Saturday, August 31, 2013

Should you hold cash in your portfolio?

Here are a few insights.

More than one-quarter of Americans prefer cash as an investment.
Preference for cash was most evident among individuals with lower earnings and less education.

High-income individuals prefer stocks and real estate.

When it comes to education, 32 percent of individuals with a high school degree or less choose cash, but just 19 percent with a university degree.

Women prefer cash to men and men prefer stocks more than women do.
Cash is NOT an investment. And, there is a real cost to sitting on cash. Thanks to taxes and inflation, the returns are negative over the long run. Which is completely self defeating since one's entire retirement kitty can be jeopardized with this mentality.

How will one build up a huge nest egg for retirement or fund a child's education if one's investments are not beating inflation and delivering returns over and above the tax rate? Ironical, since people hold cash to feel safe and that is what they are not when they do so.

There are legitimate reasons to hold cash, but it is the duration that matters. If you plan to sit on cash for years, that is where the problem is. If it is just a few months, you are completely justified. Do note, when we refer to cash we are talking of your money in a savings account, and liquid and ultra short-term funds.

Here are some instances where cash fits the bill.

You have suddenly come into some money and not sure where or how to deploy it. This could be due to a bonus, inheritance, gift or even a tax refund. Alternatively, you could have exited some investments and are still unsure as to which investments you should channelize your money into.

It could also be that you are strategically holding cash because you were of the opinion that the stocks you owned were completely overvalued and decided to sell them. Again, till you are ready to pick up some other stocks with reasonable valuations, you plan to stay in cash. But this is purely tactical in nature.

For instance, debt fund managers have increased their cash allocations in recent times as they keep an eye out on the central bank's moves and direction of the rupee.

If you have a financial commitment round the corner, such as downpayment for a home or a holiday abroad or a child's tuition fee, then it would be disastrous to put the money in an equity instrument. At such times, cash makes perfect sense.

Some cash should always be kept in an emergency fund. So that if there is a sudden calamity like losing one's job or an illness which requires a fair amount of expense, there are funds to bail you out.

So other than a few genuine instances, cash is not a viable long-term portfolio allocation. If you opt for it, you could well be sacrificing your long-term financial health.


Friday, August 30, 2013

Sealed Air Reaches 52-Week High - Analyst Blog

Hot Penny Companies To Watch For 2014

Shares of Sealed Air Corporation (SEE) attained a new 52-week high of $25.58 on Friday, Jul 5, 2013. The new high was primarily driven by expected benefits from its acquisition of Diversey, cost savings and the appointment of Jerome A. Peribere as the President and Chief Executive Officer.

This specialty packaging service provider has delivered a robust one-year return of about 66.32% and year-to-date return of about 47.64%. Average volume of shares traded over the last three months was approximately 1.9 million shares.

This Zacks Rank #3 (Hold) stock has a market cap of $5 billion and a long-term expected earnings growth rate of 15.97%.

Sealed Air's Strengths

Sealed Air's acquisition of Diversey has expanded its presence beyond specialty packaging solutions. This combination is expected to further enhance Sealed Air's earnings per share and free cash flow generation.

The company's ongoing Integration & Optimization Program to address the increasing macroeconomic weakness and realize additional cost reduction opportunities will generate cost savings and benefits of approximately $195 million to $200 million by the end of 2014.

1Q13 Earnings Miss, But Improved Outlook

Sealed Air reported first-quarter 2013 adjusted net earnings from continuing operations of 17 cents per share, up 6% from the year-ago earnings of 16 cents per share but a penny short of the Zacks Consensus Estimate. Volumes improved 1% and a positive 0.2% price/mix was offset by unfavorable foreign currency translation of 0.8%.

For fiscal 2013,the company expects adjusted earnings in the range of $1.10 to $1.20 per share on the back of net sales in the range of $7.7 to $7.9 billion. Adjusted EBITDA is expected in the range of $1.01 to $1.03 billion. Furthermore, free cash flow is expected in the range of $300-$350 million.
During its first quarter conference call, Sealed Air announced an earnings quality improvement plan intended at delayering management in a bid to make the company more cost efficient, especially in Europe. The plan is expected to result in annualized savings of approximately $80 million by the end of 2015 for an estimated total cost in the range of $180 to $200 million. Savings for 2013 are expected to be minimal and one-time cash costs for 2013 are estimated to be approximately $65 million.

Estimate Revisions

The Zacks Consensus Estimate for 2013 is currently pegged at $2.78 per share, reflecting a 5.23% year-over-year increase and within the company's guidance.

Other Stocks to Consider

Other stocks in the industry that are currently performing well and have a good visibility include Mobile Mini, Inc. (MINI), with a Zacks Rank #1 (Strong Buy), and Berry Plastics Group, Inc. (BERY) and Rock-Tenn Company (RKT), with a Zacks Rank # 2 (Buy).

Thursday, August 29, 2013

BioDelivery Announces $20M Debt Financing - Analyst Blog

BioDelivery Sciences International, Inc. (BDSI) recently secured a loan from partner, MidCap Financial, LLC. Through this agreement, BioDelivery Sciences has ensured a debt financing of $20 million in the form of a senior secured loan.

The senior secured loan will mature after 3 years with the interest payable only for the first 6 months. MidCap Financial has also issued a warrant to purchase 357,143 shares of BioDelivery Sciences common stock under the terms of the agreement. The exercise price of these shares is $4.20, which is the 20-day volume-weighted average share price of BioDelivery Sciences' common stock before the loan expires.

The debt financing will significantly strengthen BioDelivery Sciences' cash position. The company has a series of pipeline events lined up, including the New Drug Application (NDA) submission for Bunavail.

Last month BioDelivery Sciences completed a successful pre-NDA meeting with the Food and Drug Administration (FDA) for Bunavail's approval for the maintenance treatment of opioid dependence. The company plans to seek US approval of Bunavail for the above indication in mid-summer this year. BioDelivery Sciences expects Bunavail to generate peak sales of over $250 million.

Moreover, BioDelivery Sciences also expects to complete two phase III studies on BEMA buprenorphine, being developed for the treatment of chronic pain. The company has a license and development agreement with Endo Health Solutions Inc. (ENDP) for BEMA buprenorphine. The completion of the second phase III study on the candidate will trigger milestone payments from Endo Health Solutions.

BioDelivery Sciences presently carries a Zacks Rank #4 (Sell). However, pharma stocks such as Jazz Pharmaceuticals (JAZZ) and Targacept, Inc. (TRGT) currently look better positioned with a Zacks Rank #1 (Strong Buy).

Wednesday, August 28, 2013

Domtar's Prelim Shows Loss in 2Q - Analyst Blog

Domtar Corporation (UFS) recently provided a sneak peek into its second quarter 2013 financial performance when it announced its preliminary results for the quarter. The company is scheduled to report its detailed quarterly results on Jul 25.

For the second quarter, Domtar expects an operating loss in the range of $30 million to $35 million on revenues of $1,312 million. The operating loss is primarily due to low pulp productivity owing to planned maintenance shutdowns of manufacturing plants and delayed starts of pulp mills. This resulted in lower paper and pulp shipments of 801,000 tons and 344,000 metric tons, respectively.

Operating loss for the soon-to-be reported quarter includes a litigation settlement charge of $49 million, closure and restructuring costs of $18 million, $5 million impairment charge, and depreciation and amortization of $93 million. EBITDA is expected to be between $130 million and $135 million.

By quarter-end, Domtar made a significant headway to address its production issues and expects to return to normalcy by the end of the third quarter. In the meantime, the company expects to remain moderately affected by these operational issues.

Domtar manufactures and distributes a wide array of fiber-based products including communication papers, specialty and packaging papers and adult incontinence products. The company is the largest integrated marketer of uncoated freesheet paper in North America with established brands such as Cougar, Lynx Opaque Ultra, Husky Opaque Offset, First Choice and Domtar EarthChoice. Domtar also owns and operates an extensive network of strategically located paper and printing supplies distribution facilities.

Domtar currently carries a Zacks Rank #1 (Strong Buy). Other companies in the industry that are worth mentioning include Resolute Forest Products Inc. (RFP), Orchids Paper Products Company (TIS) and Rock-Tenn Company (RKT), each carrying a Zacks Rank #2 (Buy).

Tuesday, August 27, 2013

If Alcatel Can Keep This Up, The Turnaround Can Work

5 Best Insurance Stocks To Watch For 2014

These are still very early days, but if the second quarter is any sign, Alcatel-Lucent's (NYSE:ALU) latest restructuring efforts may bring this company (and stock) back into relevancy. There is still plenty than can go wrong, but the carrier spending environment is looking better by the month, and will likely put some significant tailwinds into Alcatel's sales. While I definitely missed out on the early jump in these shares, a pathway to $3.50 (or higher) for the shares is at least worth talking about today.

