Investopedia: High Cotton Or Not, Phillips-Van Heusen Worth A Look

There are not too many truly cheap stocks out there, nor a surplus of stories that are completely spot-free. In times like these, investors have to move on to stories where certain concerns are inflated or where undervaluation lies beyond the quick valuation ratios and in the cash flow capabilities of the company. Clothing wholesaler and retailer Phillips-Van Heusen (NYSE:PVH) is one such candidate - a quality company that is not necessarily cheap on first blush, but looks like a quality undervalued opportunity.
 
A Solid End to the Year
PVH's earnings are not necessarily easy to digest - the company made a major acquisition (Tommy Hilfiger) and that makes the year-on-year comparisons a little more difficult. To the company's credit, though, they give investors an unusually-extensive amount of financial detail and it looks like the quarter was solid with or without the acquisition.

As reported, revenue jumped almost 128% to just under $1.4 billion, and beat the average analyst guess. The inclusion of over $700 million in Tommy Hilfiger revenue clearly made a major difference, though the core organic growth rate looks like it came in at more than 12%. In particular, the Calvin Klein business rose over 18%, with licensing revenue (from the likes of Warnaco (Nasdaq:WRNC) and G-III Apparel (Nasdaq:GIII)) up 11%.

Profitability was more of a mixed story. Gross margin did improve almost three points, but that was still less than most analysts expected. Likewise, adjusted operating margin of over 9% was not bad but not great relative to expectations. All in all, then, PVH's outperformance this quarter was fueled by higher sales and lower taxes, offset by some margin challenges.


To read the full piece, please go to:
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Investopedia: Valeant Offers A Princely Sum For Cephalon

The news Tuesday evening that Cephalon (Nasdaq:CEPH) had received a bid was not all that surprising. Cephalon had long been a fixture on analysts' short-lists of biotech/specialty pharma companies that could be sellers in M&A transactions. To see the bid come from Valeant (NYSE:VRX), though, was surprising as few people had talked about this pharma company as an active bidder in high-value deals. 

That said, and while the deal is far from a sure thing at this point, this deal makes quite a bit of sense and may be the best opportunity for Cephalon shareholders to get value for some time.  

The Terms of the Deal 

After what appears to be weeks of frustrated attempts to strike a friendly deal, Valeant went public with an unsolicited bid of $5.7 billion for Cephalon. This deal would deliver $73 a share in cash to Cephalon shareholders, an amount that Valeant would fund with debt from Goldman Sachs (NYSE:GS).

All in all, it does not look like a bad bid for Cephalon. It represents a 24% premium to Cephalon's prior close, and a 12% premium to the consensus analyst price target on the shares (for the very little that those are often worth). The deal also represents an EV/EBITDA of just under five and a forward P/E of over eight on 2011 earnings and almost 13 on 2012 earnings.

To read the full article, please click the link:
http://stocks.investopedia.com/stock-analysis/2011/Valeant-Offers-A-Princely-Sum-For-Cephalon-VRX-CEPH-FRX-PFE-ENDP-SLXP-WRCX0331.aspx

FinancialEdge: 5 Of The Most Adapative Companies

Adaptation and survival often go hand in hand. True, some companies, such as Coca-Cola (NYSE:KO), can figure out one thing, do it extremely well and enjoy success for decade after decade. For other major companies, though, continued prosperity has come from management teams willing to see a different future for the company and unafraid of making large scale changes to the enterprise. (For related reading, also take a look at Behind The Big Brands.)

1. DuPont
DuPont (NYSE:DD) is a great starting point when talking about companies that have adapted over time. Now known as one of the world's largest chemical companies, DuPont got its start in gunpowder. DuPont was so successful in gunpowder, in fact, that the company supplied something like half of the Union's needs during the Civil War.

From its origins in explosives, DuPont ultimately added other businesses like lacquers and synthetic rubber before inventing the first polyesters, nylon, Teflon and the first phenothiazine insecticide. Along the way, the company continued to pioneer new plastics and synthetics, but also products in fields like crop science (seeds and fertilizers), healthcare, electronics and nutrition. In many cases, DuPont has been the first in the field to develop a new compound or product, and the company continues to support a rare commitment to R&D for a company of its size and age.

To read the full column, please go to FinancialEdge:
http://financialedge.investopedia.com/financial-edge/0311/5-Of-The-Most-Adaptive-Companies.aspx

Investopedia: VimpelCom Looking To Join The Big Leagues

Mergers and acquisitions are in vogue in the mobile phone world, and not just with AT&T's (NYSE:T) acquisition of Deutsche Telekom's T-Mobile. Companies around the globe are shuffling their decks and Russia's VimpelCom (NYSE:VIP) has been among the most active. Once the dust clears, this company looks to be one of the largest operators in the world, and a decent way for retail investors to play emerging markets with few publicly-traded companies of their own. 

A Mixed Close to the Year  

VimpelCom posted 22% revenue growth in the final quarter of the year, beating the average analyst estimate. Growth was helped by higher subscriber counts and improved usage stats in the company's peripheral operating areas (CIS, Kazakhstan, Uzbekistan and so on), growth that more than offset flatter (albeit still positive) performance in Russia and Ukraine.
Profitability was more mixed. VimpelCom reported OIBDA (similar to EBITDA) growth of 15% and overall profitability was a bit below the average expectations. The company also significantly ramped up its capital spending in the back half of the year as part of its overall plan to regain market share in its core markets. 

To continue to the full piece, please click on the link:
http://stocks.investopedia.com/stock-analysis/2011/VimpelCom-Looking-To-Join-The-Big-Leagues-VIP-T-MBT-TELNY-MICC0330.aspx

Investopedia: Can Pipelines Still Deliver The Goods?

In many respects, pipelines are great businesses for patient investors who like collect to dividends. They allow investors to leverage the growing demand for energy with far less exposure to commodity prices than is the case for integrated energy companies or exploration and production companies. Instead, they act as toll collectors with very little operating risk on a week to week basis.

The nature of the business also gives certain inherent advantage to these companies. It takes a great deal of capital to build networks of pipelines, terminals, storage facilities and the like, but once they are in place there is seldom much competition for their services. What's more, because the tax-advantaged MLP structure is so common in the space, these companies often pay substantial dividends (technically called distributions in most cases). (For more, see Power In Pipelines.)

The Downside
It is not all perfect in the industry, though. Because companies that opt for the MLP structure cannot retain any significant amount of their earnings, these companies must borrow extensively to meet their capital needs. So while these companies have clearly benefited from the low interest rate environment (which has also made the yields on these stocks quite attractive), the risk of higher rates is particularly significant here. That is all the more relevant when considering the fact that many companies are looking to expand their networks to better access areas like the Bakken and Marcellus Shales.

