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:
http://stocks.investopedia.com/stock-analysis/2011/The-Japanese-Earthquakes-Effects-On-Insurers-BRK.A-RNR-SWCEY-ACGL-ACE-XL-RE0311.aspx

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?

Seeking Alpha: Confusing Cross-Currents With Amylin's Data

Biotech investing is known for having more than its fair share of equivocal, confusing, or hard-to-interupt data. That's just really the price for sitting down at the table. The case of Amylin Pharmaceuticals (AMLN) seems to be taking that to a new level, though, and investors can be forgiven for not knowing quite what to do with this one.

Bad News First – DURATION-6
Amylin, along with partners Lilly (LLY) and Alkermes (ALKS) dropped a bombshell on investors last week when they announced disappointing results from the companies' DURATION-6 study of Bydureon, a once-weekly version of Amylin's successful Byetta GLP-1 analog for Type 2 diabetes. The study, designed as a marketing study and not a pivotal clinical trial, was destined to show similar efficacy to Novo Nordisk's (NVO) once-daily Victoza; the idea being that similar efficacy from Bydureon along with a more convenient dosing schedule and softer side-effect profile would establish Bydureon as the market leader if and when it gets approval.

Unfortunately for the AMLN-LLY-ALKS triumverate, it didn't work out that way. This study showed the lowest-ever seen efficacy rate for Bydureon (as measured by HbA1c) at 1.3%, lower than the 1.5% seen for Victoza. While the side-effect profile did look better for Bydureon (less than half as much nausea, vomiting, and diarrhea), the drop-out rates were similar.

Please click here for the link to the Seeking Alpha article:
Confusing Cross-Currents With Amylin's Data

Investopedia: Glaxo And Human Genome Find Rare FDA Success

In a refreshing change of course, the FDA has approved a significant new drug. GlaxoSmithKline (NYSE:GSK) and Human Genome Sciences (Nasdaq:HGSI) announced after market close on Wednesday that the FDA had informed the companies of the approval of their application to market Benlysta for the treatment of lupus. It no doubt helped greatly that the safety/side-effect profile on Benlysta was quite clean, to say nothing of the clear clinical need for new lupus treatments. (For background reading on the FDA approval process, see A Primer On The Biotech Sector.)

Where Now? 

With approval in hand, the two companies will begin marketing the drug relatively soon, with a 50/50 split of costs. While there was a general expectation that HGSI and Glaxo would price Benlysta in line with drugs for multiple sclerosis or arthritis, the two companies went a bit more toward the high end of the range and Benlysta will cost about $35,000 a year (more in the first year of treatment). (For related reading, check out Pharmaceutical Phenoms: America's Best Selling Medicines.)

The FDA also gave the company a rather favorable label. While the drug is contraindicated in some of the most severe and lethal forms of lupus (those that involve the kidneys and central nervous system), the companies estimate that there are at least 200,000 eligible patients. In actual practice, though, it would be a bit surprising if more doctors did not give it a go in some less-severe cases. 

The FDA's approval is partly conditional; the two companies will have to conduct a study of the drug in African-Americans. So far to date, Benlysta's results in this patient group have not been favorable, but they have not been statistically convincing either. Given that the rate of lupus is almost three times higher in people of Afro-Caribbean descent (compared to the overall incidence rate in the U.S.), that is clearly a subject that merits study.

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Investopedia: Can James River Thrive On Luck And Timing?

Sometimes it is better to be lucky than good. It was not all that long ago that James River (Nasdaq:JRCC) was in serious trouble, but the company leveraged a boom in coal prices by locking up a lot of its forward production at attractive prices and a boom in coal stock prices by issuing equity and cleaning up its balance sheet. With contracts rolling off and James River still operating with a relatively unattractive cost structure, will the company be able to leverage its assets with similar dexterity?


The Quarter That Was
James River reported a so-so end to its 2010 year. Coal revenue did rise nearly 9%, but overall revenue was still a bit shy of analyst expectations. Realized prices looked alright (up more than 12%), but shipments were a little sluggish as the company shipped about 4% less coal this quarter (despite producing almost 3% more).

The company's profitability is likewise still a bit of a muddle. COGS per ton jumped 9%, though, while adjusted EBITDA per ton increased 30%. On a per-share basis it looks like James River missed the average analyst target this quarter once a sizable tax benefit is excluded from the results.

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Investopedia: A Primer On The Biotech Sector

Biotechnology is one the strangest, scariest, sexiest and most interesting corners of the stock market. In how many other industries are companies striving to literally save lives? Any industry can host a stock that could potentially double, but what other industry can match biotechnology in the sheer number of stocks that could double if their companies' plans all come to fruition?

On the other hand, in how many other industries do companies burn through hundreds of millions of dollars, often with nothing to show for it? How many other industries rely on scientific arcana that can be challenging to even highly qualified Ph.D.s? And how many other industries sport a warning label that reads “Caution: Poor stock selection may cost you 90% of your initial investment”?
For all those reasons and more, biotechnology is a fascinating industry for investors to explore. (For a background reading, see The Ups And Downs Of Biotechnology.)

What Is Biotechnology?
In a nutshell, biotechnology is an industry that focuses on novel drug development and clinical research aimed at treating diseases and medical conditions. Biotechnology companies are almost always unprofitable (some suggest that the distinction between “biotech” and “pharmaceutical company” lies in profitability), and many have no real revenue at all.