Solid Second Quarter Earnings, On A Relative Basis At Least
Alcatel-Lucent's second quarter results wouldn't have passed muster for a company like Cisco (Nasdaq:CSCO) or Huawei, but they weren't bad for a company that badly needs to re-establish its credibility with the Street.

Revenue rose 2% as reported (or 4% in constant currency) from last year, or 12% versus the first quarter. That was good for a 3% beat, as the company saw surprising strength in edge routing (leading to IP revenue growth above 20%) and better than expected results in LTE (leading wireless to 5% sequential growth.

Margins likewise improved. Gross margin increased only slightly from last year, but improved 250bp sequentially. More importantly, gross margin beat the average estimate by more than 150bp. Adjusted operating income was positive (unlike the year-ago and quarter-ago results), and Alcatel's slim positive operating margin was almost 300bp higher than expected.

SEE: A Look At Corporate Profit Margins

A New Focus On Growth Products, Just As The Cycle Turns Positive Again
There have been a lot of false dawns with predictions of better telecom carrier spending, but it looks like conditions are finally, legitimately, getting better. Other equipment providers like Ciena (Nasdaq: CIEN) and Infinera (Nasdaq: INFN) have been seeing demand improving, as have Juniper (Nasdaq:JNPR) and Cisco. Results haven't been quite as strong as Ericsson (Nasdaq:ERIC) or Nokia Siemens, but then there too are some margin/mix improvement stories at work.

SEE: How To Pick The Best Telecom Stocks

As seen with Ciena and Infinera (and in recent announced wins), 100G is pretty strong for Alcatel-Lucent right now, and I would expect this market to get better over the next year or two. I still have my doubts about Alcatel's ability to compete, but I also don't believe that the company has to gain share to still benefit from this growing market. Edge routing, too, is looking quite a bit stronger for Alcatel as data traffic grows. As with 100G, I have my doubts that Alcatel-Lucent can grow share against its rivals (in this case, Cisco, Juniper, and Huawei), but once again Alcatel-Lucent doesn't have to "win" edge routing to still benefit from it.

We'll see what happens in wireless. Although Alcatel gets a lot of flack from bears (myself included in the past) for its share losses in LTE, a global share of around 15% to 17% is still good enough to allow the company to benefit from upcoming rollouts. The real question here may be margin, though, and Alcatel management could well face some difficult decisions with respect to how it bids on business.

On a somewhat related note, I thought it was rather interesting that Qualcomm (Nasdaq: QCOM) chose to partner with, and invest in, Alcatel for 3G/4G small cells. Qualcomm seems to be turning into something of an angel investor these days (at least between investments in struggling companies with good IP like Sharp and now Alcatel), and these small cell products won't roll right away, but it's hard not to see this move as something of an affirmation of Alcatel's IP and ability to endure.

The Bottom Line
I have long been very critical and skeptical towards Alcatel-Lucent, in large part because prior management line-ups couldn't execute their way out of a broom closet. And again, this is only one quarter and one where most of Alcatel-Lucent's comparables have sounded pretty positive on the market trends. So there's still a great deal of work left to do (and much to prove), but it's a good start.

I now expect Alcatel to return to positive free cash flow in 2015, and although liquidity is going to be tight for some time, improving financial performance over the next two years ought to create additional refinancing opportunities (though likely with higher base interest rates).

I'm still looking for long-term revenue growth in the neighborhood of 3% from Alcatel, well below Ciena and Infinera, but only a bit below Cisco. I'm more optimistic, though, that Alcatel can pull long-term free cash flow margins back into the mid-to-high single digits, though, and that leads to a discounted fair value (even with an elevated discount rate) of about $3.50. That's enough to make these shares worthy of consideration (something I wasn't sure I'd say again) even after this big run, and if the company continues to execute, those targets could head higher as the turnaround continues.

Disclosure – At the time of writing, the author had no positions in any stocks mentioned.

Monday, August 26, 2013

Best Biotech Stocks To Own For 2014

Wall Street analysts had low expectations for the second quarter earnings season results, but is coming out of it with more steam than before. Even though not all reports were positive, the US market has continued through the summer months on a generally positive note. With this in mind, it is no surprise that the ETF industry is booming; July alone saw the introduction of 17 new funds and not a single closing, and equities continue to push forward in 2013 .

First Quarter Earnings Season StandoutsThe chart below highlights the six of the best performing US equity ETFs over the last 4 weeks,�highlighting performances, volatility and expense ratio. Note that the size of each bubble is based on expense ratio .

NASDAQ Internet Portfolio
SPDR S&P Biotech ETF Large Cap Growth Equity Strategy Fund Dynamic Pharmaceuticals IPOX -100 Index Fund iShares U.S. Aerospace & Defense ETF The Bottom LineWith a wide representation from the equities market performing relatively well, there have�been some superb individual�standouts that have outperformed major indexes. With tech companies like Facebook beating expectations, PNQI has experienced a huge inflow of investments along with a bump in returns. Biotech and pharmaceutical ETFs have also been enjoying a strong year, with a number of manufacturers gaining FDA product approval and clients in the last quarter; both XBI and PJP have taken off. Perhaps the largest surprise came from the Airplane manufactures such as Boeing, who�� sales continued to soar even while it�� newest plane took some bad press; FPX is up over nine percent in the last four weeks.

Best Biotech Stocks To Own For 2014: Amgen Inc.(AMGN)

Amgen Inc., a biotechnology medicines company, discovers, develops, manufactures, and markets human therapeutics based on advances in cellular and molecular biology for grievous illnesses primarily in the United States, Europe, and Canada. The company markets recombinant protein therapeutics in supportive cancer care, nephrology, and inflammation. Its principal products include Aranesp and EPOGEN erythropoietic-stimulating agents that stimulate the production of red blood cells; Neulasta and NEUPOGEN to stimulate the production of neutrophils, which is a type of white blood cell that helps the body to fight infections; and Enbrel, an inhibitor of tumor necrosis factor that plays a role in the body?s response to inflammatory diseases. The company also markets other products comprising Sensipar/Mimpara, a small molecule calcimimetic that lowers serum calcium levels; Vectibix, a monoclonal antibody that binds specifically to the epidermal growth factor receptor; and Nplate, a thrombopoietin (TPO) receptor agonist that mimics endogenous TPO, the primary driver of platelet production. In addition, it provides Denosumab, a human monoclonal antibody that targets RANKL, an essential regulator of osteoclasts. Further, the company offers product candidates in mid-to-late stage development in a variety of therapeutic areas, including oncology, hematology, inflammation, bone, nephrology, cardiovascular, and general medicine consisting of neurology. It markets its products to healthcare providers, including physicians or their clinics, dialysis centers, hospitals, and pharmacies; consumers; and wholesale distributors of pharmaceutical products. The company has various collaborative arrangements with Pfizer Inc.; GlaxoSmithKline plc; Takeda Pharmaceutical Company Limited; Daiichi Sankyo Company, Limited; Array BioPharma Inc.; Kyowa Hakko Kirin Co. Ltd.; and Cytokinetics, Inc. Amgen Inc. was founded in 1980 and is headquartered in Thousand Oaks, California.

Advisors' Opinion:
  • [By Paul Goodwin]

    For many investors Amgen is considered the biotech stock to own, and one of the very best in this sector. With an international focus and excellent returns this stock is one that many financial advisors own.

  • [By TheStreet Staff]

    The Amgen (AMGN) strategy of returning cash to shareholders in form of share buybacks, Dutch tender offers and dividends is abandoned in favor of ramped up acquisitions i.e. Gilead Sciences buying Pharmasset. Large-cap biotech firms start acting like Big Pharma -- choosing to buy growth instead of seeking it from internal drug development.

Best Biotech Stocks To Own For 2014: Celgene Corp (CELG)

Celgene Corporation is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. The Company is engaged in the research and development, which is designed to bring new therapies to market, and is engaged in research in several scientific areas that may deliver therapies, focusing areas, such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies. The Company�� primary commercial stage products include REVLIMID, VIDAZA, THALOMID, ABRAXANE and ISTODAX. Additional sources of revenue include a licensing agreement with Novartis, which entitles it to royalties on FOCALIN XR and the entire RITALIN family of drugs, the sale of services through its Cellular Therapeutics subsidiary and other miscellaneous licensing agreements. In March 2012, it acquired Avila Therapeutics.

The Company invests in research and development, and the drug candidates in its pipeline at various stages of preclinical and clinical development. These candidates include pomalidomide and apremilast, its oral anti-cancer and anti-inflammatory agents, PDA-001, its cellular therapy, oral azacitidine, CC-223 and CC-115 for hematological and solid tumor malignancies, CC-122, its anti-cancer pleiotropic pathway modifier, and ACE-011 and ACE-536 biological products for anemia in several clinical settings of unmet need. Celgene product candidates include Pomalidomide (CC-4047), Oral Anti-Inflammatory: Apremilast (CC-10004), CC-11050, Kinase Inhibitors:Tanzisertib (CC-930), Cellular Therapies: PDA-001, Activin Biology: Sotatercept (ACE-011) ACE-536, and Anti-tumor Agents: CC-22, CC-115, CC-122 and Oral Azacitidine. It owns and operates a manufacturing facility in Zofingen, Switzerland. The Company also owns and operates a drug product manufacturing facility in Boudry, Switzerland.

