1 Luxury Stock You Need to Know

The ultra-luxury market has been a strong performer in recent years. As companies such as Michael Kors (NYSE: KORS  ) and Coach have expanded their product lines and focused on Asian operations, the stocks have attracted a plethora of investors, with the former up more than 130% in two years. One segment that tends to be neglected among analysts, though, is the art world. There are two major players in big art auctions -- Sotheby's (NYSE: BID  ) and Christie's. Let's look at the publicly traded option to see how it compares with other luxury stocks.

Soft art
Investors seemingly haven't been too interested in the big auction houses since the financial crisis because the art market has been relatively weak. Whether the market is coming back or not is up for debate, with some analysts saying we are at a natural turnaround point, while others forecast remaining tepidity. I am inclined to agree with the former, as the economy picks up overall and ultra-high-net-worth individuals increase their big spending. Additionally, the rapid ascent of wealthy Chinese will continue to spur the art market in the next several years.

That said, I love the art business. The auction houses make up to 20% commissions on the pieces sold, which can often be in the tens of millions. Margins are high, the clientele is fiercely loyal, and the industry is essentially a duopoly. If you're trying to find businesses that meet Warren Buffett's criteria of high moats and abundant cash flow, this is starting to like a good bet. Most importantly, the market seems to value Sotheby's at single-digit or nearly flat growth in the coming year. This looks to be in contradiction with recent data.

Invest in the arts
According to a report from Deloitte, assets in art investment funds rose nearly 70% last year. This boded well for this year's big auctions, such as Sotheby's Impressionist and Modern Art Sale -- one of the biggest of the year. The event brought in more than $300 million and points to year-over-year gains of 30%, according to company management. Will the trend continue throughout 2013? It's hard to say, but these early-year auctions could be attractive indicators for the rest of the year's events.

Perhaps the most important number of all, though, is where Sotheby's fits in with other luxury stocks. Analyst estimates, tepid (and possibly incorrect) as they are, give a forward P/E of 14.3. Michael Kors trades at nearly 24 times earnings, while Tiffany (NYSE: TIF  ) trades at more than 18 times earnings. Sure, these aren't identical businesses across the board, but the luxury segment tends to attract similar valuations.

The company has very little debt and plenty of cash. Once the market notices recent successes, which could put to rest some fears regarding the art market at large, investors can expect attractive multiple correction that would send the price well above its current level.

Of course, exercise caution. The art market is a difficult one to predict and can fluctuate violently. If there is a macroeconomic relapse affecting the U.S., Europe, and Asia, investors are likely to flee.

Overall, though, given valuation and misleading analyst growth prospects, I find Sotheby's to be a very compelling value-oriented investment for those interested in the luxury markets.

More from The Motley Fool
Michael Kors is one of today's hottest high-end fashion brands, and that's translated into one of the best-performing stocks in retail -- since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.

 

 

 

 

 

 

Vishay Intertechnology Beats on Both Top and Bottom Lines

Vishay Intertechnology (NYSE: VSH  ) reported earnings on April 30. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 30 (Q1), Vishay Intertechnology beat expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew slightly. Non-GAAP earnings per share dropped. GAAP earnings per share dropped.

Margins dropped across the board.

Revenue details
Vishay Intertechnology reported revenue of $554.3 million. The three analysts polled by S&P Capital IQ looked for revenue of $542.6 million on the same basis. GAAP reported sales were the same as the prior-year quarter's.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.18. The five earnings estimates compiled by S&P Capital IQ averaged $0.11 per share. Non-GAAP EPS of $0.18 for Q1 were 14% lower than the prior-year quarter's $0.21 per share. GAAP EPS of $0.19 for Q1 were 9.5% lower than the prior-year quarter's $0.21 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 24.7%, 70 basis points worse than the prior-year quarter. Operating margin was 8.2%, 100 basis points worse than the prior-year quarter. Net margin was 5.2%, 110 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $575.0 million. On the bottom line, the average EPS estimate is $0.18.

Next year's average estimate for revenue is $2.31 billion. The average EPS estimate is $0.76.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 238 members out of 252 rating the stock outperform, and 14 members rating it underperform. Among 62 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 60 give Vishay Intertechnology a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Vishay Intertechnology is outperform, with an average price target of $12.50.

Looking for alternatives to Vishay Intertechnology? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

Add Vishay Intertechnology to My Watchlist.

The Foundations of the Pharmaceutical Industry

On this day in economic and business history...

Merck (NYSE: MRK  ) took its first steps toward pharmaceutical dominance on April 30, 1953, when it merged with Sharp & Dohme, a pharmaceutical manufacturer. Until that time, Merck had been primarily a chemical manufacturer, despite its role in producing the earliest doses of penicillin. Together, the two companies combined for $156 million in sales and $12 million in net income for the 1952 fiscal year, but the new Merck's growth was just beginning -- as was its role in modern pharmaceuticals.

Four years after the merger, Maurice Hilleman joined Merck as its head of virus and cell biology research. In this role, Hilleman would develop so many life-saving vaccines that he was later called "the most successful vaccinologist in history" and was credited with potentially saving more lives than any other scientist of the 20th century. Two of Hilleman's critical vaccine developments while at Merck included one for mumps (now part of the standard MMR vaccine) and one for hepatitis B, the latter of which has reduced the disease's incidence in American children by more than 95%.

In 1979 Merck became the first drugmaker ever inducted into the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . By then its annual net income had grown to $291 million, representing an annualized growth rate of 13.1% from its merger with Sharp & Dohme. From that year until 2005, the year of Hilleman's death, net income grew to $4.6 billion, representing an annualized growth rate of 10.8%. Small wonder, then, that an investment in Merck shares has been so profitable for so long.

Old school patent medicines
A strong system of patent protection is a critical part of the reason why pharmaceutical companies have been so successful. Patented pills are not, however, a recent development. It was on April 30, 1796, not long after the founding of America, that Samuel Lee, Jr. of Connecticut gained the first patent ever issued for pills of any kind in the United States. His "Bilious Pills" were purportedly made of gamboge, aloes, soap, and nitrate of potassa -- hardly the result of an intensive scientific research program. Despite the odd ingredients, Lee Jr.'s Bilious Pills became a hit in the young nation, to such a degree that a patent battle soon erupted, as retold in James Harvey Young's The Medical Messiahs:

Three years after [Lee Jr.] had begun selling his Bilious Pills, another Samuel Lee began to trespass on his preserve.

Samuel H. P. Lee was a physician who also lived in Connecticut. In 1799 this New London doctor secured a patent, and the name of his medical invention was also "Bilious Pills." The coincidence seemed too great. The original Samuel, obviously angry, addressed the public on the subject of his upstart rival. After the launching of his own pills, he wrote, "the demand soon became so great and benefits ... so amply demonstrated" that the New London scoundrel, thinking to "take advantage of the similarity of names and of the credit of my Pills," obtained a patent. The public needed a warning. "If people incautiously purchase his pills for mine," Lee Jr. cautioned, "I shall not be answerable for their effects."

The national appetite for Bilious Pills was obviously enormous. Drug catalogues listed both varieties, and the Connecticut rivals fought each other from nearby newspaper columns with an acerbity worthy of their English ancestors. The vigor of the competition may have boosted the sale of both brands. When 14 years had expired, each patent was renewed, and on the contest raged. Nor was it limited to Connecticut and surrounding states. Early in the 19th century Bilious Pills were being sold in Georgia to the south and in the newly acquired territory west of the Mississippi River. And numerous other aspiring promoters throughout the nation had entered the battle against biliousness.

As there was no FDA in those days to regulate any wild claims of efficacy, both Lees would go to great lengths to proclaim their ability to cure all manner of ills. H. P. Lee, in one 1803 advertisement, claimed that his New-London Bilious Pills ("Interesting to all sea-faring People") had "extraordinary virtues in preventing and removing all those complaints which arise from bilious redundancies in the stomach and bowels." The advertisement goes into more than half a page of detail on the various ailments the Bilious Pills could purportedly cure. If the people of those days had known of disco fever or boogie-woogie flu, these pills probably would have claimed to cure those, too.