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http://www.investopedia.com/articles/fundamental-analysis/11/Primer-on-Biotech-Sector.asp

Investopedia: Western Digital Doubles Up On Storage

Consolidation is not uncommon in mature industries, and hard computer disk drives are definitely a mature product nowadays. But even though many pundits believe that flash memory will relegate hard drives to the scrapheap of history, Western Digital (NYSE:WDC) seems to think that day is still a ways off. If you want to make a bet on this company, it'll be up to you to decide whether the company is right about its key product's prospects or not. Let's take a look at some of the data.

Western Digital Buys Global Storage Technologies 

On Monday morning, Western Digital announced that it will acquire Hitachi's (NYSE:HIT) Global Storage Technologies unit for $4.3 billion. Western Digital will pay $3.5 billion in cash (which will be funded at least in part by debt) and 25 million shares. That, in turn, will mean that Hitachi will own approximately 10% of the company. The deal also calls for Western Digital to add two Hitachi reps to its board of directors once the deal closes.

Global Storage Technologies is a relatively small part of a huge enterprise and there is not a wealth of financial data available. That said, Hitachi's HDD business has a revenue run rate right now of about $1.5 billion, so Western Digital is paying a little less than three times sales for the deal.

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FinancialEdge: Who Owns The Stock Exchanges?

Stock exchanges are not like other businesses. The performance of national stock exchanges is often taken as a proxy for the health of a nation's economy, or at least investor enthusiasm for the country's prospects. National exchanges also play an under-appreciated policy role in deciding the listing and compliance standards for companies that wish to go public. On top of all that, there is a nebulous but real sense that national pride is often somehow tied to stock exchanges. (Learn how British coffeehouses helped give rise to the juggernaut that is the NYSE. Check out The Birth Of Stock Exchanges.)

With that in mind, recent moves in the stock exchange sector have garnered quite a bit of attention. The Deutsche Borse wishes to merge with NYSE-Euronext (NYSE:NYX) in a transaction that will have NYSE shareholders holding 40% of the combined company and ownership of the first (to say nothing of arguably most famous) U.S. exchange moving into foreign hands.  At the same time, the London Stock Exchange (or rather, its partner London Stock Exchange Group) has reached an agreement to acquire TMX Group (owner of the Toronto Stock Exchange) in a $3.2 billion deal.

As these deals seem certain to shake up the structure of several of the world's largest exchanges, it is a good opportunity to examine the ownership structure of several other major exchanges.


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Investopedia; Marvell Technology - Not So Marvell-Ous

In semiconductors, mix matters. That looks to be one of the key problems with Marvell Technology (Nasdaq:MRVL) today, as smartphones and tablets chew into the company's PC and hard drive markets, and the company has little in the wireless space to offset it.

A Tough End to the Year
Although full year-on-year comparisons for Marvell look quite good, hardcore tech investors pay virtually no attention. Instead, the company's fourth quarter sequential revenue growth contraction of 5% is the real story, particularly as the company almost completely missed the Street estimate range. Unfortunately, performance was "bad" and "worse" as revenue in the storage and drive segment fell 2% sequentially and the mobile/wireless segment dropped 13%. Networking was what passed for good news, with flat performance. (For more, see Semiconductor Equipment: The Small and Skeptically.)

To the company's partial credit, margins held up. Gross margin was only off by about 10 basis points from the third quarter (though down more than that from the year-ago level). While operating income did drop almost 17% from the third quarter, a large part of that was due to higher R&D spending.


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Investopedia: DexCom Shows Diabetes Still A Growth Industry

Today's diabetes market highlights the importance that individual stock selection still has in successful investing. While it may very well be generally true that overall sector movements explain a lot of an individual stock's performance, that has not been the case in this market. While the overall tone and tenor has been pretty negative, select names like Novo Nordisk (NYSE:NVO) and DexCom (Nasdaq:DXCM) have done quite well indeed. 

A Strong End to DexCom's Year
It has not all been smooth sailing for DexCom (the stock took a spanking late in 2010), but the company continues to build its emerging continuous glucose monitoring business. For the fourth quarter, total revenue increased 49%, while product revenue more than doubled from the year-ago level and rose 26% sequentially. DexCom also saw an encouraging jump in the sale of its start kits, to the tune of 24% sequential growth.

As the company increases its sales, it is beginning to see some operating leverage. Gross profit on product sales increased nearly five times (again, on a doubling of revenue) in the fourth quarter, when compared to the prior year. At the same time, the company has kept a lid on SG&A spending while still investing significant resources into R&D. All told, the company produced an operating loss more or less in line with the prior year's level. 


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Seeking Alpha: Boston Scientific At A Crossroads - The Case For Bowing Out

In Part 1, I discussed some of the unfortunate events that led to Boston Scientific (BSX) falling from its once-lofty position alongside Medtronic (MDT), Johnson & Johnson (JNJ) and other major med-tech players. Through a mix of mismanagement, excessive appetite, and competitors' successes, Boston Scientific has found itself languishing for years.

Now, though, the company appears to be serious about change. Company-wide restructurings are underway, the company sold its once-promising neurovascular business to Stryker (SYK), and both management and investors await what they hope will be successful new product launches in the coming years. While all of this is taking place, though, there is a steady drumbeat in the rumor mill that Boston Scientific will not be independent for long.

In this section I mean to examine what the buyout environment for Boston Scientific could be like and who could be interested in this company.