To continue, please click this link:
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Investopedia: Is eBay Looking At GSI Commerce As Another PayPal?

Back in the day, eBay's (Nasdaq:EBAY) acquisition of PayPal was not exactly universally praised. Not only did eBay pay a steep price (about $1.5 billion), but there were questions about whether eBay was throwing good money after bad in the wake of the failure of the Billpoint acquisition, and whether this was an unneeded step away from eBay's core business of facilitating online auctions.

It is about nine years later now, and nobody seems to be second-guessing the deal. Rival operations from Citigroup (NYSE:C), Yahoo! (Nasdaq:YHOO) and Western Union (NYSE:WU) ultimately bowed out, and PayPal has more than held its own against Google (Nasdaq:GOOG). More to the point, PayPal contributed about one-quarter of eBay's $3 billion in gross profits in 2010 - not a bad return on that deal.

Looking to Recapture that Magic? 

eBay has almost certainly not forgotten how PayPal changed their business, and Monday's acquisition of GSI Commerce (Nasdaq:GSIC) would seem to be following in that same vein. eBay announced that it will acquire this e-commerce facilitator for $2.4 billion in cash - offering $29.25 per share to GSIC shareholders.

This deal represents a 51% premium to Friday's closing price and roughly 23-times trailing EBITDA. Looking at forward multiples, it appears as though eBay is paying about 13- to 14-times forward EBITDA, which is roughly in line for what Oracle (Nasdaq:ORCL) paid for Art Technology a little while ago. eBay will be divesting part of GSIC, though, as it has elected to sell the licensed sports merchandise business and most of the consumer engagement operations back to the CEO in the form of a new holding company.

Please click this link for the full article:
http://stocks.investopedia.com/stock-analysis/2011/Is-eBay-Looking-At-GSI-Commerce-As-Another-PayPal-EBAY-GSIC-YHOO-GOOG-AMZN-ORCL-MSFT0329.aspx

Investopedia: Is RIM Turning Into Nokia 2.0?

If Apple (Nasdaq:AAPL) is the smartphone company that can do no wrong, then Research In Motion (Nasdaq:RIMM) is the company that cannot seem to deliver what the Street wants. Now, with the company giving very iffy guidance for its next fiscal year and seemingly losing momentum at the high end of the range, the fear is that the company may be slipping past a point of no return. 

An Uninspiring End to the YearThe absolute details of RIM's quarter were not bad, but near-term stock market performance is almost always a game of performance relative to expectations. RIM did post 36% revenue growth, with device sales making up about 81% of the total. This top-line result did miss estimates, though. Below the top line, results were okay, but not exciting. Gross margin weakened from the year-ago level, dropping about 150 basis points. Likewise, operating income rose more than 22%, but margin contracted two and a half full points.

A Very Tough Year on the Way
Although RIM made the claim that the BlackBerry was the best smartphone in the U.S. in 2010, that is the sort of press release filler that makes absolutely no difference in the assessment of the stock. What matters far more is the fact that there will apparently be no new models in the first quarter, and that there were will likely be a lot of inventory-clearing in the front half of the year. That means that margins are going to take a hit, expectations will be back-end-loaded into the second half, and analysts and investors will have plenty of doubts about management's view of the company's earnings power.

Although management did confirm that the new Playbook will support apps that run on Google's (Nasdaq:GOOG) Android, that was about it for the good news.

Please follow this link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Is-RIM-Turning-Into-Nokia-2.0-RIMM-AAPL-NOK-MMI-GOOG0328.aspx

Investopedia: Oracle Has It All Together

Normally, there is a trade-off in technology stocks - the bigger the company, the less impressive the growth. In those cases, investors tend to look to the larger companies as more secure and more conservative plays on basic tech spending trends, while the smaller, riskier names post the exciting growth. 

Somebody forgot to send that memo to Oracle (Nasdaq:ORCL). Oracle often gets criticism for being too aggressive with deals (and paying too much), and not sharing enough cash with shareholders, but the Oracle formula seems to be working quite well right now. 

A Very Good Fiscal Third Quarter
It is hard to find much to fault in Oracle's third quarter. Revenue jumped 36% from the year ago level and ticked up 1% on a sequential basis. Growth was led by a very strong result in license revenue, up 29% (11% sequentially) on strong growth in both apps and database. Hardware and services were not so impressive, though, and both declined. 


To read the full piece, please click on the link:
http://stocks.investopedia.com/stock-analysis/2011/Oracle-Has-It-All-Together-ORCL-CRM-RHT-IBM-SAP0328.aspx

Investopedia: The Biggest Nuclear Operators In The United States

There is no question that the disaster in Japan has refocused investor attention on nuclear power's future both abroad and in the United States. Although it is true that nuclear power is not nearly as important to the U.S. power infrastructure as it is in some countries (notably France, Belgium, Sweden, Germany and Japan), it is more pervasive than some investors may realize. 

More to the point, while there is a wide range of company-level exposure to nuclear power, the reality is that a very large percentage of U.S. utilities have some level of exposure. Given the difficulties of decommissioning nuclear facilities and the trouble of installing alternate capacity, this is unlikely to change.
Nevertheless, investors may find it helpful to keep a cheat-sheet on the exposure levels of major U.S. utilities. Please note that the following tables to include somewhat arbitrary distinctions between "regulated" and "diversified" and that the numbers do not include power purchased under long-term contracts (which can be significant for some utilities). 


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http://stocks.investopedia.com/stock-analysis/2011/The-Biggest-Nuclear-Operators-In-The-United-States-DUK-PGN-SO-EXC-ETR-D-NEE0328.aspx

New Poll - E-Books

I've added a new poll (on the lower left) to the page.

I've been mulling over e-books and whether that is a product that could have some value to readers. I've included several options in the poll. I could see using the e-book format to produce long company-specific reports (similar to what you might see in a Wall Street research initiation piece). I could also see industry-wide pieces (analyzing an industry and the investment opportunities).

I could also see using e-books as a substitute for a newsletter - a regular publication talking about the markets and offering stock picks and/or model portfolios, but allowing people to buy on a one-off basis instead of a yearly subscription.

Of course, the "No" option is valid as well!

Let me know what you think. This would be in addition to what's on the site, not an either/or sort of thing.

Investopedia: Paychex Puts A Damper On Investor Enthusiasm

There are no perfect metrics for judging the economy, as even widely-watched numbers like GDP and the CPI have their flaws. That leaves a lot of room for reading the tea leaves and using companies in industries like transportation, commodities and business services as proxies for all or part of the economy. 