Commercial! Stage Products

REVLIMID (lenalidomide) is an oral immunomodulatory drug marketed in the United States and many international markets, in combination with dexamethasone, for treatment of patients with multiple myeloma who have received at least one prior therapy. It is also marketed in the United States and certain international markets for the treatment of transfusion-dependent anemia due to low- or intermediate-1-risk myelodysplastic syndromes (MDS) associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. REVLIMID is distributed in the United States through contracted pharmacies under the RevAssist program, which is a risk-management distribution program. Internationally, REVLIMID is distributed under mandatory risk-management distribution programs.

REVLIMID continues to be evaluated in numerous clinical trials worldwide either alone or in combination with one or more other therapies in the treatment of a range of hematological malignancies, including multiple myeloma (MDS) various lymphomas, chronic lymphocytic leukemia (CLL) other cancers and other diseases. VIDAZA (azacitidine for injection) is a pyrimidine nucleoside. VIDAZA is a Category 1 recommended treatment for patients with intermediate-2 and high-risk MDS and is marketed in the United States for the treatment of all subtypes of MDS. In Europe, VIDAZA is marketed for the treatment of intermediate-2 and high-risk MDS, as well as acute myeloid leukemia (AML) with 30% blasts and has been granted orphan drug designation for the treatment of MDS and AML.

THALOMID (thalidomide) is marketed for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe erythema nodosum leprosum (ENL) an inflammatory complication of leprosy and as maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence. THALOMID is distributed in the United States under its System f! or Thalid! omide Education and Prescribing Safety (S.T.E.P.S.) program. Internationally, THALOMID is also distributed under mandatory risk-management distribution programs. ABRAXANE (paclitaxel albumin-bound particles for injectable suspension) is a solvent-free chemotherapy treatment option for metastatic breast cancer, which was developed using its nab technology platform. This protein-bound chemotherapy agent combines paclitaxel with albumin. As of December 31, 2011, ABRAXANE was in various stages of investigation for the treatment of expanded applications for metastatic breast; non-small cell lung; malignant melanoma; pancreatic; bladder and ovarian.

ISTODAX (romidepsin) has received orphan drug designation for the treatment of non-Hodgkin's T-cell lymphomas, which includes CTCL and PTCL. The Company has licensed the worldwide rights (excluding Canada) regarding certain chirally pure forms of methylphenidate for FOCALIN and FOCALIN XR to Novartis. It also licensed to Novartis the rights related to long-acting formulations of methylphenidate and dex-methylphenidate products which are used in FOCALIN XR and RITALIN LA.

Preclinical and Clinical-Stage Pipeline

The product candidates in the Company�� pipeline are at various stages of preclinical and clinical development. Pomalidomide is a small molecule that is orally available and modulates the immune system and other biologically important targets. Pomalidomide is being evaluated in a phase III clinical trial for the treatment of myelofibrosis and a phase III clinical trial evaluating pomalidomide as a treatment for patients with relapsed/refractory multiple myeloma is accruing patients.

The Company is developing a product, ORAL ANTI-INFLAMMATORY AGENTS, which is orally available small molecules that target PDE4, an intracellular enzyme that modulates the production of multiple pro-inflammatory and anti-inflammatory mediators, including interleukin-2 (IL-2), IL-10, IL-12, IL-23, INF-gamma, TNF-a, leukotrienes,! and nitr! ic oxide synthase. Its investigational drug, apremilast (CC-10004), is used for the treatment of moderate to severe psoriasis and active psoriatic arthritis and is being evaluated in a phase II trial for rheumatoid arthritis and six phase III multi-center international clinical trials. In addition, it is investigating its oral PDE4 inhibitor, CC-11050, which is an anti-inflammatory compound that treat a variety of chronic inflammatory conditions, such as Cutaneous Lupus Erythematosus (CLE).

The Company�� oral kinase inhibitor platform includes inhibitors of the c-Jun N-terminal kinase (JNK) mTOR kinase, spleen tyrosine kinase (Syk) c-fms tyrosine kinase (c-FMS) and DNA-dependent protein kinase (DNAPK). Its oral Syk, c-FMS and DNAPK kinase inhibitors are being investigated in pre-clinical studies. The Company�� new second generation JNK inhibitor, tanzisertib (CC-930), is being evaluated in a phase II trial for the treatment of idiopathic pulmonary fibrosis and a phase II trial for the treatment of discoid lupus is accruing patients. Amrubicin is a third-generation fully synthetic anthracycline molecule with potent topoisomerase II inhibition.

At Celgene Cellular Therapeutics (CCT), it is researching stem cells derived from the human placenta, as well as from the umbilical cord. CCT is the Company�� research and development division. Stem cell based therapies provide disease-modifying outcomes for serious diseases, which lack adequate therapy. It has developed technology for collecting, processing and storing placental stem cells with broad therapeutic applications in cancer, auto-immune diseases, including Crohn's disease, multiple sclerosis, neurological disorders, including stroke and amyotrophic lateral sclerosis (ALS), graft-versus-host disease, and other immunological / anti-inflammatory, rheumatologic and bone disorders.

The Company has collaborated with Acceleron Pharma, Inc. (Acceleron) to develop sotatercept. Two phase I clinical studies have been co! mpleted. ! An additional phase II clinical study has been initiated and is ongoing related to treatments for end-stage renal anemia and to evaluate effects on red blood cell mass and plasma volume.

The Company competes with Abbott Laboratories, Amgen Inc. (Amgen), AstraZeneca PLC., Biogen Idec Inc., Bristol-Myers Squibb Co., Eisai Co., Ltd., F. Hoffmann-LaRoche Ltd., Johnson and Johnson, Merck and Co., Inc., Novartis AG, Pfizer, Sanofi and Takeda Pharmaceutical Co. Ltd. (Takeda).

10 Best Low Price Stocks To Invest In Right Now: RXi Pharmaceuticals Corp (RXII)

RXi Pharmaceuticals Corporation (RXi), incorporated on September 8, 2011, is a development-stage company. The Company is a biotechnology company focused on discovering, developing and commercializing therapies addressing medical needs using RNA interference (RNAi)-targeted technologies. As of July 12, 2012, RXi was focusing on its internal therapeutic development efforts in fibrosis. RXI-109 is its RNAi product candidate, which is a dermal anti-scarring therapy that targets connective tissue growth factor (CTGF). The Company�� therapeutic platform consists of two main components: RNAi Compounds (rxRNA) and Advanced Delivery Technologies. RNAi compounds include rxRNAori, rxRNAsolo and sd-rxRNA, or self-delivering RNA. On April 26, 2012, it completed the spin-off transaction from Galena Biopharma, Inc. (Galena).

In January 2011, the Company announced research results in collaboration with Generex Biotechnology Corporation, and RXi�� wholly owned subsidiary Antigen Express, Inc., in developing vaccine formulations for immunotherapy. In January 2011, it announced initial results as part of its collaboration with miRagen Therapeutics, Inc. in creating microRNA mimics, or artificial copies of microRNAs, using the Company�� sd-rxRNA technology. In February 2011, it announced the initiation of RXi�� development program for RXI-109.

Best Biotech Stocks To Own For 2014: Scancell Holdings PLC (SCLP)

Scancell Holdings PLC is a United Kingdom-based company. The Company�� principal activity of the consists of the discovery and development of monoclonal antibodies and vaccines for the treatment of cancer. In April 2012, the Company completed recruitment to the Phase 1 clinical trial of SCIBI. In May 2012, the Company commenced recruitment and treatment of the first patient in the second part of it Phase 1/2 clinical trial of SCIBI. The Phase 2 part of the trial is conducted in five United Kingdom centers in Nottingham, Manchester, Newcastle, Leeds, and Southampton. On August 15, 2012, the Company announced the development of a platform technology, Moditope.

Friday, August 23, 2013

2 Health Care Stocks to Trade for Breakouts

DELAFIELD, Wis. (Stockpickr) -- Professional traders running mutual funds and hedge funds don't just look at a stock's price moves; they also track big changes in volume activity. Often when above-average volume moves into an equity, it precedes a large spike in volatility.

>>5 Stocks Setting Up to Break Out

Major moves in volume can signal unusual activity, such as insider buying or selling -- or buying or selling by "superinvestors."

Unusual volume can also be a major signal that hedge funds and momentum traders are piling into a stock ahead of a catalyst. These types of traders like to get in well before a large spike, so it's always a smart move to monitor unusual volume. That said, remember to combine trend and price action with unusual volume. Put them all together to help you decipher the next big trend for any stock.

