look over several of the publicly-traded tenants to assess balance sheet risk. Here are a few of the individual company S&P ratings that I located:

During the company's recent earnings call (Q4-12), MPW's CFO, Steven Hamner, explains:

We think it's important to point out what maybe obviously and that is because we are continuing to make significant amounts of acquisitions at average cash rates of return between 9% and 11%. And because our cost of capital is substantially lower than that, each dollar we invest in new assets immediately increases our per share results and improves our dividend payout ratio even further. We made a single small RIDEA-type investment in the fourth quarter, our only such investment in 2012, other than the Ernest investment. That brings to eight the number of these investments in operations that we have made including Ernest.

So now you can see how MPW has been able to increase its funds from operations. The leading hospital landlord is continuing to building up a consistent earnings machine o! f acquiri! ng sub-investment grade hospitals and leasing them back at some attractive risk-adjusted yields.

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But what about dividend increases? MPW has a current dividend yield of 5.3%. How does that compare with the peer group?

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But this time last year MPW was paying an 8.99% dividend yield. That is a 41% compression in yield. As I mentioned earlier, MPW shares have increased substantially over the last twelve months - but so have many other health care REITs. Let's compare the dividend compression of the peer group:

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The above chart is a clear indicator that MPW's shares are mispriced. The dividend yield fell by over 41% (in a year) and the cap rates for the properties haven't. Also, MPW has not increased its dividend in a long time…

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As the FAST Graphs™ below demonstrates, MPW cut its dividend (shaded blue area) from $1.08 per share to $.80 in 2009 and since that time the company has NEVER increased its dividend. However, the share price (solid black line) began to accelerate in 2012 as the company began to ramp up its acquisition pipeline (and FFO - the orange line marked "F").

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During 2012 it became apparent that Mr. Market was warming up too and that is reflected in the current 16.3 P/FFO multiple. Although! MPW was ! acquiring lower credit quality properties, the market began to accept the fact that hospital-based income was durable and that owning hospitals with "high barrier to entry" characteristics could generate sound earnings.

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Does MPW Have More Room To Run?

As Steven Hamner, CFO of MPW explained during the recent (Q4-12) earnings call:

We have positioned MPW from our inception over nine years ago to take advantage of high real estate returns from hospital real estate, assets which are truly critical necessary assets to the communities they serve, very similar to other infrastructure assets that a population cannot live without and additionally to earn incremental outsized returns from limited, prudent investments in operations.

It seems that Mr. Market has seen the mispriced risk associated with MPW's differentiated higher risk value proposition. Simply said, it makes no sense to invest in a REIT that pays out a dividend yield of 5.3% when its acquiring properties at 9%. In other words, I can buy shares in Realty Income (O) today ($47.73) and get a 4.7% dividend yield with much less risk.

MPW shares are off around 10% (from last week), but at an implied yield of 5.8% versus the 9%-12% yields that MPW acquires or builds hospital assets for remains considerably expensive. (The implied yield essentially values MPW hospital assets on par with and in some cases above assets at healthcare REITs). In addition, compared with MPW's implied yield and 10-year treasuries, MPW shares trade at a spread of 400bps, or about 260bps narrow of its historical spread. This signals that MPW shares are overpriced and are possibly the most overpriced small cap healthcare REIT today.

As Ben Graham believed, when selecting sound securities, one needed some kind of buffer to protect against market fluctuations. That buffer is the margin of ! safety - ! the difference between the real or intrinsic value of the business underlying the security and the price assigned to that security at the moment.

As I weigh in on the risk-adjusted pricing for MPW, I believe that a dividend yield of 7% is more prudent given the underlying credit characteristics of the portfolio. In addition, I believe that the MPW's management team has been stingy with increasing its dividend and that is evident with the fact that the company has not increased its dividend since 2007. For potential new investors, I recommend a target entry price of $13.50 per share. My justification for that price is based upon the risk-adjusted dividend yield of MPW's portfolio compared with the peer group.

For current investors, I still think the recent 10% price reduction still represents a premium valuation - of mispriced risk - and I would consider a rotation into a more risk-aligned heath care REIT like Healthcare Trust of America (HTA) yielding 4.82% or Ventas, Inc. (VTR) yielding 3.47%. (See my HTA article here and my VTR article here).