Payroll services company Paychex (Nasdaq:PAYX) is a case in point. Automatic Data Processing (NYSE:ADP) provides useful data about payroll trends, but this company's client base is geared more towards the larger corporations; Paychex is far more focused on the small/mid-sized business community that employs many workers in the U.S. Looking at these recent results, it is still pretty clear that the recovery in the stock market is running well ahead of the recovery in the economy. (For more, see Inside National Payment Systems.)

Earnings - Good Enough, But Not Great
There is nothing in Paychex's fiscal third quarter results that suggest the economy is in any danger of overheating. Although revenue growth of 5% was slightly better than analysts expected, core payroll services growth was just 2%. The company is seeing some success in cross-selling its other HR services, and this segment showed solid 13% growth. Float earnings continue to be lackluster - earnings from this segment fell 16% on 6% higher average balances as the company continues to muddle through the low rate environment.


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Investopedia: What's Beneath The Red Hat?

Open source is still popular, and Red Hat (NYSE:RHT) is riding the wave. What remains to be seen, though, is whether Red Hat can prove that there is further leverage in its business model and/or when investors will start to care about this detail. Although Red Hat has as good a shot as any of being a force in server and desktop virtualization for years to come, ultimately there has to be a resolution to the tension between market share and margin. 

A Great Quarter ... Or Is It?  

On first blush, it looks like Red Hat is primed destroy the bears. After all, the company did post an impressive 25% revenue growth number for its fiscal fourth quarter well ahead of even the high end of the analyst range (which, with 22 analysts, was surprisingly tight). Other numbers looked quite good as well. Subscriptions were up 24% from last year, and 5% from the last quarter. Billings were up 31%, and deferred revenue jumped almost 20%.  

And now for the "yeah, but ..." Operating income (presented on an adjusted basis) grew 31% and the operating margin jumped about a full point from the year-ago level. The thing is, analysts were expecting better margins. Red Hat got a sizable boost from lower taxes and an R&D credit, and the company basically met its expectations without those factors. 

 

So where is the operating leverage? Should it not stand to reason that a solid beat on the top line would translate into a solid beat on the bottom if there was good operating leverage within the model? Sure, some will say that "any beat is a good beat," but those stories do not tend to work over the long haul.

To read the full piece, please click the link:
http://stocks.investopedia.com/stock-analysis/2011/Whats-Beneath-The-Red-Hat-RHT-VMW-CRM-CTXS-CNQR-ORCL0325.aspx

FinancialEdge: 4 Benefits Of Rising Oil Prices

No, that title is not a misprint. While everybody likes cheap energy and most economists believe that economic growth is predicated at least in part on cheap access to energy, it does not automatically follow that there is no good that can come from higher energy prices. Markets are made up of multiple independent agents and what constitutes a challenge for one can be an opportunity for others. (Learn a little more about the "non" part of this nonrenewable resource. Check out Peak Oil: Problems And Possibilities.)

1. Some Sectors Thrive
It probably counts as obvious that there are sectors that thrive when oil prices march upward. High prices for oil fuel the same sort of process as in any other sector; suppliers look for ways to provide more of the product and take advantage of those higher prices. For energy, then, that means opportunities for companies involved in exploration (seismic survey, for instance), drilling, production and servicing.

Ultimately boom times in the energy sector filter into the economy. After all, a dollar in wages from an oil company spends the same at Wal-Mart (NYSE:WMT) as a dollar from a solar energy company. When oil prices are high, companies spend more on equipment, supplies, salaries and the like - money that enters the economy in much the same fashion as a boom in any other sector.



To read the full piece, please click below:
http://financialedge.investopedia.com/financial-edge/0311/4-Benefits-Of-Rising-Oil-Prices.aspx

Investopedia: Discover - A Cleaner Play On The Consumer Recovery

Sometimes it feels as though Congress and federal regulators are trying to bleed out major banks through dozens and dozens of regulatory papercuts. On top of that, there is still a lot of overheated rhetoric about the "evils" of large banks that hearken back to the populist movements of the late 19th century. That may all be an advantage for Discover Financial Services (NYSE:DFS), then, as this relatively purer play on credit cards may have fewer restraints on its day-to-day operations. 

A Solid Recovery Continues 

Like its banking cousins, Discover is continuing to benefit from a much-improved credit environment and that is funneling through to the bottom line. Growth was not necessarily all that impressive in its own right, though. Total revenue rose about 3% from last year (or about 4% sequentially), fueled by a 2% rise in net interest income (up 4% sequentially). Within that, card sales volume was up 7%, but credit card loans were down 3% while total loans rose on higher student loan numbers.

Credit was once again a good story. Write-offs dropped almost a full point sequentially and more than three points on a year-over-year basis. That fueled a lot of the outperformance this quarter, as the company reversed a year-ago loss and beat the average estimate by a wide margin.

Interestingly, fee income is going nowhere fast at Discover. That is interesting as Discover "under-fees" its customers relative to the likes of American Express (NYSE:AXP) or Capital One (NYSE:COF), and this would seem to be an opportunity for growth in the future. On the other hand, with regulators looking to hammer the fee income of companies ranging from AmEx to Mastercard (NYSE:MA) to US Bancorp (NYSE:USB) to Visa (NYSE:V), maybe Discover's low fee revenue is a point of positive differentiation.

Please continue to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Discover-A-Cleaner-Play-On-The-Consumer-Recovery-DFS-AXP-COF-MA-USB-V-VZ0324.aspx

Investopedia: Can Jabil Take The Next Step?

There is a certain cyclical rhythm in the electronics manufacturing services (EMS) space. Orders are cut in the bad times and clients will in-source manufacturing to boost their own utilization rates. Then, as things get better, the cycle reverses and EMS companies once again see more business. As this process unfolds, revenue rises, margins improve and estimates move higher. Last and not least, even the EMS companies come up against capacity constraints, the industry peaks, and the whole cycle starts anew. 

Every cyclical industry has periods where the stocks tend to outperform, and investors can do well if they time their buys and sells appropriately. Turning to Jabil Circuit (NYSE:JBL), then, the question is whether there is still reason to hope for improvement and more momentum in the story.

A Fine Second Quarter 

Although there have been some growth concerns around major Jabil clients like Cisco (Nasdaq:CSCO) and Research In Motion (Nasdaq:RIMM), Jabil nevertheless produced a respectable quarter. Revenue grew 31% from last year and surpassed the average analyst estimate.

Below the top line, Jabil delivered some of the results that an investor would expect in that more favorable back half of the EMS cycle. Gross margin was only slightly better than in the year-ago period, but the company wrung very solid leverage out of its SG&A spending, which fueled growth in adjusted operating income of 76% (or 69% in GAAP operating income).  