>>5 Stocks Under $10 Set to Soar

With that in mind, let's take a look at several stocks rising on unusual volume today.

Eli Lilly

Eli Lilly (LLY) is a drug manufacturing company. This stock closed up 1.1% to $54.18 in Friday's trading session.

Friday's Volume: 14.71 million

Three-Month Average Volume: 5.45 million

Volume % Change: 191%

>>5 Stocks With Big Insider Buying

From a technical perspective, LLY trended up modestly here right above some near-term support at $53 with heavy upside volume. This stock has been uptrending strong for the last month and change, with shares moving higher from its low of $46.68 to its recent high of $54.45. During that uptrend, shares of LLY have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of LLY within range of triggering a near-term breakout trade. That trade will hit if LLY manages to take out some near-term overhead resistance at $54.45 with high volume.

Traders should now look for long-biased trades in LLY as long as it's trending above $53 or above its 200-day at $52.08 and then once it sustains a move or close above $54.45 with volume that hits near or above 5.45 million shares. If that breakout hits soon, then LLY will set up to re-test or possibly take out its next major overhead resistance levels at $57.10 to $57.90.

Nektar Therapeutics

Nektar Therapeutics (NKTR) is a clinical-stage biopharmaceutical company developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms, which are designed to improve the benefits of drugs for patients. This stock closed up 13.4% at $12.41 in Friday's trading session.

Friday's Volume: 3.59 million

Three-Month Average Volume: 1.11 million

Volume % Change: 248%

Shares of NKTR soared higher on Friday after its quarterly results topped Wall Street expectations.

>>5 Surprise Stocks the Pros Love Right Now

From a technical perspective, NKTR ripped sharply higher here right off its 50-day moving average of $11.21 with strong upside volume flows. This move is quickly pushing shares of NKTR within range of triggering a near-term breakout trade. That trade will hit if NKTR manages to take out some near-term overhead resistance levels at $12.91 to its 52-week high at $12.95 with high volume.

Traders should now look for long-biased trades in NKTR as long as it's trending above its 50-day at $11.21 and then once it sustains a move or close above those breakout levels with volume that's near or above 1.11 million shares. If that breakout hits soon, then NKTR will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $15 to $17.

To see more stocks rising on unusual volume, check out the Stocks Rising on Unusual Volume portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.


>>4 Stocks Under $10 Making Big Moves

>>5 Huge Stocks to Trade for Gains

>>5 Earnings Stocks Everyone Hates -- but You Should Love

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including and You can follow Pedone on Twitter at or @zerosum24.

Sunday, August 18, 2013

Schlumberger Leads The Way, Like It Usually Does

There are lively debates to be had about whether it's better to own the leaders or laggards as a sector bottoms, the idea being that the laggards have more to gain when conditions improve. Schlumberger (NYSE:SLB) is definitely no laggard, as the company once again delivered a set of results that confirms its leadership in multiple sectors and geographies in the energy services space. With Schlumberger doing well in North America, well-positioned in offshore/deepwater with its OneSubsea venture with Cameron (NYSE:CAM), and only beginning to take advantage of what China may have to offer, Schlumberger continues to look like a worthwhile idea in the energy space.

Second Quarter Results Come In Ahead
Unlike Baker Hughes (NYSE:BHI), where investors were frustrated in their expectations for a beat-and-raise quarter, Schlumberger delivered the goods with another strong, relatively well-balanced performance compared to expectations.

SEE: Baker Hughes Still Playing Third Fiddle

Revenue rose 7% from last year and 5% from the first quarter, as solid growth in international (up 10%/6%) offset more sluggish performance in North America (flat and up 2%). While Latin America continues to be a mediocre market (not helped by a slowdown in Mexico ahead of new contract awards), Russia, Africa, and the Mideast continue to offer growth opportunities for Schlumberger. It's also worth noting that Schlumberger did pretty well by revenue type – reservoir characterization revenue rose almost 9%/8%, while drilling was up 7%/4% and production was up 5%/4%.

Unlike Baker Hughes, which missed significantly on margins, Schlumberger came through strong after adjusting for the close of the OneSubsea JV. Overall operating income rose 9%/13%, with operating margin above 20% and better on both annual and sequential comparisons. North America was mixed (down 5%/up 6%), while international profits were up both annually and sequentially across the geographies.

North America Should Get Better, But How Much Better?
There are widespread hopes that things have gotten about as bad as they will get in North America in terms of drilling activity. To that end, pricing does seem to be improving across the board and activity may be picking up. Still, I think there are reasons to be careful in assuming a quick return to prosperity for the sector. E&P companies have come under a lot of pressure from investors to be more careful with their capital spending and balance sheets, and that could lead to a slower/flatter recovery trajectory. Even so, Schulmberger's strength in areas like reservoir characterization and exposure to oil should keep it in a good position relative to others like Baker Hughes and Halliburton (NYSE:HAL).

SEE: Analyzing Operating Margins

Multiple Ways To Grow
If North America recovers, Schlumberger will be there to take advantage of it. But it's not just a better North American market that could send Schlumberger higher – the company is also well-positioned to benefit from growth overseas and in offshore/deepwater activity.

The OneSubsea venture with Cameron gives the company an excellent technology/product partner, and the one-two combination of excellent equipment and Schlumberger's service capabilities ought to make it a formidable rival to companies like FMC (NYSE:FTI), General Electric (NYSE:GE), and so on. It's also worth mentioning that the company's JV with Anton Oilfield (Nasdaq:ATONY) in China should be a boost for the company's efforts to benefit from an upcoming boom in unconventional oil and gas exploration in China as company like CNOOC (NYSE:CEO) and PetroChina (NYSE:PTR) ramp up their efforts.

The Bottom Line
Schlumberger isn't the cheapest energy services stock today, and it seldom ever is. That's the price investors have to pay to invest with the leader in the sector. Giving Schlumberger an above-average 8.5x multiple to 2014 EBTIDA suggests a fair value of about $84 today, which doesn't suggest a major capital gains opportunity, but I wouldn't underestimate the possibility of those EBITDA estimates going higher. All told, Schlumberger may not be my first pick for the sector, but it's a quality name for investors who don't want to worry about execution issues or the difficult transition from being one of the lagging companies.

Dislcosure – As of this writing, the author owns shares of Cameron.

Friday, August 16, 2013

Q2 Expectations Low, Guidance Key - Ahead of Wall Street

Tuesday, July 9, 2013

This is Mark Vickery, covering for Sheraz Mian while he records an early-morning interview.

Even though we've "unofficially" entered Q2 earnings season with Alcoa's (AA) top-line beat reported after the bell Monday, we're ramping-up to the busy time like an avenue in Chicago. Aside from earnings reports from Yum! Brands (YUM), JPMorgan (JPM) and Wells Fargo (WFC) in the latter half of the week, there is but a small handful of companies posting quarterly results otherwise.

Things pick up next week with many financials following JPMorgan and Wells Fargo this week. And because the financial industry is expected to be the biggest performer in Q2, we'll likely get a fairly articulate view of how the second quarter is coming along within the next two weeks or so… just not right now.

That said, expectations for Q2 are almost laughably low at the moment. With forecasts having come down drastically in the past three months from around 3.6% to 0.4% now, the question is not whether the quarter will outperform expectations -- at least, we all should certainly hope it won't be -- but by how much. The past two quarters, Q412 and Q113, posted actuals of 2+% -- a perfect definition of the "muddle-through" economy pretty much everyone agrees we're enduring. See here for the excellent synopsis by Zacks Director of Research Sheraz Mian:

Will Earnings Growth Bottom in Q2?

So with no particularly extreme headwinds over the past quarter, one might reasonably expect we will find ourselves back in the 2+% range once the dust settles on the quarter (and we can all go on vacation).

But even more interestingly, if you look at the graph in the link above, you'll see projected earnings literally skyrocket for Q3 and Q4 -- to 5.1% and 11.7%, respectively. And although these are year-over-year comparisons, they are anything but easy hurdles; the second half of 2012 was stronger than the first half, too. In fact, as Sheraz Mian points out, "[T]he level of tot! al earnings expected in 2013 Q3 and Q4 represent new all-time high quarterly records."

Clearly, this puts a premium not directly on Q2 earnings (they're going to be pretty crappy) but on company guidance for Q3 and the fiscal year. We might expect things to ratchet down from 11.7% earnings in the fourth quarter -- 11.7%! -- but unless the earth crumbles beneath the feet of about every industry, we can feel secure things will be looking up in the second half. Certainly we should not ignore particularly bad guidance from anyone in the next few weeks, but barring any major catastrophe we should be enjoying new record highs in the next couple+ quarters.

Mark Vickery
Senior Editor

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Thursday, August 15, 2013

How Do You Estimate a Stock's Intrinsic Value?

