2014 Top Stocks Market, Best Stocks Investment In 2014, Top Stocks For 2014: 3/16/14

Alcoa: Profitability in an Unstable Market?

The aluminium industry is not easy to navigate, especially given the dependency on macroeconomic and global scenario. In fact, aluminium prices have been depressed for some time now, and it's difficult to foresee when the volatility will stop. In such a scenario, Alcoa Inc. (AA) has been relatively successful in maintaining certain stability in its balance sheet these past few years. Also, the company's stock price experienced a boost after General Motors Company (GM) announced that it would be manufacturing its 2018 pickup truck with Alcoa's aluminium, which should likely increase the firm's profits going forward.

However, the automotive segment only accounts for 5% of the company's revenue, as it also operates in a variety of end markets, such as packaging, aircraft and construction. As a fully integrated alumina producer, Alcoa participates in the upstream segments of Alumina and Primary Metals (bauxite mining, refining and smelting), as well as the downstream areas of Engineered Products and Solutions. This secondary segment, traditionally less profitable, has become increasingly important in offsetting the price declines of aluminium.

Furthermore, the company recently invested in a Saudi Arabian aluminium production complex, in order to maintain its cost curve on the low end. By using a low-cost natural gas supply, the firm will able to significantly reduce its production costs. So, in the article below, I will analyze Alcoa's past profitability, capital and operating efficiency. In addition, I will take a look at which institutional investors bought the company's shares in the last quarter and based on this information, we will get an understanding of the company´s revenues, operating metrics and quality of earnings.

Profitability Analysis

Profitability is a class of financial metric used to analyze a business' ability to generate earnings compared with expenses and other relevant costs incurred during a specific period of time. In this section I will study several profitability metrics, such as return on assets, quality of earnings, cash flows and revenues. By analyzing these four metrics, we will be able to elucidate if the company is really making money.

ROA - Return On Assets = Net Income/Total Assets

ROA is an indicator of how profitable a company is relative to its total assets. It gives us an idea as to how efficient management is at using its assets to generate earnings. In simple terms, this metric tells you what earnings were generated from invested capital (assets).

I do not like the fact that Alcoa's ROA decreased substantially from 1.54% in 2010 to a current -6.02%, as I am always looking to invest in companies that generate increasing ROAs. Moreover, this decreasing ratio is evidence of the company generating less from its assets than it did in 2010, which is worrisome.

Quality of Earnings

Quality of earnings is the amount of earnings attributable to higher sales or lower costs, rather than artificial profits created by accounting anomalies, such as inflation of inventory. In order to assess Alcoa's quality of earnings we will compare the level of income with operating cash flows. The company augmented its profits at a rate of -24%, but the growth of cash flows was higher, which is strong evidence of profits being created through augmented sales or cost reduction programs.

Working Capital

A company's working capital measures its efficiency, as well as its short-term financial health. The ratio indicates whether a company has enough short term assets to cover its short term debt. Most believe that a ratio between 1.2 and 2.0 is sufficient, but anything below 1 indicates negative W/C and a ratio above 2 means that the company is not investing excess assets. In order to appreciate a company's working capital structure, we need to analyze its current ratio growth. Alcoa's current ratio has decreased from 1.28 in 2010 to 1.14 in 2012. Although this means that the company´s balance sheet was stronger in the past, the ratio is still in an adequate range, as it hasn't fallen below the 1x mark yet. Gross Margin: Gross Income/Sales

The gross profit margin measures a company's manufacturing and distribution efficiency during the production process, but it also indicates what percentage of revenue/sales is left after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its competitors — and overall industry — is more efficient, meaning that investors will tend to pay more for said businesses. Over the past three years, Alcoa's gross margin has decreased slightly, falling from 17.9% in 2010 to 16.3% in 2012. The decreasing margin indicates that the firm has lost efficiency on a year-to-year basis.

Asset Turnover

Asset turnover measures a firm's efficiency in using its assets to generate sales or revenue — the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. The fact that Alcoa's assets growth (3%) outpaced its revenue growth indicates that the company is not making an optimal amount of money according to its asset base. I tend to invest in companies that generate more revenue growth than asset growth.

Institutional Sponsorship

It is important to check which hedge funds bought the stock in the last quarter and at what price they did so. I assume that if a prominent institutional investor put money into Alcoa, the stock will pass strict fundamental standards. Since investment gurus Steven Cohen (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio) bought the company's shares in the past quarter, at an average price of $8.17, I feel confident that Alcoa will generate profits in the long run.

