6/30/2012

ADP Employment Report: Job Gains Continue in March – But Still Not Healthy

The ADP employment report released today (Wednesday) showed more job gains for March as private companies continued hiring - but remain at a slower-than-necessary rate for a healthy recovery.

According to a report issued Wednesday by payroll-processing company ADP, the private sector added 209,000 jobs last month, pretty much in line with what was expected. That was slightly lower than forecasts for 217,000 jobs gained, and a decrease from 230,000 jobs added in February.

The number was slightly lower than the pace set in February. Industry analysts say the speed of adding jobs needs to move much faster to push unemployment down to a healthy level.

Small businesses, those with fewer than 50 employees, continued to make up about half of all private sector job gains, hiring 100,000 people.

Large companies with 500 or more employees hired 22,000 new workers. Medium-sized businesses added 87,000 to their payroll.

The ADP employment report typically sets the tone for the government's highly anticipated and closely watched monthly jobs report which will be released Friday. The two reports usually mirror each other over the long term, but the figures can deviate month-to-month.

According to surveys conducted by both CNNMoney and MarketWatch, economists expect the Labor Department to show 200,000 jobs added in March, including 210,000 from the private sector, while a loss of 10,000 is forecast in government jobs. Both also expect the unemployment rate to dip slightly to 8.2% from the current 8.3%.

Market participants will have to wait until Monday to react to Friday's report as exchanges will be closed for the Good Friday holiday.

ADP Employment Report: Far from Healthy Job GainsThe debate over whether a return to healthy 5% unemployment is realistic continues to grow.

To get to that level, the United States needs to add 12 million jobs, Sylvia Allegretto an economist at the University of California-Berkley, told Marketplace. The U.S. may have to get used to a "normal" unemployment rate of 6%.

But that is a far cry from the current level, and how long it will take to get there is difficult to predict.

The high unemployment rate has plagued state and local governments causing tax revenues to drop. As a result, they have had to cut all kinds of services, including benefits for people who are unemployed.

The growing numbers of people who are classified as "long-term" unemployed suggests that many are opting for unemployment over "under-employment."

What makes unemployment so hard to bring down is that new people keep entering the labor force, while the productively of those already working goes up, lessening the need for new hires.

To lower the jobless rate, the economy has to grow fast enough to overcome the triple challenges of rising productivity, a growing population and the reentry of workers into the labor force as business conditions improve and hiring prospects improves, Michael R. Englund, a chief economist at Action Economics in Boulder, CO., told Businessweek.

With the ADP employment report job gains falling short of expectations, most economists agree that a healthy job market is still a ways off.

Related Articles and News:

  • Money Morning:
    Real Unemployment Rate Could Give Obama Heartburn in November
  • Money Morning:
    Jobs in America: The Ugly Truth Behind Those Unemployment Numbers
  • CNNMoney:
    Private sector adds 209,000 jobs in March
  • Marketplace: What's a realistic 'normal' unemployment rate?
  • Businessweek: The Unemployment Rate Drops, but Economists Aren't Smiling

Why Does Fossil Continue To Invest In Europe?

Fossil, Inc. (FOSL) is an international retailer and wholesaler of watches (71%), leathers (17.7%) and jewelry (6.6%). The company is made up of four segments: North America wholesale (38.2%), Europe wholesale (25.9%), Asia Pacific wholesale (13%) and Direct to consumer (22.9%). The Direct to consumer segment includes company-owned retail stores, e-commerce sales and catalog activities. Data for this article is sourced from the most recent quarterly report and earnings conference call.

Strengths

A Google (GOOG) Insights search for "watch" yields Fossil #4 and #5 in the results. Fossil has built a brand for the ages, behind only Rolex, and that brand power is a tool that can be used to leverage sales of accessories, clothing and handbags.

(click to enlarge)

The Michael Kors (KORS) brand was a significant contributor to the rise in sales the past quarter and is at the top of the rising searches for Google Insights. If it weren't for the almost $25M increase in Michael Kors brand watch sales, Fossil's quarterly results would have been even worse.

Overall, Q1 2012 net sales increased 11.1%, or $59.8M, compared to Q1 2011. Watches made up $50.9M of this increase.

Watches

$ change to prior year Q

Michael Kors

24.6M

Marc Jacobs

6.6M

Fossil

5.2M

Weaknesses

Europe.

As Kosta mentioned, we saw strong a double-digit growth in markets like the U.K. and France. And obviously, Scandinavia still increasing nicely for us, but on a much smaller base of business. Italy and Spain have turned seriously negative (see map below). We're talking double-digit declines there. And Italy itself has been rather bumpy over the last 3 quarters. If you recall, we saw a pretty sharp decline in Q3. We were able to recover some of that in Q4 last year and now we're back down in those sharp decline. What's going on in terms of the macro environments in Italy and in Spain are probably as much do with the cadence in our business now as anything else. Germany, we saw soften as we mentioned. And again, this is something that kind of progressed through the end of the quarter, I would say for the first 2 months of the quarter. We were coming through nicely in terms of our expectations, and then we saw most of that deterioration occur in the third month of the quarter, which is obviously a 5-week month and more impactful anyway. But I would say it kind of progress towards the end of the quarter when we saw the change.

(click to enlarge)

The eyewear and jewelry segments, though a small portion of sales, experienced declines in Q/Q growth compared to last year. FOSL was once trading at multiples in the high 20s, which seems unsustainable when the watch segment is growing at less than a 14% clip. The eyewear and jewelry business' small but negative growth, even when compared with successful previous quarters, is not part of the makeup of a 25+ multiple stock.

Item

% change to prior year Q

$ change to prior year Q

Watches

13.7%

50.9M

Leather goods

15.8%

14.3M

Eyewear

-25.6%

-4.6M

Jewelry

-4.8%

-2M

Opportunities

The Michael Kors brand has saved Fossil's licensed watch business, but in order to grow Fossil must continue to add brands to their portfolio. In Q1 2013 the company plans to introduce a line based on this man…

His name is Karl Lagerfeld. This is some German guy my wife and many of her fashion forward friends - except for one, have never heard of, but I guess he is really big over there. Anyway, betting on FOSL at these prices assumes the successful launch of watches associated with this guy. I'm not sure I can sleep peacefully knowing this guy represents any portion of my portfolio.

Fossil recently purchased a Danish company called Skagen. There are supposed synergies and they sell products at similar margins. This will give the company more exposure in Northern Europe and will give them a new line to promote.

Turning to guidance for the balance of 2012. For the second quarter, we expect reported net sales to increase around 16%, with constant dollar net sales increasing 19%. Net sales of Skagen included in this estimate are expected to benefit overall sales growth by 6% during the quarter.

Mike, I think we're, as Kosta mentioned, excluding Skagen, we're guiding toward low to mid- single-digit increases for the balance of the year in Europe.

Threats

The company does not expect sales to be any good in Q1 and rising inventories are a concern.

Inventory at the end of the first quarter was $512 million, representing an increase of 27.2% in comparison to last year's Q1 balance of $403 million. This increase is primarily related to the shortfall of expected sales for the first quarter and increased levels of watch component inventories.

If you look at the Google Insights search results above you will notice that Singapore and India are situated at the top of the list. The map below shows virtually no representation for Fossil in these countries. Is there too much focus on Northern Europe with the Skagen acquisition and Germany with the new Karl Lagerfeld line instead of looking to the Far East for growth?

(click to enlarge)

$80.25 Target Price End 2012

This price target takes into account the recent drop in Q/Q sales growth and assumes low single-digit growth for sales in Europe. If Europe were to deteriorate further, then a worst case scenario price target would be around $64 per share. We are assuming that China will continue to grow at 15%+ throughout the year and leather goods will continue to grow in the teens. The company's estimated EPS for 2012 is $5.30 - $5.40 per share and we assigned an earnings multiple of 15x to arrive at our price target. See the chart for FOSL's P/E over time below, courtesy of ycharts.com.

(click to enlarge)

Technical Analysis

Looking at the daily chart, the most obvious characteristic is the huge breakaway gap that was formed on May 8 after Fossil released disappointing Q1 sales and spoke of growing concerns in Europe. This gap will be significant, as we believe its endpoint of $93.60 will serve as a tough resistance level that won't be breached for some time. In the meantime, oversold momentum indicators seem primed to rebound, so some retracement of the current move should be expected as the market digests a new reality for FOSL going forward. We view the $80 mark as the first "sticking point" FOSL may encounter in its bid to find a new higher level.

(click to enlarge)

The longer term weekly chart shows price reacting off of the low of $69.57, which is the exact low made during the second week of August 2011. With previous activity in this area, we feel confident that current conditions will allow this price to serve as a stern level of support. With the moving averages overhead and the current fundamental challenges, a longer term range between $80 and $100 is likely depending on market direction.

(click to enlarge)

Conclusion

Although shares are off almost 50% from their recent high we believe Fossil shares to be fairly valued. Fundamentally we believe that $80.25 is a reasonable price given the current conditions in Europe. Technically we see likely activity between $70 - 80 in the short term, with longer term upside to around $100. A combined picture supports our $80.25 target for the end of 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Kroger Faces Range-Bound Strategy

By David Russell

Kroger's (KR) volatility has spiked since late April, and one trader is looking for the grocery stock to return to its slow-moving ways.

optionMONSTER's tracking systems detected the sale of 9,100 October 20 puts and 9,100 October 24 calls, more than 13 times open interest in each strike. Both priced for about $0.85, resulting in a credit of $1.70.