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Seeking Alpha: Boston Scientific At A Crossroads - The Case For Rebuilding

Medical device maker Boston Scientific (BSX) has over 11 billion dollars in market cap. The company has always been more volatile and more controversial than average, but the chatter, rumors, and speculation on this company seem to be near-constant. The company seems to be at a key turning point, though, and the decisions the company makes today will likely determine whether Boston Scientific can once again be a major player in medical technology.

Aggressive Moves Brought Trouble Home To Roost
It is hard to believe that Boston Scientific was once a $40 stock, but it did in fact hit its all-time high ($45.81) in April of 2004. While the company rode a wave of acquisitions (SciMed, Target, Meadox, Schneider) and aggressive product introductions to the top, that same aggression sowed the seeds for major problems.

Not only did the company face several product recalls and some wrath from the FDA, it stretched itself much too far in buying Guidant. The company wrecked its balance sheet with debt and inherited a host of problems with the Guidant acquisition -- problems that have included FDA warnings (including a rather rare corporate warning letter), product holds, and generally disappointing results.


Please read the full article at Seeking Alpha:
http://seekingalpha.com/article/257221-boston-scientific-at-a-crossroads-the-case-for-rebuilding-part-1-of-2?source=mc_all

Seeking Alpha: China's Rare Earth Policy Will Ultimately Fail (And What That Means For Metal Miners)

Let's not mince words – China's policy of choking off the world's access to rare earth metals will ultimately fail.

Although China has clearly created a tizzy in the markets because of its policy to slowly strangle its export quotas of rare earth metals, it would be more surprising if this move does not go down in the books alongside the Hunt brothers' attempt to corner the silver market and other market-cornering maneuvers. Maybe this is really not all that unexpected; after all, China is not necessarily up to date on all of the details about how free markets operate.

The Problem
As has been reported many times in many places, China happens to sit on top of a very large percentage of the world's rare earth elements. Actually, that's not really the story. China reportedly holds about 37% of the world's reserves but is responsible for about 97% of the world's supply because the central government kept supporting rare earth producers at a time when Western mining companies shut down their rare earth operations because of low prices.

Please click this link for the full piece:
http://seekingalpha.com/article/256890-china-s-rare-earth-policy-will-ultimately-fail-and-that-means-for-metal-miners?source=mc_all

Investopedia: Central European Distribution - From Russia, With Disappointment

Although the Russian character is suffused with a grim fatalism, there is also a strong history of resilience in the face of adversity and an unwillingness to back away from a challenge. Though Central European Distribution (Nasdaq:CEDC) is technically an American company, this leading producer and seller of vodka in Russia and Poland may do well to take a page from its customers. While CEDC is a liquor company with real prospects for the future, it has just as many real problems in the present. 


A Bad End To A Hard Year
For much of 2010, Central European Distribution has better resembled the Gang That Couldn't Shoot Straight. Missed, and then lowered, guidance had been an issue throughout 2010 and there was always something else to blame - a cold winter, a hot summer, a tragic plane crash that killed Poland's president, other important government figures, and 96 people in total.

Maybe it should not have been surprising, then, that CEDC would miss again in the fourth quarter. Revenue dropped 11% for the final quarter and certainly missed estimates. This time the company pointed to production problems during the peak selling season as the culprit, but the company did note that volumes increased in Russia by 8% and the company stabilized (and then reversed) market share losses in Poland.


Please click the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Central-European-Distribution-From-Russia-With-Disappointment-CEDC-DEO-LVMUY-PDRDY-BF.B-FO-PEP0307.aspx

Seeking Alpha: Accuray Acquisition Undervalues TomoTherapy

Normally I'm thrilled to see one of my portfolio companies get bought, particularly when that was at least part of the initial purchase thesis. And yet, I cannot whole-heartedly celebrate Monday morning's news that Accuray (ARAY) is acquiring TomoTherapy (TOMO) for $4.80 in cash and stock.

Oh true, I am going to show a profit on this deal. Assuming that the $4.80 price holds up (part of the deal includes Accuray stock), that will be a 32% return for me in just 10 days of TOMO ownership. That is certainly nothing to complain about, but I am going to complain anyway.

Please read the full piece at Seeking Alpha:
http://seekingalpha.com/article/256773-accuray-acquisition-undervalues-tomotherapy?source=mc_all

I Could Get Used To This

I bought six stocks near the end of February. Two of the six are now up 30%+.

I could definitely get used to this.

I do sometimes fear, though, that this is more temptation than I really need towards being a more active "trader". I really do believe long-term is the way to go, but when one-third of your new buys pop almost straight out of the gate ... Well, I should probably clam up and not look a gift-horse in the mouth.

Updated Idea List

There is a new and updated list on the "Idea List" page. No major changes (or at least I don't think they're major...).

Investopedia: Darling: Dirty Business, Sweet Cash Flow

Well-known fund manager Peter Lynch once wrote that he often knew he had found an interesting investment opportunity when the company in question performed a service that was unpleasant or sometimes even disgusting. The example Lynch used was Safety-Kleen, a company that built an attractive business from the collection and recycling of oil and other industrial waste products. The same could certainly be said though for Darling (NYSE:DAR), the only publicly-traded company with significant operations in the field of rendering, recycling and recovering the food industry's biological waste products. 