Analyst Outlook

Currently, many analysts have a good outlook for Alcoa. Analysts at MSN money are predicting that the firm will retrieve an increasing EPS of $0.59 for fiscal 2014, while Bloomberg is estimating revenue to grow slightly from 2013's $23.05 billion to $24.39 billion for fiscal 2014. Furthermore, on Jan. 21, 2014, JPMorgan gave Alcoa a rating of "Overweight" with a target price of $9.97, signifying strong upside potential from this point.

Bottom Line

Although some aspects of Alcoa's balance sheet have lost strength over the past few years, it's important to point out that this is largely attributable to the unstable commodity prices. Looking forward, investors should expect earnings growth and margin expansion to increase substantially, as a consequence of General Motors' investment in the firm's aluminium, and opening a joint venture with Saudi Arabian mining company Ma'aden. Also, management's conservative capital allocation strategy is bound to loosen its reigns a little once the company enters another upcycle, so the average returns on capital of 1% can be expected to increase strongly over the next few years.

Disclosure: Victor Selva holds no position in any stocks mentioned.

Also check out: Stanley Druckenmiller Undervalued Stocks Stanley Druckenmiller Top Growth Companies Stanley Druckenmiller High Yield stocks, and Stocks that Stanley Druckenmiller keeps buying

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Tax Q&A: Deducting medical costs for an injury

With the April 15 tax deadline fast approaching, you probably have questions. Fortunately, we have answers. Every day until April 15, members of the American Institute of Certified Public Accountants have agreed to answer selected tax questions from USA TODAY readers. Submit your questions to jwaggoner@usatoday.com.

Q: I get home healthcare for a service-related injury. Can I deduct my out-of-pocket home healthcare expenses that are not covered by the Veteran's Administration? I get a VA disability payment each month, also. Must that payment be exhausted before I may deduct excess payments from my 1040?

A: First of all, thank you for your service to our nation!

Your out-of-pocket costs for home healthcare are considered medical expenses, so they may be deductible on your Schedule A — it all depends on the total amount compared to your adjusted gross income (AGI).

NEED HELP: Get all the latest tax news and advice

The fact that you receive disability does not change the destructibility of the expenses.

Any medical costs you incur that aren't covered by insurance, including co-pays, are deductible, but they must exceed 10% of your AGI (7.5% if you're over age 65), and then you also need to itemize your deductions, rather than use the standard deduction.

If you prepare your own taxes using an online program, be sure to enter all your medical expenses not covered by the VA or other insurance.

The software will calculate whether you receive any deduction. If you use a tax professional, just be sure that person knows your total expenses. The IRS has a program to help you determine if you can deduct medical expenses.

FOR MORE INFORMATION: IRS Publication - Medical and Dental Expenses

Kelley C. Long CPA/PFS, CFP, Director of Communications & Marketing, Shepard Schwartz & Harris LLP

Previous questions:

Can pension income go to a Roth IRA?

What to do if you forgot a tax payment

Is a gift from an IRA taxable?

SYMC Stock: Symantec Doesn’t Look Secure

Popular Posts: Should I Buy SIRI Stock? 3 Pros, 3 ConsPandora Stock Goes Quiet in the Face of iTunes Radio SuccessWhy Is FSLR Stock Going Bananas? Recent Posts: Facebook Sticking It to Brands – Great News for FB Stock SYMC Stock: Symantec Doesn’t Look Secure Why Is FSLR Stock Going Bananas? View All Posts

In a sudden move, Symantec (SYMC) has terminated its CEO, Steve Bennett. And Wall Street is definitely concerned, as SYMC stock is off about 12% in today's trading.

Symantec 185 SYMC Stock: Symantec Doesn't Look Secure The company tried to calm things down with its press release, which said that the firing was “the result of an ongoing deliberative process and not precipitated by any event or impropriety." Yet it seems there must be troubles brewing for SYMC stock.

Let’s face it, Steve Bennett was only at the helm for two years and only came up with his turnaround plan in January 2013. The company has also seen other top executives leave during the past couple months, including CFO James Beer and president of products, Francis deSouza.

If anything, the Symantec CEO position has been dicey over the years. Keep in mind that the board pushed out Enrique Salem just two years ago. And he only had the job for about three years.