The trade, known as a short strangle, is designed to generate income from the shares remaining trapped in a range. It came after KR's implied volatility surged to about 30 percent from 23 percent about two weeks ago, which drove up option premiums. (See ourEducation section)

The stock fell 0.18 percent to $22.12 yesterday. It's been tanking and experiencing greater volatility since April 29, when rival Safeway reported weak earnings and issued disappointing guidance.

Given the credit the trader earned from selling the calls and puts, he or she will a make money as long as KR remains between $18.30 and $25.70 on expiration.

The transaction pushed overall options volume in the stock to eight times greater than average.

(Chart courtesy of tradeMONSTER)

6/29/2012

This Iconic Retail Stock Could Double

During the past two decades, management teams at virtually every major U.S. company have identified plans to move into foreign markets. Whereas in terms of population and purchasing power, the European market offers the same opportunity as the U.S. market, emerging markets such as Brazil, China, Russia, and Indonesia are becoming the third major economic block in the world.

  Indeed, international sales growth has been the biggest top-line driver for hundreds -- if not thousands -- of U.S. companies in recent years. Yet it cuts both ways. The companies with considerable foreign exposure are smarting right now. Ford Motor (NYSE: F) and GM (NYSE: NYSE: GM), for example, are making huge profits domestically but losing money elsewhere.

Perhaps no single company has been punished for its foreign expansion as much as teen retailer Abercrombie & Fitch (NYSE: ANF). Investors grew excited in recent years by the fact that the company's 100 international stores, which represented just 10% of the total store base, had come to represent about 20% of sales and 30% of operating income in fiscal (January) 2012. These stores were explosively popular among teenagers -- especially in Europe. But right now, these teens aren't spending a dime. 

The effect on ANF's share price has been stunning.

I had been watching this stock's steady meltdown, but waited to further research it until it looked like the selling frenzy had abated.  Early this week, shares slipped briefly below $30 -- for the first time in three years -- and have started to attract buying interest.  With the sellers possibly flushed out, I took  a fresh look at Abercrombie & Fitch's current valuation and forward prospects. 

And I like what I see. 

How bad is it?
Management noted challenging sales trends when it released fiscal first-quarter results in mid-May. Same-store sales in the United States are likely to be slightly positive for the rest of the year, while sales at foreign stores are likely to remain weak, perhaps 15% lower than a year ago. 

Analysts had anticipated a tough outlook a few quarters ago and sharply reduced their earnings forecasts this past winter. On the heels of fresh guidance, they reduced earnings-per-share (EPS) estimates a bit more in the past 60 days. Analysts lowered their fiscal (January) 2013 EPS estimates from about $3.55 to about $3.45. The fiscal 2014 EPS outlook has fallen around 30 cents to roughly $4.25.

Why haven't forecasts fallen even more sharply? "The company has secured better product costs beginning in 2Q12. This enabled management to maintain F2012 EPS guidance even despite weaker international sales," according to analysts at Merrill Lynch, who rate shares a "buy" with a $54 price target (implying more than 75% upside).

Let's assume the worst isn't over, and Abercrombie ends up earning about $3 a share in the current fiscal year and around $3.75 in fiscal 2014. Shares still look like a bargain at around eight times my projected 2014 profits.

Not just cheap
It's not hard to find stocks with cheap forward multiples, but rarely do they involve companies with outstanding track records.  While rivals such as Aeropostale (NYSE: ARO) and American Eagle Outfitters (NYSE: AEO) typically post gross margins in the 30% to 40% range, ANF's gross margins haven't dipped below 60% in a decade. This is a management team that has a magic touch when it comes to merchandising, from purchasing to promotional strategies.

Management never moves too quickly when it comes time to alter the product mix. The retailer has historically been known for its tops (shirts, sweat shirts, hoodies, etc.) but is steadily expanding into denim (an American Eagle forte), yoga gear and other niches. That's why management says same-store sales can keep moving up at least modestly here in the United States, even as the economy is slow. (The current European sales weakness implies a large snapback in sales when that region recovers.)

Also, consider that Abercrombie & Fitch has poured a hefty $2 billion into capital spending in the past seven years, which should have led to a drain in free cash flow while growth was being pursued. Yet during that time, ANF has generated $600 million in free cash flow. Now, with the global store expansion largely complete, free cash flow should really take off -- even if sales don't. Merrill Lynch sees free cash flow rising from $150 million in the current fiscal year to more than $300 million in fiscal 2014 and around $360 million in fiscal 2015.

Management has been returning cash to shareholders, buying back $161 million in stock in the fiscal first quarter, and plans to spend roughly $300 million more on further buybacks in the next few quarters. This could boost annual EPS by around 15 cents. The stock's 2.4% dividend yield is decent, though based on projected cash flow trends, it could double in size, even as Abercrombie pursues that buyback plan.

Risks to Consider: The U.S. economy is growing at a modest pace right now, but if we slip into recession again, then this and other retailers might fall even further out of favor. 

> Notably, this is the only one of three "A" retailers (along with Aeropostale and American Eagle) trading at a single-digit forward multiple. That's likely due to a challenging fourth quarter that led management to underestimate the slowdown in demand in Europe. Expectations have been reset to a more realistic level, and now it is a matter of time before management restores its credibility.

The Best Way to Play the Social-Media Boom

The following video is part of our "Motley Fool Conversations" series, in which Chief Technology Officer Jeremy Phillips discusses topics across the investing world.

It's understandable that investors are champing at the bit to invest in social-media stocks. With daily reminders of Facebook and Twitter's importance, it was predictable that financial products would spring up to attempt to meet this demand. In the following two-minute video, Jeremy warns investors to stay away from a social-media ETF that is really social media in name only.

Please enable Javascript to view this video.

Facebook and other social-media companies gather a lot of investor attention, but the truth is that they're playing second fiddle to an even larger revolution in technology. To better prepare investors for this new revolution, The Motley Fool has just released a free report on mobile named "The Next Trillion Dollar Revolution" that details a hidden component play inside mobile phones that also is a market leader in the exploding Chinese market. Inside the report, we not only describe why the mobile revolution will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.

Top Stocks For 3/11/2012-12

CNOOC Ltd. (NYSE:CEO) announced that ConocoPhillips China Inc (”COPC”) , the Operator of Penglai 19-3 field informed the Company that the State Oceanic Administration of People’s Republic of China (”SOA”) has required COPC to suspend the production of Platform B and C of the field until the risk of oil spill is eliminated. According to the latest report from COPC, a thin sheen has been observed recently near Platform B and amounts of bubbles have been occasionally generated from the oil-based mud that remains on the sea floor near Platform C. Clean up work by COPC continues, including diving operations to remove any residual oil-based mud on the sea floor at Platform C. Meanwhile, COPC continues to closely monitor the original seep location of Platform B.

CNOOC Limited engages in the exploration, development, production, and sale of crude oil, natural gas, and other petroleum products.

National Health Partners, Inc. (NHPR)

National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called “CARExpress.” CARExpress is one of the largest networks of hospitals, doctors, dentists, pharmacists and other healthcare providers in the country and is comprised of over 1,000,000 medical professionals that belong to such PPOs as CareMark and Aetna. The company’s primary target customer group is the 47 million Americans who have no health insurance of any kind. The company’s secondary target customer group includes the millions of Americans who lack complete health insurance coverage. The company is headquartered in Horsham, Pennsylvania.

As employers struggle with rising healthcare costs and a sour economy, U.S. workers for the first time in at least a decade are being asked to shoulder the entire increase in the cost of health benefits on their own.
The average worker with a family plan was hit with 14% premium increase this year, pushing the bill to nearly $4,000 a year.

National Health Partners, Inc. a leading provider of discount healthcare membership programs, expects July sales to increase by as much as 75% over June sales as a result of the new marketing campaign announced by the company on May 25, 2011.

The company has experienced a tremendous amount of success from the current marketing campaign. As a result, the company has implemented a plan to substantially increase its monthly sales on a continuous basis, beginning with a 75% increase in July. During the remainder of 2011, this campaign has the ability to increase monthly sales by more than 700% while enabling the company to achieve positive cash flows from operations.

The remarkable cash flow opportunity of this marketing campaign is tied to the innovative cost terms achieved by the company. Traditionally, the company paid a monthly recurring residual commission during the life of the membership for each member acquired. Through the current campaign, the company is only paying a small, one-time fee for each member acquired -no monthly recurring residual commissions are paid. As a result, the cash flow generated by the company during the life of each membership obtained through this campaign is 150% greater than that of the memberships previously sold by the company.

“I am very excited about the incredible results that we are generating through this new marketing campaign,” stated David M. Daniels, National Health Partners’ President and CEO. “This marketing campaign is unique not only because of the large scale marketing operations of our partner, but because we are only paying a one-time commission on each new member we obtain. As a result we are seeing a substantial jump in cash flow from these new sales. As we continue to add more retained memberships from this program, we will see cash flow growth increase substantially.”

“I am very comfortable with our outlook over the coming months and I am anxious to build on our profitability on a larger scale,” continued Mr. Daniels. “As we generate more monthly cash flow, we plan to use much of this cash to acquire even more members. Within 6 months, we could be generating annualized cash flows in an amount that is greater than the current market value of our entire company.”