To read the full piece, please go to:
http://stocks.investopedia.com/stock-analysis/2011/Can-Jabil-Take-The-Next-Step-JBL-CSCO-RIMM-BSX-JNJ-FLEX-CLS0324.aspx

Investopedia: Will Patience Pay For Walgreen Shareholders?

There is a lot about Walgreen (NYSE:WAG) that would seem to make it a no-brainer for long-term investors. It is the second-largest drug retailer in the country, and people always need drugs, right? Moreover, a Walgreen is within a short drive or walk for a rather large percentage of the country so there is a definite convenience aspect as well. On top of that, the company has generated fairly solid returns on capital and would seem to be transitioning to a point where its capital base is not so demanding on cash flow. 

A Second Quarter Bedeviled By Expectations  
If an investor did not know the expectations around Walgreen going into the earnings report, the 7% drop in the stock on Tuesday would not make all that much sense. After all, revenue did rise almost 9% this quarter and that beat the average estimate. Within those numbers, total comps rose more than 4%, with pharmacy comps up just slightly less than that. 


The problems, such as they are, came in the income statement. Gross margin actually declined a bit (five basis points), and that is a much-watched detail with this company. So, backsliding here is not great news. Operating income was a bit better though, as the company controlled the SG&A line and operating income grew a bit more than 11%. The company also picked up a penny from share buybacks, though, and that is how the company met the EPS target for the quarter. (For more, see The Bottom Line On Margins.)

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Investopedia: Higher Costs Are Climbing Up The Value Chain

How much should investors worry about some of the details of Nike's (NYSE:NKE) guidance? More to the point, if this champion of brand value is seeing costs bite into its margin, that cannot be good news for branded consumer product companies in general. After all, if the lions are having to tighten their belts a bit, it stands to reason that those lower on the food chain might be left starving.

Brand Versus Value 

As long as there have been premium brands, there have been companies willing to undercut those prices with products that may sacrifice a little quality (or sometimes only the cachet) but still offer good value. However, because these white label/private label companies typically have lower margins, it is not so surprising that they are very sensitive to input costs.

In other words, it is largely a given that companies like TreeHouse Foods (NYSE:THS) and Cott (NYSE:COT) are going to see some challenges to their gross margins. These companies produce products that do not carry the same labels or brand loyalty of competing products from Unilever (NYSE:UL), Kraft (NYSE:KFT) and Coca-Cola (NYSE:KO). That means that they cannot charge as much for their products and they can really only raise prices if the market leaders do so first. If they close the gap in price between their products and the brand names too much, they lose their business.

Please click the link for the full article:
http://stocks.investopedia.com/stock-analysis/2011/Higher-Costs-Are-Climbing-Up-The-Value-Chain-NKE-THS-COT-KFT-UL-KO-GIS0323.aspx

Investopedia: The Equipment Fallout From The AT&T / T-Mobile Deal

Mergers always stir the pot, and it is not just for the employees and customers involved in the deal. Vendors also see significant turbulence in the wake of industry consolidation. With AT&T (NYSE:T) announcing its intention to acquire T-Mobile, there will almost certainly be some changes in the telecomm equipment space. 

These two companies spent nearly $11 billion combined on capital expenditures in 2010 - close to half of the North American total. It seems unlikely that AT&T's ongoing spending needs will be as simple as "one plus one" in the future, as the company will likely see some benefit of scale and elimination of redundancies. In other words, by AT&T getting larger, the total opportunity for telecomm equipment vendors may get a bit smaller.

AT&T's Suppliers
To a certain extent, AT&T's capital expenditure plans are not going to radically change with the addition of T-Mobile. The company will continue to roll out its 4G network and will not be supporting or operating the T-Mobile network as a separate unit. That said, with more customers now under its umbrella, it stands to reason that AT&T will have to increase its overall capital expenditures (though again, not as much as simply adding T-Mobile's prior spending might suggest).

Alcatel Lucent (NYSE:ALU) and Ericsson (Nasdaq:ERIC) are two of AT&T's largest equipment vendors and there is no reason to expect this to change. More to the point, these two companies have each won about half of AT&T's 4G build orders and a larger AT&T should translate into larger overall orders. 


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FinancialEdge: Why Warren Buffett Might Not Be Buying Stocks

Nearly everyone in the market pays some attention to Berkshire Hathaway's (NYSE:BRK.A) multi-billionaire chief Warren Buffett. However, Mr. Buffett is often quite cryptic about exactly what he is looking to do in terms of investments. Consequently, investors, financial journalists and commentators cannot wait to pore over the snippets of information that do come out in filings to the SEC, interviews and his annual letter to shareholders. (This esteemed investor rarely changes his long-term investing strategy, no matter what the market does. Check out Warren Buffett's Bear Market Maneuvers.)

Given all those information sources, it looks like Mr. Buffett may have hit the "pause" button when it comes to buying stocks. His most recent letter really did not mention stocks to the same degree as in the past, and the most recent filings indicated that he sold eight stocks in the fourth quarter of 2010 while taking no new positions. Why might Mr. Buffett be staying away from stocks right now?

Go Big or Go Home
Warren Buffett has the same problem as many large fund managers - the larger the assets under management get, the harder it is to find meaningful new opportunities. What's more, Mr. Buffett is famous for a KISS-type methodology (Keep It Simple, Stupid) that argues against holding dozens and dozens of positions.

To read the full piece, please go to:
http://financialedge.investopedia.com/financial-edge/0311/Why-Warren-Buffett-Might-Not-Be-Buying-Stocks.aspx

Investopedia: The Best And Worst Of Times In Shoes

Shoes are a weird business. You never can tell what is going to resonate with the public at any particular point in time - after all, people have fallen over themselves trying to get a hold of plastic shoes, shoes with little clear windows in the heel and shoes that allegedly build muscle. At the same time, it is a ridiculously competitive industry with price points all over the map.

With that backdrop, perhaps it should not be so surprising that the performance of shoe companies and retailers is also all over the map. Companies like DSW (NYSE:DSW) and Timberland (NYSE:TBL) have leveraged solid financial momentum into good stock performance, while the stocks of more bargain-oriented retailers like Collective Brands (NYSE:PSS) and Brown Shoe (NYSE:BWS) have had some struggles.

Brown Shoe, DSW Not Looking So Green
Brown Shoe has been all over the map for years, and Tuesday's poor earnings report will not help. Not only did sales growth of 7% miss estimates, but the margins were a mess. Overall gross margin fell more than 200 basis points, due solely to the wholesale business. Wholesale margins fell 800 basis points because of sourcing problems and order fulfillment issues tied to a new IT system. All in all, the company missed its EPS target by a pretty meaningful amount and the market was merciless to the shares. 

