Undervalued Stocks To Buy For 2019: December 2013

Tuesday, December 31, 2013

Train derailment likely to disrupt commute

Thousands of commuters will have to find another way to work Monday following a derailment on Metro-North's Hudson Line that left four people dead and dozens more injured.

"I think it's fair to say that tomorrow, people who use this line should plan on a long commute or plan on using the Harlem line,'' Gov. Andrew Cuomo said at a news conference Sunday.

Earl Weener, a member of the National Transportation Safety Board, said at the news conference that the agency expects to be investigating at the scene of the derailment for a week to 10 days. After documenting the condition of the cars and other components of the scene, "We will then turn the rail over to Metro North who will then ... get the line back in operation.''

It was unclear when that would be, leaving potentially thousands of commuters to ponder how they would get in and out of New York City at the start of the work week.

STORY: Commuter train derailment kills 4 in NYC

Mark Gausepohl, an architect who lives in Ossining, 20 miles north of the derailment, and works in Manhattan, said that if the wreck isn't cleared by Monday morning, he'll have to drive to another train line to get to work. That would add at least 20 minutes each way to his 45-minute commute to Manhattan's Grand Central Station.

He said Metro-North service is "generally reliable," but he was concerned that there have been two other derailments this year. "It's troubling that Metro-North is having these problems,'' he said. "Either it's a bad coincidence or a sign of a weakening infrastructure."

Mary Kelly, who lives in Peekskill, 30 miles north of the derailment, and works as an office manager in Manhattan, said that if the tracks aren't cleared, her morning commute may be about an hour longer if she can take the train only as far south as Tarrytown, then take a bus to another train line.

"You know, I used to get annoyed when the train was late," she says, "I never thought it would crash and kill people."

The Hudson Line is th! e least busy of the three Metro-North train lines that carry passengers into Grand Central Station. Still, on a weekday, it ferries thousands of passengers, many of whom trek into New York City for work but call the more affordable suburbs to the north home, said Aaron Donovan, a spokesman for the Metropolitan Transportation Authority.

On Sunday, service on the other two Metro-North Lines that head into midtown Manhattan were not disrupted by the accident.

"The service is normal on both of those lines, and I haven't seen any reports of delays as a result of this derailment,'' Donovan said.

There are reports of four fatalities in the Metro North train derailment near Spuyten Duyvil Station in the Bronx, N.Y. Authorities are also reporting more than 60 injured. Robert Deutsch, USA TODAYFullscreen

Commuters, who were on a train that derailed in the Bronx borough of New York, are seen after being rescued. Timothy Clary, AFP/Getty ImagesFullscreen

The scene of the early-morning Metro North train derailment in the Bronx, N.Y. along the Hudson River. Robert Deutsch, USA TODAYFullscreen <p>Sephen Geraghty, Chief of Special Operations Command, FDNY boards one of the derailed Metro North cars near Spuyten Duyvil Station in the Bronx.</p>

<p>Sephen Geraghty, Chief of Special Operations Command, FDNY boards one of the derailed Metro North cars near Spuyten Duyvil Station in the Bronx.</p>

Sephen Geraghty, Chief of Special Operations Command, FDNY boards one of the derailed Metro North cars near Spuyten Duyvil Station in the Bronx. Robert Deutsch, USA TODAYFullscreen

Injured people are treated near the site of the derailment. Craig Ruttle, APFullscreen

First responders work the scene of the Metro North train derailment near Spuyten Duyvil Station, Bronx, N.Y. Robert Deutsch, USA TODAYFullscreen

First responders gather around the derailment of a Metro North passenger train in the Bronx borough of New York City. Craig Ruttle, APFullscreen

First responders gather at the derailment of a Metro North passenger train in the Bronx. Craig Ruttle, APFullscreen

A person is evacuated from the scene of the derailment. The Fire Department of New York says there are "multiple injuries" in the train derailment, and 130 firefighters are on the scene. Craig Ruttle, APFullscreen

A Metro North locomotive lies on its side after derailing in the Bronx. The train derailed on a curved section of track, coming to rest just inches from the water and causing multiple fatalities and dozens of injuries, authorities said. (AP Photo/Mark Lennihan) ORG XMIT: NYML101 Mark Lennihan, APFullscreen

A Metro North passenger train lays on it's side after derailing in the Bronx. Mark Lennihan, APFullscreen

First responders at the scene of the Metro North train derailment. Rick Hampson, USA TODAYFullscreen

Five of the southbound train's seven cars derailed on the train that originated at 6:54 a.m. in Poughkeepsie, N.Y. Robert Deutsch, USA TODAYFullscreenLike this topic? You may also like these photo galleries:Replay

AutoplayShow ThumbnailsShow CaptionsLast SlideNext Slide

Amtrak, which shares tracks with the crippled Hudson Line, briefly suspended its service between New York City and Albany, but it resumed service shortly after 3 p.m. Sunday afternoon.