Today, the pharmaceutical industry is a bit more discerning in its claims, a fact reflected in the industry's rather small share of total patents obtained in the U.S. Between 2004 and 2008, pharmaceutical companies obtained roughly 13,600 patents, or 47 patents for every 1,000 people employed in the industry. This total significantly lags the patents obtained by many high-tech industries, which combined for more than 206,000 patents across a variety of enterprises. This discrepancy is reflected by the Intellectual Property Owners Association's list of the top 300 patent-receiving organizations: in 2011, Abbot Laboratories (NYSE: ABT  ) was the top pharmaceutical company on the list, ranking 76th out of 300 with 419 patents. Merck came in at 96th with 302 patents, and no other pharmaceutical company managed to crack the top 100.

Can Merck beat the patent cliff?
This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, the Fool tackles all of the company's moving parts, its major market opportunities, and reasons both to buy and to sell. To find out more click here to claim your copy today.

Which Franchise Is The Best Bet For Your Money

Three popular franchises, Panera Bread (PNRA), Dunkin' Brands (DNKN), and Starbucks (SBUX) are reporting Q1 earnings this week. Analysts expect Panera Bread to report earnings in the range of $1.68 to $1.58; Dunkin Brands in the range of 0.32 50 0.28; and Starbucks in the range of 0.52 to 0.47.

Company	High	Mean	Low
Panera Bread	1.68	1.65	1.58
Dunkin Brands	0.32	0.29	0.28
Starbucks	0.52	0.48	0.47

All three companies, especially Panera Bread and Starbucks have a tradition of beating analyst estimates, rallying after each earnings report. Will the two companies keep up with the tradition this time around?

It is hard to say. What we can say, however, is that Starbucks is a good bet for value investors, as is McDonald's (MCD) which reported Q1 earnings last week, while Panera Bread and Dunkin' Brands are better bets for growth investors.

Company	Forward PE	Operating Margins	Qtrly Revenue Growth (yoy)	Qtrly Earnings Growth (yoy)	Return On Assets (ROA)
Starbucks	22.21	13.64%	10.56%	13%	14.25%
McDonald's	15.86	30.29	1.90	1.40	15.71
Dunkin' Brands Group	20.67	3.45	5	298	4.92
Panera Bread	22.18	7.81	15.30	33.60	15.49

McDonald's rode the baby-boomer trend in the 1960s, the swelling ranks of teenagers and the rising female labor force participation, supplying a fast and inexpensive menu. In the 1970s and the 1980s, McDonald's rode the globalization trend by transferring the American Way of Life to many countries around the world. At the same time, McDonald's adapted to the social context of each county by franchising to locals.

In the 1990s and early 2000s, McDonald's made successful efforts to restore its corporate image by launching the "Fast an Convenient" campaign that involved the radical adjustment of the company's product portfolio to emerging food industry trends - the refurbishment of McDonald's restaurants to achieve a banded, updated, and more natural dining environment. The "fast" and "convenient" elements of the McDonald's concept were augmented by the "healthy" and "more natural" element, by adding salads, fruits and carrot sticks to the menu.

Nowadays, McDonald's continues to broaden its product portfolio by offering high quality coffee and healthy drinks (either through its traditional restaurants or the Cafés), but it seems to be reaching the limi! ts of bot! h its scale and scope. That's why its growth has already slowdown, reporting disappointing results last week. The company is facing formidable competition from Panera Bread, Dunkin' Brands, which have plenty of room to grow both in scale and scope-Panera Bread, for instance, opened its first store to Manhattan last month, while McDonald's has been all over. Dunkin' Brands is planning its big expansion to California next year with 330 to 360 new stores, while McDonald's is in every corner.

Starbucks has been riding the baby boomer trend in the 1990s that created the need for a "third place," an "affordable luxury" where people could share and enjoy a cup of coffee with friends and colleagues, away from work and home. The chain has inserted itself into the American urban landscape more quickly and craftily than any retail company in history, and has forever changed the way Western companies market themselves to consumers.

In recent years, however, Starbucks attracts bigger and bigger crowds, from all strands of life, including families with young children. This means that the company turns from a "third place" for the young and middle-aged professionals to everyone's place. One factor that has contributed to this transformation is the broadening of the menu that includes more breakfast and light lunch items. Another factor is the weak economy that helps Starbucks attract customers from more expensive places.

That's certainly a sign that the company has approached its demographic limits.

Starbucks' weak European sales, on the other hand, may be an indication that the company has been approaching its geographic limits - Europe is where the Starbucks concept originated.

The bottom line: McDonald's and Starbucks are ebbing, as they reach the limits of their scale and scope. That's why I will avoid both stocks, and look for growth in companies that have plenty of room to grow like Panera Bread and Dunkin Brands. Investors should be reminded, however, ! that with! high growth comes high risk. Hype should never be a substitute for due diligence.

Disclosure: I am long PNRA, DNKN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Is Marks and Spencer Group an Exciting Emerging Market Play?

LONDON -- While crippling austerity in Europe and fiscal obstacles could put the brake on growth rates there, in developing regions a backdrop of accommodative central bank action, elevated commodity prices and rising personal affluence levels have created an environment of exceptional commercial opportunity.

The divergence between the growth prospects of traditional and developing markets is borne out by latest International Monetary Fund's (IMF) growth projections, which expect developing nations and emerging markets to expand 5.3% and 5.7% in 2013 and 2014, respectively. By comparison, it anticipates that the U.S. economy will rise 1.9% this year and 3% in 2014, while eurozone GDP is forecast to dip 0.3% in 2013 before rebounding just 1.1% next year.

Bubbly activity in these developing geographies can create large opportunities for many London-listed firms. Today, I am looking at Marks and Spencer  (LSE: MKS  ) and assessing whether its operations in these regions are likely to underpin solid earnings growth.

First-quarter results show international sales surging ahead
Marks and Spencer announced in April's trading update that group sales increased 3.1% in January-March, with total British sales rising 2.6% in the period. However, like-for-like sales rose just 0.6%, with general merchandise slipping 3.8% as its beleaguered clothing division continued to toil. The three-month period represented the seventh consecutive quarter of shrinkage in this area.

Even though like-for-like food sales continued to grow, expanding 4% in the third quarter, more pain is expected to press the firm in the near term due to sinking demand for its clothing ranges. However, I believe that performance in international markets is set to step up significantly, particularly in Asia, as its transformation plan comes to fruition.

Revenues from abroad leapt 7% on a constant currency basis, or 6.7% as reported, in January-March. In particular, the retailer noted a strong performance in China and India, while "good" business was also reported for the Middle East.

Developing market activity set to pick up the pace
The firm is hoping to use its strong brand name to capitalize on rising affluence levels across Asia, the Middle East, and Eastern Europe. Operating margins abroad came in at 13% vs. 8% at home in 2012, while return on capital employed registered at 34% against 15% in the U.K., illustrating the excellent profitability potential in faraway markets.

Marks and Spencer already has around 130 stores in Asia, and is aiming to boost the number of outlets here significantly in the near future. It is looking to add another 50 stores in India by 2016, and is hoping to build the number of its Hong Kong and Shanghai stores in China.

As an aside, the firm advised that multichannel sales leapt 22.9% in the third quarter, as web traffic increased and mobile shopping jumped an enormous 70%. Multichannel expansion is playing a huge part in the firm's foray into new geographies, alongside building the franchise model, and improving performance here bodes well for website traffic from new regions moving forward.

So is Marks and Spencer a buy?
Earnings per share are expected to fall 8% in the year ending March 2013, to 32 pence, results for which are due on Tuesday, May 21. However, earnings are expected to snap back from this year onward, with growth of 7% to 35 pence and 8% to 37 pence forecast for 2013 and 2014, respectively.

The retailer is liked by investors owing to its better-than-average dividend policy. Brokers expect last year's 17 pence per share to edge fractionally higher for March 2013 before marching higher thereafter -- anticipated dividends of 17.8 pence per share for 2015 and 19.1 pence in 2015 per share provide yields of 4.3% and 4.6%, well ahead of the average forward yield of 3.3% for the FTSE 100.