Please continue to the full piece:
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Investopedia: AT&T Gives Deutsche Telekom Its Out

German telecom giant Deutsche Telekom (OTC:DTEGY) has been trying for years to figure out a strategy for its U.S. business T-Mobile. That dilemma may be at an end now, as the company has agreed to sell T-Mobile to American rival AT&T (NYSE:T) in a $39 billion deal that combines cash and stock. 

Terms of the Deal
In a surprising move, AT&T announced that the two companies had reached an agreement whereby AT&T will pay $25 billion in cash and $14 billion in stock for Deutsche Telekom's T-Mobile subsidiary, the #4 player in the U.S. wireless space with roughly 34 million total subscribers. Interestingly, AT&T will not be taking on any of the debt associated with T-Mobile.

At the stated price, AT&T is paying about 7x T-Mobile's trailing EBITDA - a premium to Sprint Nextel (NYSE:S) and Clearwire (Nasdaq:CLWR) (which has negative EBITDA), but in line with MetroPCS (NYSE:PCS) and Leap Wireless (Nasdaq:LEAP). (For related reading, see A Clear Look At EBITDA,)

The Logic of the Deal
It will probably take a year or more for this deal to close, but if it does AT&T will become the #1 wireless provider in the United States. Not only are those subs valuable to AT&T, but the deal helps addressed some of the company's spectrum needs as well. The deal will also give AT&T certain operating synergies, not only be eliminating duplicate functions and personnel, but also giving the company greater bargaining power with vendors.



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Investopedia: Quest Diagnostics Opens Its Wallet One More Time

Quest Diagnostics (NYSE:DGX) is certainly not shy about spending shareholders' money to expand its business opportunities. Quest's latest deal, announced Friday morning, will have the company paying $8 per share in cash to acquire all of Celera (NYSE:CRA), a small company with a focus on molecular diagnostics and cardiovascular tests.

The Terms of the Deal
Quest Diagnostics will be paying $8 per share for Celera, a deal that has a sticker price of $671 million but a net cost of $344 million. Moreover, given the tax credits, loss carry-forwards, and capitalized R&D at Celera, the effective price of the deal will be even lower. Nevertheless, the deal represents a nearly 28% premium for Celera, nearly five times trailing sales, and a little more than four-and-a-half times forward sales.

At these prices, Quest is paying a premium similar to what Clarient received from General Electric (NYSE:GE) and superior to the deal Genoptix struck with Novartis (NYSE: NVS). Still, it might be a sobering reminder to MDx fans that the days of companies paying 10 times sales for molecular or esoteric test technology is long past. 

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Investopedia: Truck-Makers Hauling In Profits

Judging by the comments from one of Europe's largest truck-makers, the recovery in the market for big rigs still has a ways to go. Along with its earnings release on Monday, Germany's MAN SE (Nasdaq:MAGOY.PK) expressed a fair bit of confidence in the growth outlook for the truck market in 2011. While investors who showed up early to play the commercial truck revival have already done well, this latest news gives at least some hope that the rally is not running on empty just yet. 

Strength in Europe, Strength in Emerging Markets

Not only did MAN report a 22% jump in revenue from last year, but the company reversed a year-ago loss in profits of over $1 billion. Looking specifically at the commercial truck segment, revenue jumped 36% on a unit increase of nearly 53%. Encouragingly, orders in the truck business were up 68% and the company talked about strength in both the European market and developing markets like Brazil. (For more, see The Upside Of Trucking.)

If Europe is indeed strong, that is good news not only for MAN, but major players like Volvo (Nasdaq:VOLVY.PK) and Scania as well, to say nothing of larger vehicle companies like Volkswagen (Nasdaq:VLKAY.PK), Daimler and Fiat Industrial that all have business (or investment stakes) in the commercial truck sector. 

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Investopedia: A Sustainable Boost To Japan's Banks?

Before long the focus in Japan will shift from disaster response to recovery and rebuilding. Both the structure of the Japanese financial system and the experience of past natural disasters strongly suggest that Japan's banks will play a major role in the reconstruction effort. What remains to be soon, though, is whether Japanese banks can find a way to navigate the tricky demographics and economic situation of Japan and find a path to sustainable growth.

Policy Concerns Move to the Back Burner
Before the Eastern Earthquake, investors were concerned about how Japan's large banks would navigate regulatory changes, particularly new rules about capital requirements. With the Bank of Japan ramming liquidity into the system and significant reconstruction needs, it is likely that Japanese bank officials are not going to regard Basel III standards as their top priority.

That is a particularly favorable development for Mizuho Financial (NYSE:MFG), as this bank had the most left to do in terms of getting its balance sheet in shape. By the same token, having stronger balance sheets going into this crisis should give Mitsubishi UFJ (NYSE:MTU) and Sumitomo Mitsui (Nasdaq:SMFG) more flexibility in expanding its loan book. (For more, see Banking: Introduction.) 
 
Loan Demand Likely To Reverse Sharply
One of the major problems for the top three banks in Japan (Mitsubishi, Mizuho and Sumitomo) has been flagging loan demand. Smaller regional banks have seen some market share growth, due in part to the fact that banks like Shizuoka Bank, Suruga Bank, Bank of Kyoto and Bank of Yokohama have been keeping a lid on their fee increases relative to the larger banks. For the larger banks, though, it is has been more and more difficult to wring growth from core lending operations. 

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Investopedia: Heavily Shorted Stocks Near Their Highs

Virtually every stock of any real size is going to have a certain amount of short interest. When a stock's short interest reaches double-digits, though, investors should pay a little attention. By and large, retail investors do not short stocks and neither do most mutual funds. Moreover, the rules and hassles of short selling combined with the theoretically unlimited loss potential often mean that short positions are not entered into lightly.

While some short positions are simply a byproduct of a fund manager's belief that a stock is simply overvalued, often it is a bet on the notion that there is something more fundamentally wrong with the basic business. Accordingly, it is interesting to see that there are a number of stocks with high short interests trading near their 52-week highs. Is this simply a product of a bull market that has gone on too long, or is there something worse lurking beneath the surface? (For more, see Stocks With Increasing Short Interest.)

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Investopedia: How Far Can Lululemon Stretch?

By any reasonable standards, lululemon athletica (Nasdaq:LULU) has been a fantastic stock over the past two years. Not only has it tripled in value since its debut, but investors who loaded up on these shares in a big way in early 2009 are also looking at a 10-bagger or better. An investor only needs to hit a couple of those in a lifetime to do very well indeed.

But the big question is whether lululemon can maintain the momentum. Everything looks great for the company today, but grizzled retailing investors have seen stories like lululemon before and unfortunately, many of these stories do not have happy endings. (For background reading, see Analyzing Retail Stocks.)