"With a lot of people trying to get home after the Thanksgiving holiday, the trains we were scheduled to operate were almost all sold out, so you're talking about thousands of people looking to travel on Amtrak,'' said Amtrak spokesman Clifford Cole.

Metro-North began running bus service on Sunday for stranded passengers, allowing them to take a bus from Tarrytown, on the Hudson Line, to White Plains, where they could pick up a Harlem Line train headed to New York City.

Those who would have caught Hudson trains further down the line, such as near Yankee Stadium, were encouraged to hop on the Harlem Line instead or to use the subway or local bus service to travel into Manhattan.

The train that derailed on Sunday was carrying between 100 and 150 passengers, Donovan said, "people hoping to enjoy the day in the city'' along with those who may have been visiting family in the Hudson Valley for Thanksgiving and were heading back home.

During the week, the Hudson line f! erries su! burban commuters traveling from as far north as Poughkeepsie to their jobs in Manhattan, as well as those doing a reverse commute from New York City to jobs in the Hudson Valley.

"If this had been a work day, if this was in the middle of the week, you would have had hundreds and hundreds of people on that train,'' New York Gov. Cuomo told CNN. "So it could have been much much worse.''

Contributing: Bob Minzesheimer

Monday, December 30, 2013

Monetary Stimulus Leaving Average Americans and Precious Metals Behind

Why is the average American falling behind in our economy?

Millions of Americans feel as though they are being left behind while the disparity between themselves and the rich continues to grow.

Over the last few years, the Federal Reserve has enacted the most aggressive monetary stimulus program in the central bank’s history. But even with the Fed’s trillions of new dollars thrown into the economy, most Americans do not feel any more financially secure or wealthier than before.

Now, when we look at the stock market, one could easily assume that the monetary stimulus brought on by our central bank is having a positive impact.

Let’s take a look at another country whose central bank has also been pushing a very easy monetary stimulus program for years; of course, I’m talking about the Japanese central bank.

Sunday, December 29, 2013

Desert Island Portfolio: What Would You Buy if No One Was Watching?

What would be the best portfolio in today’s market if 24/7 news cycles and portfolio statements did not imperil your reputation through short-term dips?

That “Desert Island Portfolio,” as John West of Research Affiliates calls it, would consist of today’s “most feared and loathed” areas of the market: emerging stocks and bonds.

Emerging-market stocks and bonds are poised to significantly outperform U.S. stocks and bonds over the coming years — based on current valuation criteria — but most investors will lack the nerve to buy them, or if they do buy them, to hold them.

So argues an analysis by West, a managing director of Rob Arnott’s Research Affilliates, based on the idea that advisors and managers of capital are constrained from optimizing returns by the fact that all professionals must report to someone.

West cites a variety of evidence that continuous performance measurement pressures investment professionals to manage short-term returns to avoid the risk of falling short of benchmarks and peer groups. After all, the client, after firing you, won’t get the benefit of the long-term investment gains, anyway.

Shiller P/E ratios on emerging stocks range from 10 to 15, implying subsequent 5-year nominal returns at a median of 13.6%.

That’s “almost a full 1,000 [basis points] compounded per annum for five years” over U.S. stocks, which at a Shiller P/E of 23.8, currently reside in the 90th percentile of their historic range and can expect median nominal returns of 4.2% per annum over the next five years based on historical averages. (Using more conservative assumptions for emerging-market stock performance, West posits a still healthy 500 basis-point advantage over U.S. stocks.)

The investment analyst then compares a typical 60/40 U.S. stock/bond blend (which he dubs the “Mainland” portfolio) with a “Desert Island” portfolio consisting of 20% emerging-market stocks; 30% emerging-market bonds; 30% high-yield bonds (esteemed for their above-average inflation protection); and 20% low-beta absolute return strategies (added to dampen portfolio volatility).

Projecting a range of probable outcomes, West points out that the Desert Island portfolio’s bottom quartile result, at 3.69%, is superior to the median, 3.32% outcome for the Mainland portfolio.

Thus the odds strongly favor “going maverick,” that is owning an out-of-the-mainstream asset mix. West calculates the Desert Island portfolio has an 80:20 or 90:10 likelihood of beating the Mainland portfolio over the next five years.

But measured over the next five quarters, those odds fall to only a 55:45 advantage. And therein lies the rub. With Desert Island’s 7% tracking error against Mainland, “short-term performance would vary widely and inevitably produce a bad year of relative underperformance, perhaps on the order of over 1,000 bps,” he writes.

“Only the most dedicated of contrarians could stick with such short term underperformance and, just as critically, convince clients to do the same,” he adds.

Top 5 Biotech Stocks To Own Right Now

The sell-off in emerging market stocks and bonds this year creates opportunities for maverick investors, he concludes — those willing to buy amid bad news and those able to hold “when clients get short-term indigestion,” West concludes.