Please visit its website at www.nationalhealthpartners.com

Sensient Technologies Corporation (NYSE:SXT) will hold its conference call to discuss 2011 second quarter results at 10:00 a.m. CDT on Friday, July 22, 2011. To make a reservation for the conference call, contact InterCall Teleconferencing at (706) 645-6973 and refer to the Sensient Technologies Corporation conference call. A replay will be available beginning at 1:00 p.m. CDT on July 22, 2011, through midnight on July 29, 2011, by calling (706) 645-9291 and referring to conference identification number 82996946. A transcript of the call will also be posted on the Company’s web site at www.sensient.com after the call concludes.

Sensient Technologies Corporation, together with its subsidiaries, manufactures and markets colors, flavors, and fragrances worldwide.

Crown Holdings Inc. (NYSE:CCK) will release its earnings for the second quarter ended June 30, 2011 after the close of trading on the New York Stock Exchange on Tuesday, July 19, 2011. The Company will hold a conference call to discuss these results at 9:00 a.m. (EDT) on Wednesday, July 20, 2011. The dial-in numbers for the conference call are (415) 228-5025 or toll-free (800) 475-0233 and the access password is “packaging.” A replay of the conference call will be available for a one-week period ending at midnight on July 27. The telephone numbers for the replay are (402) 998-0213 or toll free (800) 934-9347 and the access passcode is 9220. A live web cast of the call will be made available to the public on the internet at the Company’s web site, www.crowncork.com.

Crown Holdings, Inc. engages in the design, manufacture, and sale of packaging products for consumer goods.

American Eagle Outfitters, Inc. (NYSE: AEO) announced a quarterly cash dividend of $0.11 per share, marketing the company’s 28th consecutive quarterly dividend. The dividend declared will be payable on July 22, 2011 to stockholders of record at the close of business on July 8, 2011.

American Eagle Outfitters, Inc. operates as an apparel and accessories retailer in the United States and Canada.

There Is Only One Way To Make Money

A guest post from the best-selling author, Jim Stovall:

I�ve received a unique blessing many will never enjoy as a writer: to work closely with a proven, prolific author on a collaboration at the very beginning of my writing career.  This year, I had enjoyed co-authoring my second book with Jim Stovall, best-selling author of The Ultimate Gift.  Our collaboration is The Ultimate Financial Plan: Balancing Money & Life (John Wiley & Sons, 2011) and Jim has been especially generous to share some regular guest posts with us here on my blog.  Enjoy this first one!

Everyone wants to get ahead, create wealth, and succeed.  There have been countless speeches given, books written, and courses taught on the subject of how to make money and be successful.  In the final analysis, there is only one way to honestly and honorably make money over the long term, and that is to deliver value to others.

People will trade their money, which is simply stored up value, for products and services that they believe to have value to them.  The person who receives the money in exchange for those products and services can then go out and purchase things that they find valuable.

Some people create value while others find it and deliver it to the marketplace.

Creating value is the process of taking something or nothing and turning it into a product or service that will benefit others.  As I dictate these words, I am hopefully creating value.  There was nothing here when I started other than the desire to write this column and create value for you.

People who find or recognize value and deliver it are a critical link in the process.  After I finish writing this column, newspapers, magazines, and online publications around the world who are aware of my work and believe it has value will repackage and deliver this column to you.

Some people argue that those who create value are more important while others believe those who find, package, and deliver value to be more significant.  I believe it�s like arguing whether the engine or the wheels are more important in your car.  There are probably good arguments both ways but, in the final analysis, no one�s going anywhere until they have both the engine and the wheels, and then they can travel anywhere they want to go.

While both creative people as well as those who discover and deliver value are important, they are rarely interchangeable.  The editor of my very first book had aspired to be an author himself for many years without success.  Then out of frustration and necessity, he accepted a job as an editor and only then did he find his true calling.  Editors discover, refine, develop, package, and deliver the creative works of others.  My editor, who had failed as an author, was responsible for bringing more books to the marketplace and bringing more value to more readers than any single author has ever done in the history of the written word.  This gentleman, who could not succeed as a writer himself, was responsible for bringing more value to readers than he could have done had he been the best writer of his time.

As you go through your day today, realize that value is the only marketable commodity.  Find your place in the world, either creating value or delivering it to others.

Today�s the day!

 

Fund Family Soars in Tough Times

James Small Cap (JASCX) has been on a tear. During the past year, the fund returned 10.9%, ranking as the top-performing small, value fund, according to Morningstar. James outdid the No. 2 finisher by 5 percentage points.

The strong showing can be attributed partly to luck. James prefers stocks with solid earnings, which have been in favor lately. But the fund has delivered successful returns in a variety of market conditions. During the past decade, James Small Cap returned 8.8% annually, outdoing 86% of competitors. James Balanced: Golden Rainbow (GLRBX), which holds many of the same stocks as the small-cap fund, also boasts a strong record. During the past decade, the balanced fund returned 7.4% annually, outdoing 98% of its peers in Morningstar's conservative allocation category. The James funds follow a strategy developed by Frank James, who founded James Investment Research and now runs the company along with his son Barry. For his Ph.D. dissertation in the 1960s, Frank sought the Holy Grail of investing: a simple system that could pick winning stocks. While James never found a perfect solution, he did notice a helpful phenomenon. When a stock outperformed the market for more than a year, odds were good that it would continue topping the benchmark for the next six months or so. Over the years, other researchers have reported similar findings. As a result, a number of funds now emphasize stocks that have been showing strong relative strength or momentum. But the approach has never been widely used because it can fail during downturns. "When the market corrects, the first things to go down are stocks that have been doing the best," Barry James says. "When they see the bad results, people think that relative strength doesn't work. But relative strength can be helpful if you understand when it works." Since the strategy is not foolproof, the James managers combine relative strength with other indicators. For Barry James, the ideal stock has good relative strength, solid earnings and a low price. Because stocks that meet all the criteria are rare, he also takes shares that have only some of the desirable attributes. The resulting portfolio changes over time, landing in the value box some years and at other times fitting in the blend category.

The James managers seek to pick stocks that stand to benefit from global economic trends. These days they expect the dollar to be strong as investors flee the uncertainty of Europe and take shelter in U.S. assets. The strong dollar will make it cheaper for U.S. companies to buy overseas goods. That should help increase the profit margins of retailers, says Barry James.

A favorite holding is Dollar Tree (DLTR), a big discounter that specializes in food, beauty products and housewares. With earnings improving, the stock has been showing good relative strength, and Barry James figures that the company should continue reporting good news. "With one out of eight people on food stamps, Dollar Tree should have plenty of loyal customers," he says. Another stock he likes is Eli Lilly (LLY). Although the stock has been strengthening lately, the shares still only sell for a price-earnings multiple of 10. The stock pays a dividend yield of 4.7%. Barry James says that the company has several promising drugs in the pipeline that could boost earnings.An unloved stock he likes is HollyFrontier (HFC), a domestic refiner that has a P/E ratio of 4. Refiners buy oil and use it to produce gasoline and jet fuel. When oil prices were climbing earlier this year, refiners were facing rising costs and slimmer profits. But James argues that oil prices should soften as the economy remains sluggish.For his balanced fund, James holds a mix of stocks and bonds. When stocks look risky, he emphasizes bonds. Last spring James grew wary and shifted 65% of assets to bonds, with the rest in stocks. "We just had a 100% run-up in stocks over two years, and everybody was saying that happy days were here again," recalls James. "That was almost a sure sign that we were going into a correction."The bond position helped the fund weather the market turbulence of last summer. Since then, James has turned more bullish on stocks, lowering his bond allocation to 50%. He says that these days investors are less optimistic. That is helping to keep a lid on share prices, even though retail sales and other indicators are improving. "It looks likes the economic indicators will be OK for the next quarter or so," he says. >To submit a news tip, email: tips@thestreet.com. RELATED STORIES: >>5 Worst Stocks of 2011 -- Which Are 'Buys' for 2012?>>8 Stocks With Biggest Upside in Market Rebound Follow TheStreet on Twitter and become a fan on Facebook. >To order reprints of this article, click here: Reprints

6/28/2012

Time Warner Beats, Raises Guidance

Time Warner Inc. (TWX), the diversified media conglomerate, posted better-than-expected fourth-quarter 2010 results on the heels of an increase in advertising and subscription revenues. The company also hiked its quarterly dividend and boosted its share repurchase program.

The shares of Time Warner rose 2.6% or 84 cents to $33.15 in pre-market trading.

The quarterly earnings of 67 cents a share outdid the Zacks Consensus Estimate of 62 cents, and rose 22% from 55 cents earned in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 68 cents a share, up 28% from 53 cents delivered in the year-ago quarter.

Buoyed by the strong quarterly performance, Time Warner now expects fiscal 2011 earnings to increase in the low teens. Following this, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days. The current Zacks Consensus Estimate for fiscal 2011 is $2.62.

Time Warner’s total revenue in the quarter grew 8% to $7,812 million from the previous year-quarter, and handily beat the Zacks Consensus Estimate of $7,477 million. Adjusted operating income during the quarter logged a growth of 14% to reach $1,425 million.

