Friday, September 30, 2011

Investopedia: What Is Walgreen's Next Trick?

Irrelevance is an intractable opponent. If your grandparents grew up in a major city, talk to them about what the neighborhoods used to look like. Chances are there were certain staples like a neighborhood butcher shop, a neighborhood bakery, a neighborhood dry goods store and a local bar (or three). A lot of this has frankly disappeared over the years, and Walgreen (NYSE:WAG) needs to be creative and aggressive if it is going to stay relevant in a landscape where the core drug business is increasingly moving out of drugstores. (For more on retail stores, read The 4 R's Of Investing In Retail.)

An Okay End to the Fiscal Year  
Walgreen's fiscal fourth quarter results were solid but a bit confusing, as a lower tax rate and share count did help boost reported earnings per share. Sales rose more than 6% on better than 4% comps, putting Walgreen ahead of other drugstore rivals CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD) in terms of sales momentum. Drug sales were up about a percentage point less than overall sales, but the comp sales were similar, and prescription drugs are still about two-thirds of the sales base.

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Investopedia: Is Jabil Quietly Loading Both Barrels?

Investors should be careful to place only a very few stocks in the "permanently uninvestable" box. Typically this is reserved for companies where management is untrustworthy, the business is in inexorable decline or the cyclicality is just too much to bear. While I confess to being quite hard on Jabil Circuit (NYSE:JBL) in the past and very nearly putting it in that dreaded box, this company may actually be shaping up as an interesting play for the next few years.

A Solid Close to the Year  
Part of my skepticism on Jabil has been based on the company's customer list. Right now, if you rely on Cisco (Nasdaq:CSCO), Research In Motion (Nasdaq:RIMM) and NetApp (Nasdaq:NTAP) for meaningful revenue dollars, you cannot be feeling too good. And yet, Jabil managed to post a very solid quarter all the same - testament, perhaps, to the company's diversity of clients and markets.

Read more here:

Thursday, September 29, 2011

FinancialEdge: Could Higher Correlations Wreck Your Diversification Strategy?

Don't look now, but asset correlations have been rising again. While asset correlation is normally only a subject that would interest the true finance and math nerds among us, it has a very real impact on the regular investor's portfolio. In particular, it threatens the very heart of diversification and investors who believe themselves to be insulated from bad markets by a broad portfolio may be in for a very rude surprise. (For related reading, also see Top 5 Signs Of A Credit Crisis.)

What is Correlation?
Correlation is basically a mathematical measure of the extent to which two variables "move together". If Stock A moves 5% and Stock B moves 5%, the correlation is 100% (or 1.0). If there is no apparent linkage between the move of Stock A and Stock B, the correlation may be zero, and in some cases there can be negative correlation (as one goes up, the other goes down).

To read the full column, please click here:

Investopedia: Berkshire Buys Shares And Controversy

Such is the cult of attention around Berkshire Hathaway (NYSE:BRK.A) and its CEO Warren Buffett that he probably cannot have dinner without a dozen financial columnists debating the merits of him choosing beef, pork or chicken. With Monday's announcement that the company has authorized a share buyback that could be worth close to $30 billion or more, there is rampant second-guessing about the decision and numerous attempts to divine some further meaning in the move.

The Buyback to Be
Buffett has commented in the past that a buyback would only make sense if the shares of Berkshire Hathaway were significantly undervalued and there were no better apparent uses of the company's cash. Apparently both conditions are true in the market today.

To read the full piece, please click here:

Wednesday, September 28, 2011

FinancialEdge: Requirements For A Post-Housing-Bust Mortgage

With all of the talk about foreclosures and stagnant home sales it is easy to overlook the fact that people are still out there trying to buy houses. For the vast majority of people, buying a house still means qualifying for a mortgage. With that in mind, what does it take to get a bank to sign off on a mortgage these days?
FHA Still in the Game 
It would take a separate column to detail all of the differences between Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). The FHA does not make loans, does not buy mortgages and operates basically as a government-subsidized mortgage insurance company. The FHA is still operating and homebuyers can still get FHA-insured loans. Mortgage qualification rules are still changing in the wake of the subprime crisis and there is still some confusion between proposed rules and implemented rules. Moreover, there is a difference between FHA minimums and the minimums of the banks that write FHA-insured mortgages. (Don't be overwhelmed when filling out these forms. For more, see Understanding FHA Home Loans.)

Read the full column here:

Investopedia: Should Darden Stand Pat Or Spread Out?

The largest casual dining operator in the world, Darden Restaurants (NYSE:DRI), warned that it's fiscal first quarter was going to disappoint, and disappoint it did. There are bigger questions about this company than just why traffic at Olive Garden was weak this quarter. Should the company get more aggressive and add concepts in what is a weak restaurant market, or focus on maximizing what it has? Perhaps even more pertinent to investors, are Wall Street's sell-side analysts expecting too much in their models and dooming the stock to underperformance?

A Sluggish Start to the Year
The consumer spending environment is still very price-conscious and that is hurting casual restaurant chains like Darden. With companies like Five Guys, Chipotle (NYSE:CMG), and McDonald's (NYSE:MCD) offering improved products and other quick-service rivals like Yum! Brands (NYSE:YUM) offering low prices, it is harder to draw traffic to stores with average checks in the high teens.

While Darden reported revenue growth of over 7% this quarter, core comp sales were up less than 3% while speciality comps were up a bit more than 5%. Growth was weakest at the flagship Olive Garden, where comps fell almost 3% (on lower traffic) and overall sales rose less than 1%. While Red Lobster and and LongHorn were stronger on a reported basis (each up 12%, with comps up 10.7% and 4.8% respectively), both benefited from heavy promotional activity that gives a misleading picture of real traffic.

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Tuesday, September 27, 2011

Investopedia: Odyssey Leads Investors On Treasure Hunt

Sell-side analysts desperate to add a little flair to dry research reports will try to spice things up by talking about "hidden treasure," "deep dives," or "plumbing the depths". Well, there is a company that actually does all of that. Odyssey Marine Exploration (Nasdaq:OMEX) is primarily in the business of finding and salvaging wrecked ships and it may be one of the strangest companies that trades on U.S. exchanges.