A Solid End to the Fiscal Year  
For a company with a track record of blowing away estimates, lululemon's fiscal fourth quarter results were surprising only to a certain degree. Revenue jumped 53% and surpassed the top end of the analyst range, helped in large part by comp-store growth of 28%. Direct-to-customer sales growth was also strong (up 152%), but still constitutes a fairly low percentage of sales.

LULU once again coupled strong sales with impressive operating leverage. Gross margin jumped almost five full points, and the company's operating income grew 72%. LULU has exceptional operating margins for the retail sector - they're at 29% (up from just under 26% a year ago) - and the company once again delivered earnings per share well in excess of analyst expectations. (For more insight, see The Bottom Line On Margins.)

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Investopedia: FedEx Looks Like It's Coming And Going

Some stocks just seem to be loaded with "yeah, buts." Yeah, FedEx (NYSE:FDX) has emerged as one of the major global shippers, but the company struggles to earn an attractive rate of free cash flow. Yeah, FedEx is great at logistics and constantly looking for ways to improve yields, but the return on capital just is not there. Yeah, FedEx has incredible global growth opportunities, but the company is still vulnerable to weather, fuel and the same issues as any other transportation company. 

A Mixed Quarter But with a Positive Tone
Although FedEx guided this quarter down a few weeks, the news was not all bad. Revenue was up 11% for the fiscal third quarter, with Ground doing well (up 14%), Express doing well (up 11%), and Freight not doing so bad at all (up 8%). Volumes were alright, with Express and Ground up in the mid-single digits and shipment volume in Freight down 6%.

Profitability was more problematic. Overall, operating income dropped by 6% and the operating margin dropped by about 70 basis points to 4.1%. Operating performance was actually decent in Ground (the highest-margin business of the group by far), while Express weakened by two full points to 2.9% and Freight got less bad at negative 9.8%. (For more, see Zooming In On Net Operating Income.)

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Seeking Alpha: A Taste Of The Flavor Company Sector

Is it any surprise that the worldwide market for flavors is a multi-billion dollar per year business? After all, what really separates a Coke drinker from a Pepsi drinker other than the taste? Likewise, until Frito-Lay figures out how to grow a potato that comes out of the ground tasting like sour cream and onion, there will be a strong demand for both novel and familiar flavors, and companies like International Flavors and Fragrances (IFF) and Senomyx (SNMX) will stand to benefit.

Good Taste Really Matters
It is hardly controversial to suggest that a huge amount of packaged food brand value is wrapped up in taste. To paraphrase comedian Dave Chappelle, aside from trace amounts of flavorings, Coca-Cola is really just "sugar, water, and brown (caramel color)." We like things that taste good, and we naturally crave particular combinations of salt, sweet, and savory. Consequently, it's a safe bet that packaged food companies will continue to build brand identity around flavor.


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Investopedia: Solid Consumer Companies For Patient Dividend Investors

Dividend investing gets a bad rap, but the reality is that there is no one way to long-term investment success. Some people simply do not have the time or the inclination to play the peripatetic game of momentum investing. For investors who are content to let investment theses play out over a span of years, here are some high-quality consumer-focused names to consider. 

Wal-Mart (NYSE:WMT) 
Take a look at a chart of Wal-Mart's stock price over the past ten or eleven years and you may as well be looking at a map of Kansas. Outside of a few excursions, the stock has stayed relatively steady between $45 and $55 for most of the past decade. During that same period, though, the shares have returned nearly $7 in dividends, so long-term investors are not exactly empty-handed.

Wal-Mart is not likely to ever excite anyone with its growth again, but the company is caulking up some of its gaps. The company is working to repair relationships with suppliers and pay a bit more attention to what customers would like to see in the stores.

At the same time, the company is expanding relatively aggressively overseas. With a shockingly consistent record of mid-teen returns on total capital, a large foreign opportunity and a nearly 3% yield, Wal-Mart can be a core holding in conservative portfolios. (For more, see Remember The Discounters.)

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Investopedia: Nuclear Energy - The Emotion Trade Is In Full Swing

There are plenty of old sayings that advise investors to swim against the tide and invest into troubled sectors when pessimism is at its worst. That is all well and good, but precious few investors have the self-confidence and long-term focus to just ignore a 20% or 30% near-term loss on a new position. With that in mind, then, investors should certainly do their due diligence on now-troubled nuclear power stocks but let the dust settle a bit before taking on new positions.

Shoot First, Ask Questions Later
In the wake of the combined earthquake and tsunami disaster in northeastern Japan, and the resulting emergencies at multiple nuclear facilities in Japan, public fear about nuclear power is once again running high. With activists already jumping on their airwaves to exaggerate and misinform, it seems inevitable that the nuclear industry has lost whatever momentum and credibility it had rebuilt in the 25 years since the Chernobyl disaster.

Investors need go no further than the stocks of those companies exposed to the nuclear power industry. Go-to names like uranium miners Cameco (NYSE:CCJ) and Denison (AMEX: DNN) and engineering and construction firm Shaw (Nasdaq:SHAW) were among those that took a significant drop in the early trading after the disaster struck. Since then, even well-diversified names like General Electric (NYSE:GE) (which has some, but not a lot, of nuclear energy exposure) have come under selling pressure.

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Investopedia: Financial Services That Buffett Could Love

With Berkshire Hathaway's (NYSE:BRK.A) annual report in hand and the recent deal for Lubrizol (NYSE:LZ) still in the news, there is once again a fair bit of interest in speculating on what sorts of companies Warren Buffett would (or does) like. Though specific predictions of Mr. Buffett's moves are more often wrong, there are a handful of non-bank financial services stocks that investors may want to consider with an eye towards their franchise value and difficult-to-replace market niches. (For more, see Emulate Buffett For Fun And Profit - Mostly Profit.)

Making Payroll Services Pay 

Automatic Data Processing (NYSE:ADP) and Paychex (Nasdaq:PAYX) do more than just handle payroll (for large and smaller companies, respectively), but that is their signature business lines. There is a lot here that an investor seeking to emulate Warren Buffett should find attractive. (For more, see Buffett Picks To Coattail.).

This is a recurrent fee-collecting business; people get paid on a regular schedule and these companies can collect a small fee every time they do. It is also a bet on the recovery and prosperity of the country; more jobs means more payroll and more demand for payroll services (and Buffett is a noted optimist on the long-term prospects of the U.S. economy). Last and certainly not least, each company produces a "float" of money, money paid to the companies for payroll but not yet disbursed to employees, that can be profitably invested.