A Solid End to the Fiscal Year 

Darling took a bit of the wind out of its own sails by preannouncing results for the fourth quarter a little while ago. Nevertheless, reported revenue growth of 52% (and organic growth of 33%) is still quite impressive and was quite a bit better than the original projections for the quarter. Likewise, the company's adjusted EPS of 0.22 was not only a bit ahead of updated expectations, but well ahead of the 17-18 cent range in place a month ago.

Although Darling does not include much information with its press release, the company followed its press release with its 10-K. To that end, free cash flow again ticked up for fiscal 2010. Investors should note that free cash flow growth has been trailing revenue growth, but increased amounts of capital expenditures have clearly played a role in that equation. 

The full article awaits at:
http://stocks.investopedia.com/stock-analysis/2011/Darling-Dirty-Business-Sweet-Cash-Flow-DAR-TSN-PPC-PG-CL-VLO-HON0304.aspx

Investopedia: Heinz Sticking To A Smart Plan

Just like Kellogg (NYSE:K), ConAgra (NYSE:CAG) or Pepsico (NYSE:PEP), H.J. Heinz (NYSE:HRZ) has a dilemma on its hands. Should the company try an impression of a certain central banker, sink its head into the sand and pretend inflation is not happening? The alternative, hike prices and pass them on to a twitchy consumer, is not terribly appealing either, as the company runs the risk of seeing one or more competitors swallow lower margins and capture share. 

On a more positive note, these commodity squeezes come and go, and Heinz has been through them before. Even better for investors, the company appears to have a solid long-run plan that could establish Heinz as a significant global brand for a long time to come.

A Mediocre Third Quarter
The best thing that can likely be said about Heinz's third quarter is that it was consistent with a pre-announcement and the company will not be disappointing anyone with these results. Revenue rose 1.5% as reported, with 2% organic growth in the North American Consumer business. Overall volume growth across the business came in at 0.5% - a fairly tepid result but a sequential improvement.



To read the full article, please go here:
http://stocks.investopedia.com/stock-analysis/2011/Heinz-Sticking-To-A-Smart-Plan-HNZ-K-CAG-PEP-UL-NSRGY0304.aspx

Investopedia: VeriFone Makes Its Skeptics Pay

As I have said more than once, there is nothing more dangerous than trying to apply conservative valuation principles to the popular stock of a fast-growing company. VeriFone (NYSE:PAY) is a good example, as this well-run financial services company continues to find lucrative expansion opportunities and validate a premium valuation. 

First Quarter Growth Continues Apace
VeriFone's fiscal first quarter was a story about a strong company getting stronger. Revenue rose 27% from last year's level and 3% sequentially. Interestingly, the company's business was strongest in its largest (and most developed) market, as sales in U.S./Canada rose 43%, while sales in Asia rose 12%.

The company also continues to leverage its revenue growth into better profitability. Gross margin expanded by about two points from the year-ago level whether one looks at GAAP or non-GAAP numbers. While VeriFone is not holding back from spending more on R&D and sales/marketing, the company nevertheless delivered 82% operating profit growth, or 48% growth for those who prefer the non-GAAP numbers. While some may think it is worth noting that the company reported less operating cash flow than net income this quarter, quarter-to-quarter cash flow analysis often causes more problems than it solves. 


Continue to the full article:
http://stocks.investopedia.com/stock-analysis/2011/VeriFone-Makes-Its-Skeptics-Pay-PAY-USB-DHR-IBM-NCR0304.aspx

Investopedia: What's Happening To The Best Trades Of Our Lives?

Nobody is sounding the bells yet for the emerging markets, but a curious thing has happened on the road to "BRIC will make you rich!" So far this year, many of the most attractive emerging markets are not actually doing well at all. Ups and downs are par for the course with all investing, and especially so in emerging market investing, but it is interesting to step back and see how many of the most attractive long-term stories are working out today. 

Brazil - Rates Shimmying Upward
Just in time for Carnival, Brazil's central bank decided to hike rates by another 50 basis points, moving the benchmark rate to 11.75%. Just as it is often said that investors should not "fight the Fed," investors in Brazilian equities have had to swallow hard as Brazil's government tries to find the right path between inflation and growth.

Even though commodity prices, a major component of Brazil's economy, have been strong both under ground (copper, iron, and gold) and above ground (soybeans and other agricultural products), that has not helped the market so much. The iShares Brazil Index ETF (NYSE:EWZ) has lost almost 4% year-to-date as of this writing, and many riskier ETFs have had it worse. The Market Vectors Brazil Small-Cap ETF (NYSE:BRF) has dropped 8.6%, while the thinly-traded Global X Brazil Consumer (Nasdaq:BRAQ) and Global X Brazil Financial (Nasdaq:BRAF) have fallen 12% and 9% respectively. For those who think investing in Brazil is not quite risky enough, the ProShares Ultra Brazil (NYSE:UBR) are down 8.6%. Oddly enough, while rates keep climbing, the EGShares Brazil Infrastructure Fund (Nasdaq:BRXX) has only seen declines of about 1%.


Please click the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Whats-Happening-To-The-Best-Trades-Of-Our-Lives-BRF-EWZ-FXI-EPI-IDX-TUR-VNM0304.aspx

Seeking Alpha: Why I (Finally) Gave Up On Johnson & Johnson

Recently I made a change to my portfolio. After several years of patient ownership, I decided that I had had enough of the foibles and struggles of healthcare giant Johnson & Johnson (JNJ) and that it was time to move on to a new idea. While JNJ still features prominently on many lists of “top healthcare” or “top dividend” stocks, I would suggest that investors might want to think about this a little further. Perhaps there are still valid reasons for owning Johnson & Johnson, but maybe some investors will agree that it is time to give up on the idea that JNJ will live up to our ideas about what it should be.