Marks and Spencer was recently changing hands on a P/E ratio of 12 and 11.1 for 2014 and 2015, correspondingly, symbolizing a gargantuan discount to a prospective earnings multiple of 23 for the whole general retailers sector. In my opinion, an expected rebound in earnings, combined with decent dividend potential, makes the company a stock worthy of serious consideration.

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Are You Missing Something Easy at Ansys?

Margins matter. The more Ansys (Nasdaq: ANSS  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Ansys's competitive position could be.

Here's the current margin snapshot for Ansys over the trailing 12 months: Gross margin is 87.6%, while operating margin is 37.0% and net margin is 25.5%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Ansys has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Ansys over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

Over the past five years, gross margin peaked at 88.3% and averaged 87.7%. Operating margin peaked at 38.7% and averaged 37.0%. Net margin peaked at 26.4% and averaged 24.8%. TTM gross margin is 87.6%, 10 basis points worse than the five-year average. TTM operating margin is 37.0%, about the same as the five-year average. TTM net margin is 25.5%, 70 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Ansys looks like it is doing fine.

Software and computerized services are being consumed in radically different ways, on new and increasingly mobile devices. Many old leaders will be left behind. Whether or not Ansys makes the coming cut, you should check out the company that Motley Fool analysts expect to lead the pack in "The Next Trillion-dollar Revolution." Click here for instant access to this free report.

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What to Expect from ONEOK Partners

ONEOK Partners (NYSE: OKS  ) is expected to report Q1 earnings on April 30. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict ONEOK Partners's revenues will expand 4.7% and EPS will decrease -35.2%.

The average estimate for revenue is $2.72 billion. On the bottom line, the average EPS estimate is $0.59.

Revenue details
Last quarter, ONEOK Partners booked revenue of $2.92 billion. GAAP reported sales were 7.0% lower than the prior-year quarter's $3.14 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, EPS came in at $0.66. GAAP EPS of $0.66 for Q4 were 48% lower than the prior-year quarter's $1.26 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 13.7%, 210 basis points worse than the prior-year quarter. Operating margin was 7.7%, 240 basis points worse than the prior-year quarter. Net margin was 7.2%, 230 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $11.23 billion. The average EPS estimate is $2.46.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 658 members out of 675 rating the stock outperform, and 17 members rating it underperform. Among 230 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 226 give ONEOK Partners a green thumbs-up, and four give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on ONEOK Partners is hold, with an average price target of $64.31.

Can your portfolio provide you with enough income to last through retirement? You'll need more than ONEOK Partners. Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks." Click here for instant access to this free report.

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How 3M Held the Dow's Gains in Check

Wall Street's best news of the day came straight from the labor market, which continues to show that fewer and fewer are filing for unemployment insurance. Though the recovery hasn't been anything to write home about just yet, the reinvigoration of the real estate sector and signs of improvement on the jobs front have kept the U.S. economy and the stock market alive. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) ended the day with a 24-point, or 0.2% gain, at 14,700. 

Alas, the 2.7% spike in Verizon Communications (NYSE: VZ  ) shares today didn't stem from falling unemployment claims. The surge instead followed new details in Verizon's attempt to buy the remaining 45% of its Verizon Wireless stake from U.K.-based Vodafone. Apparently, Verizon's bid is getting closer to being final by the day; one feasible scenario has Verizon buying Vodafone's 45% stake for a $100 billion, 50-50 mix of cash and stock. 

Today again we see how the perception of a competitor's business can affect your own. Cisco Systems (NASDAQ: CSCO  ) lost 2.5% yesterday after a poor forecast by Juniper Networks stirred bears from hibernation. But when Juniper's slide started to reverse today, Cisco's stock corrected with it. as it tacked on 1.2%. 

An internal companywide motivational mantra may have started to aid IBM's (NYSE: IBM  ) stock price already. IBM added 1.2% today as Wall Street got word of CEO Virginia Rometty's message to employees after last week's earnings dud. That message: Think fast. Move faster. Though it's tough to move faster than the stock did last Friday, when it took more than an 8% haircut, IBM shareholders are hoping future moves will be in the profitable direction. 

The last highlight in the index came from global conglomerate 3M (NYSE: MMM  ) , which was able to show its power as the Dow's third-highest weighted component, when it slumped 2.8% Thursday. Revenue wasn't up to par in the first quarter, coming in just under the $7.8 billion estimate at $7.6 billion. To make matters worse, it lowered its earnings outlook for the 2013 fiscal year, reflecting a sluggish electronics market.

With more than 50,000 products, 3M plays a role in making everything from computers to power cables. A long history of invention and innovation has driven the company to its wide reach, but a focus on operational efficiency may be hurting the creative culture that once created Scotch tape and the Post-it Note. A new leader has taken over and vows to return innovation to the forefront. Does this mean the stock will become more than a dividend, returning to its former glory as a growth stock once again? Find out whether 3M has what it takes to pull it off in The Motley Fool's comprehensive new research report on the company. Simply click here now to claim your copy today.

What Could Alleviate High Gasoline Prices in This State?

Due to its California Air Resources Board and the regulations imposed by it, Californians pay a premium at the pump to every state that's not named Alaska. One might wonder why California is able to enforce these standards; it's because the state-run organization was already in place before the Clean Air Act was passed. Currently, the Environmental Protection Agency is trying to enact the low sulfur and nitrogen oxide standards throughout the country, but there has been some pushback.

Is there any help on the horizon?
Those who call California home are certainly hoping so. Increased infrastructure to get cheaper Bakken formation and other mid-continent oil to the West Coast is likely to begin appearing in 2014. One of the state's biggest refiners, Tesoro (NYSE: TSO  ) , plans on increasing rail capacity to ports on the coast where it can then ship the cheaper, lighter oil to its refineries throughout the state. Couple this with pipeline expansions in Canada, and some, not total, relief could be in sight. 

The general partner of Kinder Morgan Energy Partners will likely see some payback, as well
It's easy to forget the necessity of midstream operators that seamlessly transport oil and gas throughout the United States. Kinder Morgan is one of these operators, and one that investors should commit to memory due to its sheer size – it's the fourth largest energy company in the U.S. -- not to mention its enormous potential for profits. In The Motley Fool's premium research report on Kinder Morgan, we break down the company's growing opportunity – as well as the risks to watch out for – in order to uncover whether it's a buy or a sell. To determine whether this dividend giant is right for your portfolio, simply click here now to claim your copy of this invaluable investor's resource.

ExxonMobil Looks to Earn More From Less

On Thursday, ExxonMobil (NYSE: XOM  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

As the largest energy stock in the Dow Jones Industrials (DJINDICES: ^DJI  ) , ExxonMobil has faced a big challenge in keeping its production levels high enough to sustain revenue growth. Yet the company has done a good job making the most of what sales it can muster. Let's take an early look at what's been happening with ExxonMobil over the past quarter and what we're likely to see in its quarterly report.

Stats on ExxonMobil

Analyst EPS Estimate	$2.05
Change From Year-Ago EPS	2.5%
Revenue Estimate	$119.83 billion
Change From Year-Ago Revenue	(3.4%)
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Can ExxonMobil keep pumping ahead this quarter?
Analysts have made several adjustments to their views on Exxon's earnings over the past few months, but the net effect has been minimal. First-quarter estimates have risen by $0.02 per share, but full-year 2013 calls have stayed flat. The stock has barely budged, falling by less than 1% since mid-January.

Given its size, Exxon has to work hard just to stand still on the production front. Because existing wells naturally see declines in output over their productive lifetimes, Exxon has to look for new sources constantly in order to replace aging wells. The company is even less nimble than fellow Big Oil players Chevron (NYSE: CVX  ) and ConocoPhillips, both of which expect much greater production growth than Exxon's targeted 2% to 3% growth. Chevron now expects 6% growth per year through 2017, while Conoco is seeking 3% to 5% annual growth over that period.

