HE Auto Car: July 2014

Sunday, July 27, 2014

How to Tap your 401k Early, Without Penalty

Much is written on the "accumulation phase" of retirement planning — the period of time you are gainfully employed and contributing to your 401k plan and other retirement savings accounts. Much less is written about the "decumulation phase," or the time after you have retired and need to take withdrawals from these savings.

Even more, almost nothing is said about taking withdrawals prior to age 59½, since avoiding the 10% surtax on "premature withdrawals" is enough to discourage all but the desperate from incurring this additional levy. However, there are situations where starting withdrawals while still in your 50's is unavoidable due to personal circumstances.

While delaying withdrawals from your retirement accounts as long as possible is one the best way to minimize the risk of outliving your savings, if done correctly you can at least avoid the 10% early withdrawal penalty via a little-known strategy referred to as "Substantially Equal Periodic Payments," as provided for in IRS Code Section 72(t)(1).

Here's how it works: At any age before 59½ you may elect to begin taking withdrawals from an Individual Retirement Account, but once you start taking withdrawals under this program you must stick with it for the greater of either 5 years or until reaching age 59½. For example, if you are 50 years old when it starts, then you must stick with it for 9 ½ years, but if you are 55 when it begins then you need only meet the 5-year minimum since you would be beyond age 59½ by then.

Although most people employing this technique choose to receive income monthly, you have the choice of getting it quarterly or annually so long as you stick with that schedule until the meeting the term limit as described above.

The amount of the distribution must be determined according to one of three methods: (1) "required distribution", (2) "amortization", or (3) "annuitizatio! n". I won't get into the details of exactly how each of these calculations is performed here, but suffice to say that they each determine a distribution amount based on life expectancy and an assumed interest rate.

Until a few years ago you were stuck with that amount and frequency for the remainder of the term without exception, but that rule has since been relaxed to allow for a one-time change from either the amortization or annuitization method to the required minimum distribution method. In other words, you can decrease the amount of the payment (since the required minimum distribution method results in the lowest payment), but you cannot increase it.

And don't worry; you don't need to know how to figure out how to do all this on your own. Just about all the major mutual fund companies will make these calculations for you. They will also set up an automatic withdrawal plan in that amount from your investment account, withhold federal income taxes for you, and then direct deposit the net withdrawal directly into your bank account.

It may be easier to understand with a simple illustration. Tom just took an early retirement package from his longtime employer at age 53 and has accumulated $500,000 in his 401(k) plan account. He is going to continue to work part-time, but needs a little more money to make ends meet so he transfers his 401k balance into a self-directed IRA with a mutual fund company.

The fund company then performs all three calculations based on Tom's age (or Tom and his spouse's age if he elects that choice) and an assumed interest rate. Under the IRS rules the interest rate assumption can be up to 120% of the current "federal mid-term rate" for either of the two months prior to the commencement of distributions. This rate is published monthly by the IRS.

The federal mid-term monthly distribution rate for June 2014 was 3.1%, so 120% of that amount would result in a maximum interest rate assumption of 3.7%. In addition to the interest rate ! assumptio! n, you also get to withdraw an amount based on your remaining life expectancy. Since Tom is 53 years, his remaining life expectancy is 31.4 years per the Single Life Table used by the IRS for this purpose.

Now Tom has to choose one of three amounts based on the methodology used. The required minimum distribution method results in an annual payment of $15,924, the fixed amortization method will pay $25,139 and the fixed annuitization method comes to $25,029 (as a general rule the fixed amortization and fixed annuitization methods generate a very similar result, while the minimum distribution method is substantially less).

So now Tom knows what his choices are, and begins taking distributions under the fixed annuitization method of just over $25,000. However, two years later he decides to go back to work full-time and no longer needs as much income from his retirement savings so he elects to utilize the one-time switch to the lower payment under the minimum distribution method. He is still only 55 years old at this point so must continue with this payment until age 59 ½ (since he was only 53 when he began taking withdrawals; the clock does not start over when you make the switch) and cannot change it again.

Although taking withdrawals under this program avoids the 10% early withdrawal tax, it is still treated as ordinary income and subject to any federal, state and local income taxes that may apply. However, it is not subject to FICA withholdings since it is not considered earned income.

Of course, a dollar taken out of a retirement account today is one less dollar (plus future interest) available to you in the future, so you need to be careful about taking withdrawals before the normal retirement age. But sometimes life throws you a curveball, in which case having access to some of the money via this program is the least expensive way to supplement your income.

Monday, July 21, 2014

Cybersecurity startups to bank $788 million

NEW YORK (CNNMoney) Online privacy is on the tips of everyone's tongues these days, and investors are rushing to pour money into cybersecurity startups.

Venture capital firms are expected to funnel $788 million into early-stage cybersecurity startups this year.

That's a 74% increase from last year's $452 million, according to PrivCo, a financial data provider on privately-held companies. In 2011, VC firms invested just $160 million in cybersecurity startups.

PrivCo estimates the funding will be dispersed among about 40 cybersecurity startups in the early stages of funding.

Particularly hot right now? Companies offering protection against mobile malware.

"Employees' mobile phones have become the biggest soft targets for cybercriminals, and the venture capital dollars are following," said PrivCo CEO Sam Hamadeh.

Security breeches at companies like eBay (EBAY, Tech30) and Target (TGT) have made companies more willing to try new products from new firms, especially since it's difficult for cyberdefense powerhouses like Cisco (CSCO, Tech30) and Symantec (SYMC, Tech30) to innovate, according to Aaref Hilaly, partner at Sequoia Capital. From developing comprehensive cloud security to "botwalls," startups are hoping to fill the gap.

"Large companies rely on small companies for innovation," said Hilaly. "The radical new ideas come from small businesses. That's across the board in tech -- not just security."

Hamadeh said Sequoia Capital is one of the most active venture capital investors in the security space.

Hilaly said they've had a consistent strategy: Look for companies that innovate around "architectural shifts" in computing that happen about once every five years -- like the turn toward mobile or the growth of the cloud.

One company they've invested in, Skyhigh Networks (which closed a $40 million round of financing in June), was early to anticipate the move toward the cloud.

Rajiv Gupta, CEO of Skyhigh Networks, and his two cofounders created a product to help companies evaluate the risk of using the cloud and analyze employee cloud behaviors. They officially launched in February 2013 with about 30 employees. Today, they employ about 130 people and service 220 enterpri! se customers, including some of the world's largest banks.

Gupta used to work for Cisco, which has since employed Skyhigh's product to understand their employees' need for cloud services, assess and reduce risks of using the cloud and ultimately improve the firm's productivity.

"We're addressing a need that [big cybersecurity firms] aren't addressing," explained Gupta. "We've chosen to partner with them as opposed to compete with them."

Shape Security also raised $40 million this year.

Sumit Agarwal and his two co-founders developed technology that protects against malware and bots (which can cause spam and hijacked accounts). Unlike existing software that protects based on past attacks, their "botwall" proactively transforms code on every webpage so cybercriminals can't latch onto the code.

The company publicly announced their anti-automation product in January. Agarwal said they work with major Fortune 500 companies that span the financial services, health care and ecommerce industries. The team went from six employees in 2012 to more than 100 employees today and Agarwal doesn't expect growth to slow.

"Everyone with a website is an eventual future customer of ours," explained Agarwal.