With that in mind, here are the leading reasons that I quit on Johnson & Johnson:

1. Little Leadership
Quick – name a market in which Johnson & Johnson is really a dynamic force and an industry leader.

That is a big problem; there is relatively little that JNJ still does very well. Although JNJ has shown an ability to buy its way into attractive markets, it seems to lack the foresight and follow-through to really maintain that leadership. JNJ was the early leader in stents, only to lose out to better products and marketing from Guidant (now owned by Boston Scientific (BSX)) and Medtronic (MDT). Drug-coated stents offered an eerie repeat – JNJ was was among the first, but saw that lead crumble due to competition from Boston Scientific, Medtronic, and Abbott (ABT).

Please continue to the full article at Seeking Alpha:
http://seekingalpha.com/article/256373-why-i-finally-gave-up-on-johnson-johnson

Seeking Alpha: Sauer-Danfoss Thriving In Relative Obscurity

Investors will notice a name on the top gainers list today that they probably do not recognize. Hydraulic and electrical component maker Sauer-Danfoss (SHS) is getting its day in the sun on the back of a surprisingly strong fourth quarter and solid guidance for the next year. For better or worse, though, this company has virtually no coverage and no analyst support – perhaps explaining why it is one of the relatively few under-priced industrials with exposure to markets like mining, construction and agriculture.

Better Growth Across the Board
 By almost every metric, Sauer-Danfoss posted solid results for the fourth quarter. Sales jumped 54% as reported, or 56% on a currency-neutral basis. Sales rose 53% in the Americas, 42% in Europe, and doubled in Asia. Looking at the results by market segment, “propel” saw growth of 71%, “work function” saw growth of 49%, and “controls” saw growth of 33%.

To put that in perspective, Caterpillar (CAT) reported 62% sales growth in its latest quarter, while Deere (DE) revenue rose 27%, while component companies like Eaton (ETN) and Parker Hannifin (PH) saw growth of 17% and 22%, respectively.


Please go to Seeking Alpha to read the full piece:
http://seekingalpha.com/article/256310-sauer-danfoss-thriving-in-relative-obscurity

FinancialEdge: Who Wants To Be A Trillionaire?

One trillion dollars is a figure so vast most people cannot really get a firm hold on what it means. One trillion is roughly the GDP of Mexico and South Korea, one-half of the U.S. federal government's revenue in 2010, and enough to buy Exxon Mobil, Apple, Google, Nike and Agilent, with billions left over. (For related reading, also check out What's Your Billionaire Age?)

Even though $1 trillion is an unthinkably large sum of money, sooner or later the world will have its first trillionaire. When John D. Rockefeller became a billionaire in 1916 that too was a seemingly impossible level to attain - and that billion dollars was equivalent to around $400 billion in today's figures. Let us consider, then, who might have a chance of approaching this figure and it will require.

Carlos Slim Helu
Carlos Slim is a well-known Mexican tycoon with major interests in landline and cellular telecommunications in Latin America. Worth upwards of $54 billion in 2010, but also 70 years old, Slim faces long odds of even approaching $1 trillion. Assuming another twenty years of wealth accumulation, Slim would have to see compound annual growth of 16% - an unlikely achievement given the top-line growth of his primary holding is in the mid single-digits.

Please click this link for the full piece:
http://financialedge.investopedia.com/financial-edge/0311/Who-Wants-To-Be-A-Trillionaire.aspx

Investopedia: Salix Proves There Is Still Growth In Pharma

For those investors bored or disgusted with the current theme in Big Pharma of minimal top-line growth and mass firings, maybe Salix Pharmaceuticals (Nasdaq:SLXP) can be an antidote. As Salix is ably demonstrating these days, it is still possible to launch new drugs and see solid growth as a result. Of course, Salix has the benefit of a tiny base from which to grow, but in a pharma world that is starved for growth, Salix may be looking increasingly appetizing. 

An OK End to the Fiscal Year
Salix reported respectable results for the fourth quarter. Sales rose 69% from last year, as revenue from Xifaxan soared and has quickly become 70% of the company's overall business. The company saw a decent improvement in product gross margins and operating income reversed from a year-ago loss.

Looking out into 2011, management guided to $520 million in revenue - a level that was a bit lower than the Street's old number, but still representing over 50% year-on-year growth. (For more, see Can Earnings Guidance Accurately Predict The Future?)


Please continue through the following link:
http://stocks.investopedia.com/stock-analysis/2011/Salix-Proves-There-Is-Still-Growth-In-Pharma-SLXP-ENDP-FRX-AZN-PGNX-GSK-XNPT0303.aspx

Investopedia: Noble's Permit No Giant Leap For Drillers

In what may pass for a step back toward normalcy, the U.S. government has given Noble Energy (NYSE:NBL) the go-ahead to resume offshore drilling in the Gulf of Mexico. While it seems likely that a lot will be made of this move, investors should remember that it isn't a straight line between this permit and "normal", even if the long-term result is almost certainly going to be a return to active drilling. 