Someone who reads my articles asked me this question: Geoff,

How do you estimate intrinsic value…do you do a DCF or some other method?


That's a great question. And a very hard one to answer. Let's start with the easy part: do I use a DCF?

No. I never use a Discounted Cash Flow analysis (DCF).

Why not?

A DCF is a pretty complicated and subjective approach that draws your attention away from the variables that matter. I've said before that the things to focus on – the variables to use in your analysis – are numbers that are:

1. Constant

2. Consequential

3. Calculable

Constant means the numbers you use should have some amount of durability. Don't use last year's sales growth rate. Can you use the 10-year sales growth rate?


You wouldn't want to do that for a homebuilder or a company that is in the business of selling some commodity that has seen tremendous price growth over the last 10 years. But you could certainly incorporate long-term growth in a market, technology, population, etc. It'll be easier to do this for some companies than for other companies. Focus on the companies where you know what matters and where the things that matter can be measured.

Any attempt at valuation involves assumptions on your part. One good rule: don't project faster growth over the next 10 years than the company achieved over the last 10 years. It's not enough to add a big margin of safety to the end of your appraisal process. You should incorporate conservatism into every level of your analysis. So, always assume growth is at least a little bit slower as the company ages. The bigger a company gets, the more likely it becomes that its rate of growth will be lower in the future than it was in the past.

Consequential means you only want to focus on numbers that matter. Don't worry about variables that don't move the needle. Focus on things like free cash flow, earnings, dividends, a! nd book value. And on the long-term trend in sales, EBITDA, and book value. For companies where book value doesn't matter – don't use it.

When valuing a company based on its ability to generate cash earnings – focus on free cash flow, earnings, EBITDA, and sales. When valuing a company based on its ability to grow its asset value – focus on book value, earnings, revenue, and leverage.

The top line matters at (almost) all companies. So always pay attention to sales and sales growth.

Usually, these are the things that matter. But sometimes other things matter more. Obviously, there are sometimes hidden assets, court cases, promising new drugs, etc. that don't appear in a company's financial statements at all. If you're looking at a company where one of those things overshadows the usual financial metrics – then toss the usual financial metrics out. Focus on what matters. Use common sense. Always keep the company's value to a private owner – a 100% buyer – at the front of your mind.

Calculable just means that the things you focus on need to be things you can measure and play around with. Numbers you can "crunch". Numbers you can put in simple formulas.

For example, an operating margin is calculable when you pair it up with a price-to-sales ratio and a tax rate. There's usually not a lot of uncertainty about those figures, so margins can be very helpful in any intrinsic value estimate – to the extent you think the margins are stable.

What's not calculable?

If a company grew 35% a year over the last 10 years – there's not much you can do with that information. Sure, it matters. And sure you can adjust that rate down in the future. But isn't that just being arbitrary. Are you really using the growth rate at all if you do that? Couldn't you just as easily pluck a rate from thin air?

It's very hard to quantify something like 35% revenue growth. I always bring this point up when people want to know my view of! Apple (A! APL). My view of Apple is that I can see a lot of its qualities for what they are – but I have a really hard time putting what I know about Apple into numbers. I don't want to say Apple's value is incalculable. A lot of people obviously do calculate the company's value. I just find it very hard to value because I know what matters at Apple – I just don't feel comfortable quantifying the things that matter and plugging them into some formula.

Intrinsic value estimate are tough. In fact, they're tougher than what's usually need to make oodles of money in specific stocks.

The best bargains are often obvious. A net-net is obvious. A great insurance company selling below tangible book value is obvious. A wide moat, growing, consistent company selling at 11 times earnings is obvious.

Buying stocks like those can make you rich. And buying them doesn't require making an actual intrinsic value estimate. It just requires recognizing that the stock's price is lower than some conservatively calculated value.

Coming up with a truly honest intrinsic value estimate is very hard. A truly honest intrinsic value estimate shouldn't be overly conservative but it still shouldn't cause you to buy stocks that will lose you loads of money.

That's a lot to ask.

There are some formulas out there. You can use a DCF. GuruFocus has a perfectly good DCF calculator you can use. After you type in a stock's ticker symbol, "DCF" is one of the tabs you can click on. Go ahead. Play around with it. It's a good tool. And a good way to get a feel for how a DCF works and exactly what assumptions are important. It's also good at showing you how much a few changes to your assumptions can radically change the intrinsic value estimate you get.

That's the biggest problem with most intrinsic value calculations. You have to make some assumptions you're comfortable with and some assumptions you're a lot less comfortable with. When you buy a stock – you want! it to be! because of assumptions you are totally comfortable with.

So, I want to stress that there's a difference between the rationale for buying a stock – your proof that it's cheap – and an intrinsic value estimate. Sometimes, an intrinsic value estimate might show a stock is very cheap. And yet you shouldn't buy that stock.

That's because the reliability of your assumptions is key.

Like I said, there are many formulas out there. I talk about Ben Graham a lot. So, I'll show you one of Graham's formulas:

V = EPS * (8.5 +2g)

"V" means intrinsic value. And "g" means growth rate.

Graham intended for this formula to be a way of showing what price a stock would trade at given a level of expected growth (and thus also what level of growth was expected of a stock trading at a certain price). He didn't intend his formula to be used as the sole criterion for buying stocks. And Graham didn't propose the formula as some sort of universal intrinsic value equation.

But it's a decent starting point. It's a formula you can look at for any stock you're interested in.

Let's look at Warren Buffett's recent purchase of IBM (IBM) using Ben Graham's formula.

V = $13.25 * (8.5 + 2(7))

Here, I'm using IBM's 10-year sales growth rate of 7% as its expected future growth rate. You can argue with this. But let's see how it works with that backwards looking number.

V = $13.25 * (8.5 + 14)

Well, 8.5 + 14 is telling us that 22.5 is the right P/E multiple for IBM according to Ben Graham. Does that sound right?

Actually, it sounds a little high to modern ears. But, there's a dividend issue here. The P/E multiple you're willing to pay for a stock should depend on its future growth in per share earnings and its future dividend payments.

If a company had a high dividend payout ratio and was growing at 7% a year – a P/E ratio of 22.5 sounds fine to me. On the other hand, if a company was retai! ning all ! of its earnings and still only growing its earnings per share by 7% a year – I'm not sure a P/E of 22.5 would make sense.

Later in his life, Graham developed a more complicated formula that incorporated interest rates into the equation. Personally, I find the way he did it kind of clunky and not necessarily much of an improvement. Graham recognized a legitimate concern – the risk that changes in the level of interest rates would cause changes in the level of P/E ratios – but he didn't do a really good job of addressing it.

If you just Google "intrinsic value formula" you will be overwhelmed by the number of results. Most of them are attributed to one investor or another – often Ben Graham or Warren Buffett – but none of them are as practical as you'd expect.

There's a good reason for this. The toughest part of developing an intrinsic value formula is making it "one size fits all". Different companies get their value from different places. Some companies have amazing brands, some own priceless real estate, some have big investment portfolios, others have lots of cash flow which they plow back into the business, others pay all their cash out in dividends, still others eschew dividends entirely and focus on share buybacks, while yet other companies are focused on fabulous sales growth today that will hopefully turn into amazing earnings down the road.

These are the things you can measure. But they don't allow you to make an apples to apples comparison.

The future cash flows – which a DCF uses – are what matters. Future cash flows are what allows you to make an apples to apples comparison. It's a universal approach. But it involves a lot of guesswork. You can't measure future cash flows. You can only project them.

The things you can measure: earnings, dividends, past growth rates, and current interest rates also matter. Personally, I think those are the things to focus on. Because those are things you can measure.

Moving! on to a ! DCF does more to improve your appraisal in theory than in practice. A DCF leaves the toughest part to you. It tells you to project future cash flows.

The hard part of an intrinsic value estimate is getting from the things you know: earnings, dividends, past growth rates, interest rates, etc. to the future you don't know.

My own view is that it's better to start on firm practical ground – actual observable data in the present day – than to try to get on the best theoretical ground by using a DCF.

I'm interested in what works in practice. And I don't think a DCF does.

To me, a DCF isn't a very useful tool beyond just reminding you of the important principle that cash today is worth more than cash tomorrow.

In most cases, the actual number crunching of a DCF does not leave an investor with a clearer understanding of what a stock is worth.

That's because the danger in every DCF lies in the assumptions you are making.

Ask Geoff a Question About How to Estimate a Stock's Intrinsic Value
Check out the Ben Graham Net-Net Newsletter

Wednesday, August 14, 2013

Is Cyber Monday The New Black Friday?

While Black Friday is the biggest shopping day of the year, Cyber Monday is one of the biggest shopping days for online consumers. With retailers offering rock-bottom prices on a variety of products, some of the Cyber Monday deals give the highly coveted Black Friday sales a true run for their money. Does this mean that Cyber Monday is the new Black Friday? The answer to this question depends on the type of shopper you are and how good the deals are in stores near you. Here are three reasons why Cyber Monday may just be the New Black Friday.