---

Check out Wealth Management for Wild Markets on ThinkAdvisor.

Friday, December 27, 2013

Jim Cramer's 6 Stocks in 60 Seconds: VRTX GTLS YELP AVD Q GRPN (Update 1)

Check out Jim Cramer's latest trading recommendations on "Action Alerts Plus".

(Updates from 10:45 a.m. ET with closing information and corrects the ticker symbol for Avon Products.)

NEW YORK (TheStreet) -- Here's what Jim Cramer had to say on CNBC's "Squawk on the Street" Friday.

Bernstein downgraded Vertex Pharmaceuticals (VRTX) to hold from buy. "Be careful with all the big biotech," Cramer advised, and suggested taking some profits in Gilead Sciences (GILD). VRTX fell 5.6% to $67.36.

Piper Jaffray downgraded Chart Industries (GTLS) to hold from buy. Cramer said that although he likes CEO Sam Thomas, the "shortfall is meaningful," especially after the company missed on top- and bottom-line earnings estimates. GTLS dropped 6.3% to $100.73. Yelp (YELP) is trading well despite pricing its secondary at $67. Cramer said the "quarter was good" and investors should not "believe the critics." YELP fell 1% to $67.15. BMO downgraded Avon Products (AVD) to hold from buy. "Avon is a disaster," Cramer stated, and CEO Sheri McCoy "has to pull it out of a tailspin and quickly." AVP rose 4.4% to $18.27. Quintiles (Q) announced the departure of a major executive and now "people suddenly hate it," Cramer said. He agreed with the upgrade to buy from hold at Robert Baird. Q was 3.4% higher to $43.43. Groupon (GRPN) is "making a major comeback," according to Cramer, who would bet with management rather than against them. GRPN jumped 8.7% to $9.93. To sign up for Jim Cramer's free Booyah! newsletter, with all of his latest articles and videos, please click here. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell

Thursday, December 26, 2013

Australians Upbeat as Election Finally Concludes

Australia’s economy may be growing at a rate slightly below its long-term trend, but this past week’s federal elections prompted upbeat sentiment on the part of consumers and businesses alike. Tony Abbott’s Liberal-National Coalition, which had served as the conservative opposition to the ruling center-left Labor Party since late 2007, defeated Kevin Rudd’s Labor Party at the polls last Saturday, winning a clear majority of seats in the House of Representatives and a plurality in the Senate.

In order to assemble a slim majority in the Senate, however, the Liberal-Nationals will have to broker deals with a half-dozen newly elected minor-party senators, including one political neophyte representing the memorably named Australian Motoring Enthusiast Party. Nevertheless, the politics of this sub-group seem generally sympathetic to the center-right Coalition.

Although most of the survey underpinning the Westpac Melbourne Institute Index of Consumer Sentiment took place prior to the election’s outcome, opinion polling data showed the Liberal-Nationals with a clear lead in the final week heading into the election. And consumer sentiment may have been impacted not only by the anticipated result of the election, but also by simple relief from the extended period of heightened drama and uncertainty resulting from the unprecedented length of the election cycle.

In contrast to the now seemingly endless presidential election cycle in the US, most Australian federal elections are scheduled by the ruling party about six weeks to eight weeks out. But former Prime Minister Julia Gillard called for elections back in late January to help shore up her position within her party, as well as Labor’s standing among the electorate.

But internal divisions within Labor along with flagging poll numbers led to a leadership spill in late June, during which Labor Party members ousted Gillard in favor of backbencher Kevin Rudd, who himself had suffered a similar dismissal, at Gillard’s hand, from the prime ministership almost exactly three years earlier.

With an end to all of this finally within sight, the Index of Consumer Sentiment rose 4.7 percent month over month, to 110.6. According to Westpac, that’s the highest number since December 2010. Over the past five years, the index has averaged 102.9, with the high of 121.4 occurring in October 2009.

As might be expected, sentiment also shifted among adherents of each of the two major parties as the election drew nearer to its close. Confidence among Coalition voters jumped 19.1 percent, while it dropped 10.3 percent among Labor’s voters. Although that suggests a strong forward-looking component, under normal circumstances surveys of sentiment tend to reflect perceptions of the recent past.

In this case, Westpac notes that the index is now up 13.8 percent since the Reserve Bank of Australia initiated its current rate-cutting cycle back in November 2011. That suggests that the cumulative cuts of 2.25 percentage points in the central bank’s cash rate are finally flowing through to lower rates for consumers in areas such as mortgage lending. Meanwhile, the Australian stock market is currently trading at a five-year high, with the S&P/ASX 200 up 12.6 percent on a price basis since hitting a low in late June.