What Noble Energy Can Do
Noble did not receive permission to sink a new well. Rather, the company was granted permission to resume work on a well in the Mississippi Canyon, some 70 or miles south of Louisiana. Work on this well had started a while back, but all drilling was stopped in the aftermath of the BP (NYSE:BP) Deepwater Horizon accident.

Now, though, Ensco (NYSE:ESV) can go ahead and drill the well. As part of this process, Noble/Ensco will be using a new underwater containment system developed by Helix Energy (NYSE:HLX). It is unclear at this point whether the inclusion of that system had any bearing on Noble getting permission to move forward, but it certainly seems like a good move to include a system that should help contain any spilled oil if another accident were to occur. 


Continue on by clicking this link:
http://stocks.investopedia.com/stock-analysis/2011/Nobles-Permit-No-Giant-Leap-For-Drillers-NBL-HLX-ESV-BP-APA-OIH-CVX0303.aspx

Maybe It's Time To Abandon Amylin

Dear Amylin,

We've been together a long time and, hey, you were great. But I think it might be time for us to see other people. No, it's not me, it's you.

...

The Latest Problem...
Okay, today's stock reaction to the Duration-6 study is probably overblown, but clearly Amylin (Nasdaq: AMLN) has some serious issues. This latest study basically demonstrated that Amylin's weekly drug Bydureon is less effective in controlling diabetes than a rival daily drug from Novo Nordisk (NYSE: NVO) called Victoza.

Designed to show non-inferiority, the study instead showed that Victoza lowered HbA1c by 1.5%, while Bydureon lowered it by 1.3%. That's not a huge difference, but it is still significant and you can rest assured that Novo Nordisk will market the hell out of it if or when Bydureon is approved. On a somewhat more positive note, Bydureon did show half of the side-effects of Victoza (nausea, diarrhea, and vomiting are common side effects for this class of drugs).

Now that's good (and part of the point of the study was to show a better side effect profile for Bydureon), but there did not appear to be any meaningful difference in drop-out rates, so the side effects of Victoza weren't enough to make its users quit in greater numbers.

Unfortunately, this could have some long-tail effects for Amylin (as well as Lilly (NYSE: LLY) and Alkermes (Nasdaq: ALKS). The FDA is very focused on risk-benefit these days and if Bydureon shows any hint of safety issues (and one could argue there have already been more than hints), the FDA may continue to refuse approval on the basis of Victoza being safer *and* more efficacious (even if less convenient for patients).

What Now?
So, what do I do with Amylin shares? I think this study clips the total market potential for Byrdureon, probably by $300-$500M. So, it could still be a $1B+ drug, but probably not much more than that. Working that all through my model moves the target price down to about $12 - higher than where it's currently trading as I write, but not enough to excite me.

Making matters all the worse, I once had a big gain here. This stock was a big performer a while ago (in the $50s) and I wondered at the time whether I should haven't sold at least half my position and let the rest ride. But oh no, I had to get greedy ... and I paid for it.

Anyways, now I need to figure out what to do. I could hold on and hope for the best, but that's not really a "strategy". I'm also seriously considering selling it and doubling up on Lexicon (Nasdaq: LXRX), another biotech I own that is arguably much more promising at present. A third option is just to go buy another biotech (Ziopharm (Nasdaq: ZIOP)? Celldex (Nasdaq: CLDX))? Luckily, I don't own much and it was never a huge part of the portfolio, so this whole debate is more about a bruised ego than a bruised wallet.

I would probably SELL Amylin ... unless you're really, really patient

Disclosure: I own shares of Amylin and Lexicon

Investopedia: Joy Global's Mixed Quarter

With the stock markets in the middle of a "high oil prices will kill growth" snit, once-hot commodity plays have cooled off rapidly. That's not the best time, then, for mining pure-play Joy Global (Nasdaq:JOYG) to offer up a mixed quarter. While the global mining boom almost certainly still has legs, it looks like this entire sector has lost some momentum for the time being. 

A Mixed First Quarter 

Joy Global's fiscal first quarter gives investors a lot to chew on and try to interpret. Revenue was up 19% from the year-ago quarter, but down 17% sequentially and off a bit from the average analyst guess. Underground machinery and original equipment both appeared to be weaker than analysts hoped, though they were up 21% and 12% respectively (and investors should note that there is overlap in these two categories). (For more, see Joy Global A Mix Of Performance And Scarcity.)

Profitability was also disappointing on a relative basis. Gross margin was up more than a point and a half, and operating income jumped 31%, but expectations were generally higher. So while it is certainly true that operating margins in the high teens for both underground and surface equipment are not bad in their own right, the reality is that stocks trade largely on expectations and Joy Global did not meet them this time around.

Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Joy-Globals-Mixed-Quarter-JOYG-CAT-TWI-DCI-IR-KMTUY0303.aspx

A Quick Thought On Sauer Danfoss Earnings...

Yee-haw!!

I'll be back with a more reasoned and worthwhile analysis later...

Disclosure: I own shares of Sauer Danfoss

Update - I'm going to wait for the company's conference call tomorrow before writing a summary ... there's a lot of interesting stuff going on here and I want to do right by the company.  

Investopedia: Hot Stocks To Start 2011

So far 2011 is off to a great start. 

Fears of a U.S. federal government shutdown? No problem. North Africa and the Mideast in an uproar? Not to worry. Rising inflation and decreasing fears about equities? It's all good.  