What They Do
Odyssey Marine operates several simultaneous and overlapping businesses. The core of what the company does is the use of advanced underwater technologies to find, characterize and salvage shipwrecks - often ships from the Age of Sail that sank with ample amounts of gold or silver on board. That is not all that the company does, though. Odyssey Marine also assists in more conventional salvage and recovery operations, conducts deepwater mineral exploration projects, and operates a museum exhibit that highlights some of the artifacts that the company has recovered from shipwrecks.

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Investopedia: Can ADA-ES Make The Improbable Possible?

"Clean coal" is typically put in the same box as military intelligence or good government - something everybody would like to see, but is ultimately about as good of an investment concept as unicorn ranches. Not for lack of trying, but many clean coal technologies have risen up and then faded away when the real-life results didn't match the lofty promises of controlled bench-top experiments and the cost advantages disappeared in a puff of smoke.

All of that said, ADA-ES (Nasdaq:ADES) keeps trying to crack the code and recent test results have sent the stock back up sharply. The question still remains, though, whether this tiny Colorado company can succeed where so many have failed and where most of the world's chemical companies don't even see value in trying. (For related reading, see Can Business Evolve In A Green World?)

The Latest Hope
ADA-ES recently announced that a new technology called M45 showed some encouraging results in full-scale tests with refined coal. According to the company, M45 lowered NOx emissions by more than 20% and mercury emissions by more than 40%. As the company dutifully noted, this would qualify for special government tax credits that would arguably make the technology interesting from a commercial perspective.

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Investopedia: Nike Asks, "What Slowdown?"

Few companies get as much credit for its brand value as Nike (NYSE:NKE), but brand value alone does not seem to explain why the company continues to do so well in an environment where consumers are looking left and right for bargains. The fact is, while Nike may not offer the cheapest options in its categories, the price gap is not as large as it used to be and the company has done a very good job of delivering value for money. (If you are interested in value investing, read The Value Investor's Handbook.)

A Good Start to the Fiscal Year  
With 18% reported revenue growth and 11% constant currency growth, Nike is starting this fiscal year right. Nike logged 15% growth in North America, while Western Europe was flat on a constant currency basis and China was somewhat sluggish at 9% growth. Emerging markets continue to offer a lot of growth for Nike (up 24%), but are still a fairly small part of the total. On a product line basis, apparel was the laggard with 9% growth (hurt in part by difficult soccer comps), but footwear climbed 13%.

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Investopedia: A Confusing Quarter From FedEx

Sometimes, what a company reports about its quarter means everything for the performance of the stock. In other cases, Wall Street decides to use a quarterly report as a launching pad for a broader verdict on an entire sector or theme. That would seem to be the case at FedEx (NYSE:FDX); while the quarter arguably was not as strong as the headline numbers suggest, the market reaction would seem to be a broader vote on the near-term outlook for the global economy.

Fiscal Q1 - Not as Good as it Seems?
On the surface, it looks like FedEx did what it had to do this quarter. Revenue rose more than 11% and surpassed the average estimate, and the company showed fairly solid operating leverage. Still, there were some "yeah, buts" this quarter.

Within the top line number, express revenue rose more than 11%, but volume was barely positive. Domestic package volume was actually down and international priority volume was surprisingly weak (down about 4%). Ground revenue looked solid (up 16%) and volume was decent, but freight revenue was up only about 6% despite a nearly 13% increase in yields (that is, pricing).

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Monday, September 26, 2011

Investopedia: MELA Gets A Surprising "Yes"

When it comes to the FDA these days, almost anything is possible. In the last year, the agency has blocked applications that seemed like slam-dunks and granted approvals to long shots. Even though the FDA's position on MELA Sciences' (Nasdaq:MELA) MelaFind during the company's advisory panel meeting could best be summarized as "over our dead bodies," the FDA surprised the market Monday morning by issuing an "approvable letter" to the company, and MELA's stock is likely to soar in the immediate aftermath. (For more on the FDA, and the effect it can have on stock prices, read Pharmaceutical Sector: Does The FDA Help Or Harm?)

Not Quite "Yes," but Close Enough
The FDA has not given the company the green light to start selling the MelaFind device yet. What an approvable letter means, in essence, is that the FDA finds that a device is more or less approvable as is but there have to be some additional changes to labels, user guides, training, and post-approval trial guidelines. Importantly, these issues never require a second clinical trial to resolve and I cannot immediately recall an example in the last 15 years where a company and the FDA were not able to resolve these issues and go from "approvable" to "approved."

In other words, while the company will not begin shipping MelaFind to U.S. doctors on Tuesday, the finish line is very much in sight.

Read the full piece at the link here:

FinancialEdge: How To Be Smarter Than Your Financial Advisor

Any way you slice it, there is big money in running money - there are trillions of dollars out there in pension funds, mutual funds and individual investor accounts. The financial services industry is a multi-billion dollar enterprise predicated on helping people do what they cannot (or do not wish to) do for themselves.

The question is how much of this is really necessary. Are you better off paying a professional to run or advise you how to run your money, or can you go it alone? Said more bluntly, are you smarter than your financial advisor. If not, can you learn to be?
The Case for Professional Management 
To start with, it is important to note that there are a lot of diligent professionals out there; people who not only work hard to deliver the best results and service possible, but also work to improve their education and knowledge bases. It is also important to realize that good tools can be just as important as innate (or acquired) genius. Many financial services firms give their brokers and advisors access to powerful databases and financial planning tools that can help predict future needs and recommend optimal savings and investment strategies for given risk tolerances. (Learn how to weed out those who are just out to make a quick buck. For more, see Find The Right Financial Advisor.)

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Investopedia: Here We Go Again - Markets Continue To Move On Governments

Those who believe that the best government is unobtrusive and nearly invisible have probably ground their teeth to dust by now, but as markets open again on Monday it looks like governments on each side of the Atlantic continue to call the tune in the markets. While Europe tries every trick in the book to keep Greece afloat, politicians in the U.S. seem committed to elbowing each other aside in a rush to drill more holes in the bottom of their boat. 

A Government Shutdown?  
If the politicians in Washington continue to court a government shutdown and play a massive game of chicken with each other, the general public may stop caring and the markets may just decide to install a semi-permanent "knucklehead premium" on U.S. government securities. In the meantime, though, investors should expect another spate of debate, controversy and wall-to-wall talk about whether Congress can come together and agree on another short-term funding measure to keep the government working.