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Investopedia: Healthy Dividend Growth Ideas In Healthcare

Healthcare has not always been the most fruitful hunting ground for dividend-growth investors. While there are numerous high-quality companies that generate substantial cash flow, many healthcare companies prefer to hang onto their cash for R&D or M&A purposes, or "return" it to shareholders in the form of share buybacks. That said, there are some worthwhile opportunities that dividend-growth investors should seriously consider.

Drugs - The Old Standby 
Within healthcare, pharmaceutical companies have always been dependable dividend-payers and that is still true today. Novartis (NYSE:NVS), AstraZeneca (NYSE:AZN), GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE) are just four prominent examples of above-average dividend yields available in this sector. Novartis is arguably the most attractive today, but AstraZeneca could appeal to those who really look to couple capital growth and dividends, as the market may have overestimated the company's vulnerability to patent cliffs.

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FinancialEdge: How To Live Rich For A Lot Less

Almost everybody wants a piece of the high life, even if we all have different ideas of what exactly that means. For some, that provides the motivation to work a little harder, save a little more and make tough choices. Other people, though, find it much harder to resist the impulses and get themselves into financial trouble by living a little too high on the hog. (The Oracle of Omaha has a net worth in the billions, but his lifestyle is not as rich as you may think. Check out Warren Buffett's Frugal, So Why Aren't You?)

For those looking to enjoy a bit more of the good life without overextending themselves, here are a few ideas to consider.

Buy Used
Even the greatest luxury cars share a common problem with their mass-market cousins - when you buy new, you incur major depreciation costs in the first couple of years. Buy a BMW M5 or Mercedes CLS and the depreciation in the first three years will be approximately 45% of the purchase price. That's pretty pricey hit to take just to have that new car smell. Buy a used CLS, though (say one from 2007), and the purchase price may drop by as much as half. The car will still run well, and may well be covered by a "certified used" warranty. Moreover, take a look around the world and you will see a lot of used Mercedes, BMWs, and the like still on the road, so it is not as though you are buying a car with only a few good years left.


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Investopedia: Buffett Brings Lubrizol Into The Fold

Buffett-spotting is practically a cottage industry in the financial media, as is predicting the next thing that the Berkshire Hathaway (NYSE:BRK.A) CEO is going to buy. These predictions tend to be consistently off the mark, though, and so there is almost always an element of surprise to Buffett's next buy. So too was it with Monday's announcement that Berkshire Hathaway would acquire Lubrizol (NYSE:LZ) - while the deal makes a great deal of sense, precious few people were publicly predicting this one. (Check out some of Buffett's other surprise picks in 4 Lesser-Known Companies Buffett Owns.)

Berkshire Hathaway Buys Lubrizol  

Buffett is striking the kind of deal here that he prefers - an all-cash transaction for 100% control. Berkshire Hathaway will be paying $135 per share in cash for all of Lubrizol's outstanding shares. Including Lubrizol's net debt, this is a $9.7 billion transaction for Berkshire Hathaway - and a 28% premium for Lubrizol shareholders. All in all, shareholders who bought or held Lubrizol through the worst of the recession have seen these shares come back more than fives times over since early 2009.

What Berkshire Hathaway Is Getting 

Lubrizol is a chemical company, but it is not so much a commodity player like Huntsman (NYSE:HUN) or Westlake (NYSE:WLK). Instead, Lubrizol focuses on additives and advanced materials. Lubrizol has a leading share in additives for products like motor oil, gear oils and transmission fluids, as well as significant businesses in engineered polymers, performance coatings, and so on.

Although many chemical companies struggle to attain a double-digit return on equity, let alone maintain it, Lubrizol has done quite well by this metric. Likewise, although Lubrizol was not immune to the effects of the recession, the company has shown a relatively uncommon ability to deliver consistent revenue growth compared to other chemical companies. (For more, see How Return On Equity Can Help You Find Profitable Stocks.)

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Investopedia: Severe Static For Telco Providers

When a sector sits in the top 5% of sector performance, it is often a safe bet that momentum investors have crowded into the stocks, and expectations are running hot. Unfortunately, the very nature of the momentum game means that the stocks can get rocked at the first sight of cracks in the growth story.
Such is the case for companies in the telecomm equipment space these days.

Investors had been piling into stocks like JDS Uniphase (Nasdaq:JDSU), Finisar (Nasdaq:FNSR) and Ciena (Nasdaq:CIEN) on the idea that the spread of smartphones and tablets is going to strain the networks of service providers even further and lead to significant capacity upgrades. To be fair, growth had been looking good off the bottoms of the recession and demand in China has been strong.

Unfortunately for investors, it looks like the sector has hit a pothole. Although JDSU gave pretty encouraging guidance not all that long ago, Finisar had a much less rosy outlook. Not only did Finisar cite weaker growth in China as a proximate cause, the company indicated it was an industry-wide phenomenon. Couple that with disappointing guidance from Ciena, and the stage was set for a significant pullback.

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Investopedia: 8 Tech Stocks With Big Dividends

Technology is a perennially hot space for investors looking for momentum or growth ideas, but it can also be a fertile area for investors who like to couple earnings growth with dividends. Although the range of "dividend growth" options in the tech sector is still limited when compared to more traditional sectors like consumer staples, dividend investors have a few valid options when it comes to diversifying toward the tech sector. (For background reading, see Why Dividend Matter.)

Dividend-Paying Chip Makers 

It may seem odd that an industry known most for its cyclicality, high capital needs and threat of obsolescence, but many of the better dividend-growth ideas in technology are found among the semiconductor companies.

Analog stalwarts Analog Devices (NYSE:ADI) and Linear Technologies (Nasdaq:LLTC) both offer double-digit returns on invested capital, ongoing growth prospects and yields above 2%. Investors can also collect a healthy dividend from Taiwan Semiconductor (NYSE:TSM) - the world's largest fabricator of semiconductors - and a likely beneficiary of what will almost certainly be an ongoing trend of companies focusing on design and marketing and outsourcing manufacturing to the fabricators. (For related reading, see Top Dividend Plays For 2011.)

Intel (Nasdaq:INTC) also stands out with a current yield of about 3.4%. Many investors have written off Intel due to the migration of consumers toward smartphones and tablets, but that may be hasty. Intel absolutely has some catching up to do, but if these devices are here to stay, Intel's enormous R&D budget could very well buy it back into the race.

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A Quick Note On The Idea List

Seeing how long that "Idea List" is, I think I need to do something to make it a little more digestible and useful.
I am thinking about using bold font or some other type of "marker" to highlight the 10 or 20 stocks that I see as most interesting right now.