As for now, the replacement for Steve Bennett will be Michael Brown, a board member and the former CEO of Quantum Corporation, who will hold the Symantec CEO position on an interim basis. SYMC will then begin a search for a permanent leader. However, the process could easily take months to complete. Again, this cannot be good for SYMC stock.

For example, the company faces intense competition. There is an onslaught of cutting-edge startups that are grabbing a bigger share of the security market. They are also taking advantage of the red-hot IPO market, as seen with the hugely successful deal of FireEye (FEYE).

SYMC stock has also suffered from the lack of a clear-cut mobile strategy. For the most part, the category is a rich target for security products. But SYMC's efforts have been lackluster. Capitalizing on the void are scrappy startups like Lookout, which have raised substantial amounts of venture capital.

Yet the biggest challenge for SYMC stock is the secular decline the traditional PC business. Consider that a large amount of sales come from antivirus software and back-up systems for the desktop. The result is that growth has stalled. During the last nine months of 2013, net revenues fell by about 2%. Yes, that’s a grueling loss as the overall security market continues to show lots of momentum and remains a high priority for enterprises, especially in light of the high-profile breaches at companies like Target (TGT).

In other words, the new Symantec CEO will have a tough job ahead. And given the company's track record, he or she will not have much time to show results for the turnaround. Unfortunately, this pressure may make things even tougher for SYMC stock as a new leader won’t have much leeway to try new things and focus on the long-term of the business.

In other words, maybe Steve Bennett should hope the Symantec CEO position remains an interim thing.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Stocks to Watch: Burlington Stores, ConAgra Foods, Guess

Among the companies expected to actively trade in Thursday’s session are Burlington Stores Inc.(BURL), ConAgra Foods Inc.(CAG) and Guess Inc.(GES)

Burlington Stores said its fiscal fourth-quarter profit fell 6.4%, as the clothing retailer’s higher expenses masked a rise in revenue. However the company, which sells off-price branded clothing, shoes and coats at its Burlington Coat Factory stores, posted adjusted earnings that beat analysts’ expectations. Shares rose 4.6% to $27.10 premarket.

ConAgra Foods said its fiscal third-quarter sales surged and profit nearly doubled on the strength of its private-label brands business, but the packaged-food company continued to struggle throughout much of its business as volumes continued to decline. Earnings surpassed the company’s expectations, while sales just missed Wall Street views. Shares rose 1.9% to $30.16 premarket.

Guess said its fiscal fourth-quarter earnings slipped as the apparel retailer faced challenging traffic trends at its North American stores and a heavily promotional retail environment. The company’s outlook for the new fiscal year fell short of Wall Street’s expectations. Shares fell 6% to $27.05.

ExOne Co.(XONE) swung to a fourth-quarter loss as the 3-D printer maker recorded a drop in revenue due in part to the mix of printers sold. The quarterly results and the company’s full-year revenue outlook fell short of Wall Street’s expectations. Shares fell 11% to $38.95 premarket.

Herman Miller Inc.(MLHR) said its fiscal third-quarter earnings rose 18% on broad sales growth and stronger margins. The office-furniture company projected fiscal-fourth-quarter results that were mostly higher than expectations. Shares rose 6.2% to $30.50 premarket.

Jabil Circuit Inc.(JBL) said it swung to a loss in the fiscal second quarter as the contract electronics manufacturer reported a decline in revenue and significant restructuring costs. Shares rose 1.9% to $18.61 premarket.

SunEdison Inc.(SUNE) on Thursday said Samsung Fine Chemicals Co.(004000.SE) agreed to buy $100 million of SunEdison Semiconductor Ltd. stock concurrent with the semiconductor division’s planned initial public offering. Also under the agreement, SunEdison will buy a 35% interest in its joint venture with Samsung Fine Chemicals and contribute it to the newly public semiconductor company. SunEdison shares rose 3.1% to $21.33 premarket.

Tilly's Inc.'s(TLYS) fiscal fourth-quarter profit slid 45% as the teen retailer reported weaker sales at existing locations and falling gross margins. The company also issued a profit outlook for the current quarter that missed Wall Street’s expectations. Shares fell 7.8% to $11.80 premarket.

Trina Solar Ltd.(TSL) on Thursday said a favorable settlement helped it revise its fourth-quarter earnings higher. The Chinese solar panel maker’s profit for the period had already topped Wall Street expectations when they were announced earlier this month. Shares rose 2.4% to $16.93 premarket.