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Investopedia: Hewlett-Packard Still Can't Get It Right

Perhaps activist shareholders at Hewlett-Packard (NYSE:HPQ) should agitate for a shareholder vote on whether the board of directors ought to be legally compelled to change its name to "The Gang That Couldn't Shoot Straight." For years now this company has been wracked with poor decisions in and out of the boardroom and the company's latest attempt to address what ails it seems like a long shot at best.

Out With the Old  
There had been rumblings that now-former CEO Leo Apotheker was on thin ice at Hewlett-Packard, and those rumors came to a head Thursday night with the announcement that he was leaving the company. While the press release makes it sound as though Apotheker resigned, the phrasing and the broader context of the rumor mill make it pretty clear that this was a "jump, or we push" sort of situation.

To read the full article, please click this link:

Friday, September 23, 2011

FinancialEdge: Top Qualities Of An Effective CEO

With Apple's (Nasdaq:AAPL) near-legendary CEO Steve Jobs heading back to semi-retirement and Hewlett-Packard (NYSE:HPQ) recently changing the name on the door of the executive suite once again, the quality of executive management is a hot topic. Time and time again, the markets have proven that even companies in low-growth or commodity industries can offer winning stocks on the basis of exceptional management. Likewise, the markets have shown that few stocks can thrive for the long term with suboptimal leadership. (For some ways a CEO can help improve a company, check out Management Strategies From A Top CEO.) 
What, then, goes into making a CEO and how does he or she build value for shareholders?

The Traits of Highly Effective CEOs 
Unfortunately, there are no objective quantifiable markers of a good CEO. Great CEOs have come from the Ivy League and from Nowhere State. Likewise, good CEOs have had deep backgrounds in a single industry or wide-ranging careers across many functions and sectors. Nevertheless, a few key traits seem to come up over and over again.

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Investopedia: ConAgra Chooses To Move On

There is little doubt that ConAgra (NYSE:CAG) needs to change quite a few things about how it operates - the company has long been a mediocre collection of me-too brands in the packaged food space. Nevertheless, management deserves credit for walking away from a Ralcorp (NYSE:RAH) deal that was likely to get too expensive. What remains to be seen now is whether management can find new value-additive strategies to improve the business or whether less imaginative steps like debt reduction and share buybacks will be the order the day.

First Quarter Financials Still Problematic  
ConAgra reported sales growth nearly 10% to open this fiscal year, but overall performance was still not so great. Consumer sales were up more than 4% on a reported basis and the company reported that volumes were flat despite ongoing price increases. That's a solid improvement for ConAgra; the bear thesis on the stock has been that its lack of brand strength puts it in a more vulnerable position vis-à-vis Kraft (NYSE:KFT), Heinz (NYSE:HNZ), General Mills (NYSE:GIS) and the like when it comes to pushing price increases.

Read the full piece at Investopedia:

Thursday, September 22, 2011

Investopedia: Red Hat Plays A Familiar Tune

When analyzing the quarterly reports from virtualization and middleware provider Red Hat (NYSE:RHT), it is tempting to just refer back to older reports. For better and worse, not much has been changing for this software growth story. For those who liked Red Hat before, there are still ample reasons for optimism that this company has a defensible niche in a growth market (and/or could be an attractive buyout target). For those who didn't like Red Hat before, it's still a company with questionable operating leverage and rampant well-heeled competition.

Second Quarter Results - Like The Past, Only More So  
There was not much in the way of new trends or themes to come out of Red Hat's latest quarter. Revenue was up 28% from last year (and 6% from the first quarter), with subscription revenue up about 28% and billings up about 30%. Growth continues to be fueled by strong demand for products like RHEL and Jboss, and the company continues to do well in signing up large customers (30-million-dollar-plus deals this quarter) and keeping the ones they have.

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FinancialEdge: Should You Follow Soros Out Of Gold?

Investors can't seem to get enough of stories talking about what this or that famous investor is doing with his or her portfolio. In the latest example, news that George Soros has liquidated his gold holdings has some investors and commentators wondering whether the markets are looking at the end of an impressive run in gold. Whether Soros is right or wrong with this latest move, investors ought to consider some of the reasons to reject or copy his move.
Less-Legitimate Reasons to Copy Soros 
Playing a Different Game 
Simply put, investors like Soros, Paulson, Gartman and the like are playing a different game than you or me. In many cases, the funds run by famous hedge fund managers are leveraged up the hilt, and have relatively inconsequential trading costs. What that means is that fund managers can sell on Monday, buy on Wednesday, sell again on Friday and make money all along the way. That's something that the average investor cannot do. Playing an anticipated 2% move makes sense in an environment of minimal taxation, minimal transaction costs and massive leverage. For the regular investor, it's a sure way to get poor quickly.

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Investopedia: No Need To Chase General Mills

There are certainly some good things going on at General Mills (NYSE:GIS). The company is seeing growth again in the majority of its businesses and the company enjoys strong brands (and the better margins those brands bring). All of that said, though, investors should not overlook how much General Mills has benefited from competitor missteps and the extent to which the current stock price already bakes in a lot of this company's quality.

Iffy First Quarter Results
While General Mills reported 9% headline growth, overall performance was not so exceptional. Organic revenue growth was more on the order of 2%, though there was reported growth in most of the company's categories. International revenue jumped about 30%, getting a big boost from the Yoplait acquisition.

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Investopedia: YRC Worldwide Jackknifes Investors

It is a never-ending curiosity to see how often investors will buy up the stock of bankrupt companies; it is virtually always an invitation to total wipeout and the scant successes don't pay for the multitude of failures. While YRC Worldwide (Nasdaq:YRCW) has in fact managed to avoid bankruptcy, common shareholders have been all but wiped out and there is little reason to think that the company can make the sort of recovery that will redeem the massive dilution the company undertook to stay in business.

Doing What Must Be Done
Trapped between a rock of unimpressive freight rates and rising fuel costs and a hard place of high labor costs and a debt-soaked balance sheet, trucking analysts and investors have been speculating about the bankruptcy of YRC Worldwide for some time. While the company has avoided bankruptcy through an adroit combination of recapitalization and cost renegotiation, it may all be effectively for naught for shareholders. (Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders. For more, see The Dangers Of Share Dilution.)