Friday, July 18, 2014

This Company Gives You a Number of Reasons to Buy

In the prevailing economic environment where people are finding it difficult to survive the impending crisis, companies which provide the lowest rates as well as innovative products tend to win. Though there is a section of people who don't mind splurging on branded products at any point of time, there is a large section of customers who are greatly influenced by price and promotions.

This is what is understood and followed continuously by the packaged food retailer ConAgra Foods (CAG). The company has been performing well, owing to its expansion in the low priced private label products which are faring well since it is lighter on consumers' pockets. However, unfavorable weather conditions forced the food company to register a dull quarter. Let us understand the company better.

Driven By Acquisitions

ConAgra's keenness of expanding its consumer products segment through a host of acquisitions has been instrumental to its success. However, lower store traffic led to 3% decline in revenue to $4.44 billion. The consumer foods segment declined 7% over last year because of lower volumes. However, the commercial food segment did well with a 1% rise in revenue mainly due to products such as bakery products, specialty potato and private label food products.

The company has strengthened its business through acquisition such as Ralcorp Holdings, which had a number of advantages. The deal not only strengthened ConAgra's market position, but also added a number of private-labels to the acquirer's portfolio. Additionally, the buyout will lead to cost synergies, making it even more lucrative under the current circumstances.

Efforts Therein

Most importantly, ConAgra boosted its promotional efforts and is expected to increase it further in the next few months. The move has been initiated because of restricted spending habits of consumers as well as ConAgra's strategy of a price hike which might scare away customers. Though this affected volumes in ConAgra's core business, the company is expected to manage it pretty soon when people get used to the new prices.

The Competitive Environment

Increase in prices was necessary for the food retailer since cost inflation had been hurting its bottom line and rivals such as General Mills (GIS) had already started reaping the benefits of higher prices. There are other reasons also which have benefited General Mills' volumes. Its entry into the yogurt business has been a commendable one. General Mills' introduction of a wide variety of yogurt flavors has more than helped the company to attract customers in hordes.

As people are becoming more and more health conscious, there has been a major shift of focus for food companies to natural and organic products. ConAgra took advantage of this trend. Their large variety of organic foods was amazingly accepted by the market.

On one hand, ConAgra ramped up its advertising and on the other its peer Diamond Foods (DMND) has cut down on its promotional spend. The unfavorable impact of cutting down on marketing spend showed up on Diamond Foods' recent quarter as well as on its stock price. The stock price performance of the three industry players in the last five years shows that ConAgra is doing well.

ConAgra has been a remarkable performer, which has enabled the retailer to provide a 67.4% return to its investors over last five years, whereas General Mills and stood at 81.4% and Diamond Foods at 4.7% only. The secret of success for ConAgra lies in its acquisition strategy which helped in boosting its performance during tough times.

The Bottom Line

ConAgra has become attractive since it continues to enhance its product portfolio with a special focus on frozen meals which should be fruitful. Its acquisition of Ralcorp will also be a turning point in the journey of ConAgra. However, hurdles such as harsh winters and lower store traffic have been causing hindrances. But the company's initiatives and upcoming spring season should bring back lost sales. On the whole, this food company looks like a good investment opportunity and investors should definitely not ignore this.

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Tuesday, July 15, 2014

Valero Energy: So, About That Second Quarter…

Shares of Valero Energy (VLO) are falling today after the refiner said second-quarter earnings would not be fine.

Associated Press

Valero Energy said it would earn between $1.10 and $1.25 during the second quarter, below analyst forecasts for $1.39. The folks at Wells Fargo express their disappointment:

With Q2 2014 guidance below the street, and with the magnitude of the miss greater than recently updated (and lowered) estimates, we expect a negative reaction in the share price. For Q2, we expect throughput volumes will be generally as expected, while capture rates will fall short of prior expectations likely due to weaker crack spreads that the company addressed in its press release. In our view, there are likely some additional non-cash costs related to balance sheet adjustments at quarter-end that reflect higher quarter end crude and product prices. We are lowering our Q2/FY2014 EPS estimates accordingly to $1.18/$5.87 from $1.31/$6.00, or the mid-point of the guidance range.

Raymonmd James analyst Cory Garcia and team continue to “tread lightly” with the refiners:

After dazedly muddling through much of 2014 (trailing the broader energy indices), refining stocks were dealt a wakeup call last month as "condensate exports" hit the newswire. While details remain sparse, the market clearly viewed this as a step towards crude oil exports. In fact, the WTI-Brent futures strip has narrowed modestly since (down $2/Bbl in 2016-17, shown in chart). To be clear, this condensate export loophole does not materially impact our call that WTI oil prices are on track to collapse by year-end 2015 – our model remains "condensate free." As such, we retain a structurally bullish view on the refiners. However, in the meantime the group continues to be battered by negative summer EPS revisions, which could even spill into lower expectations for 2015. While the debate as to whether the Gulf Coast will blow out again this Fall is starting to heat up, we are skeptical that WTI-Brent can reach the heights ($15?) necessary to drive EPS expectations higher for 2015 and beyond – and therefore continue to tread lightly.

Shares of Valero Energy have dropped 0.9% to $49.47, while Marathon Petroleum (MPC) has gained 0.3% to $78.32, HollyFrontier (HFC) is little changed at $43.66 and Phillips 66 (PSX) has declined 0.5% to $79.58.

Monday, July 14, 2014

Big Day For Big Deals: Whiting Buys Cheap, Mylan Inverts, AECOM Goes Big

At the beginning of the year, I predicted a wave of M&A, and today we got more evidence that companies are on an acquisition binge. The good news: They don’t appear to be paying up for their acquisitions.

Since Friday, three major acquisitions have been announced. AECOM Technology (ACM) said it would buy URS (URS) for $4 billion; Mylan (MYL) agreed to pay $5.3 billion for Abbott Laboratories (ABT) non-U.S. generic drug business; and Whiting Petroleum (WLL) said it would take over Kodiak Oil & Gas (KOG). And amazingly, none of them appear to be overpriced.

First up: The Whiting Petroleum-Kodiak Oil & Gas merger. Wunderlich Securities analyst Jason Wangler worries that Whiting got too good a deal:

Whiting Petroleum is paying just $13.90 per share for KOG in an all-equity deal. You read that right, and frankly its the most interesting part in our view, as Kodiak Oil & Gas’s stock closed Friday over 2% higher than that figure and the premium as of now is just 5% above the 60 day average for Kodiak Oil & Gas. In our view, this is a great/accretive price for Whiting Petroleum and its shareholders but for Kodiak Oil & Gas and its shareholders it doesn’t seem all that compelling. Granted it’s an all equity deal so the upside isn’t gone but none is realized today…

Admittedly we thought any takeout of Kodiak Oil & Gas would come at a higher level than our $14 price target but that’s basically where it sits today. At the same time, Whiting Petroleum’s story gets even more compelling with an accretive deal of Kodiak Oil & Gas that should boost growth dramatically, strong exposure to the Niobrara still in place and likely improved metrics across the board that already are at compelling levels versus peers. As such, we reiterate our Buy on Whiting Petroleum and Hold on Kodiak Oil & Gas.

Shares of Whiting Petroleum have popped 6.8% to $83.92 at 11:23 a.m., while Kodiak Oil & Gas has jumped 4.9% to $14.93.