However, unemployment expectations remain a concern amid a slowing economy, though they improved by 6.6 percent from a month ago. This anxiety was underscored by a drop in employment of 10,800 jobs in August, a nearly opposite result from the consensus forecast that 10,000 new jobs would be created last month. As such, the unemployment rate ticked up one-tenth of a percentage point, to 5.8 percent, in line with forecasts, while the labor force participation rate declined by one-tenth of a percentage point, to 65 percent, falling short of expectations by two-tenths of a percentage point.

Over the past five years, the pace of job creation has averaged 11,900 new jobs per month, though on a year-to-date basis that average has fallen to 7,700 new jobs per month. Meanwhile, the unemployment rate is just below its high of 5.9 percent in mid-2009, as the global economy was still emerging from the Great Recession. So while households are optimistic about the direction of the general economy, they remain understandably worried about their individual prospects. And the deteriorating employment numbers should compel the RBA to maintain its easing bias for the near to medium term.

As the Australian economy attempts to find its footing in non-resource arenas, one area we’ve expected to get a boost is the housing market and its attendant industries, especially given an environment of historically low interest rates. The consumer sentiment survey lends some support to this notion, with the opinion that “now is a good time to buy a house” at its highest level since August 2009.

On the business front, incoming Prime Minister Tony Abbott has pledged to scrap the carbon tax as well as the Minerals Resource Rent Tax (MRRT), a levy on the super-profits of the largest mining companies. Assuming the Coalition is able to accomplish these objectives, that along with a declining Australian dollar should be especially helpful to firms that operate in the resource sector. For instance, JP Morgan analysts estimate that the removal of these taxes should boost the net present values of Rio Tinto Ltd (ASX: RIO, NYSE: RIO) and BHP Billiton Ltd (ASX: BHP, NYSE: BHP) by 6 percent and 3 percent, respectively.

Given such expectations, the anticipated outcome of the election also caused a sharp increase in National Australia Bank’s Business Confidence Index, which rose to its highest level since May 2011. The current reading of the index is 6, which compares favorably with a trailing five-year average of 1.2, though it’s still below the average of 7.9 during the five-year period preceding the global downturn.

Although business conditions and capacity utilization remain poor, firms were cheered both by an end to electoral uncertainty, as well as their expectation that the Coalition’s policymaking will be more propitious for enterprise. Of course, confidence could wane again in light of the continuing weakness of business conditions, along with the gradual pace of the political process that’s the hallmark of representative democracies.

But overall, assuming the Coalition can at least rescind the carbon tax and the MRRT, their ascendance should be a net positive for investors, particularly those in the resource space.

Wednesday, December 25, 2013

Xerox Corporation: An Interesting Misunderstanding

The Xerox (XRX) brand bias

What is the first image that comes to your mind when I say "Xerox?" I tried to do this exercise with my friends and colleagues. The answers were different, but all boiled down to photocopiers and printers.

I think that's an instinctive connection.

The Xerox brand has been linked to printing technology since 1906, the year it was founded. In 1938 the company invented a process today known as "xerography", a kind of dry writing. Using this process, in 1959 they introduced the first plain paper photocopier (the famous Xerox 914), and some years later the first laser printer, invented in their laboratories in 1969.

I won't go through the complete version of Xerox history, but one thing is clear: Xerox is the protagonist of (modern) printing technology history.

That's why associating its brand to printing machines seems quite natural. After all, the company has been doing it for almost 106 years.

But, if we dig deeper into this affair, we easily discover that Xerox is no longer a pure printing machine producer: It is already in the process of turning itself into a service company.

The Xerox brand, which has been impressing people's minds for over a century, as is perceived today, consists in fact of a brand bias, because most of Xerox revenues don't actually come from equipment selling, but from offering a wide range of services.

World digitalization

In an ever more digital world, the need for physical equipment is decreasing relentlessly. On the contrary, the demand for services is growing exponentially.

Hot Gold Stocks To Invest In 2014

In particular, referring to the printing sector, we can observe that:

Digitalized data (documents, books, articles) volume is growing at an incredible pace. Moreover, it would be simply not possible (nor useful) to print everything.Company and institutions encourage people to! print something only when strictly needed, both for environmental and for cost-cutting purposes.Fax machines will quickly become (tech) museum pieces, replaced by emails (people are free to print an email whenever it is really necessary).Combo printers (scanner and printer) will quickly replace most photocopiers (people will scan everything and print only when it is really necessary).
I think Xerox's management felt the responsibility to deal with these kinds of business dangers as soon as they became evident. I also think they brilliantly addressed and solved them.

Let's find out how.

The Affiliated Computer Services (ACS) acquisition

In September 2009, Xerox announced it would acquire ACS for $6.4 billion. ACS was a leading firm in Business Process Outsourcing (around 80% of 2009 total revenues, 40% of that coming from government contracts).

A BPO firm is able to handle specific customer business functions, like human resources or accounting, integrating them with the rest of customer business as if it was a single company.