Ben Graham said:

We all know that if we follow the speculative crowd we are going to lose money in the long run.

As Warren Buffett believed, understanding mispriced risk means that an investor should "not be swayed by what other people thought or how the world was feeling that day or anything of the sort." It simply comes down to pursuing a risk-averse investment decision based on sound facts. I'm not a fortune teller; however, it was good that I was able to forecast the mispriced risk of Medical Properties Trust. The secret to investing is simple and I will sum it up with these select words from my mentor investor (Benjamin Graham):

An investment operation is one which, upon thorough analysis, promises safety of principal and satisfactory return. Operations not meeting these requirements are speculative.

Sources: SNL Financial, FAST Graphs, MPW Investor Presentation

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

Big Pharma Led the Dow to New Highs Today

Investors have been as clear as they can be about what they see as their ideal situation. In the simplest terms, they want the support that the Federal Reserve has provided to the markets without any suggestion that they desperately need that support. That's been a fine line for the Fed to walk, but the early announcement of the Federal Open Market Committee's latest minutes suggests that the central bank has managed to keep its balancing act going. Investors applauded the measured approach that the Fed is apparently taking, sending the Dow Jones Industrials (DJINDICES: ^DJI  ) up 129 points to another record high, while the S&P 500 hit levels it had never seen before, even on an intraday basis.

In writing about the Dow's pharmaceutical components this morning, I had no idea they would eventually prove to be the stars of today's session. But Merck (NYSE: MRK  ) and Pfizer (NYSE: PFE  ) both rose almost 3% today, because of a combination of company-specific news and general bullishness on the two dividend giants. Pfizer announced that its palbociclib experimental treatment for advanced breast cancer received FDA designation as a breakthrough drug, which should help it earn an expedited development and review schedule as Pfizer plans appropriate research for the drug.

For Merck, the positive news came from the FDA's review of the company's application to create a pill form of its Noxafil drug to treat fungal infections. The treatment is already available in liquid form, but Merck believes that a pill version presents a valuable additional therapy option, especially for those with compromised immune systems.

Finally, MannKind (NASDAQ: MNKD  ) jumped about 8%. The company is expecting to finish clinical studies in the next couple of months that could help determine the fate of its Afrezza inhalable insulin product, which MannKind wants to submit for FDA approval by the fourth quarter of 2013. Speculation about MannKind's future has driven the stock to levels it hasn't seen since early 2011, but the stock remains well off much higher levels from 2009 and 2010, as well as before the financial crisis struck.

Merck has done a reasonably good job of getting past the expiration of its Singulair asthma drug, but it continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, The Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more click here to claim your copy today.

Avon Cutting 400 Employees, Exiting Ireland

Avon Products (NYSE: AVP  ) plans to lay off more than 400 full-time employees and exit Ireland as part of its $400 million cost-cutting initiative, the company announced today.

This most recent move comes one month after the company raised $1.5 billion through a public offering and refinanced $1 billion of debt to better balance its books.

In a statement today, CEO Sheri McCoy said: "We continue to work aggressively toward turning around the business. The steps outlined today take us closer to our cost-savings goal. At the same time, we remain focused on continuing to streamline the business and driving top-line growth."

Avon expects the layoffs (equivalent to 1% of its total workforce) and the exit from Ireland to be completed by the end of 2013  with a total pre-tax cost of $35 million to $40 million. Avon will record a $20 million hit for Q1 2013, but ultimately expects its efforts to save around $45 million to $50 million per year by 2016.

Today's announcement names markets in Europe and the Middle East and Africa as uderperforming. Avon products are available in more than 100 countries and are sold through more than 6 million active independent Avon sales representatives.

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Do Rig Counts Even Matter Anymore?

Don't Get Too Worked Up Over Zep's Earnings

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Zep (NYSE: ZEP  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Zep generated $2.9 million cash while it booked net income of $22.2 million. That means it turned 0.4% of its revenue into FCF. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Zep look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 27.6% of operating cash flow coming from questionable sources, Zep investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 34.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 85.7% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Looking for alternatives to Zep? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

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