Not only have the markets climbed the wall of worry quite easily so far this year, they all appear to be using the same rope. The Dow Jones, S&P 500 and Nasdaq are all up about 5% so far this year. But as is always the case, markets operate like ducks on a pond - things seem quiet and steady on the surface, but there are a lot of little feet madly paddling away out of sight. With that in mind, let us look at some of the top performers in 2011.

Solar - The Sun Has Come Out Tomorrow
Solar carries the rap for being economical and attractive only because of heavy government subsidies - subsidies that will presumably go away in the newly frugal world of 2011. It's not bothering the stocks, though, as this sector is up more than 36% so far this year. While tiny solar companies have seen the sun shine, large players like Jinko (NYSE:JKS) and LDK (NYSE:LDK), with the former announcing a 23% sequential revenue jump in Monday's earnings report. (For more, see Top Solar Stocks To Watch.)


Continue to the full piece here:
http://stocks.investopedia.com/stock-analysis/2011/Hot-Stocks-To-Start-2011-JKS-CAM-PTEN-AMAT-NVLS-BCS-BBVA0302.aspx

FinancialEdge: Where Your Tax Dollars Went In 2010

As Congress prepares to do battle over the 2011 federal budget, it is a good time to review what happened in 2010. Said differently, every American tax payer should have some interest in where their money went in 2010. (For related reading, also take a look at Breaking Down The U.S. Budget Deficit.)

A Troubling Imbalance
Right off the top there is some sobering math to consider. According to the General Accounting Office, the U.S. government spent $4.3 trillion in 2010. That stands in stark contrast to the $2.2 trillion in government revenues (which included $1.7 billion in personal income and payroll taxes). While not the point or focus of this piece, it is interesting to note that corporate taxes were $180 billion in 2010, up from $130 billion in 2009 (and down from the peak of $367 billion in 2007), but a rather small percentage of the total.

Technically, then, the U.S. government posted a $1.3 trillion deficit in 2010, down slightly from the $1.4 trillion deficit from 2009. Readers should note that changes in actuarial assumptions related to benefits, expenses, and obligations for veterans, military and civilian employees and government-sponsored enterprises reduce the deficit from the simple math of revenue minus expenses.

The full column can be found here:
http://financialedge.investopedia.com/financial-edge/0311/Where-Your-Tax-Dollars-Went-In-2010.aspx

Investopedia: Medicis - Generic Reprieve and Shareholder Relief

Medicis (NYSE:MRX) shareholders got a big bonus with the company's latest earnings release. With generic competition for the company's key drug, Solodyn, looming, the company announced a settlement with Teva (Nasdaq:TEVA) that will postpone its entry for several years and further shield the company's key franchise. While generic competition will still come in November of this year, the company has used line extensions and settlements to shield upwards of 80% of its revenue for many years. No wonder, then, that the stock was up strongly in Monday's trading. 

A Quarter That's Almost an Afterthought
Lucky for Medicis that they had good news to report on the non-operating front, as the company's fourth quarter earnings were not likely to excite investors all that much. Revenue rose 2% but slightly missed the average expectation. Core acne product revenue dropped 10%, though due in part to planned product discontinuations. Non-acne revenue jumped 34%, largely on the backs of Dysport (botulinum toxin) and Restylane (a dermal filler).

While revenue performance was so-so, the profitability side of things was even more so. Gross margin did improve almost a full point in the quarter, but very sizable spending increases in SG&A and R&D led to a decline in operating income (even when excluding an impairment charge). Still, a lot of this was already in the models of Medicis' analysts and the company met its EPS estimate for the period.



Please click this link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Medicis---Generic-Reprieve-And-Shareholder-Relief-MRX-AGN-JNJ-TEVA-NVS-PMTI-ELOS0302.aspx

Investopedia: HSBC Faces A Longer Road Back To Normal

With operations in 87 countries and every major region of the world, HSBC (NYSE:HBC) basically is world banking, or at the very least has a much wider view than almost any of its competitors. To that end, investors should take some encouragement from what looks like better operating conditions around the globe. That said, investors should not ignore HSBC's lower forward ROE guidance - a strong hint that the banking industry of tomorrow will not resemble the intra-bubble levels of profitability any time soon. (For background reading, see Analyzing A Bank's Financial Statements.)

An OK End to the Year 

For the full year of 2010, HSBC reported that revenue increased just over 3% to $68.2 billion, missing the consensus estimate by about $1 billion. Net interest income fell a bit more than 3%, largely due to lower rates. The company's overall net interest margin fell as well. The biggest delta on the revenue lines, though, was in trading results: HSBC booked about 25% less revenue here than in the year-ago period and that meant $2.6 billion less in operating revenue.

Unfortunately, the company did not exactly make up for it as it went along. Compensation and administrative expenses both grew at rates that outstripped revenue growth and the company saw its efficiency ratio move to an uninspiring 55.2% - well above its 50% target level. (For related reading, see Measuring Company Efficiency.)

Continue to the full piece through this link:
http://stocks.investopedia.com/stock-analysis/2011/HSBC-Sees-A-Longer-Road-Back-To-Normal-HBC-STD-BBVA-BCS-USB-BAP-PNC0301.aspx

Investopedia: Is The New Smartphone ETF A Smart Idea?

Smartphones have proved to be a breakaway success in consumer electronics - not to mention a multibillion-dollar market opportunity. Not surprisingly, this has fueled runs in a number of stocks and significant investor interest in playing the ecosystem. Now, investors have an easier one-stop shop for this play with the introduction of First Trust's Smartphone Index Fund (Nasdaq:FONE). (For some background on the smartphone market, check out The Apple Ecosystem.) 