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Wednesday, September 21, 2011

Investopedia: More Data, More Profits for FactSet

Individual investors may hear the occasionally quip about "paralysis by analysis," but the fact remains that institutional investors (on the whole) love their data. Feeding this endless appetite has been a boon for companies like IBM (NYSE:IBM), EMC (NYSE:EMC) and Bloomberg, as well as smaller players like FactSet (NYSE:FDS), and it does not look like the data deluge is in any danger of drying up soon.

A Solid End to the Fiscal Year, or Is It?  
FactSet closed out its fiscal year with a solid financial report relative to Wall Street expectations, but careful examination is a little more concerning. Revenue rose 14% this quarter, with 15% growth in the U.S. helping to offset 12% growth in foreign revenue. While FactSet did do a solid job of adding new clients (and getting more paying seats at existing clients), the company is not doing quite as well in terms of wringing more revenue out of each client - client count increased 6% this quarter versus last year, while the number of users increased 12%. In terms of revenue per customer, then, the company saw very modest growth of just 1.5% (to about $3,990 per customer) while revenue per client rose a bit less than 8% to just under $86,000.

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FinancialEdge: Why Consumer Confidence Matters

Some economic indicators are subtle, nuanced or otherwise difficult to grasp straight off the page. Not so for consumer confidence. While economists and investors can debate just how significant this indicator is, most at least grudgingly agree that how consumers feel about the economy (and their personal financial situation) can be a self-fulfilling prophecy. Accordingly, investors should at least consider the trend of this indicator when it comes to investment decisions. This is particularly important for investors who rely on a robust consumer spending environment. (For more on the Index, read Understanding The Consumer Confidence Index.)

What is Consumer Confidence? 
Broadly speaking, consumer confidence numbers measure the degree of optimism that consumers feel in regards to the economy and their personal financial situations. There are two major indexes for investors to consider - the Consumer Confidence Index and the University of Michigan Consumer Sentiment Index.

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Investopedia: You Can't Follow Everything

There are over 5,000 listed companies in the United States. If it takes even just one hour to learn all that really matters about a company, that means somebody would have to work more than 13 hours a day, every day of the year, to know a little bit about everything. Even then, such a perfunctory level of knowledge is hardly useful to an investor interested in fundamentals, and a buy or sell decision based upon it is nearly guessing.

How then does an investor cast the net wide enough to not miss out on great opportunities, but keep the workload to a manageable level?

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Investopedia: Endo And Forest - Dumpster-Diving In Pharma

While it's true that many stocks trading near 52-week lows belong there, every once in a while an investor can find a real bargain. Endo Pharmaceuticals (Nasdaq:ENDP) and Forest Labs (NYSE:FRX) are both suffering from investor fears about the companies' abilities to withstand generic competition, but could represent solid long-term bargains.

Endo Pharmaceuticals - Bring The Pain?  
Endo Pharmaceuticals has reaped a lot of gain from other people's pain, as drugs like Lipoderm, Opana and Voltaren have been solid sellers in a drug world notably short of new pain medications. Unfortunately, Lipoderm is going off patent in the not-so-distant future and the Street is clearly skeptical regarding the company's ability to grow through that setback.

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Investopedia: Tyco Goes Three-For-One

Neil Sedaka may have once thought that breaking up was hard to do, but Tyco (NYSE:TYC) apparently has no such problems. Though rumors had started to creep out a few days ago, Tyco announced Monday morning that it was undertaking a significant corporate reorganization that would effectively result in splitting up the company's three main businesses into independent publicly-traded entities.

The New Tycos to Come 
After setting Tyco Electronics (NYSE:TEL) and Covidien (NYSE:COV) free in 2006, Tyco has been operating as a three-pronged business entity. There is the ADT security business, a flow control business that sells valves, controls, actuators and the like to industries including power, water, and chemicals, and a commercial fire and safety business.

Now the company is going to undertake a year-long process of restructuring and tax-free spin-offs (technically conducted as stock dividends) that will result in the three companies operating and trading as free-standing independent entities. As part of the process, the company expects to incur something on the order of $700 million in expenses. (For related reading, see Parents And Spinoffs: When To Buy And When To Sell.)

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Investopedia: Netflix And Creative Destruction

Few things are easier in business than sticking with what has always worked before. Unfortunately, that is often an open invitation to hungry new competitors to come in, eat your lunch, take your customers and leave you with the bill. To that end, while investors (not to mention customers) may be confused, frustrated or angry with Netflix's (Nasdaq:NFLX) latest moves, they may be exactly what the company has to do to remain a leader in the fast-developing media content business.

Old Wine in New Bottles
Netflix's latest move is to separate its traditional DVD-by-mail business from its newer streaming media business. Management is renaming the DVD business "Qwikster," adding video game rental to the service, and operating it as a wholly-owned subsidiary with its own management and customer service infrastructure.

The Netflix name will now be solely for the streaming business, and the two companies will run quite separately. There will be different websites and customers will see two charges on their credit card statement if they sign up for or keep both services.

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Investopedia: Central Banks Take Another Kick At The Can

Investors who believe that markets work best when governments stay as far away as possible are likely grinding their teeth again. In response to widespread rumors that major European banks are finding dollar-denominated sources of liquidity dry up, most of the Western world's central banks have decided to step in and address the matter. While this will certainly move the markets in the short run, central banks do not have an indefinite supply of fingers to plug the seemingly endlessly leaky dyke that is the European financial system.

The Latest Effort  
With Greece still apparently on an express lane to default, and fears of knock-on effects in countries like Portugal and Italy, investors have started to approach many European banks (particularly French and German banks) from the viewpoint that much of their balance sheet is about to go up in smoke. Accordingly, there are fewer and fewer willing lending partners in the market and many banks have reportedly found it difficult to get the dollar-denominated financing that they need.

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Tuesday, September 20, 2011

FinancialEdge: How Much Disaster Can Gold Hedge?

Lying somewhere between meme and clich√© is the idea that when the going gets tough, the smart buy gold. Gold has had a special hold on the minds of many investors for centuries, if not millennia, offering the promise of being the one asset that will never go to zero, and the one medium of exchange that other people will always accept in trade. While these notions are basically true, investors would do well to consider just how much disaster they can really hedge by buying gold.
Forget Inflation 
Whenever it is time to debate the merits of gold, it is only a matter of time before someone mentions the iffy correlation between gold and inflation. The history of gold versus inflation looks a lot like a bungee cord - years and years go by and nothing seems to be happening, until there's a point of release and the price of gold rockets up.