Segment Details

Networks division’s revenue, which includes Turner Broadcasting and HBO, jumped 14% to $3,348 million, driven by growth of 9% in subscription revenue, 21% in advertising revenue and 25% in content revenue. Adjusted operating income for the segment climbed 20% to $904 million.

Time Warner’s Filmed Entertainment segment revenue climbed 10% to $3,636 million driven by a rise in television license fees. Adjusted operating income for the division, which comprises Warner Brothers, dropped 5% to $416 million due to a fall in home video revenue and increase in theatrical print and advertising costs, which fully offset television license fees.

Publishing revenue tumbled 4% to $1,056 million, reflecting declines of 1% in advertising revenue, 7% in subscription revenue and 13% in other revenue. However, the segment’s adjusted operating income surged 63% to $182 million from the prior-year quarter, principally due to lower restructuring expenses.

Other Financial Discussions

Time Warner ended fiscal 2010 with cash and cash equivalents of $3,663 million, long-term debt of $16,523 million, reflecting debt-to-capitalization ratio of approximately 33%, and shareholders’ equity of $32,940 million, excluding non-controlling interest of $5 million.

During the quarter, Time Warner generated free cash flow of $701 million and incurred capital expenditures of $294 million. For the full year, free cash flow was $2,698 million and capital expenditures were $631 million.

During fiscal 2010, the company generated $3,314 million of cash from operations and received $5,243 million from borrowings. Time Warner also utilized $4,910 million of cash toward debt repayment, $2,016 million toward share buybacks, and $971 million toward dividend payments.

Time Warner also raised its quarterly dividend by 11% to 23.5 cents and increased its share repurchase authorization to $5 billion from the $1 billion remaining at its disposal as of December 31, 2010. The increased dividend will be paid on March 15, 2011 to shareholders of record as of February 28, 2011.

Currently, we have a long-term Neutral rating on the stock. Moreover, Time Warner, which competes with News Corporation (NWS) and Walt Disney Company (DIS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and corroborates our long-term recommendation.

Earnings Preview: Abbott Labs

Abbott Labs (ABT) is expected to report Q4 earnings before the market open on Wednesday, January 27, with a conference call scheduled for 9:00 am ET.

Guidance

The consensus estimate is $1.17 for EPS and $8.59B for revenue, according to First Call. On October 14, Abbott raised its FY09 EPS outlook to $3.70-$3.72 from $3.65-$3.70. Positive drivers for this quarters results may come from strength in Humira and the new Xience stent. The drug giants global diagnostics business may also help drive revenues. Negatives for Abbot in Q4 continue to be generic erosion in drugs like Depakote.

Analyst Views

In December, Abbott Labs was removed from the Conviction Buy List at Goldman citing relative valuation for the removal. Shares of Abbott remain Buy rated at Goldman with a $60 price target.

Chaoda Modern Agriculture: A Green Giant for the Price of a Dwarf?

Rising concerns over food security, the shrinking of available arable land and increasing populations have brought agricultural investments back into the limelight. Globally, investments in agriculture are required to increase output and productivity. This includes the production of fertilizers and agrochemicals, farm machinery and high-performance seed (by breeding of genetic engineering), but also the farming operations themselves.

For the equity investor who wants to become a part-owner in a farm, the choice has been rather limited. While diversified investments in agriculture are possible via exchange-traded funds such as CRBA, MOO, PAGG, DBA, RJI or RJA, which cover a wide range of larger agriculture-related public companies or commodities, most of these do not contain any farming operations.

The recent IPO of Adecoagro (AGRO) has made investments in South American farmland accessible, which was also possible previously via the ADRs of Cresud (CRESY). Other farms listed on U.S. exchanges include the secretive JG Boswell company (BWEL.PK), which has a market capitalization of nearly $1 billion but is tightly-held and thinly-traded.

The last decade saw a large amount of IPOs of eastern European farming operations, with very mixed results. Companies such as Firstfarms, Black Earth Farming (BLERF.PK),and Landkom (LKNTF.PK) went public but have mostly failed to reward their shareholders. The very high valuations at which those stocks were issued as well as the financial crisis that hit shortly afterwards certainly played their part in this sorry state of affairs, although the managements of these companies have certainly their part in the blame. Recently, Ivolga (allegedly the world’s largest farm with 1.5 million hectares of land) came under duress and is negotiating with RBS to avoid bankruptcy and foreclosure.

Like with any other company, it is not just the business area that makes a company successful, but the people behind it. I would like to take this opportunity to highlight a Chinese company with ongoing success, Chaoda Modern Agriculture (CMGHF.PK). Its success is based on operational excellence and financial discipline, and I think the market is not giving enough credit to its excellent track record.

A successful vegetable farm

The probability is high that American readers are very familiar with the Green Giant brand for vegetables owned by General Mills (GIS). I expect that only a minority of you will have heard of Chaoda before, although it is truly a vegetable giant in its own right. And I am not only talking about the name of the company (Chaoda is written with the characters ?and ? in Chinese which stand for “super” or “exceeding”, and “large”, thus giving it the meaning of “super-huge” or “gigantic”). Chaoda’s operation is very impressive in the context of a fragmented agricultural base in China. As of June 2010, it was had a production base of 664,225 Mu (a Chinese surface unit equivalent to 1/15th of a hectare or 0.1647 acres) which is equivalent to a surface of 443 km². About 75% of the surface is used for the cultivation of vegetables, the rest being fruit orchards, tea plantations or livestock land.

Chaoda has continually expanded its production base area over the past decade. The total surface has grown about sixfold from 8,000 ha in 2002 to over 44,000 ha currently. Chaoda aims to increase the total production area even further in the coming years. In addition to the 714,933 Mu of production area at the end of 2010, the company has a further 300,000 Mu of total land reserve for crop farming (some 45% of the current production base), and the company is planning to expand the production base area at a rate of 25-30% per year over the next three years. Just look at the chart below to see the impressive growth in land, a growth that can be projected into the future as per the company’s land reserve and expansion plans.

[Click all to enlarge]


The crop harvested on Chaoda’s cultivated land has kept pace with the increase in acreage. The volume of crops sold has increased with a CAGR of 24% in the years 2002-2010. Last year, Chaoda sold an impressive 2.8 million tons of vegetables. That’s approximately the amount of coffee beans that Brazil, the largest coffee producing country, harvested last year.


The growth in production has been commensurate with the growth in cultivated surface, as Chaoda has managed (and invested heavily) to keep the yield of its land stable at a high level. Vegetables are typically harvested three times a year, which is also Chaoda’s average. The yield per harvest has been stable at around 28 tonnes per hectare over the past years. The evolution of the yields over the past years is given in the graph below, along with a comparison of the five-year average yields of Germany, France and the U.S. for vegetables. Chaoda can be proud of its track record, as its harvest volume exceeds those of France and the U.S. by some margin.


I wanted to show these data points first to make you realize how efficiently Chaoda has been operating. It has been growing its production base and production like clockwork while maintaining an excellent yield on its production base.

The social component

The growth and operational success of Chaoda has a political dimension. China needs an efficient and large producer of vegetables to feed its growing urban population. Rising food prices are a concern for politicians in countries where a large part of the population has a relatively low income. The government has thus to strike a balance between the necessity of having a large and efficient profit-oriented producer to meet ever-increasing demand for fresh produce and its desire to keep citizens happy with affordable prices. Let’s look at the average selling price per kilogram that Chaoda realized for its vegetables:


For a country with an official inflation rate averaging 4-5% per year, the selling price of Chaoda’s vegetables hardly budged over the last years. The company sold its crop at about 2.45 RMB per kilogram in the last five years. Along with increasing its investments in new production, that’s the price Chaoda has to pay for its government support. This does however not at all impair Chaoda’s profitability.

Before that, let me just briefly come back to the selling prices of Chaoda’s vegetables and compare them to prices in the US. Vegetable prices are generally very volatile individually and depend heavily on the type of produce. The average price per kg is thus inherently dependent on the weighting of the individual crops. A 2008 survey by Nielsen for different crop types that can be found on the USDA website has analyzed the average prices for different types of vegetables (see picture below, taken from the report). The prices (converted into RMB/kg at the 2008 exchange rate) range from 7.25 RMB/kg for Potatoes, to 60.71 RMB/kg for sliced Mushrooms. This means Chaoda’s produce is being sold at one-third of the price of even the cheapest fresh vegetable type in the US.


The Government says Xie Xie (thank you)

The first thing that struck me when I looked at Chaoda’s P&L statement was how the gross profit nearly completely translated into net profit. Chaoda has consistently achieved net profit margins above 50% over the last decade – this is not something you would expect from a vegetable producer. Contrast that to the 2% net margin of Bonduelle.

This is partly due to heavy government support for agricultural companies in general, and Chaoda in particular. The PRC government has granted an incredibly friendly tax break to Chaoda which means it is virtually paying no taxes. These are the relevant lines from Chaoda’s annual report (emphasis mine):

According to the PRC tax law and its interpretation rules (the “PRC Tax Law”), enterprises that engage in qualifying agricultural business are eligible for certain tax benefits, including full enterprise income tax exemption or half reduction of enterprise income tax on profits derived from such business. Fuzhou Chaoda Agriculture Development Company Limited, the Group’s principal subsidiary and other PRC subsidiaries engaged in qualifying agricultural business, which include growing and sales of crops and breeding and sales of livestock, are entitled to full exemption of enterprise income tax.