Mylan, meanwhile, is buying Abbott Labs’ “non-US, developed markets drug portfolio,” which will allow it to move its headquarters to the Netherlands. Leerink’s Jason Gerberry explains:

Based on our model, we estimate the deal will be accretive by approx. 30c/shr. in 2015 (vs. mgmt’s 25c guidance), and which assumes a full year which may be a touch too aggressive if Mylan doesn’t close until the guided 1Q15 closing date. Mylan expects the deal to be increasingly accretive post-2015, although using mgmt’s assumptions we forecast flattish mid to high single-digit accretion through 2018…Drivers of deal accretion mainly acquired net income, ~80% of total accretion + modest synergies. On first blush, we like the deal as it provides Mylan with a competitive tax structure at a reasonable price. Our ests are under review and we remain OP, with $57 PT.

Shares of Mylan have risen 2.4% to $51.42, while Abbott Laboratories has gained 0.9% to $41.67.

BB&T Capital Markets’ Adam R. Thalhimer and team like the AECOM Technologies purchase of URS so much they upgraded its stock to Buy from Hold:

Yesterday afternoon, AECOM announced that it has reached an agreement to acquire URS for a total consideration of ~$6B. URS holders will receive ~$4B (59% in cash and 41% in AECOM stock) and AECOM will assume $2B in URS debt. To say the least, this is a significant acquisition for AECOM, which is acquiring a company that is ~40% larger based on our 2014 revenue projections.

Our Buy rating is based on three key points. First, the combined company is expected to generate considerable free cash flow. Second, AECOM projects sizable synergies, which should be accretive to EBITDA in FY’15. Third, AECOM noted yesterday that its backlog grew sequentially in fiscal Q3’14 and finished the quarter at a record level.

Shares of AECOM have gained 5% to $33.35, while URS has advanced 0.6% to $56.99.

Saturday, July 12, 2014

Benzinga Weekly Preview: Markets Looking For Hints From The BOE About A Rate Hike

Related WFC Earnings Expectations For The Week Of June 30: Season Draws To A Close Stock Market News For June 27, 2014 - Market News Michael Jordan Becomes First Billionaire NBA Player (Fox Business) Related AA Dow Trades Above 17,000 While S&P 500 Inches Closer To 2,000 Welcome to the Second Half! - Ahead of Wall Street Alcoa to Buy Firth Rixson in $2.85B Deal (Fox Business)

Next week will be relatively slow with few economic releases due out and only a handful of stocks to post their quarterly earnings.

The Bank of England’s policy meeting will be in focus as BOE Governor Mark Carney hinted that the bank may start raising interest rates sooner than expected earlier in June.

Geopolitical tension will remain a factor for markets as the crisis in Iraq looks no closer to being solved and Ukraine and Russia continue to work towards a permanent ceasefire agreement. World powers will continue negotiations with Iran over the nation’s disputed nuclear program with the July 20 deadline quickly approaching.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including Wells Fargo & Company (NYSE: WFC), Alcoa (NYSE: AA), Family Dollar Stores (NYSE: FDO) and Infosys Limited (NASDAQ: INFY).

Wells Fargo & Company

Wells Fargo is expected to report second quarter EPS of $1.00 on revenue of $20.80 billion, compared to last year’s EPS of $0.98 on revenue of $21.38 billion.

On May 19, Nomura gave Wells Fargo a Buy rating with a $60.00 price target, noting that the bank’s risk management has kept it in positive standing with regulators.

“We expect WFC’s upcoming May 20 investor day to serve as a positive catalyst and would be accumulating shares into it based on our view that the company will take the upper limit of its payout ratio well above the high end of its current 50-65% target range. We expect the market to be positively surprised by the magnitude of the increase.”

On May 22, The Buckingham Research Group gave Wells Fargo a Neutral rating with a $50.00 price target, saying that the company’s investor day on May 20 provided good insight into the company’s future plans.

“After WFC’s analyst day, we see a greater commitment to net capital return and better than expected leverage to higher rates adding to LT value in WFC shares. 1) WFC hosted an investor day Tuesday, with management providing insight into key operating segments and detailing aspirational financial goals. 2) Overall, we were impressed with mgmt.’s equal focus on risk management and growth (and its ability to execute on both). There is no change to our thesis on the stock, and we remain cautious on the industry outlook this year for revenue. 3) WFC kept profitability targets unchanged with an ROA target of 1.3%-1.6%, an ROE target of 12%-15%, and an efficiency ratio range of 55%-59%. 4) WFC is targeting a net payout ratio of 55%-75%, up from prior target 50%-65%, with WFC expecting to exceed 55% this year, reflecting the firm’s capital ratios being at or above its targeted levels.”

On May 21, Morgan Stanley gave Wells Fargo an Equal-Weight rating with a $53.00 price target, noting that the company was likely to meet its goals for 2015 ROE and capital return.

“Post crisis mortgage underwriting stronger than we expected: Mortgage NCOs on post 2008 vintages are running at <0.05%. Loans originated post 2008 are of significantly higher quality (Avg FICO 769 vs. 678 pre 2009, avg LTV 62% vs. 84%, % 1st lien 94% vs. 73%). Out of 143k loans made, only 134 are 60+ days delinquent. WFC also revised total over the cycle NCO guidance from 100bps to 75-80bps. We took total NCOs down $280mn in 2015. Expect WFC opens the credit box a little, but credit likely surprises positively given consumer strength.”

Alcoa Inc.

Alcoa is expected to report second quarter EPS of $0.12 on revenue of $5.66 billion, compared to last year’s EPS of $0.07 on revenue of $5.85 billion.

On June 27, Sterne Agee gave Alcoa a Buy rating with an $18.00 price target. The analysts at Sterne Agee noted that the company has a huge opportunity for growth in the aerospace sector.

“Alcoa's stock has appreciated 40%+ ytd, which can in large part be attributed to aluminum commodity markets stabilizing and the generational change over to automotive aluminum sheet. However, we believe Alcoa's ~$5 billion aerospace exposure provides the next leg, with the Firth acquisition only accentuating this opportunity. Therefore, by incorporating Firth as well as an improving aerospace outlook we are raising our price target to $18 from $15, and reiterate a Buy rating. ”

Morgan Stanley gave Alcoa an Equal-Weight rating on June 23, saying that the company is likely to improve in the third quarter due to stronger pricing among metals.

“Maintaining 2Q at $0.13 after marking to market. We start from $0.09 in 1Q, adjust it lower by half a penny for higher share count, deduct $0.01 for FX, and another half a penny for upstream guidance. We then add $0.02 for higher aluminum pricing, $0.01 for higher premiums, $0.02 for higher downstream earnings, and $0.01 for productivity improvements. Special charges, related to closures in Australia, are expected to continue into 2Q. Around $0.14 possible in 3Q. Compared to 2Q, spot metal prices are indicating a QoQ ~$0.02 lift to earnings, offset by weaker alumina (~$0.01) and seasonally weaker downstream (~$0.01). But Ma’aden & Davenport ramp up could add another $0.01.”

Stifel gave Alcoa a Buy rating on June 26, noting that although the company’s acquisition of Firth Rixson was expensive, it would be worth it in the long run.

“This morning, Alcoa (AA, Buy, $14.87) announced it would purchase Firth Rixson, an aerospace engine component producer, from Oak Hill Capital Partners for $2.85 billion in cash ($2.35 billion) and stock ($500 million) and an additional $150 million in potential earn-outs. The acquisition price implies an EV/EBITDA multiple of 8.1x based on the targeted EBITDA of $350 in 2016. This compares to the current peer group average of 8.6x for 2014 (per our colleague Steve Levenson). While Alcoa did not provide 2015 EBITDA estimates, we believe next year's EBITDA will be considerably lower given the need to reach qualification at its Georgia Isothermal Press facility (which should take 12-18 months).”