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Investopedia: Pier 1 Now A Productivity Story

There is no agreed-upon point where a company is no longer a turnaround story, but there are plenty of anecdotal reasons to believe that Pier 1 (NYSE:PIR) has moved on to become a productivity improvement story. The company has logged several quarters of impressive same-store sales growth, completed a share buyback and begun to talk again about store count expansion and new selling concepts. Still, even if Pier 1 is no longer a true turnaround, investors may well be able to expect quite a bit more fundamental upside as the company couples better merchandising with improved efficiency.

Solid Fiscal Q2 Results   
For the company's fiscal second quarter, Pier 1 reported that total sales rose nearly 10% to just under $340 million. On a comparable basis, sales grew 10.8% (against a difficult 11.2% growth comp last year). On a per-square-foot basis, sales grew about 10%. Unfortunately, management did not give a detailed breakdown of traffic and ticket trends other than to say that both were positive.

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Investopedia: Vivus Tries A New Path

If at first you don't succeed, keep trying until the money runs out. That would seem to be the underlying strategy at Vivus (Nasdaq:VVUS), as this biotech continues to try to find a successful path to FDA approval for its obesity drug Qnexa. With news that the FDA may be more amenable to a different label, investors may have some reason for cautious optimism that a new obesity drug could actually hit the market within the next 12-18 months.

If You Can't Beat 'em, Avoid 'em  
One of the issues that has held up FDA approval of Qnexa (a new combination of previously approved drugs phentermine and topiramate) is the known birth defect risks of topiramate and the possibility that this new combination drug could have similar (or perhaps even worse) risks of teratogenicity. What makes this issue more complicated, though, is the fact that much of the birth defect data on topiramate was generated from women who also had epilepsy - and epilepsy is a known risk factor for birth defects.

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Investopedia: Pall May Be Offering An Entry Point

Looking at the results of companies in the broadly-defined filtration business, for example companies like Donaldson (NYSE:DCI) and Clarcor (NYSE:CLC), it may be tempting to decide that the run in industrial filtration is over and it is time to move on to other ideas. In the case of Pall (NYSE:PLL), though, that may not be the wisest long-term move. While Pall is certainly not performing at peak potential, the opportunities that seem to be left in the company and stock make it a worthy consideration for a long-term investor.

A Tough End to the Year  
Pall pre-announced a disappointing fourth quarter result, so the market has already had a chance to digest the news and punish the stock accordingly. Pall reported that revenue rose 15% on a reported basis, with constant currency sales growth of about 6%. Growth was led by the life sciences business, with 8% constant currency growth. This segment is slightly more than half of the company's total sales. On the industrial side, growth was a more modest 5% (again on a constant currency basis).

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Monday, September 19, 2011

Investopedia: Will United Technologies Land Goodrich?

The economy may be slowing and Europe may still be smoldering, but none of that precludes good ol' fashioned buyout speculation. The latest big-deal rumors swirl through the aerospace industry, where United Technologies (NYSE:UTX) is widely rumored to be trying to strike a deal to acquire aircraft parts and components manufacturer Goodrich (NYSE:GR).

The Deal That May Be
If rumors are true, United Technologies has been busy lining up many billions in financing to launch a bid (rumors range from $10 billion to $20 billion). As it pertains to Goodrich, the target price for a deal seems to be in the range of $110 to $125 - prices that would be from 18 to 35% higher than Friday's close (a close that was bolstered by the deal rumors hitting the market on Friday).

Taking the midpoint of that range, United Technologies would be paying about 12 times trailing EBITDA for Goodrich. Though there have not been major aerospace deals in a while, that price would not be out of line for a deal like this; it overvalues Goodrich on a standalone basis, but United Technologies should be able to pull multiple operating synergies out of the deal, as well as expand into new market opportunities.

Read the full piece here:

Thursday, September 15, 2011

Investopedia: Clarcor's Growth Story A Little Gummed Up

Industrial filtration is one of those "stealth growth" markets that gets little attention, but offers investors a good play on diverse themes like pollution control, energy efficiency and OEM equipment growth. Recently, though, it has started to look as though this sector has some issues to resolve. Like Donaldson (NYSE:DCI), Clarcor (NYSE:CLC) is not looking at a disastrous operating environment, but it looks like investors have to lower their expectations a little for the time being.

Disappointing Third Quarter Results  
Bucking the "beat and raise" trend that is still prevalent in the industrial sector, Clarcor actually missed its estimates for the quarter. Sales rose 8%, with double-digit growth in the industrial/environmental segment and solid results in engine/mobile filtration offsetting a decline in the packaging business.

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FinancialEdge: Of Gold, Greeks, And Governance

Few assets both confound and fascinate investors or politicians like gold. Like stocks, there is a great deal of conventional wisdom and many rules of thumb regarding what makes gold tick, but many of these notions fail careful inspection. Gold is an inconsistent hedge of inflation and hardly an international proxy for "real money," but it does seem to be a global decree on the current state of government policies and the near-term economic outlook. The past 10 years have offered up a lot of evidence and anecdotes as to what really matters when it comes to government actions ultimately influencing the price of gold. (For more on gold, read 8 Reasons To Own Gold.)

In the Beginning
Looking at a long term chart of gold, the price really started to get going around mid-2001. One of the first things that President Bush did in his administration was to pass a major tax cut; a cut that even in the day looked to reverse a lot of the fiscal solvency achieved during the prior Clinton administration. When the September 11 attacks occurred later that year, gold prices spiked again on a rather more familiar "global chaos" trade.

As time went on, there was more and more concern about deficits and government profligacy. Then-Vice President Cheney's comment that "deficits don't matter" arguably highlighted this concern, while the U.S. government began a program of heavy deficit spending to fund new counter-terror military efforts.

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Investopedia: Best Buy Needs To Tune Out The Haters

Much to the chagrin of a lot of shorts, hedge funds and commentators, Best Buy (NYSE:BBY) stubbornly refused to go out of business this past quarter. That's hyperbole, of course, but perhaps not by much - there is no shortage of commentary out there saying that Best Buy is utterly doomed, needs to close stores and/or start subletting space in order to survive. (Learn more in The 4 R's Of Investing In Retail.)

While it is true that Best Buy is indeed going through some hard times and it likewise true that consumer buying preferences have changed, a panicked attempt to pacify institutions is not what the company or its shareholders need. Best Buy is still producing positive cash flow has not yet reached a point of no return.