Next to its size, operational efficiency and financial prudence (the company is nearly debt-free), this is a key advantage for Chaoda. Like many other Chinese companies, the holding company is incorporated in Bermuda, which is also not known for its high corporate tax rates.

Conservative and growing

The next picture shows some key financial ratios of the company over the last decade. As one can see, all ratios have remained quite stable, and they show a great operational success. Even with nearly zero leverage (some bonds were issued in 2005 and 2006 to finance expansion, but are now repaid), Chaoda has on average produced a return on equity of 21% and net profit margins above 50%.


With stable and high profit margins and return on equity, the growing land base has produced profit and revenue growth. As the next graph shows, Chaoda’s revenues have grown to nearly 7bn RMB in 2010, and net profit was 3.7bn RMB, all with stable and rather low average selling prices. Assuming the land bank increases as predicted by 25% per year for the next three years, and prices and profit margins remain stable, net profit could double and reach 7.2bn RMB in 2014 – that’s nearly 70% of its current market capitalization.


Bringing new fields into production requires large investments in agricultural infrastructure. You can’t just plant seeds on new land and expect the kind of yields that Chaoda achieves. Chaoda has large capital expenditures which will remain high in the coming years – the company has invested and will invest big sums into irrigation systems, land upgrading, agricultural equipment, greenhouses, fertilizers and production and distribution systems.

These are required expenditures to bring new land into production and integrate the new production in the existing distribution system. So far, Chaoda has been able to finance its expansion mainly by its operating cash flow. It has issued senior notes in 2005 and a convertible bond in 2006. Both of these liabilities have been extinguished in the past two years. Other minor shortfalls have been covered by equity issues or credit lines, which have remained small compared to the overall size of the company. The picture below shows the components of cash flow (operating, investing, financing) over the last decade.


As can be seen, the outflow of cash for investments has increased over the years, but so has the cash inflow from operations. The large amounts the company is planning to invest over the next years seem to be a concern for analysts, with Jake Lynch from Macquarie even being quoted as “we have no idea where the money is going”. I am respectfully questioning this opinion, in light of the company’s past achievements and its expansion plans.

Invest or Return ?

“It is our belief that shareholders should demand of their management either a normal payout of earnings (…) or else a clear-cut demonstration that the reinvested profits have produced a satisfactory increase in per-share earnings” B. Graham, The Intelligent Investor, Chap.19

The question of whether it is better to reinvest a dollar into the business or distributing it do the business owners is usually best answered with the return that this dollar achieves when reinvested. If the shareholders can achieve better returns by other investments, or if incremental investment into the business does not increase returns, it is usually better to return money to shareholders.

I think shareholders should not be too concerned over Chaoda’s investment plans. Chaoda has already heavily invested in its growth in the past, and the results achieved have confirmed these investments were indeed profitable. Just look at the growth in book value per share over the last decade:



Albeit small, Chaoda has also paid a dividend to shareholders over all these years. Including dividends, the per-share book value of Chaoda has increased over 22% per year in 2002-2010. While the growth in book value has not been as high over the last year, the long-term track record is more than satisfying. Given these numbers, the valuation given to Chaoda’s stock by the market is remarkable."

A thirsty stock

"If you own a farm and you have a drought once every 10 years, you don't mark down the value of your farm 30% the year of the drought." Warren Buffett

Current headlines in the agricultural sector highlight the severe drought that China is currently facing. While the drought is mainly concentrated in the wheat-growing northern part of China (away from Chaoda’s production bases which are mainly in the south-east), it seems Mr. Market did not heed Warren Buffett’s advice. In fact it marked the value of the farm down even further, by over 50%. One year ago, Chaoda was trading at 9.45 Hong Kong dollars (HKD), today the stock is traded around 4 HKD, and Chaoda has paid dividends in between as well.


What is the current valuation of Chaoda? At 4 HKD and with 3.12bn shares in issue, the market values the company at 12.5bn HKD or 10.5bn RMB. That is a little more than half the book value (net assets) of the company, and only three times last year’s earnings and 1.5 times last year’s revenues (and remember the company has a 50% net margin!). The cash on the balance sheet alone makes up 30% of the market capitalization – and this is a company with an equity ratio exceeding 90%. At the current price, the operating cash flow of around 3.3bn RMB provides a yield of about 16% on the equity. This value even goes up to 19% if the 13.5% equity stake in Asian Citrus (ACTFF.PK) (worth around 1.3bn RMB at the current share price, and not contributing to operating cash flow) is backed out.

Price to 2011 H1 Book value

0.6

Price to 2010 FY Earnings

2.9

Price to 2010 FY Revenues

1.5

2011 H1 operating cash flow yield

15.7%

2011 H1 operating cash flow yield,
excluding Asian Citrus stake at market value

19.3%

Dividend yield

1.5%

The market obviously believes that Chaoda will grow no more, and all its current investments are useless. While it is certainly true that China is building a lot of overcapacity in many sectors, the growing of vegetables does not really strike me as an area where overcapacity is a looming problem. With international concerns over food supplies, a lot of potential domestic overcapacity will probably still find many happy buyers abroad.

Chaoda’s largest shareholder is the founder and chairman, Mr. Kwok Ho. He holds around 20% of the shares, aligning his interests with other shareholders. His commitment to the company, along with the prudent and conservative balance sheet (over 90% equity ratio, 3bn RMB in cash) give me great confidence that buying shares in Chaoda at around 4 HKD is an investment with very little downside, but tremendous upside potential. I am happy to buy this green giant for the price of an ugly dwarf.

Disclosure: I am long CRESY, BWEL.PK.

Why Invest In Dairy Farming? The 3 Keys To Success

In recent years there has been an increase in the number of investments being made in dairy farms within New Zealand. Could this be a by-product of some form of fashionable trend among local investors? Hardly; these types of investments have become such an attractive option through a combination of potential growth, sustainability, and the wealth of experienced equity managers within the industry. When combined, these factors create a compelling case for investing in the dairy industry.

Perceived Potential – Breaking the Glass Ceiling

Many dairy farms are being run well below their optimal level of efficiency. That is not to say they are not profitable or productive, just that there is often an enormous potential for growth. Tapping into this potential through capital development is what drives investments in dairy farms. By streamlining performance through a combination of tightening up existing practices and expanding upon output, investors have the opportunity to see greater returns.

Unlocking this potential could be a matter of investing in new equipment, increasing livestock numbers, refining the supply chain process, or a combination of all of the above. What exactly it is that this particular dairy farm needs will vary on a case by case basis, with the constant factor being the room for improvement. Of course there will be some that are operating at close to their maximum capacity, but with so many that could use that extra push the opportunities for prudent investment are plentiful.

Sustainability – Feeding the Need

Another central reason why this sort of investment has proven so popular is the inherent sustainability of the industry. At its core, every industry operates on the simple premise of supply and demand; where demand facilitates supply, opportunities for investment will arise. Dairy farming has been around for centuries, and unless human beings start making dramatically different choices in their diet it will continue to be a necessary part of our existence.

Looking at things from the investor’s point of view, knowing you are putting capital into an industry that will not suddenly lose its relevance is half the battle. In this sense, dairy farms make for safe investments; since overall demand is unlikely to fall away, success is entirely in how you choose to operate your farm.

Experience Counts for Everything

Since dairy farming is such a developed industry within New Zealand, there is no shortage of experienced equity managers who can help get the most out of your investment. With an intimate knowledge of how the industry operates, these managers will be better able to determine what areas of practice are most in need of investment. Having this sort of helping hand can be invaluable in ensuring you milk greater returns from the process.

Find out more about dairy farm investments at Waibury Agricultural Investments.

4-Star Stocks Poised to Pop: ExxonMobil

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, oil and gas gorilla ExxonMobil (NYSE: XOM  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Exxon's business and see what CAPS investors are saying about the stock right now.

Exxon facts

Headquarters (founded) Irving, Texas (1870)
Market Cap $389.8 billion
Industry Integrated oil and gas
Trailing-12-Month Revenue $433.5 billion
Management Chairman/CEO Rex Tillerson
CFO Donald Humphreys
Return on Equity (average, past 3 years) 22.4%
Cash/Debt $12.7 billion / $17.0 billion
Dividend Yield 2.2%
Competitors BP
Chevron

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 94% of the 8,271 members who have rated Exxon believe the stock will outperform the S&P 500 going forward. �

Just last week, one of those Fools, NJ7, tapped Exxon as the strong way to play natural gas:

Right now, times are hard for natural gas producers with a massive supply glut. This will inevitably drive many small producers under, and with [$12 billion] in cash, ExxonMobil is well situated to pick up the most promising. I consider the development of the natural gas industry through fracking to be somewhat similar to that of the oil industry: fluctuation from oversupply to undersupply and back again. Only the strongest companies will be able to make it through and reap the rewards and ExxonMobil has ample staying power. With oil and natural gas leadership, ExxonMobil may be a hold forever stock.

If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future. Of course, despite its four-star rating, Exxon may not be your top choice.

We've found another energy play we are incredibly excited about -- excited enough to dub it "The Only Energy Stock You'll Ever Need." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the new TrackPoisedTo CAPS account.

Why Stocks Are Likely to Head Higher

Several nasty economic reports led to a lower opening yesterday. December retail sales showed a gain, but when autos were subtracted they showed a net loss, and the initial weekly jobless claims climbed to 3.63 million from 3.61 million the prior week. Continuing jobless claims were also higher.