Family Dollar Stores, Inc.

Family Dollar Stores is expected to report third quarter EPS of $0.89 on revenue of $2.62 billion, compared to last year’s EPS of $1.05 on revenue of $2.57 billion.

Merrill Lynch gave no rating to Family Dollar on June 9, following activist investor Carl Icahn’s move to take a 9.4 percent stake in the company.

“Following the disclosure after market on Friday that Icahn has taken a 9.4% stake, resulting in press speculation that he may push for a combination with DG, we have conducted a preliminary analysis of potential synergies and estimate that DG could pay up to $80/share for FDO in a cash and debt-finance acquisition, which would be 1) accretive in 2015 and 2) keep DG’s leverage to within 3.5x excluding merger synergies and 2.8x including synergies, preserving its investment grade rating. We note that DG has not commented on a potential transaction and we are not suggesting interest on their part.”

Deutsche Bank was also cautious following Icahn’s purchase and gave Family Dollar a Hold rating with a $57.00 price target on June 8.

“FDO will likely trade near the high-end of its 52 wk range as Carl Icahn now has a 9.4% beneficial stake (1M shares owned - balance through call options) with plans to enhance shareholder value via the "pursuit of operating initiatives or the exploration of strategic alternatives." With industry headwinds mounting, we believe sector consolidation makes sense, but mgnt. teams have so far resisted. FDO's underperformance to DG presents an attractive opportunity, but how to close that gap has proven elusive. Buying FDO, in our view, must be based on the level of confidence in Icahn being a change agent.”

On June 9, Jefferies upgraded its rating for Family Dollar to Buy from Hold with a $79.00 price target, citing the potential deal between Family Dollar and Dollar General as reason for its optimism.

“We are upgrading both DG and FDO based on the potential for a deal that results in a combination and large synergies are realized. A recent 13D revealed that Icahn Capital LP has accumulated a 9.4% stake in FDO. With multiple activists holding big positions, we could see FDO respond to shareholder pressure by changing management and board members or putting the company up for sale.”

Infosys Limited

Infosys is expected to report first quarter EPS of $0.76 on revenue of $2.13 billion, compared to last year’s EPS of $0.73 on revenue of $1.99 billion.

On April 25th, Jefferies gave Infosys a Buy rating, noting that the company will likely grow in the future, but that investors should beware that IT consulting sector is exposed to several risks.

“Infosys is at a stage where most financial metrics are at their worst. Growth has been volatile; margins have fallen 450bps (in the last 13 quarters) despite a currency tailwind. We believe that given the recent reset of expectations for next year, an improvement in either growth or margins would be perceived a positive. Turnaround hopes are hinged on Chairman Murthy. Infosys has guided to a 7-9% y/y $ rev growth for FY15 on the back of a soft 2HFY14. The implied CQGR of 2.1-2.9% is achievable. However after the recent set-back, stock price will gain momentum only after revenue growth accelerates. We believe that near term performance would be limited by the cautious commentary (on rev / margins / soft 1HFY15).”

Economic Releases

Next week’s economic calendar will be relatively quiet with most data coming from Europe and Asia. Chinese data will be under the microscope as Beijing’s mini-stimulus plan appears to be kicking in. In Europe, investors will be looking at price pressure as the bank’s aggressive easing package in June slowly takes effect. Eurozone inflation remained dangerously low in June, something that could push the ECB into implementing a large scale quantitative easing plan if it continues.

Daily Schedule

Monday

Earnings Releases Expected: Grupo Televisa S.A (NYSE: TV) Economic Releases Expected: Japanese current account, eurozone investor confidence, Spanish industrial production, German industrial production

Tuesday

Earnings Expected: Bob Evans Farms, Inc. (NASDAQ: BOBE), Alcoa Inc. (NYSE: AA), Container Store Group (NYSE: TCS) Economic Releases Expected: Chinese CPI, Chinese PPI, US consumer credit, US redbook, French trade balance, British industrial production, British manufacturing production

Wednesday

Earnings Expected: WD-40 Company (NASDAQ: WDFC), MSC Industrial Direct Company (NYSE: MSM), CHC Group (NYSE: HELI) Economic Releases Expected: Chinese trade balance, Australian unemployment rate

Thursday

Earnings Expected From: Family Dollar Stores, Inc. (NYSE: FDO), Progressive Corporation (NYSE: PGR), PriceSmart Inc. (NASDAQ: PSMT) Economic Releases Expected: Bank of England interest rate decision, British trade balance, Italian industrial production, French CPI

Friday

Earnings Expected From: Wells Fargo & Company (NYSE: WFC), Infosys Limited (NASDAQ: INFY) Economic Releases Expected: German CPI, Spanish CPI, US Federal Budget Balance

Posted-In: Earnings News Guidance Previews Global Top Stories Pre-Market Outlook Markets Best of Benzinga

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Friday, July 11, 2014

David Herroâ€™s Oakmark Intl Small Cap Fund Comments on Treasury Wine Estates

The top contributing stock for the quarter was Treasury Wine Estates (ASX:TWE), an Australian-based vineyard operator and winemaker that also has significant assets in North America, as well as a global marketing and distribution business. During the quarter Treasury Wine Estates received a preliminary, highly conditional bid from a global investment firm, Kohlberg Kravis Roberts (KKR), to purchase the company for AUD 4.70 per share. The bid was rejected, with management stating that the per-share offer amount undervalued the company. However, the board of directors indicated that the company would consider any new proposals that reflected a price closer to their perception of fair value. Discussions with KKR have since ended without any subsequent offers. We believe that management made the correct decision, as we too feel that the business value of Treasury Wine Estates is worth more than what KKR offered. We recently spoke with Treasury's Chairman, Paul Rayner, and new CEO, Michael Clarke, with regard to this issue, in addition to recent management changes and a new AUD 35 million cost-cutting program, and we are confident that the company's leadership team has been substantially improved and is working to increase Treasury Wine Estates' overall value for the benefit of shareholders.

From Oakmark Intl Small Cap (Trades, Portfolio)'s Second Quarter 2014 Letter.

Also check out: Oakmark Intl Small Cap Undervalued Stocks Oakmark Intl Small Cap Top Growth Companies Oakmark Intl Small Cap High Yield stocks, and Stocks that Oakmark Intl Small Cap keeps buying

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Thursday, July 10, 2014

Monks start brewing beer to keep abbey open

Monks start brewing beer in America NEW YORK (CNNMoney) Diversification is common advice for investors, but guess what? Monks have to do it too.

For more than 60 years, the Trappist monks at St. Joseph's Abbey had relied on jams and jellies to support their monastery and community work in Spencer, Mass. But a few years ago, they realized the "expense line was rising at a faster rate than our income," said Friar Issac.

So in the spirit of their heritage (Trappist monks have been brewing beer in Europe for centuries), the monks at St. Joseph decided to start a brewery. Spencer Brewery opened its doors earlier this year as the first Trappist brewery outside of Europe.

There's a big focus on sustainability and green practices: Local farmers use the spent grain as animal feed and compost, and the brewery plans to install solar panels on the roof soon. The entire process is actually very in sync with the monks' "quiet, meditative way," according to Friar Isaac.

"We really brew on the practical level to sustain a way of life," he said. "Plus it brightens up Sunday suppers."