More Enjoyable Than Black Friday Shopping
While many consumers take advantage of Black Friday shopping, it should be said that Black Friday shopping is no walk in the park. Black Friday hassles include long lines, over-crowded stores and low stock of highly sought after merchandise. The reason why Cyber Monday performs so well is that you can shop for your holiday gifts from the comfort of your own home. There is no need to rush out right after Thanksgiving dinner, stand in line in the cold and camp out for the doors to open at your local big box store. Cyber Monday allows consumers to shop for merchandise at rock-bottom prices without having to leave their homes.

Tremendous Deals That Rival Black Friday Sales
According to an article released by, many consumers are holding out until Cyber Monday for the best deals on merchandise. In 2011, Cyber Monday was the biggest online shopping day of the year with over $1.25 billion in sales. While many Cyber Monday ads are still under lock and key by retailers across the country, there are some who have given consumers a sneak peak. Surprisingly, many of these Cyber Monday ads rival Black Friday ads, which gives consumers much to consider in terms of when they will be going shopping this year.

Survey Expects a Huge Turnout for Cyber Monday 2012 has conducted a consumer survey and the findings show that almost half of the consumers surveyed plan to spend more money shopping ! online on Cyber Monday than in stores during the entire holiday season. Another notable finding from the survey includes 42% of consumers plan to scope out the deals on Black Friday and plan to make their purchases on Cyber Monday. Only time will tell if the survey's findings will ring true after the Cyber Monday sales figures are tallied. If 2012 follows suit with previous years, Cyber Monday will be a very good sales day indeed.

The Bottom Line
While the premise of Black Friday and Cyber Monday is similar, the way consumers shop is considerably different. Black Friday and Cyber Monday both aim to attract consumers to purchase more than they normally would with low prices and over-hyped ads. While Black Friday pulls massive crowds of consumers into retail stores across the country, Cyber Monday has consumers logging in, browsing and shopping online. Cyber Monday has the potential to increase sales and many retail stores offering free shipping. While Cyber Monday does not replace Black Friday, it is definitely giving shoppers a serious second alternative to waking up before dawn, standing in long lines and dealing with holiday season retail stress. This year is looking to be a great one for Cyber Monday and Black Friday sales, but it remains to be seen which day will reign supreme when it comes to sales.

Sunday, August 11, 2013

Is Oracle a Buy Here?

With shares of Oracle (NASDAQ:ORCL) trading around $30, is ORCL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Oracle is a provider of enterprise software and computer hardware products and services. The company's software, hardware systems, and services businesses develop, manufacture, markets, host, and support database and middleware software, applications software, and hardware systems, with the latter consisting primarily of computer server and storage products. It is organized into three businesses: software, hardware systems, and services. Information technology products and services are seeing increasing demand due to the surge of companies in developing economies. As businesses continue to grow, look for Oracle to offer the support required that will send it to rising profits.

T = Technicals on the Stock Chart are Weak

Oracle stock has seen a consistent uptrend over the last several years. The stock is now seeing a sharp pullback after a couple of negative earnings reports. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Oracle is trading below its rising averages which signal neutral to bearish price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Oracle options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Oracle Options




What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options



August Options



As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Oracle’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Oracle look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction


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Oracle has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have grown to expect more from Oracle’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Oracle stock done relative to its peers, Microsoft (NASDAQ:MSFT), SAP (NYSE:SAP), International Business Machines (NYSE:IBM), and sector?




International Business Machines


Year-to-Date Return






Oracle has been a poor relative performer, year-to-date.


Oracle is an international supplier of software and hardware products and services to companies operating in various industries. The stock has displayed a consistent uptrend in recent years but is now seeing a pullback after a couple of negative earnings reports. Over the last four quarters, earnings and revenue figures have been rising, however, investors in the company have grown to expect more. Relative to its peers and sector, Oracle has been a poor relative performer, year-to-date. WAIT AND SEE what Oracle does in coming quarters.

Friday, August 9, 2013

The Strongest Stocks in the Strongest Markets

Paul Goodwin, editor of Cabot China & Emerging Markets Report, explains his global strategy and highlights some favorite investing ideas, from Latin America to Asia.

Steve Halpern: We are here today with Paul Goodwin, editor of Cabot China & Emerging Markets Report. How are you doing, Paul?

Paul Goodwin: I am fine, thanks.

Steve Halpern: You developed an emerging markets timing system which lets you know whether to be adding to your positions or scaling back. Could you tell us a little about your system, and what the outlook for emerging markets is, based on that?

Paul Goodwin: Sure. The Cabot Market Timing Strategy is based on the idea that it isn't really possible to know what markets are going to do in the future, but we can certainly know what they are doing right now.

We use a 25 and 50-day simple moving average on the particular index that we're using, which, in my case, is the Power Shares Golden Dragon China, and we see if the index is above its 25 and 50-day moving averages, and if those averages are moving up.

So, right now the Power Shares is up at 24.40, the 25-day moving average is down at 22, so we have a nice, strong bull market in Chinese stocks, we have a pretty fair margin there, a very comfortable margin.

So, when we have a situation like this, where the market is definitely bullish, we increase our exposure to emerging market funds, and if the market is down, when it falls below those moving averages, then we reduce our positions somewhat and go to cash.

We don't really have an outlook on what the market is going to do, but this system makes sure that we never miss a bull market and that we never stay heavily invested in a bear market.

Steve Halpern: One interesting point that you've made is that US commentators often allow their ideology to cloud their view of China, which is an area that's the primary focus of yours, but that you have no axe to grind. Could you explain that?

Paul Goodwin: Yeah, I know that there are a lot of people in the same way that, you know, I knew people who went through World War II who would never buy a Volkswagen, in the same way there are people who see China as essentially a communist dictatorship and they say they will never invest there, and you know, I don't want to argue with these people.

I could point out that China has brought more people out of poverty than any country in the past century, but I don't really care. What I'm trying to do is to advise people on how to find the strongest stocks in the strongest emerging markets.

So if people want to be patriotic about it, or if they want to view China as the enemy, as people did, say, with Japan back when it was strong, that's their business, but I'm looking for strong stocks and strong markets.

Steve Halpern: You've also noted that you don't have a country bias when you look globally, and while you do look closely at China, you're also willing to look anywhere within the emerging markets world. Where are you seeing opportunities now?

Paul Goodwin: Well, one stock I kind of like right now is called Mercado Libre (MELI), it's essentially the eBay of Latin America, and its stock has been in an uptrend for awhile, and I think there is great opportunity in Latin America.

But when I say I don't have a country, or even a regional bias, I really don't care where the growth is coming. I don't have projections for what's going to happen in, you know, Turkey, or Kazakhstan, or anything of the sort. I'm looking for strong stocks that are delivering good results.

Steve Halpern: Given that you also do focus on China, for those investors who are willing to invest there, is there a stock you'd mention that you particularly like at this time?

Paul Goodwin: I, you know, I think one that I really like right now is a name that everyone should be familiar with. It's Baidu (BIDU), which generally is—whenever people mention Baidu they generally say—the Google of China.

Baidu does have a commanding lead in the search market in China, but for various reasons the stock, after peaking in 2011, went from 166 about down to 83, and along with a lot of Chinese stocks, they were just out of fashion.

But it's really hard to argue with a company that has, the last three years of revenue growth are 81%, 92%, and 57%, and I think with the stock now trading up around 135, I still think it represents a great value and a great way to play the strength of China.

Steve Halpern: Well, thank you very much for joining us today. We really appreciate your time.

Paul Goodwin: Thank you.

Subscribe to the Cabot China & Emerging Markets Report here…

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The expert featured in this column, Paul Goodwin, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.

Thursday, August 8, 2013

The Value Of Sin Stocks

The stock market has no shortage of names, products, or categories that try to classify stocks in order to give them greater exposure. Whether that exposure is good or bad is up to the individual investor or money manager to decide. Today we have thousands of exchange traded funds (ETFs) for whatever flavor of investing could possibly be desired. Interested in agriculture? You can find an ETF for US agricultural stocks, global agricultural stocks, or even bet against agricultural with an ETF that goes short agriculture.

Another category of stocks, which can go by various different names, are affectionately known as sin stocks.

What Are Sin Stocks You Ask?
Well, the reality is that sin stocks can mean different things to different investors. To many, a pharmaceutical company that manufactures or promotes an abortion pill is deemed a sin stock. To others, it's a company that drills for oil near environmentally sensitive locations. A retailer whose clothing may be connected to abusive third world factories may be a sin stock to another group of investors. It truly is a matter of preference.