But some better-than-expected corporate earnings from Tractor Supply Company (NASDAQ:TSCO) and Dick�s Sporting Goods (NYSE:DKS), plus a stronger euro, played a part in a rally that started at mid-morning and lasted until the close. At the bell, the Dow Jones Industrial Average was up 22 points to 12,471, the S&P 500 gained 3 points at 1,296, and the Nasdaq gained 14 points to at 2,725. Advancers were ahead of decliners on both exchanges by 1.6-to-1.

The index that hardly anyone talks about, but which had the highest total return last year, the Dow Jones Utility Average, is still plodding along. It was the story of �The Tortoise and the Hare� of Wall Street. While the public focused on gold, tech and banks, the Dow Utility Index gained 14.8%, and on top of that paid average dividends of around 3.5%.�

With the demand for power increasing as the result of a gradually turning economy, it�s likely that the stodgy �widows and orphans� stocks will continue to plod along. They may not provide the sport of trading techs and precious metals, and no one�s blood pressure will rise from worrying about them, but they do provide excellent returns — and that�s what investing is all about.

With all of the bad news of yesterday, along with some earnings misses, you would expect the market to have taken away the profits made early this week, but instead stocks march on. And here is another negative that the market is ignoring — the new AAII weekly report: bulls 29.1%, up .03%; bears 17.22%, unchanged.�

Conclusion: Investors are treating bad news favorably — a strong indication that stocks are likely to head higher before we experience the much talked about �correction.�

If you�re looking for help making profitable trades, you may want to check out my colleague Joe Burns.

6/27/2012

Essentials of Foreign Exchange Trading (Essentials Series) (Paperback)

Review

“�is a concise, easily digested snapshot of the currency market. It is a solid introduction to a trading specialty and probably a better fit for investors already well versed in stocks or futures and looking for a new market opportunity. Chen’s edition is a Forex 101, a helpful base that is likely to encourage investors to pursue further study.” (SFO Magazine, June 2009) “�has written this guide to trading in the foreign exchange (forex) market for both novices (more…)Featured: Swine Flu Symptoms Information

Charles Goldman to Advisors: Be Paranoid About Your Business

Speaking at a general session of Shareholders Service Group’s first annual conference in San Diego, Charles Goldman shared his view of the advisor universe on Thursday afternoon, and urged every advisor to “be paranoid about your business,” and to not fall prey to its opposite, “arrogance".

He also said he had come to appreciate the importance of each advisory firm to have a “UVP”—unique value proposition—but urged advisors to focus on the “value proposition” part  of their mission.

The former Schwab Institutional COO and Fidelity Investments custodial and clearing president, now a consultant and board member of several charities in the Bay Area, said he had learned about the value of being ‘paranoid’ from his former Schwab colleague Debby McWhinney. And while he had long pooh-poohed the management mantra that every successful firm must have a vision or mission statement as part of its UVP, he had come to appreciate its importance in business.

He warned, though, that just having such a vision isn’t sufficient: advisors and most important “their staff need to be able to articulate” that vision to others, particularly clients and prospective clients. He made the comments in response to questions from SSG’s executive VP Dan Skiles (left), another former Schwab colleague (and Investment Advisor’s Technology Coach columnist; see Dan's latest column for IA at AdvisorOne).

Goldman, who joked that since he left the rarefied air of corporate America, he had to learn how to do his own PowerPoint slideshows, began his presentation by looking at “what’s really happening in the wealth management marketplace.” He proclaimed that for the estimated 16,000 RIA firms, “assets under management are back” to where they were before the 2008-2009 markets and economic crisis, and that RIAs account for about $2 trillion in AUM (citing Cerulli data) with those assets growing at a CAGR of 10%.

He noted that assets are concentrated, however, at the largest RIAs. He also sought to dispel two myths: that every advisor should focus on the high-net-worth and that the wirehouses were on their deathbeds.

“The average account size at Schwab and Fidelity” is between $300,000 and $400,000, while the average household account is about $800,000, he reported, and that relatively lower-net-worth Americans represent a significant market opportunity for advisors. That brought up another myth of sorts: that advisory firms need to grow larger to survive. “Scale is being brought to you by your custodian” and by other advisor partners, such as technology firms, a model which he said was unique among American businesses, and which allows advisors to efficiently and profitably serve those relatively lower-net-worth clients.

As for the possible demise of the wirehouses, Goldman admitted that independent RIAs and broker-dealers were ahead of the wirehouses in growing AUM, but that the wirehouses “had learned from independents” the value of providing fee-based and even fee-only services to clients and that they still held the majority of AUM in the country.

However, one of the wirehouses’ problems is their size: “At big firms, most leaders are spending only a quarter of their time” on truly valuable activities to grow their businesses, and urged advisors not to make the same mistake in their own time management. When asked by Skiles what he would do if he were running a wirehouse, Goldman said simply, “I’d make it very hard” for brokers to leave, since the periodic movement of brokers from one wirehouse to another made it more difficult to sustain a profitable enterprise.

After mentioning that his departure from Schwab occurred after a "disagreement in the executive suite about the direction of the company," he touched on the issue of whether the SEC will impose a universal fiduciary standard on all advice givers, at a conference where regulatory and compliance issues were prominent, Goldman spoke with conviction (and also recalled in passing that he served a stint on SIFMA's private client group, where he recalled, "I wasn't very popular"). He argued that “it would be criminal and unfortunate” if such a fiduciary standard were to become rules based rather than principles based, as it is and has been for RIAs. He also spoke encouragingly of the efforts of the Institute for the Fiduciary Standard to promote such a universal standard.

Read full coverage of SSG's 2012 Conference in San Diego at AdvisorOne.

Why Central Fund of Canada Has Barely Budged This Year

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Central Fund of Canada (AMEX: CEF  ) . The closed-end fund couldn't be simpler, owning an almost 50-50 mix of gold and silver bullion. But as the precious-metals play has risen and fallen, Central Fund has gotten carried along for the ride. Let's take a quick look at how the stock is doing so far this year.

Central Fund of Canada Stats:

2012 YTD Return 0.9%
Assets Under Management $4.78 billion
Gold Ounces Owned 1,694,644
Silver Ounces Owned 76,964,103
Premium to Net Asset Value 5.4%
CAPS Rating ***

Source: S&P Capital IQ.

Why is Central Fund of Canada basically unchanged for the year?
If you only look at Central Fund's current share price compared to where it ended 2011, you might think the year has been pretty boring. But precious metals have moved sharply in both directions in 2012, with gold rising to nearly $1,800 per ounce before falling back to current levels around $1,585. Silver has seen similar volatility, with prices spiking above $37 per ounce early in the year but currently trading almost $10 below that level.

Yet central banks have been voracious in their appetite to boost their gold reserves. In fact, Foolish gold expert Christopher Barker suspects that one major reason that gold and silver have seen their prices fall back stems from possible intervention from central banks to keep prices low.

If you think gold and silver are poised to rise, one advantage to using Central Fund instead of the more popular SPDR Gold (NYSE: GLD  ) or iShares Silver (NYSE: SLV  ) is that Central Fund shareholders can elect special tax treatment, as it's what's called a Passive Foreign Investment Company, which would potentially allow you to get a preferential tax rate on gains compared to the SPDR or iShares funds. Sprott Physical Gold (NYSE: PHYS  ) and Sprott Physical Silver (NYSE: PSLV  ) have the same advantages, but Central Fund gives you both gold and silver in a single package.

Weak precious metals prices have held back Central Fund of Canada, but if you like gold stocks, we've got a mining company that might be able to do better. Read the Motley Fool's latest special report on gold to discover the tiny gold stock digging up massive profits. It's free but only available for a limited time.

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

3 Teen Retail Opportunities Not to Be Missed

by David Sterman

You can't blame a number of retailers for waving the white flag. Already battered by tight-fisted consumers throughout the year, they had to contend with a traffic-sapping massive East coast snowstorm as the year came to an end. The predictable result: same-store sales for many retailers were pretty lousy in December. The unpredictable reaction: investors seemed caught off-guard by the results, handing some stocks their biggest pounding in quite some time in Thursday trading.

Wet Seal (Nasdaq: WTSLA) and Pacific Sunwear (Nasdaq: PSUN) shed more than 10% on Thursday, while Zumiez (Nasdaq: ZUMZ) and Gap Inc. (NYSE: GPS) fell by almost as much. Yet for investors willing to take a broader view than monthly sales trends, these sell-offs have created a compelling entry point for some of these stocks.

As a quick recap of an article I wrote six months ago, many retailers have taken advantage of the downturn to tighten up their operations by reducing inventories, throttling back risky growth plans and cutting any fat from overhead. Some retail stocks are already benefiting from this trend, especially the ones that cater to upscale shoppers. But many teen-focused retailers have yet to mark any gains due to still-weak spending. If employment trends start to improve in 2011, as many suspect, it's precisely these lagging retailers that may see the greatest gains as job creation extends to younger workers.



Here are three teen retail plays that you should be focused on -- despite the tough holiday selling season that just passed...