Wednesday, July 9, 2014

Sneak Peek: 5 Stocks Hedge Funds Love This Summer

BALTIMORE (Stockpickr) -- It's official: We're kicking off another quarter of earnings season this week. Earnings season is a critical time for investors: It's the one chance each quarter to get full transparency on what's going on behind closed doors at thousands of publicly traded companies.

>>5 Stocks Set to Soar on Bullish Earnings

But while investors fixate on firms' latest filings, they're missing out on another SEC filing season that's shedding light on big moves happening behind the scenes. I'm talking about using a new set of 13F filings to peek at the buying going on in institutional portfolios right now.

What's a 13F anyway?

Institutional investors with more than $100 million in assets are required to file a 13F -- a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.

In total, approximately 3,700 firms file 13F forms each quarter, and by comparing one quarter's filing to another, we can see how any single fund manager is moving their portfolio around. While the data is generally delayed by about a quarter, that's not necessarily a bad thing. Research shows that applying a lag to institutional holdings can generate positive alpha in some cases. That's all the more reason to crack open the moves being made with pro investors' $19.3 trillion under management.

>>5 Rocket Stocks to Buy for Earnings Season

Often, funds make very similar trades to one another. And since it's still very early in 13F season, we're able to use a small sampling of early filers to get a sneak peek at what funds are doing before the rest of the forms hit the SEC's servers.

Today, we'll focus on hedge funds' five favorite stocks.

Apple

It's not a huge surprise that Apple (AAPL) tops off the list of hedge funds' most-bought names last quarter. Since Apple is the largest publicly traded name on the market, it tends to have the biggest target on its back, both for buyers and for sellers.

>>5 Tech Stocks to Trade for Gains This Week

But Apple is worth looking at today because it's also a stock that makes sense for conviction buyers. Last quarter, early-filing funds added 2.57 million shares of Apple to their portfolios, a $290 million stake that makes AAPL the most-bought name for the period.

Apple doesn't need much introduction. Besides huge computer and mobile device businesses, Apple also tips the scales as the world's largest music vendor with the iTunes Store. Apple continues to change its business in 2014: at the firm's WWDC keynote last month, executives announced new iterations of the Mac OS X and iOS operating systems that feature a whole new level of integration between devices. It also made some positive structural changes to its stock with a 7-for-1 split.

Despite a nearly 19% rally year-to-date, Apple remains cheap by most valuation metrics: shares trade for just 12 times earnings (ex-cash). And the firm's $133.6 billion in net cash is being used to support share buybacks and dividend payouts that directly return value to shareholders. It makes sense to follow hedge funds into an Apple position this summer.

For another take on Apple, read "Why Apple Shares Remain a Bargain Despite Reaching New Highs."

Twitter

Twitter (TWTR), on the other hand, is a more surprising technology name to see on hedge funds' buy list. This social media giant has lacked either the fundamental strength or the price momentum that have made Apple look so attractive in 2014. But that didn't stop funds from adding 3.3 million shares of TWTR to their portfolios in the second quarter. What's notable is that, for the funds reporting at this point, Twitter represents a totally new position for them.

>>4 Big Stocks Getting Big Attention

Twitter is a microblogging platform that's all about short messages (140 characters or less). With more than 250 million monthly active users, the model has proven popular, and Twitter has slowly been ramping up advertising revenue alongside user growth. The big potential in Twitter comes from untapped revenue streams. Shares rallied hard earlier this month when it was reported that Twitter was beta testing a "Buy Now" button that merchants could place on individual Tweets. Social media stocks may have a fickle relationship with Wall Street this year, but Twitter's best-in-breed revenue per user should entitle it to a premium (even if profitability isn't a major priority just yet).

Like other social networks, Twitter represents a sunk cost for its users; the time and effort spent posting tweets and gaining followers means that users are less likely to jump ship to a rival service. As new revenue generation tools come online, Twitter could quickly grow into its current valuation, but from a technical standpoint, shares remain in a downtrend as I write. It makes sense to wait for that downtrend to get broken before piling into shares along with hedge funds.

For another take on Twitter, read "A 6-Point Prescription for How to Fix Twitter Right Now."

Citigroup

Despite its status as one of the big-four U.S. banks, it's surprising to see Citigroup (C) on funds' buy list in the second quarter. That's because financials were the most sold-off sector overall last quarter, with funds shedding more than 4.7% of their net financial sector investments in total. Still, Citi made funds' list of favorites, with 2.62 million shares bought; that's a $123 million increase at current levels.

>>5 Blue-Chip Stocks to Trade for Summer Gains

Citigroup is a diversified financial stock that's involved with retail and commercial banking, investment banking, treasury services, and a slew of smaller non-core businesses. While the dislocation of Citi's legacy banking business was a precipitating factor in its trouble back in 2008, the firm has renewed its focus on lending again, growing deposits and its loan book in attractive emerging markets like Asia and Latin America. Citi's overseas exposure gives the firm more interesting prospects than its peers as the global economy continues to warm.

Macro factors are one of Citi's biggest share price drivers. Besides economic growth in emerging markets, rising interest rates hold the potential to magnify the firm's profitability as the spreads that Citi collects widen again.

Citi's chart appears to be basing. While price action has been anemic in 2014, look for a move above $51 as a high-probability entry opportunity.

Google

The tech sector was funds' favorite space in the second quarter of 2014, and Google (GOOG, GOOGL) was another one of the big targets that got bought up en masse. Funds picked up 195,970 shares of GOOG, and another 167,060 shares of GOOGL during the quarter, adding up to a nearly $230 million buying spree at current between class C and class A shares together.

>>5 Stocks Insiders Love Right Now

It's easy to forget today that, at its core, Google is a search engine. High-profile products such as the Android mobile operating system, Google Glass, and self-driving cars may get the headlines, but paid search still accounts for around 80% of the firm's revenues. That's thanks to a dominant share in the search business: Google's eponymous site serves approximately six out of every 10 Web searches worldwide. And the mountain of cash that Google earns from paid search provides a huge subsidy for the aforementioned "side businesses" that the firm uses to cement its mindshare among consumers.

After all, by selling smartphones, Google is able to better integrate into its customers' lives, creating much higher switching costs in the process. That economic moat has translated into a mountain of cash: Currently, Google carries more than $53 billion in net cash and investments on its balance sheet, enough to cover close to 14% of the firm's current market cap.

Momentum has been coming back into Google since May. If you want to bet alongside the pros, it looks buyable here.

Coca-Cola

Last is beverage giant Coca-Cola (KO). Coke was high on hedge funds' buy lists last quarter, with 2.49 million shares picked up among our early group of 13F filers. That's a 50% boost in funds' Coke exposure, boosting their combined positions by $114.75 million at current price levels. And with fundamental and technical factors looking solid for Coke in 2014, it's not hard to see why the pros love this stock.

Coca-Cola is the largest drink-maker in the world. By the firm's estimates, its soft drinks, bottled water, juices and specialty beverages make up an astounding 3% of the 55 billion beverages served each day. The firm's namesake brand enjoys premium status (and pricing), but Coke's reach expands to a wide collection of other labels, including household names such as Sprite, Dasani, Fanta and Powerade. A recent investment in Keurig Green Mountain (GMCR) could also pose a material change in how millions of servings of Coke products reach consumers thanks to the upcoming Keurig Cold.

Despite its size, Coca-Cola has historically been able to secure impressive growth rates. Returns on invested capital have averaged 20% in the last several years, and big investments in emerging economies should keep that overseas outperformance coming for the foreseeable future. As rising middle class populations worldwide help to close the gap between the per capita soft drink consumption here at home and in emerging economies, Coke should be able to keep moving the growth needle.