Challenging and Disappointing Second Quarter Results
That is not to say that Best Buy is doing well, as it clearly is not. Revenue was flat for this quarter (the company's fiscal second quarter) despite a nearly 3% decline in comp-store sales. Although domestic sales were down (down 1.5% on a 2.7% comp decline), international sales rose 4.6% despite a greater-than-3% decline in comps.

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Investopedia: Are The Rails Starting To Spin Their Wheels?

Economies don't turn on a dime, so "more of the same" is usually the order of the day. The uncertainty that really become apparent early in the summer is still the dominant theme of the U.S. economy. Given that demand for railroad carriage is a derivative of economic activity, it is not so surprising to see that the trend in rail car traffic has likewise become uncertain. Investors should note, though, that while growth is no longer unequivocal, there are still positive trends at work. 

August Rail Numbers  
In the latest Rail Time Indicators from the Association of American Railroads, August carload traffic in the United States fell 0.3% from the year-ago level and remained flat with the prior month. Intermodal traffic climbed 0.4% and 0.3% for the same time periods. Of the 20 reporting categories of traffic, 12 showed gains in the month of August - consistent with July, but down from 16 in the year-ago period.

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Investopedia: Colfax Makes A Bold Bid

For some companies, M&A is in their DNA. Although most investors have likely never heard of fluid-handling specialist Colfax (NYSE:CFX), the company's major shareholders are the founders of Danaher (NYSE:DHR) and investors familiar with that conglomerate's long acquisitive history will see a similar story here. What is most remarkable about this most recent proposal, though, is its sheer audacity - if Colfax succeeds in acquiring Charter International (Nasdaq:CHITY), it will dramatically increase the company's debt load, revenue base and market exposure.

The Deal That May Be
It should be noted immediately that while Charter's board supports Colfax's bid, it is not a sure thing yet by any means. Nevertheless, Colfax has offered $2.4 billion in cash and stock for Charter International - a remarkably large bid given Colfax's present market capitalization of about $900 million.

Colfax is proposing to acquire Charter for 910 pence (about $14.45) per share, a 7% premium to the standing offer from Melrose to acquire Charter. That 7% premium may not sound remarkable, but Colfax is offering a package that includes about 80% cash, while Melrose's bid was only 35% cash. Based on current expectations, Colfax is offering about 0.75 times estimated 2011 sales, 8 times estimated 2011 EBITDA, and a little less than 14 times estimated 2011 earnings per share. (For related reading, see A Clear Look At EBITDA.)

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Investopedia: When Time Are Tough, Should Investors Go Swiss?

When the going gets tough ... the tough go to Switzerland? That may not be entirely (or even mostly) accurate, but it certainly seems true that in periods of economic turbulence and in times where other governments seem profligate or inept, investors look back to Switzerland as something of a safe haven. Switzerland has a well-earned reputation for conservatism and consistency, and there are valid arguments for investors to look to hedge some of their exposure to North American or Eurozone economies with some allocation to Swiss assets.

Swiss Companies to Consider
Consider, then, some of the following Swiss companies. Keep in mind, though, that as Switzerland is such a small country, most successful Swiss companies have become successful by becoming global. So it is a bit of a straw man to think that simply being a Swiss company is a shield against the ups and downs of the global economy.

ABB is a good example of a Swiss company that has little to do with what is going on in Switzerland. This global leader in power and automation has been testing 52-week lows as investors' fears of slowing orders outweigh their optimism regarding the company's cost-cutting initiatives and late-cycle positioning. Automation is here to stay, though, and power infrastructure upgrades are a "when, not if" decision, so this looks like an interesting play at it hits lows.

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Wednesday, September 14, 2011

Investopedia: Will Obama's Plan Boost Infrastructure Names?

The election cycle is in full swing and with a lagging economy looming large as an issue, President Obama has come out with his own package of proposals to get the economy and job numbers moving in a more favorable direction. One of the centerpieces of the program is another boost in infrastructure spending.

Assuming that the President can get this package through Congress more or less intact (and that is no guarantee), it is worth considering the investment consequences. If billions and billions of dollars work their way through to roads, transit systems and other public works projects, can infrastructure stocks finally get moving in a more positive direction?

The Size of the Bid
Although the details will almost certainly change as bills are debated and amended, President Obama proposed as much as $140 billion in infrastructure spending, with possibly $50 billion being put on a so-called "fast track." The reasons to do this are pretty familiar - the projects themselves will put people to work (both in construction and related industries like steel and concrete) and better infrastructure has typically correlated with improved economic performance.

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Investopedia: Broadcom Assigns A Lot Of Value To Expansion

The market may not be willing to value semiconductor stocks at the same rate as just a year ago, but industry insiders have no such problem. Broadcom (Nasdaq:BRCM) announced a deal for high-performance processor company NetLogic (Nasdaq: NETL) on Monday that gives the selling shareholders a premium valuation that accounts for a lot of the growth potential of the company.

Broadcom's Deal
Broadcom announced that it will pay $50 a share, or $3.7 billion in total net cash, for the shares of NetLogic. That is a 57% premium to the Friday closing price of NetLogic, as well as a price that exceeds NetLogic's all-time high and roughly matches the high watermarks for price-sales valuation.

NetLogic has generated a little more than $400 million in revenue over the past year, with a trailing growth rate in the high single digits. That may not sound so impressive, but that has been accomplished in an environment where end-use customers like Cisco (Nasdaq:CSCO), Juniper (Nasdaq:JNPR), and Alcatel-Lucent (NYSE:ALU) have seeing some pretty tough markets. While the three to five year growth rate estimates provided by sell-side analysts are near worthless, the fact remains that the sell-side community expects NetLogic to grow at a high-teens clip for several years (and the valuation suggests similar, or greater, expectations from the buy side).

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Tuesday, September 13, 2011

Investopedia: FuelCell Energy - Is The Corner In Sight?

Fuel cells are frequent fliers in the green energy discussion. Generally, about once every decade investors and columnists get fired up about the seemingly unlimited appeal of fuel cells and jump on the bandwagon - only to see that wagon careen off the road and into a tree. With a very different mousetrap and its first ever quarterly gross profit, though, maybe FuelCell Energy (Nasdaq:FCEL) can finally redeem decades of unrewarded optimism. By no means has FuelCell turned a corner, but maybe now the corner is actually in view. 