Walter Energy(WLT) doubled the size of its five-year 9.5% senior secured note sale to $200 million, along with the sale of $350 million in second lien PIK toggle notes due in 2020. PIK toggle notes give the issuer an option to pay interest with new debt instead of cash. Walter Energy will pay off part of an existing credit facility with the bond proceeds as it aims to extend the maturity of its debt burden with the hope that coal prices will rebound and return the company to profitability. Shares fell 12% to $7.98 premarket.

VOICES: Yellen takes charge at the Fed

WASHINGTON — When Janet Yellen stepped to the podium for her first news conference as Federal Reserve chair on Wednesday, she had something to prove.

Not because she's the first woman to lead the world's most powerful central bank in its 100-year history.

But because she has been widely labeled a "dove."

In Fedspeak, a dove is a someone who cares more about lowering unemployment than heading off potential inflation, and so is more likely to keep interest rates low to spur economic activity. A hawk is the opposite — a policymaker more inclined to raise rates sooner because of the fear of inflation.

FED: Changes guidance on raising rates

With the economy and job market improving but still far weaker than normal nearly five years after the end of the Great Recession, Yellen has a twofold mission. She has to prove her inflation-fighting bona fides while assuring those sensitive financial markets that low interest rates aren't going away anytime soon.

Yellen, who pushed the Fed to increase public communication while serving as vice chair to former Fed chief Ben Bernanke, generally achieved those aims, calmly and affably providing grist for doves and hawks alike.

But she also learned how easily her words can move markets. When she suggested, perhaps inadvertently, that short-term interest rates may rise sooner than most economists expect, she sent stocks swooning.

Fed news conferences are a relatively new phenomenon, started by Bernanke in 2011 in an effort to make the often cryptic ways of the Fed more accessible. The Brooklyn-born Yellen appeared a tad nervous at first. As she entered the press room to a blaze of lights and whirring cameras, she seemed to stumble slightly as she ascended to the podium.

While Bernanke was, by turns, professorial and genial with reporters, Yellen was matter-of-fact as she met the news media after presiding at her first Fed meeting. Always meticulous in her preparation, she read stiffly from her statement. But then Ye! llen took off her glasses and settled into a comfortable back-and-forth with reporters packed into an ornate room at Fed headquarters.

Yellen has often said that she became an economist to help people, and that was palpable. She said that "unemployment and long-term unemployment remain significant concerns,concerns that are hardly theoretical.

Stubborn long-term unemployment is a big reason why Yellen wants the Fed to keep short-term interest rates near zero after the Fed likely ends its monthly bond-buying stimulus program later this year.

Yellen also had encouraging words for the hawks, noting the job market has improved enough for the Fed to continue to wind down its bond buying.

Her balancing act got a bit wobbly when she was asked to clarify the Fed's statement that short-term rates would remain low for "a considerable time" after the bond-buying ends. Yellen said a considerable time could mean six months, a shorter period than many economists anticipated. Markets rapidly plunged.

Economist Paul Edelstein of IHS Global Insight called it "a rookie gaffe." UBS' Maury Harris said Yellen may have sent investors mixed messages. It was a quick lesson for Yellen about the market-rattling potential of even her most offhand comments.

But the new Fed chief seems ready to take responsibility for her actions. "In many ways," she told reporters, "I feel the buck stops with me."

ACE Went Through a Series of Acquisitions

ACE Limited (ACE) is an insurance and reinsurance organization. The company provides commercial insurance products and service offerings such as risk management programs, loss control and engineering and complex claims management. The company's segments are: Insurance - North American, Insurance - Overseas General, Global Reinsurance, and Life.

An Efficient Strategy

ACE Limited made significant acquisitions to expand its business. The company's more significant deal was the 80% acquisition of Rain and Hail Insurance Service, Inc. that it did not already own, for approximately $1.1 billion in cash. Rain and Hail is the second largest crop insurer in the U.S. More recently, in Sep 2012, it acquired 80% of PT Asuransi Jaya Proteksi in Indonesia expanding accident, health, commercial property and casualty businesses in Indonesia. In Jan 2013, the company´s local partner acquired the remaining 20%. To expand its Surety business, ACE acquired Fianzas Monterrey, a Mexican surety lines insurer, for $293 million in cash in early 2013. In May 2013, it acquired Mexico´s sixth-largest P&C insurer ABA Seguros from Ally Financial Inc. for $865 million. In early 2014, it agreed to acquire 60.9% of The Siam Commercial Samaggi Issurance PCL for some $185 million.