To see these stocks in action, check out the Institutional Buys portfolio on Stockpickr.  

-- Written by Jonas Elmerraji in Baltimore.

Monday, July 7, 2014

Is the White-Hot IPO Market a Bubble Yet?

With 147 companies already going public this year, the U.S. market is on pace to see more IPOs in 2014 than any year since the dot-com boom of 2000 when 406 companies went public.

Title: ipos in 2014 - Description: ipos in 2014 In fact, 2014 has seen more IPOs in six months than 2008, 2009, 2011, and 2012 saw all year.

Last year, investors got a glimpse of the hot IPO market when 222 companies when public. But through the first half of the year, 2014 has seen a 60% increase in IPOs compared to 2013. Through June, 215 IPOs have been filed, which is up 92% from 2013.

Not only has the number of IPOs increased dramatically this year, the amount of money raised by IPOs is way up too. Through June, $31.5 billion was raised in initial public offerings. According to IPO investment firm Renaissance Capital, that's up nearly 53% from 2013.

For the most part, companies that have gone public this year have done well for early investors. Newly public stocks have averaged a gain of 14% on their first day and 20.4% overall in 2014.

Some of this year's biggest winners so far have been Zoes Kitchen Inc. (NYSE: ZOES) with a 129% return, Alder Biopharmaceuticals Inc. (Nasdaq: ALDR) with a 101% return, and Celladon Corp. (Nasdaq: CLDN) with a 100% return since hitting the market.

Most recently, action-camera company GoPro Inc. (Nasdaq: GPRO) has hosted one of the most exciting IPOs of the year. After pricing shares at the high end of its range, GPRO shares have surged as high as 108% from its offer price.

"As the recent GoPro deal underscores, the IPO market is white-hot right now," Money Morning's Executive Editor Bill Patalon said. "A brand-new report from Renaissance Capital says that IPO proceeds were up 42.4% in the second quarter on a year-over-year basis. Global IPO proceeds are up by the same amount year to date."

And the pace of the IPO market seems to be picking up as the year goes on. June 2014 was the biggest month for IPOs in the last decade, with 32 companies hitting the market. The fourth week of June alone saw 19 companies hold IPOs.

While many companies are riding the momentum of the "white hot" IPO market, some analysts are wondering if we're reaching bubble territory. Patalon addressed this question and broke down what investors can do to profit from 2014's IPO-heavy environment...

Is the IPO Market Reaching Bubble Territory?

According to Patalon, the bubble speculation is justified at the moment - but not just because of the frenzied IPO market. The Federal Reserve's quantitative easing program has flooded the market with cash and is lifting the overall market.

"The bubble potential goes beyond just the IPO market," Patalon said. "You have a central bank that's pumped trillions of dollars into the financial system in the last few years. As I know from watching the markets for 30 years, cheap money always shows up somewhere."

But the potential for a bubble isn't a reason to flee the market. It's impossible to make money watching the markets from afar. If anything, the current market condition requires investors make smart choices and find the companies with strong business models, rather than just high flyers.

"You can't swim against the current. By that I am referring to the old adage 'You can't fight the Fed,'" Patalon said. "So you want to try and find a way to balance the two: the worry that, as the market goes higher and higher, the potential risks increase, as well. But you also don't want to just sit on the sidelines and get left behind."

"In my mind, that makes this very much a 'stock-picker's market.' You look to find stocks with real businesses, real brands, real customers, real markets, and real growth potential."

And while the IPO market has been "white hot" for the first half of 2014 - the second half will trump it. That's because one of the largest IPOs of all time is coming in the next several months.

Chinese e-commerce giant Alibaba is planning an IPO that some analysts estimate could raise $20 billion. That compares to the combined $31.5 billion that 215 companies raised in the last six months. Many projections have Alibaba valued at $168 billion, but recently, estimates have reached $221 billion.

And the best news about the looming Alibaba IPO is that it has created a major profit opportunity that most investors haven't yet noticed... It's happening now, months before Alibaba hits the market...

In fact, this could be your one and only chance to make the kind of gains normally reserved for the high-net-worth investors and bankers. You can learn more about this Alibaba profit play here.

Have you been investing in any IPOs in 2014? Join the conversation on Twitter @moneymorning using #IPOs.

Dow 17,000: The Fourth of July Celebration Starts Early

On the last, abbreviated trading day of an already short week, the Dow Jones Industrial Average closed above 17,000 for the first time. How’s that for pre-Fourth of July fireworks?

REUTERS

The Dow Jones Industrial Average climbed 1.3% to 17,068.26 this week, the first time its closed above 17,000. The S&P 500, meanwhile, rose 1.2% to 1,985.44, its 25th record high of the year.

The Nasdaq Composite jumped 2% to 4,485.93, its highest close since March 31, 2000. Even the beleaguered small-company Russell 2000 isn’t so beleaguered anymore: It gained 1.6% to 1,208.15, just off its record high of 1,208.65 hit back in March.

Birinyi Associates’ Laszlo Birinyi and Kevin Pleines think the S&P 500 is heading higher:

The stock market has traded above our target of 1,970 and done so with some authority. We now view the market as having the wherewithal to trade to 2,100 within the next six months. While that would coincide with the beginning of 2015, several of our forecasts have surprised us with their intensity…

Commentators have distracted investors with concerns such as small stocks, VIX/complacency, utilities/sector movements which we have detailed as peripheral issues…Like most indicators they are descriptive, not indicative and there-fore have no further implications or information.

Sentiment, by our measures, is still unsupportive. We see more hedging in terms of market calls. The market is not climbing a wall of worry, rather it is climbing a wall of skepticism and misinformation.

Nor is the stock market looking all that expensive. The Dow Jones Industrial Average is now trading at 15.7 times the last 12-months of earnings, only slightly above its historical average of 15 times. The S&P 500, meanwhile, trades at 17.6 times trailing earnings, above its long term average of around 15.5, but not at a level that screams overvaluation. The folks at MRB Partners argue that stocks are especially attractive relative to bonds:

…based on the MRB Cyclically-Adjusted P/E Ratio, the earnings yield on stocks is nearly 6%, broadly in-line with the post-1990 average. By contrast, the real yield on G7 government bonds is close to 0%, resulting in a gap with equities that is wide by historical standards. As we discuss later, equity valuations are not compelling in absolute terms; ie. they are slightly above a neutral reading. Yet measured against significantly overvalued bonds, stocks are appealing at this stage of the economic cycle.

Much has been made of the Dow’s 153 trading-day journey from 16,000 to 17,000, the seventh-fastest 1000-point gain since the measure was launched. The folks Bespoke Investment Group note that it’s getting easier for the Dow Jones Industrial to break those big round numbers:

As you can see in the table, a 1,000 point move in the DJIA is not what it used to be. Back in the mid-1990s, when the DJIA was crossing 1,000 point thresholds at a fast clip, each of those moves required a sizable gain. With the law of large numbers kicking in these days, though, a 1,000 point move requires a rally of just 6%. And once the DJIA does close above 17,000, the road to 18,000 will require a gain of less than 6%.

Here’s the table Bespoke mentioned:

And after today’s close, that’s just 5.5% higher. Last one to 18,000 is a rotten egg.

Saturday, July 5, 2014

Yahoo! Inc. (YHOO): Piper Jaffray Says Alibaba Premium = $43 YHOO

Yahoo! Inc. (NASDAQ:YHOO) shares are outperforming a dull market today. The internet information provider's shares are up more than 2% as we type thanks to an upgrade from Piper Jaffray.