To put it simply, ACS specialized in organizing and managing every kind of company information and process, by adding its expertise in order to simplify customer business functions, make them cheaper and/or more efficient.

The acquisition was a big achievement for both companies. Let's see why:

Xerox has been able to leverage ACS added-value BPO services, channeling them to its wide range of customersXerox added its document technology to ACS optimization processes, implementing them more effectively and decreasing costsLast but not least, ACS outsourcing expertise has been applied to Xerox itself, optimizing business functions, allowing them to cut most third-party outsourcing contracts
One thing that's worth noting is that the ACS acquisition was not a discontinuity in Xerox's business model — it was just the last step in a slow path in the services-oriented direction.

Let's have a look at current revenues break! down in o! rder to show what has changed since the ACS acquisition (the deal was completed in February 2010).

Xerox revenues breakdown	2009	2010	2011
Total (in millions)	15,179	21,633	22,626
Equipment sales	3,491	7,138	7,014
Services revenues	11,687	13,628	14,706

One other point is: the operation contributed also to sell more equipment, probably partially because customers searching for a complete solution provider showed up and partially because Xerox was able to sell its printing machines to pre-existent ACS customers.

We know that integrating a big company into one even bigger company is an hard task. CEO Ursula M. Burns and her staff is still in the process of doing it and cutting costs in divisions belonging to the old ACS organization.

That's really interesting to me as a value investor, because I firmly think that the best of the ACS acquisition hasn't come yet!

The real power of the new XRX organization, the new BPO-centered business model, is that all the synergies working underground are currently hidden by the current economic weakness (especially in Europe), by the restructuring charges (mainly amortization of intangibles) and by initial investments needed to start new contracts (their services-related new signings were up 15% in the last quarter).

Valuation and investment thesis

As we've seen, XRX is slightly but inexorably changing its skin to move into the future, in an increasingly digitized world, capturing new market share in BPO and document outsourcing growing markets, so my guess is that very soon it will be considered and compared to consolidated services businesses like IBM and Oracle.

Moreover, I think it should be valued using multiples similar to these companies, not the current ones (if you check, for example, on Google Finance, ! you will ! see that XRX is still considered belonging to the Office Equipment sector).

IBM has a P/E multiple of 14.35 (considering fiscal year 2011 earnings). Applying this multiple to XRX would raise its price to $12.91 (always considering XRX fiscal 2011 earnings), giving it a potential return (at today price of $8.30) of 55%.

This consideration, added to the fact that the company expects its 2012 EPS to grow 10-15% and that it intends to repurchase its shares for around $1 billion (at today prices, it would be around 8% of total outstanding common shares), leads me to be really confident of the fact that XRX shareholders will be very well rewarded in the long run.

Disclosure: I am long XRX

Friday, December 20, 2013

Stoxx Europe 600 eyes best week since April

Top 5 High Tech Companies To Invest In 2014

LONDON (MarketWatch) -- European stock indexes headed for the strongest weekly gain since April on Friday, as the U.S. Federal Reserve's tapering decision spurred optimism about the U.S. economy. The Stoxx Europe 600 index (XX:SXXP) climbed 0.1% to 319.85, on track for a 3.3% weekly advance. On Thursday, the benchmark posted its biggest gain since early September, after the Fed decided to reduce its asset purchases. Drug makers were among major gainers on Friday, with shares of Novartis AG (CH:NOVN) up 0.6% and GlaxoSmithKline PLC (UK:GSK) (GSK) rising 0.6%. Shares of SKF AB slid 5% after the Swedish ball-bearing firm said a European Commission probe will impact fourth-quarter earnings. Among country-specific indexes, Germany's DAX 30 index (DX:DAX) rose 0.3% to 9,358.53, while the U.K.'s FTSE 100 index (UK:UKX) slipped 0.1% to 6,580.87. France's CAC 40 index (FR:PX1) fell 0.2% to 4,167.30.

Wednesday, December 18, 2013

OppenheimerFunds shakes up leadership team

oppenheimerFunds, glavin, steinmetz, mutual funds

OppenheimerFunds chief executive officer William Glavin will be stepping down from that role in July, the company announced Tuesday. He will be replaced by chief investment officer Art Steinmetz. Mr. Glavin, who joined OppenheimerFunds in January 2009, will remain chairman.

“Art has been one of the most successful and respected investment managers in the industry for more than 27 years, and I believe it is important that an investor lead this company at this point in its evolution,” Mr. Glavin said in a statement. “We have developed a strategy that will accelerate our growth, and Art and the leadership team are well positioned to lead this change.”

Mr. Steinmetz joined Oppenheimer in 1986, and was named chief investment officer in 2008. He is co-portfolio manager of the $10 billion Oppenheimer International Bond Fund (OIBAX) and the lead manager $7.7 billion Oppenheimer Global Strategic Income Fund (OPSIX).