Strong Third Quarter Results
FuelCell jolted its investor base with a surprisingly strong third quarter financial report. Revenue jumped 65% as product sales jumped 81%. As part of the higher sales base, the company's productivity rose above 50 megawatts on an annual run-rate basis.

FuelCell also reached a significant milestone that has been long in coming for this industry - the company's first-ever quarterly gross profit. FuelCell is still losing money (an operating loss in excess of $7 million), but the red ink is fading a bit and the company has eased its cash outflow to under $6 million for the past quarter.

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Investopedia: VeriFone Not Lacking In Growth Or Confidence

Consumers may be more reluctant to open up their wallets at retailers these days, but retailers and service providers are still quite willing to spend their own money on technology to make it easier for consumers to spend. To that end, payment solutions provider VeriFone (NYSE:PAY) is continuing to see excellent growth and momentum, and management is not lacking in confidence about the company's prospects.

A Strong Third Quarter
VeriFone has a solid reputation for surpassing analyst estimates and this quarter was no exception. Revenue jumped 21% from last year (8% sequentially), and the company beat the midpoint of analyst estimates by about 6%. Business in the U.S. was weak (on difficult comps), as North American sales fell 1% from last year. Growth was quite strong everywhere else, though - reported results from Europe jumped 56%, while Asia and LatAm grew 42% and 23%.

After the quarter ended, VeriFone completed its acquisition of Hypercom. Hypercom's last 10-Q (ended June 30, 2011) showed revenue of over $119 million and growth of 15% (though down about 13% in the Americas), but investors should remember that divestitures mean that the company will not reap 100% of that former business.

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Investopedia: PerkinElmer Adds High-End Tools To Its Box

Investors who were absorbed in watching the tech sector meltdown in 2000 might not have been aware that as tech was falling apart, another bubble rapidly emerged. With the promise and hype of genomics and proteomics fueling dreams of a revolution in medicine, a host of life science companies IPO'd with robust valuations, promising technology and little-to-nothing in the way of actual revenue.

Like every other bubble, this popped and investors have been dealing with the wreckage ever since. Clearly companies like Illumina (Nasdaq:ILMN) have gone on to great success, while others went out of business entirely. And then there were companies like Caliper Life Sciences (Nasdaq:CALP) that could never quite live up to the initial hype, but eventually developed their technology to a point where they were interesting second-chance stocks.

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Monday, September 12, 2011

Investopedia: The British Pound - What Every FX Trader Should Know

Foreign exchange, or forex, trading is an increasingly popular option for speculators. Ads boast of "commission-free" trading, 24-hour market access, and huge potential gains, and it is easy to set up simulated trading accounts to allow people to practice their trading techniques.

With that easy access comes risk. It is true that forex trading is a huge market, but it also true that every single wannabe forex trader is going up against thousands of professions working for major banks and funds. The foreign exchange market is a 24-hour market and there is no exchange – trades take place between individual banks, brokers, fund managers and other market participants – but 10 firms dominate nearly 75% of the volume.

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Investopedia: International Paper Wraps Up Temple-Inland

As is so often the case, once again an acquisition target's howls of protest have been soothed by a modest increase in the price of the deal. On Tuesday morning, International Paper (NYSE:IP) announced that it has reached an agreement with Temple-Inland (NYSE:TIN) on a friendly acquisition with a slightly higher price than IP's original bid.

A Small Bump To "Yes"  
International Paper secured the support of Temple-Inland's board by offering $32 a share in cash and the assumption of $600 million in debt - a total deal value of $4.3 billion. At that price, Temple-Inland shareholders are seeing a roughly 30% premium to Friday's close and a trailing EV/EBTIDA valuation of roughly 10 - a slight discount to Rock-Tenn (NYSE:RKT), but a premium to Packaging Corp (NYSE:PKG) and the larger packaging sector.

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Investopedia: Smithfield's Leverage High On The Hog

Take an unpredictable and cyclical business with narrow margins and then layer on a big dollop of debt and let the fun ensue. That's basically the recipe for Smithfield Foods (NYSE: SFD), for while this company is both the largest pork producer in the country and a well-run agribusiness in general, the combination of a low-margin business and a high-debt balance sheet makes this a never-boring play on protein.
  First Quarter Results a Little Undercooked
Smithfield reported that sales rose a little less than 7% for the fiscal first quarter, with the total revenue figure coming in just a couple of percentage points below the average estimate. Sales performance was driven by the pork business (as it virtually always is), and pork revenue rose by 7.6%. Like Hormel (NYSE: HRL), Smithfield understands the virtues of a solid branded/packaged product business, and although packaged pork sales growth trailed the company average (6.4% versus 6.7%), it's still a significant contributor.

Fresh pork saw nearly 9% growth, though volume was down about 2%. Margins were at the high end of the company's historical range. On the packaged side, margins too were above normal levels and the company's sales growth was a byproduct of pricing (up 8%) offset by volume (down 1%).

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Sunday, September 11, 2011

Investopedia: Altera's Adjustment No Need For Panic

That these are challenging times in the semiconductor space is hardly news. In fact, flagging demand in markets like industrial, automotive, wireless and base stations has been the dominant story around names like Broadcom (Nasdaq:BRCM), Analog Devices (NYSE:ADI) and Texas Instruments (NYSE:TXN) for most of this year. In that context, then, Altera's (Nasdaq:ALTR) downward revision of third quarter revenue guidance is not really a cause for panic.

The Dirty Details
Altera announced late Tuesday that in place of the 2% to 6% sequential growth management expected for the Q3, sales were on a path to deliver something between a 3% contraction to 1% growth. Take the midpoint of that range, and Altera will fall short of the previous average analyst guesstimate by about 5%.

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Friday, September 9, 2011

Investopedia: Google Thinks Global, Buys Local

It's fair to wonder if there are many companies more schizophrenic than Google (Nasdaq:GOOG) right now. Still a dominant name in Internet search and online advertising, the company is trying to push its Android operating system for phones and tablets, expanding further into cloud computing, and buying hardware company Motorola Mobility (NYSE: MMI). And now the company is adding another business to its roster with the acquisition of privately-held Zagat Survey.