Hot Topic (Nasdaq: HOTT)
This retailer fell more than 10% in the last two weeks of December and now trades just $1 above the lows seen of the last decade. Hot Topic posted stellar annual results early in the last decade, but sales have barely budged in the past five years. Sales are actually likely to fall in the fiscal year that ends in a few weeks, due in part to a decision to start closing underperforming stores. And therein lies the value proposition for this teen retailer...

Hot Topic is culling the 40 weakest stores from its roster, a process which should be complete by the end of April and should yield $10 to $15 million in annual savings (or about $0.25 a share). At the same time, Hot Topic will be coming up against very weak sales comparisons from 2010, and management believes that same-store sales can start to start to move up this week, especially as the assortment of merchandise is getting greater focus.

Unlike other teen retailers that focus solely on clothing, Hot Topic also sells a range of edgy accessories, most of which carry higher gross margins. Spending on accessories had fallen in the economic slowdown but should bounce back as the economy improves. As an added kicker to growth, the company is just moving into Canada, where a few Toronto stores are performing above plan. That may compel management to follow through on up to 30 new stores in Canada during the next year or two.

Analysts expect earnings per share to rebound to $0.18 in the fiscal year that begins in February, but that outlook doesn't appear to incorporate the cost cuts noted above. Analysts at B.Riley think EPS will be closer to $0.30. Using EBITDA as a measure, they think shares are especially cheap, trading for less than four times that metric. If the economy shows improvement in the next few years, EBITDA should rise nicely higher and create an even lower projected multiple.

Wet Seal (Nasdaq: WTSLA)
A slightly negative sales performance led to a sharp drop in shares for this retailer, which has now traded down to just two times cash. This company has been trying to boost sales for a very long time, but the top line is still below where it was 10 years ago. Analysts at Brean Murry have been tracking the company's moves and think Wet Seal is finally on the cusp of an upturn. "We have waited a long time, and we are now more confident than ever that the equation for Wet Seal of: improving comps + material store rollouts + better product offerings = material top and bottom-line upside," they wrote in a recent research report.

Even as the retailer invests in the turnaround, there are ample funds left over for a buyback. The company has bought back nearly one million shares, with plans to buy back another five to six million shares in 2011. The December sales weakness represents a modest stumble on the road to recovery, though management noted that the second half of December was far stronger than the first half -- a possible positive omen for sales in 2011.

Aeropostale (NYSE: ARO)
Lastly, I remain a big fan of this retailer, which I discussed in an article about stock buybacks a month ago.

A number of analysts remain cautious on Aeropostale, thanks to lagging sales performance against rivals such as Abercrombie & Fitch (NYSE: ANF). But even as the top line has challenges, the bottom line remains very healthy. Management has always been focused on cash flow, which has again allowed it to reiterate bottom-line guidance even as December sales came in a bit below plan. (Which explains why shares rallied on Thursday, despite the weak comps.)

Aeropostale has been the subject of recent buyout rumors. Some suspect the stock would fetch $30 or more in such a scenario. But shares should be appealing without any such buyback plan: Aeropsotale is on track to generate more than $250 million in free cash flow ((FCF)) for the second straight year, and FCF would likely move up above $300 million or even $350 million when employment trends materially improve. As long as shares fail to budge, that just means that management can keep sharply reducing the share count through buybacks.

The retail sector was in favor a few weeks ago, but dismal December sales are pushing stock prices back down. But for those with an 18 to 24-month time horizon, these sell-offs are creating compelling entry points.

Original Post

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

So why Telecommunications PR will work

Telecommunications is considered to be probably the most fast-paced and dynamic growth industries in the country. The process of conveying or broadcasting information now differs from being wired, wireless, satellite, telephony communications, and also via Web connection. With your technology today, we are able to consider social network medias as part of telecommunications public relations strategies.

Considering that the field telecommunications PR touches is dynamic and expands so fast, it is essential to have highly experienced telecom public relations. Telecom public relations also touch a variety of sections for example finance, lifestyle, news, and digital publications. With telecom PR, various telecommunication companies can then establish themselves being distinct from fierce competitions in the market.

With telecom PR, telecommunications companies will be able to sustain balance among the business services and also the customers. Telecom PRs strategize how to address different audiences by creating dynamic answers to talk with the requirements from the consumers. Telecom PRs can now utilize their skills with all the most advanced technology. Telecommunications companies can definitely gain from impressive telecom PR campaigns. This will boost their business profiles making a name for their business in the market.

Now, as the telecommunications companies are somehow complex, it is vital which you highly competent public relations consultants to effectively communicate towards the customers the concept clearly with accuracy. This can be now widely known are telecommunications public relations.

For big telecommunication companies, they can indeed make use of the skills of the great telecom PR consultant. They will be in a position to set their company aside from their competitors. Understanding the telecommunications industry, it is actually expanding throughout thus facing a hardcore competition, even worldwide. Having a very skilled telecom public relations will put a benefit on your company among other competitors. Besides being a market strategy, companies may benefit with how telecom PRs can secure credible intermediary support from your media and other social network influencers. Telecom PR consultants are necessary to in establishing a good working relationship with key players inside the telecommunications industry.kind of business And that’s why once you’ve a telecom PR specialist aboard; your business will definitely provide an edge. It is essential to advertise and establish a name for your business, which explains why by using telecom PR specialists; with this, your business will indeed be ahead of the game.

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6/26/2012

Despite Lower Mortgage Rates, Applications Remain Low

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined 3 basis points since the last week to 4.47% while the purchase application volume declined 0.40% and the refinance application volume plunged 10.8% over the same period.

It's important to note that with the final expiration of the governments massive housing tax credit subsidy, home purchase activity has been trending down precipitously despite falling interest rates.

The purchase application volume remains near the lowest level seen in well over a decade.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).



The Best Ways To Bet On Europe

The European sovereign debt crisis has proven worse than many initially expected. Despite several bailouts and increasingly long-term liquidity programs, S&P believes there's a one-in-three chance the Greece leaves the eurozone and Spanish yields are above the 6% mark. So, where does that leave investors?

Betting on a Euro Decline

The euro has fallen substantially over the past two years, but it hasn't quite hit its lows in late 2010 when the crisis began. After breaking through a key support level at 1.25 against the U.S. dollar, many traders see a slight recovery followed by renewed declines. And these declines could pickup if Greece exits the eurozone or the situation worsens.

Investors looking to bet against the euro have several options beyond simply going long or short the ProShares UltaShort Euro ETF (EUO) or the ProShares Ultra Euro ETF (ULE). In particular, the options on these ETFs could provide a much better way to bet on the currency with a hedge. Here are some options strategies to consider:

  • Covered Calls - Investors betting on the euro's decline may want to consider purchasing the EUO and writing out-of-the-money call options against the position on a regular basis. The income from these options can help offset the cost and lower the breakeven point over time, resulting in less risk for the investor.
  • Diagonal Spreads - A lower cost option position for investors is a diagonal spread, which involves purchasing in-the-money EUO call options and writing out-of-the-money calls against the position. The total risk of the position is therefore simply the cost of the original EUO calls that can also be reduced over time.
  • Investing in a Turnaround

    Investors willing to take on a lot of risk for a lot of potential reward may want to consider investing in a potential European turnaround. European banks may be a great way to do this given that many are trading below their tangible book values and near their crisis lows. But given the risk, investors are best off purchasing ETFs versus individual stocks.

    The iShares MSCI Europe Financial Sector (EUFN) and the Vanguard Europe Pacific ETF (VEA) are two European financial ETFs worth considering. Alternatively, investing in hard-hit U.S. banks with exposure to Europe is another option worth considering that entails less risk. However, the sector as a whole may benefit significantly from any signs of Eurobonds or other possibilities.

    Here are some ways to invest in these ideas:

  • Euro Hedge - Investors looking to bet on banks undervaluation, while factoring out some eurozone risk, may want to consider shorting the euro and going long European banks. The result is a pairs trade that may partially isolate this opportunity, but there's always a risk that loans could be allowed to default, and the euro would eventually benefit, leaving the investor in a lose-lose position.
  • Protective Puts - Investors looking to hedge against a catastrophic decline may want to consider purchasing these ETFs with some protective puts to limit downside. Purchasing put options in the same amount as the ETFs offers a set selling price. Alternatively, purchasing just call options could limit downside to the price of those call options, too.
  • Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks sink as Fed dashes stimulus hopes

    NEW YORK (CNNMoney) -- U.S. stocks dropped Tuesday after the Federal Reserve indicated it was unlikely it would offer more stimulus anytime soon.

    Investors grew skittish after the Federal Reserve released minutes from its most recent open committee meeting around 2 p.m. The Fed's comments suggested that it was less likely the central bank would intervene to help the markets unless growth slows.

    "The market expects another round of easing, and each time they get a sign that it might not be the case, stocks sell off," said Paul Powers, head of equity trading at Raymond James.

    The Dow Jones industrial average (INDU) ended the day down 65 points, or 0.5%. The S&P 500 (SPX) shed 6 points, or 0.4%. The Nasdaq (COMP) fell 6 points, or 0.2%.

    Financial stocks were among the biggest decliners Tuesday, with shares of Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500), JPMorgan Chase (JPM, Fortune 500), and Goldman Sachs (GS, Fortune 500) all falling more than 1%.

    U.S. stocks ended higher Monday after a manufacturing report showed prices rising less than expected, signaling that inflation may not be a near-term concern. Last week saw several disappointing reports on housing and durable goods, which caused investors to retreat a bit.