Mr. Glavin was a co-COO and executive vice president of MassMutual's U.S. insurance group before being named CEO of Oppenheimer in January 2009.

Krishna Memani, chief investment officer of fixed income, has been named Mr. Steinmetz's replacement as chief investment officer.

Kaitlyn Downing, a spokeswoman for OppenheimerFunds, could not be reached for comment.

OppenheimerFunds, the ninth largest mutual fund company, has $15.4 billion of net inflows through the end of November, fifth most among mutual fund companies.

Tuesday, December 17, 2013

Martin Whitman Comments on Twitter

Twitter (TWTR) went public November 7, 2013 at $26 per share. On the first day of trading, Twitter Common closed at $45.90.There are obvious benefits to being an early IPO investor, assuming you can get a position size large enough to make a difference to a portfolio's over all return. Even these investors, however, achieved returns orders of magnitude lower than those obtained by Twitter's early investors and its most senior employees. The prospectus discloses, inter alia that 42,708,824 options on common shares, exercisable at an average price of $1.84 per share, were outstanding on June 30, 2013. On occasion, Third Avenue's funds can attempt to recreate this type of scenario by participating in a capital raise or refinancing (see the Third Avenue Real Estate Fund's investment in Trinity Place Holdings, discussed in that team's fourth quarter 2013 letter) but mostly we seek to create the possibility of achieving outsized returns by purchasing undervalued securities in the open market.

From Martin Whitman's Third Avenue Management fourth quarter 2013 investor letter.

Also check out: Third Avenue Management Undervalued Stocks Third Avenue Management Top Growth Companies Third Avenue Management High Yield stocks, and Stocks that Third Avenue Management keeps buying Martin Whitman Undervalued Stocks Martin Whitman Top Growth Companies Martin Whitman High Yield stocks, and Stocks that Martin Whitman keeps buying

Currently 2.00/51234

Monday, December 16, 2013

3 Reasons GM's New Buick Riviera Matters

The Buick Riviera concept car was unveiled in Shanghai on Friday night. Photo credit: General Motors Co.

There's a lot that's interesting about General Motors (NYSE: GM ) new Buick Riviera concept car, and I'm mostly not talking about the way it looks.

Of course, there's no doubt that it's visually very striking. The Riviera Concept, which made its debut at an auto show in Shanghai on Friday night, is a coupe that combines sleek lines with an elegant evolution of the front grille that has become a Buick trademark in recent years.

It'll almost certainly never be put into production – at least not with all of its fanciful show-car details like the huge gull-wing doors. But there are (at least) three things that should make this Riviera quite interesting to those who follow GM's efforts closely.

First, it's not just a fanciful concept
Automakers have presented "concept cars" at auto shows for decades. Often, these have been just flights of fancy, an opportunity for designers to stretch, to play a little.

But as I wrote when GM showed its Cadillac Ciel concept car in 2011, "in the new cost-conscious GM, nothing, not even a fanciful show car, happens without a business case."

I think that's true here, too. The decision to call this car "Riviera" -- a badge worn by famous Buick coupes in the past -- wasn't an accident. While the Riviera (or at least, this Riviera) might not be destined for mass production, GM executives said that it "offers a preview of Buick's future design language."

That's what Ford (NYSE: F ) said about its Evos concept car in 2012, and already we've seen its striking front-end design and other cues show up in cars like Ford's new Fusion.

2011's Cadillac Ciel concept hinted at the styling of future Cadillacs like the all-new CTS sedan. Photo credit: General Motors.

It's also what the Cadillac folks said about the Ciel two years ago. Elements of the Ciel's striking look are clearly reflected in the new CTS that GM showed last month, and we're likely to see more of those cues if the much-rumored big new Cadillac sedan is revealed.

More to the point, I thought (and still think) that the Ciel was a sort of sanity check for GM management on the idea of taking Cadillac back in the direction of large, opulent cars. I think the Riviera might be another sanity check for GM's management, this time for what they want to do with the Buick brand.

And what's that? Well, I think it has a lot to do with China.

Second, it was unveiled -- and designed -- in Shanghai
While the Buick brand doesn't get a lot of attention here in the U.S. anymore, it's big in China. There are many for that, not least of which is that the last Chinese emperor famously owned two Buicks.

Buicks are regularly among China's top-selling cars, and as GM looks to build on its already-big Chinese presence, it's natural that the Buick brand would have a big role in the company's plans.

But that's not why the Riviera was unveiled in Shanghai. It was unveiled in Shanghai because it was designed there -- by folks at the Shanghai GM joint venture and at GM's Pan Asia Technical Automotive Center in Shanghai.

GM's press release describing the Riviera draws on some very Chinese images, noting that the car's shape "has the vibrant nature of a moving river." Clearly, it was designed with Chinese consumers' tastes in mind.