Analysts, Gene Munster and Douglas Clinton upped their opinion on Yahoo! to an "Overweight" recommendation from "Neutral" with a fresh new price target of $43 versus the previous target of $37 – upside potential to target of 22.68% as we type.

Like you don't know… with 12,200 employees, Yahoo! Inc. (Yahoo!) is a global technology company. Yahoo! delivers digital content and experiences, across devices and globally. The company earns nearly 80% of its revenues from advertising.

[Related -Yahoo! Inc. (YHOO) Q1 Earnings Preview: Another Bullish Surprise Coming]

In justifying their change of heart, Munster and Clinton argued, "We expect that as we get nearer an Alibaba IPO, a more realistic valuation should be reflected in YHOO. While we continue to view the company's core business as challenged and expect it to continue to grow below industry rates over the next 2+ years, we believe that Alibaba could more than make up for the challenges at the core."

The pair thinks Alibaba should add up to $6 to YHOO's shares price as Alibaba would be valued at roughly $214 billion using the peer EBITDA valuation.

Let's see if $43, including the $6 Alibaba premium, is possible based on 2015 sales and earnings estimates.

At the moment, Wall Street forecasts 2015's top line to be $4.64 billion, generating earnings-per-share (EPS) of $1.81. Since 2009, Yahoo traded with an average price-to-sales ratio (P/S) of 4.67. Based on the current consensus, the average P/S generates a price target of $21.45 – add in $6 and we get $27.45.

[Related -Yahoo! Inc.(YHOO): How To Play Alibaba IPO?]

To hit $37, plus $6 to get to $43, Yahoo needs to trade at eight times 2015's projected sales. That's high, but not as high as the half-decade peak of 9.47.

On the bottom line, the most trafficked website's average price-to-earnings (P/E) ratio since October 2009 was 27.65 with a median of 19.02 (mid-point). At the typical P/E, Yahoo prices out at $50.05, no need for an Alibaba premium. Using the mid-point and 2015's EPS consensus, YHOO would be valued at $34.42, add in $6 and we get to a touch over $40.

Overall: it could be difficult for Yahoo! Inc. (NASDAQ:YHOO) to hit Piper Jaffray's $43, even with a $6 Alibaba premium, based on recent P/S history. However, $43 is slightly above the mid-point range and below the average P/E for the past five-years. Forty-bucks seems like a fairer target to iStock.

Friday, July 4, 2014

Avoid the Rudderless Dollar General for Now (DG)

Popular Posts: Should I Buy Coca-Cola (KO)? 3 Pros, 3 Cons Recent Posts: Avoid the Rudderless Dollar General for Now (DG) Should I Buy Coca-Cola (KO)? 3 Pros, 3 Cons Would a Wilson-Less Lululemon Be Good for Shareholders? View All Posts Avoid the Rudderless Dollar General for Now (DG)

Rick Dreiling, who has been at the helm of dollar-store retailer Dollar General (DG) for the past six years, recently called it quits. Dreiling will retire in May 2015 or when a successor is named — whichever comes first — and while he has offered to maintain his chairmanship during the transition, a Dreiling-led DG is essentially history.

DollarGeneral Avoid the Rudderless Dollar General for Now (DG) The CEO’s departure collides with a stock price that has been battered in 2014, down by mid-single digits year-to-date.

But perhaps more immediately, it threatens to diffuse speculation that Dollar General could acquire smaller peer Family Dollar (FDO)

Family Dollar’s shares are roughly flat year-to date, and the company recently reined in expansion goals amid a drop in sales. Theories surrounding a DG/FDO combination grew wild amid activist investor Carl Icahn's calls for the latter company to be sold.

But now, amid Dreiling’s departure, what should investors expect?

Dreiling’s Legacy

Dollar General's fundamentals during Rick Dreiling's tenure haven't been too shabby. As the company notes in its press release:

"Under his leadership, the [c]ompany’s annual sales have increased more than 80 percent to $17.5 billion in 2013 and store count has increased by 38 percent to more than 11,000 stores in 40 states."

Net income has grown over the period, too.

But same-store sales growth has dropped off since Dreiling took the helm; Dollar General has gone from generating same-store sales growth of 9.5% in 2009 to a 3.3% increase last year.

In a report, BB&T Capital Markets analyst Anthony C. Chukumba pointed to Dollar General’s impressive run since a 2009 IPO, with shares rising an impressive 175% vs. the S&P 500 Index’s 80% gain. But for the shorter term, it has been a different picture. DG stock over the past year has failed to keep pace with the S&P 500, with shares up 15%, but underperforming the index by about 8 percentage points.

And one can argue that shareholder value has been eroded as the company has adopted an “increase in long-term obligations incurred to repurchase shares under [the] share repurchase program,” of which it has $223 million remaining. Although DG’s debt-to-equity ratio of about 0.5 is lower than that of several of its peers, a declining profit margin is worrisome.

Considering the tepid economic recovery that the U.S. is experiencing — evidenced by the recent downward revision to first-quarter GDP — DG stock should be thriving as low-income consumers turn to small-box retailers for their items.

The fact that DG stock is not flourishing points to one thing — a potentially flawed strategy championed by Dreiling.

Indeed, Dollar General thus far has deliberately favored expanding its footprint organically vs. growing by acquisition, with plans to open some 700 new locations this year alone. Meanwhile, competitors Walmart (WMT) and Target (TGT) started gunning for the dollar stores' territory with their smaller-store formats, fueling a highly promotional environment that has cramped margins for Dollar General, as sales from consumables, which carry the lowest margins, have been outpacing those of its higher-margin segments.

The scenario has been worse for Family Dollar, which instead of expanding its footprint has been closing stores, followed by Icahn taking his stake in the company and making a call for change. In a filing with the U.S. Securities and Exchange Commission, Icahn stated: "It is imperative that Family Dollar be put for sale immediately."

It has been widely speculated that Dollar General would be a likely buyer of its smaller rival, given the obvious opportunity to take market share in the regions where it lacks a presence.

But now, with the transitional period that Dollar General is about to undergo coupled with Family Dollar's own recent defection of president and chief operating officer Michael Bloom, that scenario has lost steam. Chukumba, who has a “hold” rating on DG stock, said in the report:

“We think it is very unlikely Dreiling’s eventual successor would be inclined to immediately risk his or her legacy by making a very large and transformative acquisition early in their tenure."

Bottom Line

Fundamental growth with the sting of a declining share price? That’s probably not the legacy Dreiling set out to achieve. Nonetheless, it’s one that he is faced with.

The future direction of Dollar General hangs in the balance, and while the chief’s departure certainly weakens the case for a DG/FDO combination, a deal could theoretically still be in the cards — if another suitor doesn’t act first.

But with Walmart and Target expanding their respective small-store format presence and stealing market share, and with DG’s lack of a particular catalyst for growth despite fertile economic ground for discount retailers, you might want to hold off on the dollar stores for now until there is a clearer road ahead.

As of this writing, Gerelyn Terzo did not hold a position in any of the aforementioned securities.

Thursday, July 3, 2014

Buy InvenSense For Its Future Opportunities and Reasonable Valuation

For investors, Wall Street's short-sighted nature can be a blessing in disguise. Motion chip specialist InvenSense (INVN) has been having a volatile run on the Street after the company missed earnings estimates for the fourth quarter as it decided to ramp up research and development initiatives. InvenSense reported earnings of just $0.07 per share, while analysts were expecting $0.10.