Exxon has also had to deal with past strategic moves that haven't worked out as well as it had hoped. The company has done its best to salvage what it could from its $40 billion acquisition of XTO Energy, which gave the company substantially greater exposure to the natural-gas industry at what proved to be just about the worst time possible. Chevron arguably made a similar mistake with its purchase of Atlas Energy, but the much larger Exxon acquisition will continue to plague the company to a greater extent until natural-gas prices fully recover to their early-2008 highs.

Most recently, Exxon has had to deal with the environmental cost of its integrated operations. An oil spill in Arkansas has led to a minor suit that won't have a material impact on the company's finances, but with a similar incident having occurred on the Yellowstone River in Montana back in 2011, the safety of the nation's growing network of pipelines has come into the spotlight again and could affect Exxon's ability to expand its midstream operations.

In Exxon's report, watch for the company's comments on falling oil prices and rising natural-gas prices. If the two fuels start moving toward pricing parity again, then it may open new avenues for Exxon to grow in the future.

If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

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

Bank Stocks Are Dirt Cheap -- but for How Long?

Both Citigroup and Bank of America trade at a discount to their tangible book value. In the following video, Matt Koppenheffer and David Hanson make a case for which bank will trade at a premium to tangible book value first. David goes with Citi. The stock has been on a tear this past year, and the bank has none of the lawsuit drama hanging over it that Bank of America has. Matt thinks Bank of America will win out. There are lawsuits, but as these settle, Matt thinks there is more certainty in the bank, and that, with improving operations, will drive the stock higher.

Check out the video for more details.

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

The Danger of Low Dividends

Earnings among S&P 500 companies are at an all-time high. By quite a bit, too: Operating earnings per share last year were more than 10% above the previous peak set in 2006, when the economy topped out before the recession.

Dividend payouts are also at an all-time high, but there is much less to be excited about here. Companies have been paying out a lower share of their earnings as dividends for decades, and the trend shows little sign of slowing. The dividend payout ratio is pitiful:

Source: Yale, author's calculations.

A lot of this decline over time is explained by companies using more of their free cash flow to repurchase shares. Benjamin Graham's classic 1949 book contains deep analysis and commentary on dividends, but scarcely a mention of share buybacks. That changed dramatically after the 1980s. Legg Masson has shown that from 1985 to 2011, S&P 500 dividends increased fourfold, but share buybacks increased 21-fold.  

The impact this shift has on how investors are compensated is deep. As Shawn Tully of CNNMoney pointed out earlier this year, the dividend yield on ExxonMobil (NYSE: XOM  ) is a little more than 2%, but the total yield including buybacks is north of 7%. Pfizer's (NYSE: PFE  ) dividend yields more than 3%, but with buybacks the company returns 7.6% to shareholders. Wal-Mart's (NYSE: WMT  ) total yield is about double its dividend yield.

There are mountains of evidence showing that, on average, investors are better off with dividends than share buybacks, as CEOs have a terrible history of buying back their shares at nosebleed prices.

But I think the damage of the shift toward buybacks may even be underrated. With interest rates at zero, investors have been clamoring for yield wherever they can find it. For years, that's been stocks with high dividends, whose prices have been pushed to record levels and yields down to near record lows. Shares of Verizon (NYSE: VZ  ) now yield less than 4% and Altria Group (NYSE: MO  ) , less than 5%.

These are still healthy yields, particularly compared with fixed-income alternatives -- and both companies have high dividend payout ratios. But I can't help but wonder whether companies favoring buybacks over dividends will ultimately be a disservice to companies with high dividends. The lack of yield among most stocks drives up valuations at companies that still do provide reasonable payouts, and high current valuations will eat into future returns.

Managers typically cite the desire to "enhance shareholder value" when announcing share buybacks. But never underestimate the power of unintended consequences. 

 

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

Most Investors Don't Do Well. Some Do. What Sets Them Apart?

I shared a depressing chart last week using data from analytics firm Dalbar, showing how individual investors have fared against an index like the S&P 500 (SNPINDEX: ^GSPC  ) :

It's sad.

But what explains it?

I asked Liz Ann Sonders, chief investment strategist at Charles Schwab, what she made of the data. Here's what she had to say. (A transcript follows.)

Liz Ann Sonders: "Look, when you look at very generalized statistics on how individual investors have fared in terms of performance compared to either the market overall, or if you look at things like the Dalbar study that compares investors returns themselves in funds versus the returns of the funds themselves, the generalizations taking a mean or an average or a median, doesn't put the individual investor in great light. It shows underperformance. Not all that different today than five years ago, 10 years ago, 15 years ago.

It's the reason why looking at what individuals are doing en masse is now a contrarian indicator, was a contrarian indicator 10 years ago, was a contrarian indicator 27 years ago, when I started in the business, so that aspect hasn't changed. What we have found, and as you said, we have some particularly unique insight into what individual investors are doing, having $2 trillion in client assets by individual investors, is what we find is there is a correlation in terms of returns and success with how disciplined you are around long-term plan and goals.

In many cases, if you have an advised relationship and you are going through an appropriate process of diversification and rebalancing, which is so important, staying disciplined, not reacting to whims or news and the ability to pull the trigger more quickly, but taking a very disciplined approach, the returns for that cohort of investors dramatically outshines the returns for investors who tend to be quicker with the trigger. And you're right, access to information, the speed with which we get it, and then the ability to trade on that has grown exponentially. It's just a question of what you do with that information."

More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Why Jamba's Looking Forward to Summer

On Tuesday, Jamba (NASDAQ: JMBA  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Many businesses get most of their business during the fall and winter months, but for smoothie specialist Jamba, its cold beverages are a tough sell during the frigid part of the year. Let's take an early look at what's been happening with Jamba over the past quarter and what we're likely to see in its quarterly report.

Stats on Jamba

Analyst EPS Estimate	($0.02)
Year-Ago EPS	($0.03)
Revenue Estimate	$54.1 million
Change From Year-Ago Revenue	2%
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Did Jamba hibernate or grow this quarter?
Analysts have gotten more optimistic about Jamba's earnings prospects in recent months, having slashed their initial loss estimates for the just-ended quarter in half and boosted their consensus for future full-year 2014 earnings by $0.02 per share. The stock has responded in kind with a 6% jump since late January.

Much of the good news for Jamba during the first quarter came when it made its earnings announcement for the previous quarter in early March. Posting its first annual profit since going public eight years ago, Jamba confirmed its previous guidance for 2013, encouraging shareholders looking for further growth from the company.

How Jamba will grow involves a combination of strategies. The company still plans between 60 and 80 new traditional locations this year, but Jamba is also pushing hard on its JambaGO stations, which are small self-service machines targeted largely at school cafeterias. Jamba expects 1,000 new JambaGO locations this year, which would more than triple its count of just over 400 as of the end of 2012.

Internationally, Jamba still has a small presence, but it made a big step by making a master franchise development agreement to open 80 stores throughout Mexico beginning later this year. The success that Arcos Dorados (NYSE: ARCO  ) has had in Mexico and other Latin American countries in franchising McDonald's (NYSE: MCD  ) locations shows the huge potential that the region has generally for American restaurants, and focusing on warmer climates should help Jamba avoid the seasonality it suffers colder markets like the U.S. and Canada.

In Jamba's report, watch to see if the company's new store format is inspiring more sales of fresh juice and other beverages that are more in line with what Starbucks (NASDAQ: SBUX  ) focused on in buying juice-specialist Evolution Fresh. If it does, then the potential for a Jamba-Starbucks merger could rise considerably -- and the greater product diversification will make Jamba look much more attractive as an independent company as well.

McDonald's has also been named as a potential buyer for Jamba, but the fast-food Goliath has had its own problems lately. In our premium report on McDonald's, our top analyst weighs in on whether the future is bright for McDonald's. To find out whether a buying opportunity has emerged for the global juggernaut, click here now to get your report today.

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

Monsanto: Growing profits from seeds

With demand for corn, soybeans and other agricultural commodities continuing to grow and the supply of arable land in decline, farmers need to maximize their harvests.

Agribusiness giant Monsanto (MON) is one of our favorite food-related plays; its innovative genetically-modified (GM) seeds are critical to producing more crops from less acreage.