    Prior to that, stocks had largely been on a tear, with the Dow and S&P 500 ending their best first quarter in over a decade. The Nasdaq had its best first quarter since 1991.

    The focus later this week will be on the jobs report for March, which is due out Friday. However, U.S. stock markets will be closed in observance of Good Friday, and bond markets will close early.

    Carlyle's Rubenstein: U.S. tax system a 'disgrace'

    Economy: A report on factory orders for February came in below expectations after the report said activity picked up by 1.3% compared to expectations of 1.4%. January orders dropped by 1%.

    Auto sales were in focus throughout the day. Chrysler Group said March was the best month for sales in four years. Ford (F, Fortune 500) sales rose 5% and GM (GM, Fortune 500) sales surged 14.2% in March from year-earlier levels.

    Companies: Shares of Apple (AAPL, Fortune 500) hit a new all-time high Tuesday, after several analysts raised their price targets on the stock. One analyst predicted that shares, which recently cleared $600, could top $1,000.

    Avon Products (AVP, Fortune 500) shares dropped Tuesday, following gains of more than 17% Monday, after the company rejected a $10 billion purchase offer from beauty company Coty Inc.

    Muddy Waters: Tread carefully in Hong Kong

    Daily deals site Groupon (GRPN) remains in the spotlight following a report in Tuesday's Wall Street Journal saying that the Securities and Exchange Commission is probing its revision of its first set of results as a publicly traded company.

    Shares of retailer Urban Outfitters (URBN) surged after the company gave upbeat guidance in a SEC filing.

    Make Europe's pain your gain

    Currencies and commodities: The dollar gained against the Japanese yen and British pound, but fell versus the euro.

    Oil for May delivery slipped $1.04 to $104.19 a barrel.

    Gold futures for April delivery fell $33.10 to $1,646.90 an ounce.

    Bonds: The price on the benchmark 10-year U.S. Treasury dropped Tuesday, pushing the yield up to 2.29%.

    World markets: European stocks ended lower. Britain's FTSE 100 (UKX) slid 0.6%, the DAX (DAX) in Germany dropped 1.05% and France's CAC 40 (CAC40) lost 1.6%.

    Asian markets ended mixed. The Hang Seng (HSI) in Hong Kong gained 1.3%, while Japan's Nikkei (N225) fell 0.6%. The Shanghai Composite (SHCOMP) was closed for early April's Tomb Sweeping holiday. 

    Citigroup Rises on Saudi Prince’s Remarks

    Hurrah! The worst is over for Citigroup (C), according to the bank’s largest shareholder, Prince Alwaleed bin Talal of Saudi Arabia, who owns $4.3 billion worth of Citi stock in his Kingdom Holding company.

    bin Talal tells Reuters’s Souhail Karam and Ulf Laessing that “the worst is behind them” and that Citi will be profitable this year, though he couldn’t say if it would be this quarter.

    Mind you, bin Talal last week transferred his shares of Citi from his personal account to Kingdom Holding.

    Perhaps he’s not as bullish as he sounds.

    At any rate, Citi shares today are up 4 cents, or 1%, at $3.63.

    Daily ETF Roundup: IYT Soars On Data, VXX Inches Lower

    The bull train continues to roll full steam ahead as broad equity indexes managed to finish the trading session in green territory. The Dow Jones Industrial Average extended gains for the 7th consecutive session; the blue chip index gained 0.44% on the day, while the S&P 500 Index came out slightly ahead, tacking on a 0.60% gain. Gold managed to recoup some of the losses from yesterday’s sell-off; futures prices for the precious yellow metal gained 1% on the day,�settling near the $1,660 an ounce level [see Three Years Later: Best Performing ETFs Since Markets Bottomed Out].�

    Economic data releases on the home front gave investors plenty of reasons to cheer on the rally. Jobless claims came in better-than-expected; 351,000 people filed for unemployment benefits versus the previous figure of 365,000. The Empire State and Philly Fed Index also surpassed analyst estimates; these two figures came in at 20.2 and 12.5 respectively, both sailing past analyst estimates and topping the previous month’s reading [see Is SPY Overbought?].

    The Dow Jones Transportation Average Index Fund (IYT) was one of the strongest performers, gaining 3.33% on the day, bolstered by improving confidence in the domestic recovery. Encouraging employment data coupled with a pair of upbeat manufacturing reports helped pave the way higher for the U.S.�transport sector. After today’s rally, IYT is up close to 7% from a year-to-date perspective [see IYT Realtime Ratings].�

    The Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) was one of the weakest performers, shedding 1.46% on the day, pressured lower by growing�optimism�and fading uncertainty in the equity market. Volatility seemingly evaporated as encouraging economic news hit the street, prompting investors to jump ship from safe havens and into stocks [see also Three ETFs Trading At A Huge Premium To NAV].�

    [For more ETF analysis, make sure to sign up for our�free ETF newsletter�or try a�free seven day trial to ETFdb Pro]

    BHP Billiton Ltd. (BHP) Steps up Oil and Gas Exploration, says Unit President

    BHP Billiton Ltd. (NYSE: BHP) said Monday it is embarking on an acquisitions program to expand its business while the recent market selloff of global assets has reached attractive levels.

    The Australia-based global miner also said the Gulf of Mexico oil-spill crisis has impacted some of its projects there, cutting top-line growth from its previous guidance of 10 per cent growth for the year ending June 10.

    �We have not spent much time externally. But we are now spending more time externally,� BHP’s petroleum president Michael Yeager said. �As we grow our capabilities … this powerful balance sheet that we have is an enormous tool.�

    �And when you combine our health and strength, with some slowness in the market area, it is something that we do not want to let pass us by,� Yeager added.

    Yeager said to Reuters that BHP petroleum unit decided to restart its exploration program, but he didn�t comment further about the intentions of BHP�s other commodities units.

    One possible acquisition involves speculation surrounding BHP�s smaller rival Woodside Petroleum Ltd., which partners with the Aussie giant in important projects in multiple regions throughout the world, including projects in Australia and the Gulf or Mexico.

    Gulf of Mexico

    Yeager said the Gulf of Mexico projects continue to be impacted by the oil spill at the British Petroleum (BP) Macondo well, which BHP responded with diverting two of its four drilling rig�which were slated for its own Atlantis and Mad Dog fields�to help containment operations at the spill site.

    BHP said it intends to develop the Atlantis oil field despite uncertainties of the future of the Gulf, saying it remains committed to the region, and seeks the potential for significantly expanded revenue from its operations there.

    “We are confident that our long-term strategy will not be impacted. If anything, we will look to see if there are any opportunities to see what else we can do,” Yeager said.

    BHP�s major concern regarding the Atlantis oil field is the potential political response to the Gulf spill from many U.S. legislators and President Obama who seek an investigation into safety issues at the platform. BHP has a 44 per cent stake in the project, and BP has the rest.

    According to BHP�s latest filing, its petroleum business accounts for approximately 25% of its combined earnings.

    About BeaconEquity.com
    BeaconEquity.com is committed to producing the highest-quality insight and analysis of small cap stocks, emerging technology stocks, hot penny stocks and helping investors make informed decisions. Our focus is primarily on the underserved OTC stocks market, or �penny stock� market, which has traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

    Swing And Day Trader Stock Market Analysis For The Week Ahead

    Last week the S&P successfully tested the 20 day moving average on Monday and broke out Tuesday with the rest of the week spent near Tuesday’s highs. With the US dollar continuing to dive and crude turning up (helping oil production and service companies) the market hasn’t been willing to give back much before the buyers jump in. The only negative has been in interest rates, which have fallen. This generally indicates money flowing out of the market, however in this case it may simply indicate money flowing out of the US Treasury to drive rates lower.

    Additional confirmation of market optimism came from the VIX, which broke below the lows of the last several months, returning to levels not seen since early May. The Volitility Index (VIX) measures volatility of Index options and is also known as the Fear Index, where lower numbers mean lower fear (greater optimism). So the uptrend continues and we should look to buy pullbacks in strong stocks while confining shorts to intraday trades on relatively weak stocks.

    Transportation was among the stronger sectors last week, having traded above weekly resistance the prior week, and closing higher this week. FedEx (FDX) shows a similar pattern, and broke out on Friday over recent daily highs while showing increased volume. The technical entry for a daily long would be above Friday’s high, with a stop under Thursday or Friday’s low, but an intraday pullback would provide a more favorable reward/risk. First target would be the daily pivot at $90, with a second target of $92.50-$93.50.

    Another stock closing above its recent range on Friday was Humana (HUM). The HMO sector triggered as a daily buy setup on Friday after pulling back to the 20 day ma, while HUM probed lower a couple of times during the week before breaking above the daily range on increased volume on Friday. HUM could be traded long above Friday’s high ($51.01), and because the technical stop on the daily chart would be quite far away, a stop could be taken from the 60 min chart under $50.40 or under $49.80. Targets would be $51.40 and $53.

    Coal stocks showed considerable strength last week. Massey Energy (MEE) broke above a key resistance level on Friday, while showing higher volume on both Wednesday and Friday’s green bars than on Thursday’s red bar. Although it is extended at the moment, watch for a pause or pullback on the daily chart, or a pullback to the 20ma on the 60min chart for a long entry for an eventual move to the 200 day ma at $37.50 or the daily pivot high at $39.

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