Smartphone ETF: How It's Built
FONE is an exchange-traded fund (ETF) that is designed to closely track the Nasdaq OMX CEA Smartphone Index. This index includes a variety of companies organized into three primary categories - handsets, software applications and hardware components, and network providers - with 45% weightings to the first two and 10% to the last. Within each segment, the components are equally weighted.

The Good 

There is no question that FONE offers a diversified play on a broad definition of the smartphone market. All in all, the fund holds 73 positions with the top 10 positions amounting to about 28% of the total holdings. While the expense ratio is something of an issue, it is hard to see how a retail investor could assemble anything close to a diversified portfolio of similar component, service and equipment stocks and not spend more in commissions.

Please read the full piece at:
http://stocks.investopedia.com/stock-analysis/2011/Is-The-New-Smartphone-ETF-A-Smart-Idea-FONE-AAPL-BRCM-GOOG-MSFT-FLEX-ARMH0301.aspx

Investopedia: Novavax Gets A Booster Shot From The Government

While the FDA seems to be relishing its role as Little Bunny Foo Foo these days, other arms of the U.S. government are actually trying to be helpful when it comes to getting new drugs and vaccines to market. The government may have actually learned a thing or two when the H1N1 flu outbreak in 2009 took health officials by surprise, and Tuesday's contract announcement with Novavax (Nasdaq:NVAX) suggests that the U.S. healthcare system would rather not be caught unaware next time. (For background reading, see Measuring The Medicine Makers.)

The Terms of the Novavax Deal  
Novavax announced that the Biomedical Advanced Research and Development Authority (BARDA), part of the Department of Health and Human Services, decided to award a contract worth as much as $179 million to Novavax to help the company develop and manufacture vaccines for seasonal and pandemic influenza. Although Novavax had been working with BARDA for some time and was generally seen as very likely to get something, the final details were always up in the air. (For more, see Trading The Swine Flu Index.)

Now, though, the company knows that it will get a three-year contract worth almost $100 million ($97 million), with the potential of a two-year extension worth another $82 million. Generally speaking, these contracts are solid and dependable, so Novavax will not have to worry about whether year-to-year budget wrangling will leave them high and dry; so long as the company holds up its end of the bargain, the money should be there. 


Please read the full article at Investopedia:
http://stocks.investopedia.com/stock-analysis/2011/Novavax-Gets-A-Booster-Shot-From-The-Government-NVAX-NVS-GSK-SNY-MRK-JNJ-AZN0301.aspx

Investopedia: Playing The Applied Materials Rollercoaster

Semiconductor equipment giant Applied Materials (Nasdaq:AMAT) is a frustrating name in many respects. Nobody disputes that AMAT is a leading name in the equipment that companies require to manufacture semiconductor, LEDs, flat panels and solar films. On the other hand, while the company's revenue and cash flow base has chopped upwards, the stock has yet to break out of a ten-year downward trend. That makes this stock a challenging trade-off between quality, valuation and sentiment. 


A Solid Start to the Fiscal Year
At least AMAT is getting this fiscal year off to a decent start. Revenue rose 45% from last year, but dropped about 7% from the prior quarter, and beat the average analyst guess. The underlying revenue mix was a bit more volatile; the company's core semiconductor business was up slightly, while the display and solar businesses fell off sequentially.

Profitability was not bad. Gross margin (on an adjusted basis) stayed sequentially consistent, as did the company's operating margin. That's not given that it is not at all uncommon for companies like Applied Materials to see a sharper falloff in profits on lower sequential revenue.


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http://stocks.investopedia.com/stock-analysis/2011/Playing-The-Applied-Materials-Rollercoaster-AMAT-ASML-NVLS-AIXG-LCRX-NANO-TSM0301.aspx

Investopedia: OmniVision Hosts A Bear Roast

Whether it is rumors of competitors taking share, products not working as advertised, or financial shenanigans, it seems like there has always been a bear story out there on OmniVision Technologies (Nasdaq:OVTI). Although this company now produces more than five times as much revenue in a single quarter as it did in an entire year in the early 2000s, the stock has constantly chopped up and down - nimble longs and shorts have both made money, but long-term shareholders dating back to 2004 or 2006 are probably wondering whether this stock will ever break out above the $30 share range. 

With OmniVision's latest quarter, and the subsequent barbecuing of the shorts' ribs, maybe the company finally has the momentum on hand to break out.

A Surprisingly Strong Quarter
With a decent string of earnings beats in its recent past, it is not all that surprising that OmniVision reported a good fiscal third quarter. That said, a beat of this magnitude is always a bit startling. Analysts ratcheted up estimates after this company last reported earnings, but did not go quite far enough.

For the quarter, OVTI reported that sales jumped 69% to almost $266 million - handily dusting the Street-high estimate of $248 million. On a sequential basis, the company saw volumes shipped rise almost 5%, while the ASP jumped 6%. The company's mix was also favorable with respect to higher-end products representing a larger share of the pie, though this is not always as favorable as it might sound as lower-end products can actually be quite profitable.


Please read the full article at Investopedia:
http://stocks.investopedia.com/stock-analysis/2011/OmniVision-Hosts-A-Bear-Roast-OVTI-AAPL-SNE-ATML-CY-SLAB-STM0301.aspx