GM seeds exhibit advantageous traits. For example, one of Monsanto's first GM seed products was corn that  resisted the company's Roundup herbicide, enabling farm operators to control weeds without reducing the size of their harvest.

We expect seeds and genomics to drive much of the company's earnings growth in coming years, with the firm's innovative corn products (60 percent of 2012 revenue) leading the way.

SmartStax, Monsanto's top-selling corn seed, is engineered to resist earworm, fall army worm and other above-ground pests as well as below-ground insects such as rootworm.

SmartStax seeds have several advantages over competitors' offerings. Because these seeds counteract pests with multiple defense mechanisms, the likelihood that the insect population will develop immunity to these combined traits is much lower.

Management recently projected that its family of GM corn seeds would be sown on about 38 million acres of US farmland – up from 3 million acres in 2010 and 27 million acres in 2012. The growing popularity of these high-margin products should be a boon to the company's bottom line.

Robust investment in research and development also puts Monsanto ahead of the competition when it comes to innovative crop technologies. The company's newest GM corn seed, DroughtGard, is the first to exhibit resistance to dry weather.

A limited test in the western Great Plains last year found that seeds with DroughtGard yielded an additional 5 bushels per acre relative to seeds that lack this trait. Monsanto plans an extensive commercial rollout of DroughtGard during its 2013 fiscal year.

After corn, soybeans account for about 18 percent of Monsanto's annual revenue. Monsanto estimates that only 20 percent of soybean acreage is sown with GM soybeans, creating a significant growth opportunity for the company.

Monsanto also recently inked a deal to license its soybean technology to E.I. du Pont through 2030. We expect this agreement to dramatically expand Monsanto's footprint in the GM soybean market.

Monsanto's Intacta RR2 Pro soybeans also performed well in Brazilian trials last year, and the company has high hopes for the commercial rollout of the product.

Meanwhile, Monsanto also has a history of returning capital to shareholders via dividend increases and stock buybacks.

Not only has the agribusiness giant hiked its payout at an average annual rate of 17 percent over the past five years, but the company also repurchased $300 million  worth of shares in the most recent quarter and has another $700 million that could be allocated to this purpose.

Monsanto rates a buy up to $105 per share, though investors should back up the truck if the stock price dips to less than $95.

Gold And Silver Speculator Long Positions Wiped Out

Small speculators, also known as individual investors, have had their net long positions in gold (GLD) and silver (SLV) completely wiped out over the last two weeks. As of last Tuesday, these small investors held a mere 133 net long gold contracts, and 2163 net long silver contracts. As recently as September, when we turned cautious on the metals, small speculators held over 60,000 net long gold contracts and 20,000 silver contracts. If the small speculators were to sell anymore gold and silver, they would become net short.

(click to enlarge)

(click to enlarge)

Typically commercial banks manipulate prices on low volume to set the price and then trade at the newly set price in volume. The recent crash in gold and silver began after hours on a Friday, and was hit further by large sell orders Sunday night to take out the well known technical support lines of both metals. Most small retail investors were probably not even contacted by their futures broker. By the time they checked their account the next Monday Morning, either their protective stop orders were triggered or the margin clerk forcefully closed their position. The snowball effect in margin calls and stop loss orders was great enough to last several days.

None of this is surprising. However, we were quite surprised to see that net short positions of commercial traders rose substantially during this period. Typically they would be expected to cover their short positions at lower prices, mopping up the losses of retail investors.

This reveals several important changes to the gold and silver markets:
1) It took an enormous number of short positions added to move the market even on a weekend.
2) The gambit failed, as they were not able to cover these positions in volume after the dump. Nevertheless, as we have be! en expecting for several years, the commercial traders will be net long before the metals make new highs. But if they can't cover at lower prices, they will begin covering at higher prices as we saw when silver rose from $20 fall 2010 to $50 in spring 2011.

We suspect that the failure of the gold gambit is largely due to the unexpected surge in global demand for physical metal. Premiums on bullion products are higher than they were during the 2008 crash, with even junk silver selling at $5-$6 over the paper spot price. This is unprecedented.

(click to enlarge)

(click to enlarge)

The consolidation in gold and silver over the last two years has been painful, especially for mining investors. However, with the prices of the metals at or below production costs, along with shortages of retail bullion products, and zero net long small investors, we are struggling to identify any more sellers. The summer season is typically weak for precious metals, and they could easily back and fill a base over the next six months, however, the risk in accumulating physical metals in this price range is very low. We also believe that producing miners and miner ETFs such as GDX and SIL with cash holdings represent substantial value at this time.

Disclosure: I am long GDX, SIL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

Apple Is Hitting a Ceiling -- and Tim Cook Knows It

Even though Apple's (NASDAQ: AAPL  ) new capital return program that entails giving back $100 billion to shareholders should hopefully set a price floor for shares, the iPhone maker is also running into a ceiling at the same time: There's simply not much growth left in the high-end smartphone market.

That's the abundantly clear takeaway from the latest figures by market researcher Strategy Analytics. While the 37.4 million iPhones that Apple sold in the first quarter were better than most expected, the figure represented just 7% growth from a year ago. Meanwhile, rivals are gaining traction primarily in lower market segments that Apple has historically left alone.

Vendor

Q1 2012
Units

Q1 2012
Market Share

Q1 2013
Units

Q1 2013
Market Share

Samsung	44.4 million	28.9%	69.4 million	33.1%
Apple	35.1 million	22.8%	37.4 million	17.9%
LG	4.9 million	3.2%	10.3 million	4.9%
Huawei	5.1 million	3.3%	10 million	4.8%
ZTE	4.6 million	3%	9.1 million	4.3%
Others	59.7 million	38.8%	73.3 million	35%
Total	153.8 million	100%	209.5 million	100%

Source: Strategy Analytics.

Strategy Analytics calls out LG as a particularly strong performer, more than doubling its units over the past year and climbing to the No. 3 spot. LG is using some of Samsung's own tactics against it, including wide distribution. Vertical integration and product imitation aren't hurting its prospects, either.

The total market grew by an impressive 36% to 209.5 million units -- meaning Apple's unit sales significantly underperformed the broader market. CEO Tim Cook specifically addressed this on the last conference call, when asked by Bernstein analyst Toni Sacconaghi.

Cook acknowledged that even after normalizing for channel inventory to arrive at actual sell-through, Apple still "grew less than" the broader market. He took the opportunity to mention other relevant statistics beyond unit share that Apple considers when evaluating its overall health, including customer satisfaction and loyalty, ecosystem commerce, and usage, to name a few. It's also worth noting that lower market segments are less profitable, so rivals gaining unit share doesn't translate into growing profit share. Apple still owns that department.

Cook then hinted that Apple would indeed be focusing on affordability in emerging markets going forward:

Now, that said, we see an enormous number of first time smartphone buyers coming to market, particularly, in certain countries around the world. And so what we've done with that is and we started last quarter is we've made the iPhone 4 even more affordable and which has made it more attractive to first time buyers and [our supply caught up with demand] toward the late in the quarter last quarter and we are continuing to do that in other markets.

The iPhone 4, a three-year-old smartphone, is still selling strong, thanks in large part to Apple's ecosystem advantages and Apple's recent moves toward affordability in important markets like Brazil, India, and China (the "B," "I," and "C" in "BRIC").

Clearly, tapping emerging markets is on Cook's mind. Clearly, an affordable iPhone is in the works.

Just because Apple's hitting a smartphone ceiling doesn't mean its story is over. There's plenty of opportunity in Apple's future. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and sell Apple and the opportunities left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

 

This Week's 5 Smartest Stock Moves

If you're feeling good about the market, you're not alone. Take my hand as we go over some of this week's more uplifting headlines.

1. Netflix has an ace up its sleeve
House of Cards was apparently pretty good for Netflix (NASDAQ: NFLX  ) .

The leading video service provider kicked off the week with a blowout quarter on Monday night.