And I think that's what GM is really saying here: Upcoming new Buicks will draw on the Riviera's design language -- and they will have those Chinese consumers in mind as well.

Third, it's a cool new kind of high-tech hybrid
It's entirely possible that GM will produce a coupe called Riviera in coming years. It's even possible that it will look quite a bit like this show car, though I'd be a little skeptical on that front.

But I'm not skeptical of the possibility that the Riviera's drivetrain technology will find its way into mass production, and not necessarily just in Buicks. If you have any interest in green cars, this is pretty cool: GM has come up with a plug-in hybrid -- a hybrid that can be charged up like an electric car and driven for a while without using any gas -- that doesn't need to be plugged in, though it can be.

Instead, the car recharges via a "sensory recharge panel" on the bottom: You drive it on to a special mat, and the car's batteries recharge wirelessly. Keep the mat in your garage, and you don't even have to think about recharging every night -- it just happens.

That's cool. That should play well in China, where high-tech car features draw lots of attention. And I bet that GM hopes to roll that idea out widely if the company can perfect it -- and not just in China, and not just in Buicks.

Is is time to buy GM stock now?
Few companies lead to such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's even bigger than you might think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.

Saturday, December 14, 2013

Stock Buybacks at Market All-Time Highs

5 Best Performing Stocks To Watch Right Now

This has definitely been the era of stock buybacks with such low borrowing costs as companies are borrowing at very low rates not to expand the business, create innovative products, increase research and development but to buy back their own stock which isn`t cheap considering the multiple expansion in markets the last five years.

But earnings from a revenue side have been subpar to say the least and companies are buying back stock each quarter just to make their quarterly numbers look better than they actually are based upon the year over year business growth.

The funny thing is that this has been going on for four years, these are public companies right? At what point do the floats become so small that for all intents and purposes these are private companies? I am being a little facetious here, but this has to be the longest continuous era of stock buybacks on record all fueled by the Fed`s never before witnessed five straight years with the Fed Funds Rate at near zero percent.

Is this the Best Use of Company Capital?

It is a real shame that these companies don`t have some better use for this cheap government loans in essence than stock buybacks. How is the economy ever going to grow if these companies don`t try to expand their businesses with this cheap capital, hire more workers, and thus have future customers for their products who are now employed consumers.

But with stock floats getting smaller and smaller and company stocks at record highs isn`t this the opposite of buying low and selling high? The companies are buying their stock when it is extremely over-valued. Isn`t the smart use of stock buybacks to buy back the company stock when the company thinks that the shares are undervalued by the market? You know, buying low an! d selling high, doesn`t this just make for good business practices?

50% Losses on Buybacks?

By my thinking most of these stock buybacks are going to be underwater once QE ends this summer of 2014, and the stock buybacks are going to be net losses for these companies down the line. How do responsible boards allow this type of behavior, buying back stock at exceptionally high levels?

Furthermore, once interest rates start rising and companies have to start raising capital where do you think it is going to come from? These same shares are going to return to market at much lower prices, further pushing stock prices down vie share dilution. This is the exact opposite of how a solid business would want to manage operations, cash on hand, borrowing, and managing stock buybacks.

The reasoning is that this is all setting up future earnings to be real bad when all these shares come back to market for equity raises, which you know is inevitable, and these stocks are going to have just terrible quarters, further sending their stocks down in the process.

Market Crash Inevitable

All the factors are coming together for quite a correction in stocks at some point down the line, and this is just another example of buying time now, but paying a heavy price in the future. All of which further exemplifies why we are going to have another huge market crash, the boom and bust cycle of credit markets, and how every investor better be damn good at market timing. There is no other choice with these types of poor cash management issues at companies.

Misplaced Incentives Short-term in Nature

The cynical side of me who has worked at many fortune 500 companies sees this as the real motivation or at least a driving force. All the executive team, all the players at companies receive stock options in compensation packages, stock buybacks not only help shareholders right now with increased returns, but all these 'big dogs' at these companies make a fortune on these stock options wit! h stock p! rices higher each consecutive year, and each successive month for 2013.

The delta between the issue price, and when they exercise these options is incredible right now, and the incentive to push these compensation packages through the moon via stock buybacks, even with the market at all-time highs, is just too good for these executive teams to pass up right now.

Retirement Golden Options Plan

In addition who cares if this is a poor use of company resources, if these shares are going to be largely underwater in three years, with the money these executives ( and we are not just referring to CEOs – employees who receive options can be quite broad from a numbers standpoint at large firms – all at the upper management level of course) make on these stock options they can retire comfortably, and they probably aren`t even going to be around at these firms when the proverbial mess hits the fan at these companies.

Boards Same As They Always Are – Borderline Incompetent

Consequently again I ask where is the board in all of this excessive use of stock buybacks quarter after quarter? Aren`t they supposed to be the checks and balances for this type of short-sighted behavior? I thought we learned something from the "Enron Era" of good old boys Boards!