Dividend Hike

Looking at the financials, the company has a strong balance sheet: good cash that allows it to reward current shareholders through dividend and share repurchases. Dividend-payment history affirms its commitment to maximize shareholder wealth. The company raised its quarterly dividend to $0.65 per share from $0.63, payable on Apr 17 to shareholders of record as on Mar 28, 2014. Furthermore, the board of ACE Limited has approved a buyback program, authorizing the company to repurchase $2 billion worth of shares through Dec. 31, 2014.

Analyst Recommendation

The firm is currently Zacks Rank # 2 - Buy, and it also has a longer-term recommendation of "OutPerform". For investors looking for a Zacks Rank # 1 – Strong Buy, Alleghany Corp. (Y), Berkshire Hathaway Inc (BRK.B) and Fidelity (FNF) could be the options.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 9.1x, trading at a discount compared to an average of 11.6x for the industry. To use another metric, its price-to-book ratio of 1.2x indicates also a discount versus the industry average of 1.21x and the price-to-sales ratio of 1.8x is above the industry average of 1.13x.

Earnings per share (EPS) increased in a substantial way in the most recent quarter compared to the same quarter a year ago (from $2.22 to $2.90). In the next graph we can see that it has demonstrated an erratic but positive trend and we include the stock price because EPS often lead the stock price movement.

Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has improved from the same quarter one year prior. This is a clear sign of strength within the company. Let´s compare the current ratio with competitors in the next table:

Ticker	CompanyName	ROE (%)
Y	Alleghany Corp.	9.08
FNF	Fidelity	7.93
FNHC	Federated National Holding Co.	6.94
GBLI	Global Indemnity PLC	4.31
ACE	ACE Limited	13.04

As we can see, the firm ratio is higher than the ones shown by Alleghany, Fidelity, Federated National Holding Co. (FNHC) and Global Indemnity Plc (GBLI).

Final Comment

As outlined in this article, ACE went through a series of acquisitions in an effort to expand its presence. The firm´s EPS as well as the revenues' growth are demonstrating the improvement of the company´s strength. Therefore, I feel bullish about this company's future profitability.

I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in Q4 2013. David Dreman (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio) have also invested in it.

Disclosure: Damian Illia holds no position in any stocks mentioned.

Also check out: David Dreman Undervalued Stocks David Dreman Top Growth Companies David Dreman High Yield stocks, and Stocks that David Dreman keeps buying
About the author:Damian IlliaA fundamental analyst at Lonetreeanalytics.com constantly looking for value and income investments.

Visit Damian Illia's Website

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Euro Holds On Ahead Of Fed Meeting

Related EWI Euro Resilient Despite Deepening Crisis In Ukraine Mario Draghi Changes His Tone

The euro held on to its strength as fears about immediate military action in Ukraine subsided and the US Federal Reserve Policy meeting got under way.

The common currency traded at $1.3908 at 7:00 GMT on Tuesday morning as investors looked to the Fed for further clues about the US' economic health.

Most expect the US central bank to continue tapering its monthly asset purchases by $10 billion despite recent disappointing economic indicators. US policy makers have largely shrugged off the nation's lackluster data, attributing it to the unusually severe winter.

See also: FDIC Sues Big Banks For Rigging Interest Rates

Investors are also interested in the bank's view on policy tightening, which is expected to be addressed on Wednesday at the close of the meeting. According to Bloomberg, Fed officials are expected to use less specific language to describe the conditions necessary for a rate cut. In the past, the bank used a 6.5 percent unemployment rate as a threshold for policy tightening.

However, now that the nation's unemployment rate has fallen to 6.7 percent, Fed officials have said they believe rates need to remain low for some time until the economy can stand on its own.

Meanwhile, eurozone policymakers continue to worry about the common currency's recent strength and its effect on consumer prices. European Central Bank President Mario Draghi indicated that the ECB may have to consider the currency's strength at its next policy meeting as it could potentially damage the region's recovery.

Even more concerning, the EU's statistics agency released a revised February inflation rate on Monday which showed the figure had dropped even further below the bank's two percent target. Although the report was concerning, most don't expect that figure alone to prompt the bank to ease further.

Posted-In: European Central Bank Federal Reserve Mario DraghiNews Eurozone Forex Global Federal Reserve Pre-Market Outlook Markets Best of Benzinga

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