Netflix's adjusted profit of $0.31 a share blew past the $0.19 a share that Wall Street  forecasted, and the reborn dot-com darling closed out the period with a better-than-expected 36.3 million global streaming subscribers. Revenue topped $1 billion in a quarter for the first time in Netflix's history.

Some of this success can be attributed to the success of February's House of Cards, but things are just starting to get going on that front. Netflix revealed this week that its latest series -- Eli Roth's Hemlock Grove -- attracted more viewers during its opening weekend than House of Cards.

Remember when Netflix was left for dead in late 2011? The stock hit yet another 52-week high this week.

2. It's the wood that makes it good
Lumber Liquidators (NYSE: LL  ) hit fresh highs this week, and that's easy to see once you delve into the flooring retailer's better-than-expected quarterly results.

The leading stand-alone seller of hardwood flooring saw comps skyrocket 15.2% during the first three months of this year. Net sales climbed 22.5% to $230.4 million and earnings nearly doubled to $0.57 a share. Wall Street was betting on net income of $0.42 a share on just $215.5 million in revenue.

Lumber Liquidators is naturally boosting its guidance for all of 2013.

It was easy to see this coming. The chain has been blowing past analyst targets with ease in recent quarters, and the pent-up demand for stylish planks and other high-end flooring that homeowners feared to act on when home prices were falling finally has an optimistic outlet for release.

3. Put me in Coach
Investors may have gotten nervous when Coach (NYSE: COH  ) posted disappointing holiday quarter results earlier this year, but this time around the retailer had it in the bag.

Coach stock popped after posting better-than-expected profitability. North American comps rising 1% wasn't very impressive, but Coach is having surprising success with its products for men and business in China is booming.

Coach also boosted its dividend, a move that suggests that things will get better for the handbag maker that's been slumping lately at the expense of a faster-growing rival.

4. Burrito and a buzz
Chipotle Mexican Grill (NYSE: CMG  ) is looking to upgrade its libations.

The 1,458-unit fast-casual chain will add premium margaritas -- handmade with Patron silver tequila, triple sec, agave nectar, and fresh lime -- to more than 900 of its restaurants in time for next month's Cinco de Mayo festivities.

I have my concerns.

Will the handmade premium margaritas slow the famously fast-moving queues? Will folks linger at tables more often? Can Chipotle call a cab to take me home?

Concerns aside, the move should help boost business -- and that was the one weak spot in Chipotle's well-received report last week. When comps rise a mere 1%, failing to even keep pace with inflation, Chipotle had to do something.

5. Xbox marks the spot
Microsoft (NASDAQ: MSFT  ) is ready to unveil its new Xbox.

The software giant sent out invites for the media event on May 21, making it more than likely that Microsoft will have the new console out in time for this year's holiday shopping season. It's not as if Wii U gained any advantage by coming out last year, but Microsoft didn't want the PlayStation 4 to hog all of the 2013 holiday spending.

There's also an interesting rumor going around on pricing. Microsoft's high-end gaming system may hit the market at a stiff $499 price point, but there may also be a more approachable $299 price for buyers committing to a $10 a month subscription plan.

A subsidized gaming console? If anyone can do it, it would be Microsoft, which already has 46 million Xbox Live subscribers and is the company behind this country's best-selling platform. The ability to offer a subsidized console would be a harder sell on its competition.

After years of declining hardware and software sales, it's hard to get excited about a new system, but there's plenty of potential as Microsoft's new box aims to be the entertainment hub of the future.

Keep making smart decisions
To learn more about a few ETFs that have great promise for delivering profits to shareholders, check out The Motley Fool's special free report "3 ETFs Set to Soar." Just click here to access it now.

A Close Look at How the Economy Is Growing

The economy grew by 2.5% in the first quarter, according to Friday's report from the Bureau of Economic Analysis.

That's the early reading, at least. These reports are always revised in subsequent months. "Friends don't let friends waste too much time on the internals of a soon-to-be-revised GDP report," wrote Slate's Matt Yglesias.

But let's look at what we've got so far.

Two-and-a-half percent growth isn't strong, but it's pretty consistent with where we've been for most of the recovery over the last four years:

Source: BEA.

Some bumps here and there, but we're stuck at about 2.5% growth. That's probably enough to bring down unemployment, but just barely.

Now for some of the internal components of GDP.

Consumer spending has actually been strong. First-quarter growth was particularly impressive given the expiration of the payroll tax cut:

Source: BEA.

Earlier this year, internal emails between Wal-Mart executives hinted that consumers were being clobbered by the end of the payroll tax cut. That was, however, more speculation than proof. As more data comes out, including corporate earnings reports, it's peculiarly hard to spot the tax hike having much impact.

Fixed investment -- businesses and households investing in things like homes, buildings, and equipment -- is also healthy:

Source: BEA.

One of the big drivers here is residential construction. For years, construction was a net headwind on economic growth as construction of new homes ground to a halt. Now that building is ramping up, residential construction is adding to growth -- 0.3% in the first quarter. This will likely be a big contributor to growth going forward. It almost always does during a recovery.

Businesses tweaking around their inventories can have a big impact on quarterly GDP figures. In the fourth quarter, a large drawdown whacked overall growth. We made up most of the loss in the first quarter:

Source: BEA.

So, what's keeping growth low? Government spending (or a contraction of it) is now a significant drag on growth:

Source: BEA.

And within government, the real culprit is a decline in defense spending:

Source: BEA.

Keep in mind that there's basically no correlation between what the economy is doing today and what stocks might do tomorrow. The correlation between current GDP growth and five-year subsequent stock returns is -0.06. About zero, in other words. For three-year, forward-looking market returns, the correlation is -0.09 -- still about zero! For one-year returns, it's -0.21 -- still low. Returns of the Dow Jones (DJINDICES: ^DJI  ) will be determined by an unpredictable mesh of earnings and expectations, with almost no rational connection to quarterly GDP reports. Honest. 

More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Stock Markets Continue Higher After Mini-Crash

After a mini-flash crash just after 1 p.m. EDT, stocks continued higher today, driven by a few strong earnings reports. The mini-crash occurred after hackers apparently got into the Associated Press' Twitter account and tweeted about a terror attack on the White House. Traders soon came to their senses, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 0.98% late in trading, while the S&P 500 (SNPINDEX: ^GSPC  ) is pushing 0.95% higher. 

Travelers (NYSE: TRV  ) is up 2.1% after its first-quarter net income rose 11% to $896 million. On a per-share basis, that's $2.33 -- well above the $2.02 average estimate from analysts. The company is increasing premiums on customers to offset more frequent natural disasters and low interest rates, and the effects are now showing up on the bottom line. It doesn't hurt that catastrophe costs -- a figure that can turn at the drop of a hat -- were down 45% to $65 million this quarter. Overall, Travelers' strategy is working, and investors are buying the strong quarter today. 

Bank of America (NYSE: BAC  ) is also having a good day, climbing 3.4% thanks to Betsy Graseck, an analyst for competing bank Morgan Stanley. She upgraded Bank of America to overweight and increased her price target to $16, a premium of 37% from Monday's close. The bank's cost-cutting was cited as a driver of increased profit this year, which the analyst thinks will propel the stock higher. 

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, our analysts lift the veil on the bank's operations, detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

The one Dow stock moving significantly lower after reporting earnings is United Technologies (NYSE: UTX  ) . The stock has fallen 0.7% today after the company reported a 16% rise in revenue to $14.39 billion. The problem is that revenue fell short of the $14.94 billion estimate, and the company said sequestration might have a $0.10 per-share impact on full-year earnings. I don't think this was a terrible report, especially when you consider that EPS of $1.39 actually beat estimates by $0.09, but investors are concerned about growth, and United Technologies didn't show nearly enough in the first quarter.  

Why World Fuel Is Poised to Bounce Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, fuel logistics company World Fuel Services (NYSE: INT  ) has earned a coveted five-star ranking.