Yet if one were to categorize the most commonly labeled sin stocks they are likely to include companies that deal in tobacco, alcohol, and other products deemed inappropriate or "harmful" to the social well-being of society. To many people tobacco simply means cancer; alcohol means intoxication and the consequences that come of it; adult magazines and films mean degradation. In other words, these types of businesses are labeled "sin stocks" because of the belief that such enterprises offer no value to society.

In the stock market, businesses are ultimately valued on their ability to generate profit and cash flow over a sustainable period of time. One of the most common valuation metrics is the price to earnings, or P/E, ratio. The P/E ratio is as simple as the name sounds: it's the multiple of earnings that investors are willing to pay for a share of stock. The higher the P/E ratio the more investors are willing to pay for a company. Another sometimes useful metric is the price to book, or P/B, ratio. Book value is the net asset value of a company - what a company is worth after subtracting out all liabilities. A company trading below book value may often reveal an undervalued business or a business where investors have lost confidence in the company's assets while a business trading above book value implies that the market likes the assets enough to pay more than stated value.

SEE: How To Use The P/E Ratio And PEG To Tell A Stock's Future

Are Sin Stocks Valued Differently?
But does the market assign valuation equally amongst companies? The obvious answer is no. Just look at Mexican restaurant chain Chipotle (NYSE:CMG) which is trading at a price to earnings ratio (P/E) of 42 versus Panera Bread (Nasdaq:PNRA) at a P/E of 26 versus McDonald's (NYSE:MCD) trading at a P/E of 18 (P/E ratios are as of July 2013). Clearly the market is very fond of Chipotle due to its impressive growth potential in the years to come.

So how does Mr. Market treat the so called "sin stocks" with respect to valuation? Even though we have established that the market values all manner of stocks differently, are sin stocks treated even more differently? Phillip Morris (NYSE:PM) is one of the largest cigarette manufacturers in the world with brands like Marlboro and Virginia Slims. Phillip Morris has, for decades, been a steady dividend payer and has generated stable cash flows. As of July 2013, the dividend yield is 3.8%, a very attractive number in today's low interest rate world. Shares in Phillip Morris currently trade near a 52 week high at a P/E ratio of 17. Over the years from 2008 to 2013, Phillip Morris shares have appreciated by 70%. When you add in the near 4% annual dividend, an investment in this "sin stock" has done very well and is clearly not being held back by the market. Another tobacco company, Reynolds American, currently has a P/E ratio of 18 and a P/B ratio of 5.3. Shares have advanced 83% in the past five years.

SEE: Socially Responsible Investing Vs. Sin Stocks

Let's look at another so called sin stock, Anheuser-Busch InBev (NYSE:BUD) one of the largest producers and suppliers of beer and alcohol. Shares in BUD trade for a P/E of 19. In the past five years, shares have appreciated by over 130%, well exceeding the return generated by the S&P 500 over the same period of time. In addition shares trade for nearly 4 times book value, clearly indicating the investors are willing to pay a premium for the assets of an alcohol business.

Let's compare these numbers with those of more traditional consumer stocks:

Coca-Cola (NYSE:KO) currently has a P/E ratio of 21 and a P/B ratio of 5.6. Shares have advanced by over 52% in the past five years.

Procter and Gamble (NYSE:PG) maker of things like Gillette razors, Crest toothpaste, and Pampers diapers currently has a P/E ratio of 18 and a P/B ratio of 3.3. Shares are up 24% in past five years.

Kraft Foods (Nasdaq:KRFT) has a P/E ratio of 21 and P/B ratio of 9. Kraft was recently split into two new companies so a five year return is not a good comparison but over the past year shares have advanced by 25%.

The Bottom Line
One can draw a few conclusions from the above data. First, the notion that sin stocks are valued differently because of their specific line of business is a myth. The performance data and valuation metrics suggest that the market is not valuing tobacco and alcohol blue chip stocks differently from traditional consumer stocks. Second, over the long run the market seems to get it right and assign valuations based on earnings growth. Ironically, it seems that the inelastic demand of products like cigarettes and alcohol - people don't smoke or drink any less during a recession - causes the market to occasionally value these stocks at a premium to other businesses who are more sensitive to economic trends. In sum, the stigma that a sin stock receives seems to be more concentrated among individual investors who are certainly entitled to avoid them. The overall market, on the other hand, seems to look favorably on the stability that these companies' products possess and value them appropriately over the long run.

At the time of writing, Sham Gad did not own any shares in any of the companies mentioned in this article.

Wednesday, August 7, 2013

Redwood Trust Keeps Dividend Steady

Real estate investment trust  Redwood Trust  (NYSE: RWT  ) announced today its third-quarter dividend of $0.28 per share, the same rate it's paid for the past two quarters after raising the payout 12% from $0.25 per share.

The board of directors said the quarterly dividend is payable on Sept. 30 to the holders of record at the close of business on Sept. 13.

Noting the importance of the quarterly payout, Redwood Trust CEO Marty Hughes said the "third quarter dividend will mark our 57th consecutive quarterly dividend." Redwood had maintained the dividend at the $0.25 level since 2009 after the payout was slashed from $0.75 per share during the depths of the recession.

The regular dividend payment equates to a $1.12-per-share annual dividend, yielding 6.7% based on the closing price today of Redwood Trust's stock.

RWT Dividend Chart

RWT Dividend data by YCharts

Tuesday, August 6, 2013

European Stocks Rise as Credit Agricole Beats Forecasts

European stocks advanced for a seventh day as companies such as Credit Agricole SA posted better-than-expected earnings, outweighing cuts in profit forecasts from Salzgitter AG and Lanxess AG. U.S. index futures and Asian shares were little changed.

Credit Agricole (ACA) increased 1.4 percent after reporting that profit surged in the second quarter. InterContinental Hotels Group Plc rose 2.9 percent after posting an increase in first-half profit. Salzgitter, Germany's second-largest steelmaker, tumbled 10 percent after saying it expects a pretax loss of about 400 million euros ($530 million) this year.

The Stoxx Europe 600 Index added 0.4 percent to 305.83 at 10:10 a.m. in London. The benchmark gauge rose every day last week, adding 1.8 percent in the period, as European Central Bank President Mario Draghi said interest rates in the euro zone will remain low for an extended period. Standard & Poor's 500 Index futures climbed less than 0.1 percent today. The MSCI Asia Pacific Index added 0.1 percent.

"The second-quarter corporate-reporting season is now beginning its slow glide-path down, with the overall picture having been that most companies managed to beat lowered expectations," Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, wrote in an e-mail. "The attraction of equities as the investment destination of choice remains intact, given the ongoing loose and accommodative monetary policies in most developed economies."

Fisher Warns

Federal Reserve Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing, warned investors not to rely on stimulus.

"Financial markets may have become too accustomed to what some have depicted as a Fed put," or the idea that the central bank will loosen credit after a market decline, Fisher said yesterday in a speech in Portland, Oregon.

Still, "markets continue to ponder the Federal Reserve's next move, with some speculation that next month's tapering of quantitative easing may slip back following the weaker than expected non-farms on Friday," Hunter said, referring to a U.S. report that showed employers added fewer workers in July than economists had forecast.

Credit Agricole increased 1.4 percent to 7.95 euros. France's third-largest bank by market value said profit surged in the second quarter after the sale of its unprofitable Greek unit. Net income jumped to 696 million euros from a restated 56 million euros a year earlier, the lender said in a spreadsheet posted today on its website. Earnings beat the 481.6 million-euro average estimate of eight analysts surveyed by Bloomberg.

InterContinental Profit

InterContinental Hotels rose 2.9 percent to 1,964 pence after the world's largest provider of hotel rooms reported first-half net income of $340 million, compared with $271 million a year earlier.

Royal DSM NV (DSM) added 5.4 percent to 55.49 euros. The Dutch chemical company posted second-quarter profit that beat analyst estimates after a $3.1 billion-acquisition spree and as it cut costs. Earnings before interest, taxes, depreciation and amortization jumped 19 percent to 345 million euros. That exceeded the 333 million-euro average estimate of 11 analysts.

Salzgitter slid 10 percent to 25.89 euros, its biggest decline since March 2009. The steelmaker expects a pretax loss of about 400 million euros this year amid a slump in demand due to the deterioration of the European economy. "The ongoing recession in many European countries has put pressure on the European steel industry in the form of a structural crisis," it said yesterday after the close of regular trading.

Lanxess Cuts

Lanxess AG, which has fallen about 30 percent since joining Germany's benchmark DAX index in September, retreated 3 percent to 45.11 euros after it cut its profit forecast for 2014 and predicted no recovery in second-half demand. The Cologne, Germany-based company said it won't achieve its Ebitda target for next year of 1.4 billion euros. It forecast earnings for this year of 700 million euros to 800 million euros.