Company Background

Let me take a minute here to tell you more about InvenSense. The company is a producer of MotionTracking (company trademarked) products that are used in consumer electronic devices such as smartphones, tablets, wearables, gaming devices etc. The motion sensors are becoming a sensation among users of these devices as it provides an intuitive way to users for communicating seamlessly with the device. The primary function of these sensors is to translate the motions of the users in free space to executable input commands. Samsung (SSNLF) represents one of InvenSense's biggest clients with its technology being used in Samsung's flagship products like Galaxy S5, Gear 2 and Gear Fit.

After the results

InvenSense is going all out to tap opportunities across several end-markets such as mobile and wearable devices. As such, the company increased R&D spending to bolster product development. However, analysts were not impressed, as they saw short-term gains instead of long-term prospects. Since InvenSense could be a key beneficiary of Google's (GOOG) (GOOGL) Project Ara, and it could land a spot in Apple's (AAPL) smart devices, the recent drop has opened a window of opportunity for investors to buy more shares.

Android markets under its command

InvenSense is known for its motion-tracking sensors and has managed to create a solid position for itself in the Android universe. Samsung's Galaxy Note 3 and Galaxy S5, Google's Nexus 5, and Amazon's Kindle Fire all contain InvenSense chips.

Analysts at Baird are of the opinion that InvenSense is selling a larger number of gyroscopes to Samsung for the latest flagship than originally expected. Coupled with the fact that the Galaxy S5 is selling at a faster pace than its predecessor, there's is a good chance that InvenSense could see more orders from the South Korean giant going forward. Also, Samsung expects to sell approximately 126 million high-end phones this year. Since InvenSense's products are inside Samsung's high-end phones, the company's growth should pick up going forward.

Project Ara is going to be big for InvenSense

Reports suggest that the Project Ara smartphones will cost just $50, and the technology giant will deploy kiosks for feature additions after the device is purchased. The modular smartphone will be 3D-printed, allowing for a high level of customization by users. Moreover, considering that low-cost phones are in great demand in emerging markets, this ambitious move by Google can improve growth in smartphones going forward.

InvenSense is deeply embedded in flagship Android devices. It has also partnered with Google on the Nexus platform, so it's likely that it could become a key partner in Project Ara.

A game-changing product

Earlier this year, at the Mobile World Congress, InvenSense announced a seven-axis MEMS motion tracking platform. The ICM-20728, as the chip is known, has a three-axis gyroscope, three-axis accelerometer, and a pressure sensor on a single chip, along with a digital motion processor. This chip allows motion tracking with absolute and relative altitude changes for navigation, health, and fitness applications, as reported by SlashGear. According to InvenSense, this chip is the first of its kind, wherein all information is available on a single platform.

This chip is intended for wearable devices such as smart watches and fitness bands. Additional features such as its self-calibrating nature and altimeter to enable indoor and outdoor 3-D navigation further strengthen InvenSense's chances of adding Apple to its client list.

Final words

InvenSense has two big opportunities -- Google's Project Ara and Apple's next round of devices. The company did the right thing by investing in product development. Driven by a strong product portfolio and big clients, InvenSense can hit new highs going forward, so the stock's current valuation presents an attractive entry point to investors

About the author:Riddhi KharkiaA practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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Wednesday, July 2, 2014

Why Facebook Wanted a Video Advertising Intermediary

NEW YORK (TheStreet) -- Fresh off of playing mad scientist with your emotions, Facebook (FB) is delving deeper into the online advertising racket in its purchase of LiveRail, a company specializing in video advertising. It's little wonder Facebook wanted LiveRail as the company boasts an impressive client list the likes of ABC Family, Gannett, Dailymotion and Major League Baseball.

The startup acts as something of a middleman, its video supply-side platform (SSP) helping to connect video publishers with suitable and relevant advertising material. The company currently facilitates seven billion video advertisements to online audiences each month.

Facebook could not be reached for comment for this story.

The crown jewel of a LiveRail acquisition is its bidding network, a real-time solution for marketers to seek relevant open spots for their content on sites at the lowest price-point. It achieves this through programmatic means (read: low overheads), similar to how Facebook already uses algorithms to determine what advertising content is relevant to its users. "Our platform sits at the heart of the video advertising ecosystem," said LiveRail cofounder Mark Trefgarne in a statement. "We believe that LiveRail, Facebook and the premium publishers it serves have an opportunity to make video ads better and more relevant for the hundreds of millions of people who watch digital video every month," Facebook VP of ads product marketing Brian Boland added in a blog post. It's those hundreds of millions of people Facebook is eager to connect with. Video advertising is one of the fastest-growing and lucrative market on the web; it's expected to increase 41.9% in the U.S. this year, amounting to a $5.96 billion industry, according to estimates from research firm eMarketer. Facebook already holds a massive chunk of total ad revenue but as online video becomes increasingly prevalent, the social network needs to protect its claim. Throughout 2013, Facebook accounted for 5.8% of total global digital ad revenues, up from 4.1% the year earlier. EMarketer projects the company to continue to expand that stake with an estimated 7.8% share by end-2014 of an approximate $137.53 billion industry. With 802 million daily active users (context: a userbase more than double the U.S. population), Facebook has been facing a quandary of how to monetize its most important commodity: your data. Last year, the social network launched auto-play video advertising in News Feeds, focusing on matching relevant sponsored content with the information it had already mined from user's interactions with Facebook. This, then, is a different route to greater revenue. Buying the technology solution that connects marketers with online real estate, though, means Facebook can move beyond simply hosting advertising and instead move towards controlling the very online advertising space itself. Details of the proposed acquisition have not been disclosed and the deal has yet to receive regulatory approval. --Written by Keris Alison Lahiff in New York. Microsoft Is Losing Market Share It Can't Afford to Lose 10 Cars That Retain Resale Value After 5 Years

Tuesday, July 1, 2014

Jamie Dimon diagnosed with cancer

NEW YORK (CNNMoney) JPMorgan Chase boss Jamie Dimon said Tuesday that he has been diagnosed with a curable throat cancer, but will remain working while undergoing treatment.

The prognosis from doctors is "excellent" and it was caught quickly, he wrote in a memo to colleagues and shareholders.

Dimon, 58, will receive radiation and chemotherapy treatment over the next eight weeks at Memorial Sloan Kettering Hospital in New York. Although he will curtail his traveling, the bank CEO expects to be actively working during that period.

He made the announcement just before he was about to leave on a previously scheduled trip to five European countries, said spokesman Joe Evangelisti. That trip is now canceled.

"I feel very good now and will let all of you know if my health situation changes," Dimon wrote.

Dimon previously was president of Citigroup, then chairman and CEO of Bank One Corporation. He joined JPMorgan (JPM) in 2004 through a merger and was named CEO and president in 2006. He successfully steered the bank through the economic downturn.

Dimon defends banking in Davos

He was criticized for his handling of the $6 billion London Whale trading loss. The bank had to pay about $1 billion in fines to U.S. and UK regulators for not properly overseeing its traders related to that loss.

JPMorgan also reached a massive $13 billion settlement last fall over allegations it, and two banks it purchased, misrepresented mortgage-backed securities, which played a major role in triggering the crisis.

Dimon saw a pay cut in 2012 because of that issue, but his pay was bumped up again last year. He received $18.5 million worth of restricted stock on top of his $1.5 million base salary.

--CNNMoney's Poppy Harlow contributed to this report