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

World Fuel facts

Headquarters (founded)	Miami, Fla. (1984)
Market Cap	$2.9 billion
Industry	Oil and gas refining and marketing
Trailing-12-Month Revenue	$39.0 billion
Management	CEO Michael Kasbar (since 2012) CFO Ira Birns (since 2007)
Return on Equity (average, past 3 years)	15.3%
Cash / Debt	$172.7 million/$380.3 million
Dividend Yield	0.4%
Competitors	BP Marine Mercury Air Group Sun Coast Resources

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

On CAPS, 95% of the 325 members who have rated World Fuel believe the stock will outperform the S&P 500 going forward.

Earlier this week, one of those Fools, All-Star TMFRazorback, succinctly summed up the World Fuel bull case for our community:

Highly fragmented industry, well managed, extensive market knowledge, and worldwide network. They serve as a middleman providing solutions, risk management, supply and logistics service to customers all over the world. Operates in three segments: Marine, Land, and Aviation. Customers include retailers of petroleum products, major airlines, and the U.S. government.

Of course, there are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered a company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and is poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.

Yahoo! Strikes 1-Year Deal to Stream Saturday Night Live

Yahoo! (NASDAQ: YHOO  ) has struck a deal with Broadway Video Entertainment and NBC Entertainment to feature Saturday Night Live (SNL) content exclusively on Yahoo! for one year. 

Under the deal, Yahoo! users will have exclusive access to SNL's entire 38-year archive, spanning from 1975 to 2013. This includes "making-of" and "behind-the-scenes" clips; however, only a selection of SNL musical performances and dress rehearsals will be available. So far, the company has announced that its users will be able to view famous skits from the "Blues Brothers" to "Wayne's World." Viewers can begin viewing SNL on Sept. 1, 2013 across Yahoo!'s sites.

Yahoo! viewers will also gain non-exclusive access to the current season of SNL. Internationally, Yahoo! shares distribution rights for the same library of content; International Yahoo! users have non-exclusive access to SNL. 

As a result of the deal, the SNL clips will be removed from other video platforms -- Hulu and NBC.com. Additionally, the SNL content will addd to Yahoo!'s expanding video library. Not only does the company have partnership to show Hulu videos, but the company also runs Yahoo! Studios -- which produces original web series like Burning Love, The Fuzz, and Ghost Ghirls. 

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Buy Nuance? Ask Siri

This column is being dictated directly into my computer. I'm spared the drudgery of typing thanks to a company called Nuance Communications (NUAN).

Nuance is well known for its Dragon software, which has become the dominant speech recognition program for consumers. Less well known is that Nuance powers Siri for Apple, the often frustrating but steadily improving voice-recognition program embedded in every iPhone.

Nuance holds more than 4,000 patents and patent applications; its software supports 50 languages and the company has more than 6,000 employees worldwide with sales representation in more than 70 countries.

I find that I'm using speech recognition more often, not only on the iPhone but also talking to the navigation system in my car and dictating to my computer as I am doing now.

There are more than 70 million cars and over 50 million portable navigation systems that are powered by Nuance technology.

Audi, BMW, Ford, and Mercedes, are only a few of the manufacturers that rely on Nuance for their voice recognition systems. Additionally, portable navigation manufacturers like Tom Tom and Mio use Nuance.

Another big segment for the company is in healthcare. Nuance provides customer service solutions as well as document control and security systems and compliance and forms processing vital to the healthcare industry, particularly with Obama care around the corner.

They also use speech recognition software to capture patient data when building the files that will ultimately aid in treatment going forward.

Another strong segment is in the legal profession. The company assists law firms and courts to manage and share information pursuant to case records, thereby improving client service and lowering administrative costs.

In the Telco segment, the company is a big part of the call center solutions that telecommunications companies use for themselves and also offer as a reseller to their corporate customers.

There is an increasingly popular new application, a voice to text service wherein voice-mails are converted to text and printed out in email and text form.

The company recently added a new product called Nuance Voice Ads that are built for mobile devices. Advertisers can have two-way conversations with their customers and increase engagement. If this new technology takes hold it could be a significant revenue driver for the company.

Financially, the company is in good shape. Revenue in 2012 grew by 21.7% to nearly $1.7 billion with net income of $207.1 million ($0.65 per share, fully diluted, figures in U.S. dollars). That compared to net income of $30.2 million ($0.12 per share) in fiscal 2011.

So the company is exhibiting strong growth and has lots of cash on the balance sheet, which will enable it to continually invest in research, development, and marketing.

One more reason I like this stock is that billionaire activist investor Carl Icahn does too. He recently disclosed a 9.27% passive stake in the company, giving him a holding of 29.3 million shares.

Mr. Icahn is a legendary investor and has been on a tear lately taking significant positions in Transocean, CVR Energy, Netflix, and a large stake in Herbalife, taking the long side against another well-known investor, Bill Ackman, who has famously taken the short side.

My money is on Mr. Icahn who has been spectacularly successful recently and even at the ripe old age of 77 he does not seem to be slowing down.

Although he often takes an adversarial position against underperforming firms, it appears he is not after management in this case. Rather, he sees Nuance as a good investment, as do I.

Siri, what should I do now? Buy at $21.61. The stock currently trades more than $4 below its 52-week high of $25.89. I see this as a buying opportunity; our upside target is $30.

When Getting $50 Billion From Apple Still Isn't Enough

Over the past couple of months investors have been calling for increased returns of capital from Apple (NASDAQ: AAPL  ) . The inevitable announcement of what the Mac maker would do with its disproportionate cash position was seen as the nearest positive catalyst on the horizon. In some ways, the capital return program that was unveiled last night delivered in spades, boosting the share repurchase authorization by a mind-boggling $50 billion.

And yet, shares were weak today and off modestly. Why was $50 billion not enough to satisfy investors?

We want more!
It would appear that perhaps investors were hoping for more of a direct dividend boost as opposed to the overwhelming emphasis on repurchases. The aggregate amount of capital being returned more than doubled, from $45 billion to $100 billion, but most of that increase was being plunged into the repurchase authorization.

Apple's quarterly dividend received a relatively modest boost of 15% to $3.05 per share. That translates into an annual payout of $12.20 per share, or approximately a 3% yield. That's a respectable yield by any measure, but possibly not enough to impress income-oriented investors.

As Apple matures, the composition of its investor base will naturally shift from growth-seekers to income-seekers, a painful process that's currently under way. The growth-seekers have been hitting the exits for the past seven months as growth rates decelerate in part due to the sheer size that Apple has achieved. With over $169 billion in trailing-12-month sales, Apple's five-year average revenue growth rate of 44.8% simply isn't in the cards anymore.

Investors may not fully appreciate the effects of increased repurchases until later, as the accretive impacts on earnings per share take time to gradually materialize. Make no mistake: Apple's repurchasing will be accretive because shares outstanding will shrink.

The only way that buybacks don't accrete to Apple's EPS is if they only offset dilution from equity compensation, assuming it doesn't conduct any other type of dilutive capital offerings (I don't think Apple needs to raise any secondary offerings anytime soon). It's not like Apple is doling out $50 billion of share-based compensation to employees through 2015 (it's only given out $2.7 billion total over the past year).

In comparison, investors absolutely appreciate direct dividend payouts since that's money they can spend. Even though the new yield is rock solid, some income investors still might be sitting on the sidelines. Still, Apple investing in itself, particularly at current prices, is the best use of its cash.

Is investing in Apple the best use of your cash? That's a good question, and one that The Motley Fool hopes to answer. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Wednesday's Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include new buy ratings for a pair of specialty retailers, Coach (NYSE: COH  ) and Aeropostale (NYSE: ARO  ) . Meanwhile in mining, Freeport-McMoRan (NYSE: FCX  ) suffers a downgrade. Let's dive right in, beginning with why...

Coach is fashionable again
The day dawned bright for Coach investors Wednesday, as analysts at CLSA upped their rating to "buy" in response to a strong earnings report featuring 7% first-quarter sales growth and a 10% bump in earnings per share.

In each case, these numbers beat estimates, and analysts were particularly enthused over Coach's 40% jump in sales in China. But does all this mean that you should now follow their advice, and rush out and buy yourself some Coach shares?