The Deal
Because the deal for Zagat is so small, Google does not have a legal compulsion to release many details about the transaction. Given that it appears that no federal antitrust review is called for, that suggests a deal value below $66 million (the current threshold for Clayton Act reviews). Going a step further, if online information and service companies like Bankrate (Nasdaq:RATE), Morningstar (Nasdaq:MORN) and Expedia (Nasdaq:EXPE) are decent benchmarks for valuation, that suggests Zagat could have a revenue base somewhere in the neighborhood of $15 million to $30 million - not really an earth-shaking deal for a company with over $33 billion in trailing revenue.

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Investopedia: Lululemon - Does Success Have To Make Sense?

For all those wishing to suggest that the so-called "Great Recession" has permanently changed consumer spending behavior and value assessment, I would present Lululemon Athletica (Nasdaq: LULU). Here is a company that has continued to grow at an impressive clip throughout this downturn and has achieved over $200 million in quarterly revenue on the basis of convincing people to pay $100 for sweatpants (very nice and comfortable sweatpants, I'm told, but still basically just upgraded, bum-sculpting sweatpants). Now the question is how long the company can maintain the momentum in its sales and the anti-gravity in its valuation. 

Second Quarter Results Very Limber  
Lululemon had another startlingly good quarter from a growth perspective. Revenue rose more than 39%, with same-store comp sales up 20%. What makes that notably impressive to me is that revenue rose 35% year on year in the first quarter (with comp growth of 16%) - so even though consumer confidence and retail spending seems to be getting worse, Lululemon continues to grow apace.

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Seeking Alpha: Waffle Street - The Confessions And Rehabilitation Of A Financier

The subprime mortgage meltdown, and the resulting credit crisis, recession, and general chaos, has been a boon to many writers and market observers, perhaps most notably Nassim Taleb and his excellent book, "The Black Swan." What many of these books lack, though, is a true first-person perspective and any self-awareness of one's one culpability and role in the events.

James Adams' "Waffle Street (The Confession And Rehabilitation Of A Financier)" is at least a partial antidote to that oversight. Although Adams was not a shot-caller in the events that precipitated the credit crisis, he did have a ringside seat for the meltdown. What's more, much of the book is a story of catharsis and coming to terms with the events that put a fairly by-the-numbers Wall Streeter on a very different course.

What Is This Book About?
The book bills itself as both a memoir and an economics/finance primer, tracing the path of a former buy-side marketing professional from selling mortgage bond investment strategies to state pension funds to selling hashbrowns and coffee to a high-strung, strung-out, and sometimes just loony cast of characters at a local Waffle House restaurant.

To read the full review, please click the link below:
Book Review: 'Waffle Street: The Confessions And Rehabilitation Of A Financier'

Thursday, September 8, 2011

Investopedia: Yahoo! Finds It Can't Un-Hit The Iceberg

When Yahoo!'s (Nasdaq:YHOO) board of directors hired Carol Bartz as CEO in January 2009, did they charge her with the job of justifying their decision to reject the $45 billion bid from Microsoft (Nasdaq:MSFT) a year earlier (the one that arguably also led to Jerry Yang stepping down)? Or was the decision simply based on the need for a new voice to lead a turnaround? Whatever the implicit, explicit-but-behind-closed-doors, or explicit reasons for bringing Bartz on board, Yahoo!'s board has tired of the experiment and fired Bartz late Tuesday.

Who's Next? 
According to a message from Bartz, the chairman of the board (Roy Bostock) fired her by phone - something that may not necessarily rankle the wired generation, but a move that will likely lead to a few mutters and shakes of the head in the older generation(s). In place of Bartz, the board has named CFO Tim Morse as interim CEO and will start the executive search process.

What Now? 
Oh by the way, the board is now apparently open to the idea of selling the company now - years after the point where Yahoo! ceased to be an interesting player. That, in a nutshell, is also likely a big part of the reason that the board felt Bartz had to go.

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Investopedia: Navistar Gets More Than The Benefit Of The Doubt

Navistar (NYSE:NAV) has had some real problems with its still-new EGR engine platform and the company's financial performance has likewise lagged many truck and engine peers like PACCAR (Nasdaq:PCAR), Volvo (Nasdaq:VOLVY. PK), Cummins (NYSE:CMI) and MAN. Oddly enough, that does not seem to really trouble investors. While Navistar shares have indeed been quite weak this year, it hasn't been any worse than Paccar, Volvo and MAN. The decline in Navistar share value has created a potential for significant gains if management can drive better performance - but oh what an "if" that seems to be.

Little To Get Hearts Racing In The Third Quarter  
It would seem like the best thing about Navistar's third quarter is that it basically met top line estimates. Revenue growth of 10% just does not seem that exciting; revenue in the engine and parts business looked good (up 20% and 23%, respectively), but truck revenue was up just 6%. Now it's fair to note that these are difficult comps because the defense business muddies the waters, but it just doesn't seem that Navistar has the same momentum in commercial trucks as its rivals. Couple that with management decisions a while ago to end relationships with Cummins and Ford (NYSE:F), and there is certainly something here for management to answer for to shareholders.

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Wednesday, September 7, 2011

Investopedia: Can There Be Another Disney?

There is an idea out there that the increasing "democratization" of content and distribution will mean that the  age-old balance between artists and creative types and their corporate masters has changed forevermore. If that is true, investors should consider the possibility that there may never be another company quite like Disney (NYSE:DIS) with its ability to create enduring global and iconic brands.

Has Distribution Changed the Game?
There was a time that if someone wanted to be an actor, they had to accept and work within the "studio system." Major studios like Fox Film, Warner Brothers and Paramount signed up all of what they saw as the talented actors, directors and crew to long-term exclusive deals, and they likewise controlled the production studios, distribution networks, and in many cases the theater chains as well. To be in movies outside of the major studios meant being in low-budget "B movies" and perhaps never having people see your work. (For related reading, see Why Movies Cost So Much To Make.)

Much the same was true for artists in other media. While there were quite a lot of small publishing houses, authors who wanted to make a living had to work through established publishers like Scribner's or magazine publishers like Amazing Stories and Weird Tales - and these publishing outlets were increasingly acquired and consolidated through the 60s, 70s, and 80s. When it came to media like cartoons or comics, there was likewise a limited number of venues - if you couldn't get a job with Warner Brothers, Hanna-Barbera, or Marvel, you were likely limited to self-publishing and had to hustle hard to get anyone to notice your work.

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