Munich Re (MUV2), the world's biggest reinsurer, dropped 4.5 percent to 145.85 euros after it said second-quarter profit fell 35 percent, missing analysts' estimates, as claims arising from natural disasters rose. Net income dropped to 529 million euros from 808 million euros a year earlier, trailing the 557.1 million-euro average estimate of analysts surveyed by Bloomberg.

Randgold Resources Ltd. (RRS), a gold miner in Africa, declined 2.9 percent to 4,554 pence. Fresnillo Plc, the world's biggest primary silver producer, sank 7.2 percent to 962 pence after cutting its interim dividend by 68 percent from a year earlier because of a slump in precious-metal prices.

A gauge of commodity producers fell the most of the 19 industry groups in the Stoxx 600.

Sunday, August 4, 2013

Why Bitauto Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bitauto (NYSE: BITA  ) have plunged today by as much as 18% after the company reported first-quarter earnings.

So what: Revenue in the first quarter added up to $38.6 million, which translated into non-GAAP profits of $3.7 million. The top and bottom lines were up 34.6% and 29.1% relative to a year ago, but investors were still left wanting more. The results were in line with Bitauto's guidance.

Now what: The company has shifted to a new reporting structure with four distinct segments. The advertising business is the biggest moneymaker, growing 57% during the quarter. CEO William Li said the company is focusing on boosting awareness of its brand, enhancing its platform, and investing in the used-car business. Second-quarter sales are expected in the range of $52.3 million to $53.9 million.

Interested in more info on Bitauto? Add it to your watchlist by clicking here.

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Saturday, August 3, 2013

Can Marathon Petroleum Keep Its Profits Up?

On Tuesday, Marathon Petroleum (NYSE: MPC  ) 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.

Conditions in the refining industry have never been better, with a combination of factors bringing crude oil prices down while keeping gasoline and diesel prices high. Yet some storm clouds on the horizon could bring those favorable conditions to an end in the future. Let's take an early look at what's been happening with Marathon Petroleum over the past quarter and what we're likely to see in its quarterly report.

Stats on Marathon Petroleum

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

Top 10 Stocks For 2014

$19.8 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How can Marathon Petroleum keep growing this quarter?
Analysts have boosted their earnings estimates on Marathon Petroleum sharply in recent months, with a $0.40 per share increase in their first-quarter estimates and a jump of more than $1 per share for their full-year 2013 calls. The stock is up 20% since late January, yet a 10% drop in the past month reflects more recent concerns going forward.

Marathon Petroleum has capitalized on the supply and demand disparities between U.S. producers and worldwide consumers of energy products. With high demand from resource-poor countries like Japan and South Korea as well as several Western European nations, Marathon, Valero (NYSE: VLO  ) , and Phillips 66 (NYSE: PSX  ) have all boosted their exports of refined products to more than half a million barrels at the end of 2012.

More recently, though, conditions for Marathon have gotten somewhat less favorable. The premium that energy companies have been willing to pay for Brent crude over U.S. oil has fallen recently, reducing the cost advantage that Marathon and its peers have over foreign refiners. On the regulatory front, Marathon has been buying up ethanol credits in an effort to forestall requirements to blend more ethanol into its gasoline, and proposed new EPA pollution-control regulations could cost Marathon and its peers huge amounts of money to make necessary improvements to facilities.

In Marathon's quarterly report, watch for how the refiner's relationship with spun-off midstream pipeline operator MPLX (NYSE: MPLX  ) is faring. With Marathon holding a majority stake in MPLX, its pipeline assets will play an increasingly important role in bringing midcontinent energy products to its refineries.

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

Hedge Funds Are More About Playing Games Than About Investing

George Soros recently took a large stake in Herbalife (NYSE: HLF  ) , the same company hedge fund giants Bill Ackman, Carl Icahn, and Dan Loeb have been fighting over for most of the past year. The tiff between the men highlights how much of a game hedge fund investing can be. It's not about long-term investing like we promote here at The Motley Fool; it's about short-term profits and bashing the competition whenever possible.

Hedge funds have at times become more focused on this game that they are on investing. And believe me, this isn't a game you or I can play.

The art of the short squeeze
Shorting a stock is one of the few ways to make a profit when a stock goes down, but it's also a dangerous way to bet, because your downside potential is limitless, which is why hedge funds target short-sellers like Ackman.

I first learned of the power of the short squeeze in hedge funds from Jim Cramer's Confessions of a Street Addict, which came out in 2002 before dozens of hedge fund managers became household names. Cramer wasn't always the boisterous TV personality he is today; he was once a respected, albeit volatile, hedge fund manager with a long track record of solid returns.

What a lot of people outside Wall Street don't understand is how small the inner circle is there. Ackman and Icahn have had dealings in the past, Loeb was once friends with Ackman, and lots of smaller funds run with the same crowd. That's why it's easy to learn when someone is building a big short position and when other managers may be able to implement a short squeeze. In Ackman's case, it would go something like this:

Ackman has made a $1 billion bet against Herbalife, which would be difficult to liquidate, given its sheer size. If other managers buy up large stakes and go on talk shows touting the stock, and the market pushes it higher in response, Ackman could be sitting on a big loss. Even a 100% loss on the short position may not be devastating to his $12 billion hedge fund Pershing Square Capital, but if he has a few redemptions or a few other bets go the wrong way, it could force Ackman to liquidate, causing a short squeeze. That's when other managers see blood in the water, and whether they like a company or not, the mechanics of the market can push a stock higher -- fast.

Just look at Tesla Motors' (NASDAQ: TSLA  ) meteoric rise over the past three months. When Tesla reported earnings last, there were 116 million shares outstanding, and about 26% of those shares were sold short. When the stock began to rise, many investors panicked and closed out short positions, fueling the rise over the next few weeks. Since then, 12 million fewer shares are short, and the short squeeze was a huge winner for those who could ride it. 

Trading games
The short squeeze is just one of the games hedge funds play that most investors can't. David Einhorn has become masterful at using speaking engagements at investing conferences to tout his positions, usually resulting in a herd mentality to follow him. Others will go on CNBC or contact newspapers to spread rumors that may or may not be true. Then there's insider trading that Steve Cohen's SAC Capital is currently dealing with.

These aren't games most people can play, and they highlight what a different world hedge funds live in. Most aren't in a stock for the long-term; they simply see an opportunity they can exploit and will do so as long as it's legal or they can avoid getting caught. That's why following a big name can be dangerous, because by the time you know what they're doing, they've already won and may be taking the opposite side of the very trade you're making to follow them.

Long-term investing wins
The average investor can't wage a proxy war like Carl Icahn, short a stock like Bill Ackman, or bring a company to its knees like David Einhorn, and we really shouldn't try. Foolish investors know that long-term investing is about finding great companies and holding them for a long time.

There's also no guarantee that playing games like big hedge-fund managers do will work. David Einhorn returned just 8.3% last year, Ackman returned 12.4%, and John Paulson's famous gold fund is down 65% so far this year. Meanwhile, the Dow Jones Industrial Average's (DJINDICES: ^DJI  ) total return for 2012 was 8.6%, the S&P 500's (SNPINDEX: ^GSPC  ) was 14.2%, and the two are up 20.9% and 20.6%, respectively, so far this year.

You, too, can outperform hedge fund titans -- without playing games. Dividend stocks are key to market-beating returns, and while they don't garner the notoriety of highflying hedge funds, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Thursday, August 1, 2013

Why the Comic Book Movie Boom Could Make Fox Investors Rich

Soon audiences will get another look at Hugh Jackman in The Wolverine, the sequel to 2009's disappointing X-Men Origins: Wolverine and part of the Marvel's mutant team of X-Men to which 21st Century Fox (NASDAQ: FOX  ) investors own the film rights. Even so, Fox's best comic book movie property might very well be an insane assassin named Deadpool.

Ryan Reynolds played the character in Origins. Activision Blizzard has since teamed with High Moon Studios to create an intense, quip-laden, fourth-wall-breaking title featuring the character Marvel calls its "merc with a mouth."  Gamers give it decent ratings on the Xbox and PS3 -- about 60 out of 100 according to data compiled by the ratings site Metacritic.

But now fans here at and elsewhere want to see Deadpool in his own comic book movie, says Fool contributor Tim Beyers in the following video. So does Reynolds. He's said as much in public statements.

So why can't Walt Disney (NYSE: DIS  ) just go make it? Cave in and shoot an R-rated film featuring Deadpool? Because the character first appeared in a comic series called "The New Mutants," and as such, is considered an X-Men property. Fox has the film rights to the entire X-Men family of characters.

Meanwhile, R-rated comic book films suffer from a mixed track record. If Fox isn't yet willing to make a Deadpool film, it may very well be because we don't yet know if the market for violent films based on comic books is anywhere near as robust as it is for excessive video games such as Take-Two Interactive's highly anticipated GTA V, Tim says.

Will Fox profit as much as Disney from the comic book movie boom? Leave a comment to let us know what you've seen this summer and what you expect from future studio releases in the genre.

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