Investopedia: Not All Shipping Is Sinking

Maybe it seems obvious, but a tanker ship is nothing like a dry bulk carrier, and both are nothing like a containership. Oh true, they are all very large boats and they all operate on the same underlying economic basis - ship supply, demand for carriage, day rates, contract coverage and so on. When it comes right down to it, though, it sometimes seems like there are more differences than similarities. (For a quick refresher on the state of the industry, check out Has Dry Bulk Shipping Reached Low Tide?) 


Lately, the performance and expectations of dry bulk carriers has been underwhelming. Look at the container shipping market, though, and the picture is quite a bit different. Investors here have seen largely a strong run from 2009 and many of these companies throw off good dividends as well. What's more, with a different sort of leverage to global trade than the bulk carriers, they could represent a worthwhile balance in a portfolio.

Have Boat, Will Travel
Containerization was a major development in the shipping world, allowing carriers to become far more efficient in loading, carrying and unloading cargo. Better still, a container ship can carry almost anything - as long the goods fit into a standard container, it's not a problem. So whereas a dry bulk company like DryShips (Nasdaq:DRYS) or Genco (NYSE:GNK) will devote an entire ship to iron ore or grain, a containership can holds hundreds of different kinds of cargoes at the same time.

Unfortunately, it has not always been easy to trade containership stocks in the United States. Most of the major players - Maersk, Mediterranean Shipping, CMA, Evergreen - are either private or traded on foreign exchanges. But there are still a few names that investors can play, such as Paragon Shipping (Nasdaq:PRGN), Seaspan (NYSE:SSW), Euroseas (Nasdaq: ESEA) and Danaos (NYSE:DAC). Better still for many investors, the first three pay dividends and Paragon and Euroseas have rather attractive yields. (For more, see Dividend Facts You May Not Know.)


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Investopedia: The Japanese Earthquake's Effects On Insurers

Although it is still far too early to fully assess the scale and impact of the severe earthquake that struck northeastern Japan, and all of us at Investopedia wish our friends and readers in Japan the best, the fact remains that markets have to digest this information and move forward. To that end, it seems quite likely that major reinsurance companies are going to face large claims in the wake of this disaster. 

The Scale of the Disaster 

As of this writing, which is only hours after the quake struck, it is all but impossible to get a firm sense of the damage in the Tohoku region of Japan. While the reported magnitude of this quake is considerably higher than that of Great Hanshin quake that struck Kobe in 1995, it does not automatically follow that this quake will surpass the fatality (over 6,000 dead) or economic damage (roughly $100 billion) of that prior disaster. Let us all hope it does not.

Nevertheless, there are many major manufacturing facilities in this region owned by companies like Sony (NYSE:SNE), Toyota (NYSE:TM),and Nissan (Nasdaq:NSANY) to name a few. What's more, given the reports of infrastructure damage that have already come in (roads, bridges, and the like), it seems probable that there has been significant economic damage.

Please read the full piece at Investopedia:
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Investopedia: Here Comes The Tricky Part For Rail Traffic

Railroads are a classic example of a derivative industry - that is, they produce nothing on their own and the demand for their services is a product of (a derivative) the demand for other goods. That is something that is worth keeping in mind as the railroads continue to meet anniversary dates in this economic recovery and face increasingly difficult comparisons. 

February - Another Quarter of Mixed Data 

January's rail traffic data, which we highlighted in our Raid Traffic Data Still Largely Good News article, was mostly positive but had a few worrying signs - namely the slowdown in intermodal traffic in the U.S. and weaker rail performance in Canada. Like January, February's data was not as clean as economic optimists might have hoped.

U.S. rail traffic increased more than 4% from last year (and almost 3% from 2009) and intermodal traffic increased more than 10%. Unfortunately, the sequential performance was not nearly so strong - rail traffic slid 3% from January's level, while intermodal activity was up only a fraction of a percent. As intermodal is a profitable growth area for railroad operators like Union Pacific (NYSE:UNP) and Berkshire Hathaway's (NYSE:BRK.A) Burlington Northern, that is not an insignificant figure.

While bad weather seems to have had a significant impact, investors should at least consider this a yellow flag until the next month or two of data confirm that February's performance was just a weather-related anomaly.

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Investopedia: Urban Warfare

When a company's management spends part of their earnings conference call talking about a company's ten-year trends and history, that is often a bad sign. Such is the case for Urban Outfitters (Nasdaq:URBN). However impressive Urban Outfitters' past may be, it is not going to spare the stock today as investors focus on worrisome developments in margins and inventory. 

A Sour Note To End 2010
Urban Outfitters did report 14% overall sales growth for the fourth quarter. That is pretty much it for the good news. That sales level was a bit below analyst expectations, and store comps were down 2% as transactions fell about 1%. On a slightly more encouraging note, sales comps were up 4% if direct-to-consumer sales are included.

To its credit, Urban Outfitters has managed to do what American Eagle (NYSE:AEO) and many other retailers have struggled to do - operate multiple successful brands. The core Urban Outfitters brand saw revenue increase 13% this quarter, with Anthropologie up 10% and Free People up 35%. URBN also has a successful direct-to-consumer business, and revenue here jumped 28%.

Turning back to bad news, the company saw gross margin shrink more than 2% as the company had to get more aggressive with markdowns to move product. SG&A growth matched sales, though, and the company saw operating income tick up 1% while operating margin fell more than 2%. Taxes also came in above analyst expectations, contributing a few pennies to the company's earnings miss.


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Seeking Alpha: Are Smaller Industrials Pointing To A Broader Recovery?

It is no great surprise that today's earnings report from machine tool manufacturer Hurco (HURC) is largely going unnoticed. Even though sales jumped 92% from last year, orders more than doubled (and the book-to-bill is over 1), and the company handily beat its estimate, only one analyst follows this stock and the company booked only $224M in revenue in its best year. In other words, it is a very small company that just falls through the cracks, more often than not.

My objective here is not to sing the praises of Hurco (though I do believe it is a fine company and currently undervalued), but rather to try and connect a few dots that the earnings from companies like Hurco might be telling us.

The Return of the Small/Mid-Sized Business?
Much of the recovery story so far has been dominated by the improved performance at major companies. Corporate earnings have clearly recovered, and the major North American stock indexes have rebounded as well.

At the same time, though, there has been a great deal of hand-wringing about the state of the job market. Small and mid-sized businesses (SMB) normally employee a large percentage of people in this country, and those businesses have not been hiring all that many people. Likewise, those who follow bank stocks have no doubt noticed that the pace of commercial lending has been poor as well, and it is largely SMBs that do that sort of borrowing.

These industrial earnings, though, may be a sign that things are getting better in this important segment of the economy.

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Are Smaller Industrials Pointing to a Broader Recovery?