Possibly... yes. Priced at just under 15 times earnings based on its latest income figures, Coach shares don't look half bad relative to projected earnings growth of nearly 14% annually over the next five years. Factor in a 2.3% dividend yield, and the shares actually look to be a bit of a bargain. Granted, Coach hasn't yet revealed its free cash flow figures for the most recent quarter. But once it does, and assuming those figures mirror the growth shown in net income, I'd say the stock's a bargain.

Aeropostale is looking cool, too 
Aeropostale -- initiated this morning with a "positive" rating at Susquehanna -- is a bit iffier of a proposition. On one hand, the stock looks expensive at 30 times earnings. On the other hand, the stock boasts strong cash reserves that reduce its enterprise value and shrink the apparent overvaluation. Also, Aeropostale is a strong cash generator.

Fact is, if you give Aeropostale credit for its cash hoard, and value it on its $72.5 million in trailing free cash flow rather than its trailing "income" of just $35 million, the stock is selling for an enterprise value-to-free cash flow ratio of less than 11.

That's not a horrible price at Aeropostale's projected 9.5% earnings growth rate -- but it's not a huge bargain, either. Right now, my thinking on the stock is that it looks slightly overpriced if it can't grow faster than analysts project. And if Aeropostale surprises us -- if it grows as fast as the 12% rate projected for the rest of the specialty retail industry, say -- then the stock might even be cheap enough to buy. For now, though, I'm going to sit on the fence. Aeropostale doesn't look clearly overvalued to my Foolish eye, but it's not an obvious bargain, either.

Freeport-McMoRan's down in the dumps 
Finally, switching gears both from positive ratings to negative and from retail to another sector entirely, we turn to copper, gold -- and now oil, too! -- company Freeport-McMoRan.

Freeport reported first-quarter earnings last week, beating estimates despite experiencing a 15% slide in net earnings. After mulling the numbers for a few days, analysts at Argus Research finally came to a conclusion this morning, and downgraded the stock to "hold" -- but I think even this lower rating is overly generous.

Although priced at "only" 9.6 times earnings, Freeport's stock looks pricey relative to earnings growth that's expected to average only 3.5% annually over the next five years. A powerful 4.4% dividend yield should be enough to make up for the slow growth estimate, but it doesn't. And the reason it doesn't is that Freeport's earnings -- the number upon which its 9.6 P/E ratio is based -- don't hold up to close examination.

Only about 7% of Freeport's claimed "earnings," you see, are backed up by real free cash flow. Put another way, for every $1 Freeport claims to be earning, it actually collects only about $0.07 in real cash-money. This low quality of earnings has me thinking that Freeport looks a lot more like a sell than it does a buy -- or even than the "hold" that Argus now says it is. Personally, I think that discretion is the better part of value here, and I'd stay away from Freeport stock.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach and Freeport-McMoRan Copper & Gold.

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15 Stocks That Hit The 'Deep-Value Trifecta'

Value investors tend to favor specific gauges to find bargains. Some like to seek out stocks trading below tangible book value, while others seek out stocks that sport low price-to-earnings (P/E) multiples or impressive free cash flow characteristics.

But why not focus on all three gauges?

I ran a screen to find stocks that press all the buttons, targeting only companies with a market value above $500 million and 2014 P/E multiples below 12. To preserve a nice margin of error for downside protection, I narrowed the list to stocks trading for less than 95% of tangible book value.

Here's what I found.

Of course, these numbers are just a starting point, and the seemingly least expensive stocks aren't always the top bargain. Case in point: Century Aluminum (Nasdaq: CENX), which holds a trove of undervalued assets parked on its balance sheet but is struggling to generate profits in an era of depressed aluminum prices.

Yet some of these stocks fall into the "no-brainer" category.

You'll note that insurers such as Protective Life (NYSE: PL), MetLife (NYSE: MET), Aspen Insurance Holdings (NYSE: AHL) and others make the cut here. These insurers are trading at a sharp discount to tangible book value because they are not seen as timely investments in the current low interest-rate environment. If you've got a multi-year time frame, then insurance stocks are some of the best bargains in the market right now.

Atlas Air: Performing well in a bleak environment
Digging more deeply into these stocks, it's hard not to be impressed by air freight carrier Atlas Air Worldwide Holdings (Nasdaq: AAWW). Global trade flows have been weak since 2008, especially as European economies continue to struggle. That's had a negative impact on air freight volumes and air freight pricing. Still, Atlas has managed to generate an average of $200 million in annual free cash flow during the past four years.

Then again, the weak global economy is impeding Atlas' pricing power. Even as revenues are expected to rise more than 10% this year (to around $1.85 billion) thanks to market share gains, per-share profits are stuck in the $5 range. That's the result of a margin squeeze due to a lack of pricing power. Perhaps that flat profit outlook explains why shares have drifted lower during the past few years.

Simply moving back up to tangible book value would bring this stock to $48, though the free cash flow potential in an eventually firming global economy would yield much more upside than that.

First Bancorp: waiting on the dividend
Thanks to a set of restrictions associated with the U.S. bank bailout program, many banks have been compelled to shore up their balance sheets. In many cases, that meant eliminating their dividends.

 

Puerto Rico-based First Bancorp (NYSE: FBP) would have done so anyway. The lender -- which, in the middle of the past decade, used to pay a $4 annual dividend, thanks to annual pretax income that typically hovered around the $100 million mark -- took a big hit from a weakening Puerto Rican economy.

Between 2009 and 2011, First Bancorp generated a hefty pretax loss as sour loans were written down, and a rebound to $36 million in pretax income in 2012 was still subpar. Yet this bank now appears to be on the mend, earning roughly 10 cents a share per quarter, and annualized pretax income is back up to the $70 million range (based on the past two quarters) and continues to climb.

Although this bank's share count is far higher than a half-decade ago thanks to hefty issuances of preferred stock, First Bancorp now looks poised to restart the dividend in coming quarters. As an added kicker, shares trade for less than 5 times projected 2014 profits and less than 90% of tangible book value. These are the kinds of measures you want to see in a deep-value stock.

Risks to Consider: Low valuations provide only a general, non-specific floor for a stock, meaning the price-to-book ratio or P/E ratio can drop even lower.

Action to Take --> The second quarter has gotten off to a rough start, and investors are increasingly seeking out stocks that appear to hold solid downside protection with upside catalysts. These stocks, which prove three types of support, should be on your research list.

P.S. -- StreetAuthority's Amy Calistri has one objective for readers of Stock of the Month... to provide one quality stock pick each month, with in-depth analysis in plain English that investors can understand. In fact, she just released a special presentation, "How to Beat the Stock Market... In Just 12 Minutes per Month," which tells you more about her strategy. Go here to learn more.

Panera Bread Meets on Revenues, Misses on EPS

Panera Bread (Nasdaq: PNRA  ) reported earnings on April 23. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 26 (Q1), Panera Bread met expectations on revenues and missed estimates on earnings per share.

Compared to the prior-year quarter, revenue increased. Non-GAAP earnings per share increased. GAAP earnings per share grew significantly.

Margins expanded across the board.

Revenue details
Panera Bread recorded revenue of $561.8 million. The 24 analysts polled by S&P Capital IQ hoped for a top line of $566.0 million on the same basis. GAAP reported sales were 13% higher than the prior-year quarter's $498.6 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $1.59. The 27 earnings estimates compiled by S&P Capital IQ predicted $1.65 per share. Non-GAAP EPS of $1.59 for Q1 were 14% higher than the prior-year quarter's $1.40 per share. GAAP EPS of $1.64 for Q1 were 17% higher than the prior-year quarter's $1.40 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 35.2%, 20 basis points better than the prior-year quarter. Operating margin was 13.6%, 10 basis points better than the prior-year quarter. Net margin was 8.6%, 30 basis points better than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $598.7 million. On the bottom line, the average EPS estimate is $1.78.

Next year's average estimate for revenue is $2.45 billion. The average EPS estimate is $7.07.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 1,405 members out of 1,557 rating the stock outperform, and 152 members rating it underperform. Among 470 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 442 give Panera Bread a green thumbs-up, and 28 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Panera Bread is outperform, with an average price target of $186.43.

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Add Panera Bread to My Watchlist.