When I heard Kyle Bass discussing one of the reasons he was investing in Herbalife (HLF) because he thought after the audit is completed that Herbalife will be able to borrow at 300 basis points to buyback future stock at all-time highs – I just shake my head as this isn`t going to end well folks!

About the author:GuruFocus - Stock Picks and Market Insight of Gurus

Currently 4.00/512345

Rating: 4.0/5 (5 votes)

Subscribe via Email RSS Feeds

Subscribe RSS Comments Please leave your comment:
More GuruFocus Links

Latest Guru Picks	Value Strategies
Warren Buffett Portfolio	Ben Graham Net-Net
Real Time Picks	Buffett-Munger Screener
Aggregated Portfolio	Undervalued Predictable
ETFs, Options	Low P/S Companies
Insider Trends	10-Year Financials
52-Week Lows	Interactive Charts
Model Portfolios	DCF Calculator
RSS Feed	Monthly Newsletters
The All-In-One Screener	Portfolio Tracking Tool

Friday, December 13, 2013

Dow Tumbles With Costco but Visa and MasterCard Soar

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks pulled back today as investors reacted to yesterday's apparent congressional budget deal as the Dow Jones Industrial Average (DJINDICES: ^DJI ) fell 130 points, or 0.8%, while the S&P 500 dropped 1.1%.

Visa (NYSE: V ) led the Dow winners, gaining 3.1%, as it jumped on good news from rival MasterCard (NYSE: MA ) , whose shares jumped 3.5% after announcing a 10-for-1 stock split and a $3.5 billion repurchase plan. With a market cap of $95 billion, the $3.5 billion repurchase program should lift earnings per share over the long run by about 3.5% so today's jump may be a little exaggerated. Stock splits, while often generating attention and enthusiasm, should have no effect on a stock movement. The credit card company also said it would hike its quarterly dividend to raise its yield from 0.3% to 0.55%. Both companies have relatively low dividend yield, but rake in gobs of free cash flow. Many market observers expect the capital being returned to shareholders to increase.

Warehouse retailer Costco (NASDAQ: COST ) finished down 1.2% after it missed on top and bottom lines. While retailers across the board have struggled this quarter, Costco as a low-price competitor with a membership model seemed immune from the industry's woes but that was not the case. Earnings per share came in at $0.96 against estimates of $1.02 as expenses grew faster than revenue. Expenses for employee stock option grew 24% due to a large gain in the company's stock price this year, and sales moved up 5% to $24.47 billion, short of estimates of $25.35 billion. Same-store sales were up 3%, or 5% excluding changes in fuel prices and currency translation, indicating the core business remains strong.

Top 5 Insurance Companies To Watch For 2014

Make money money
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Thursday, December 12, 2013

Top 10 Stocks For 2014

Q. How do you make a small fortune in commodities?

A. Start with a large fortune.

If you've been investing for a while, chances are you've happened upon that maxim, or a variation of it. I first heard it on the trading floor of the Chicago Mercantile Exchange, where I was a cub reporter covering the commodity markets for The Wall Street Journal in the late 1970s.

Not a lot has changed since then. Commodities -- and the companies that dig them up or process them -- are still sensitive to boom-and-bust cycles.

A retailer like Wal-Mart (NYSE: WMT) or a consumer products vendor such as Starbucks (Nasdaq: SBUX) might be able to deliver relatively consistent growth year after year. But raw materials like copper, coal and platinum are different -- they are susceptible to the types of peaks and valleys you see in the chart below.

This cyclicality doesn't mean there is no place for commodity stocks in even the most conservative portfolios. Investors of all stripes are profiting from commodities today -- sometimes in dramatic fashion, as you'll see below.

Top 10 Stocks For 2014: Sage Grp(SGE.L)

The Sage Group plc, together with its subsidiaries, engages in the development, distribution, and support of business management software and related products and services for small and medium-sized enterprises worldwide. The company provides products and services in the areas of accounting, payroll, customer relationship management, financial forecasting, payment processing, job costing, human resources, business intelligence, taxation and other products for accountants, business stationery, development platforms, e-business, and enterprise resource planning, as well as offers solutions for various industries. The Sage Group plc was founded in 1981 and is based in Newcastle Upon Tyne, the United Kingdom.

Top 10 Stocks For 2014: Beasley Broadcast Group Inc.(BBGI)

Beasley Broadcast Group, Inc., a radio broadcasting company, primarily engages in the operation of radio stations in the United States. The company sells commercial advertising airtime to local and national advertisers. It owns and operates 42 radio stations in various markets, including Atlanta and Augusta in Georgia; Boston, Massachusetts; Fort Myers-Naples, Miami-Fort Lauderdale, and West Palm Beach-Boca Raton in Florida; Fayetteville and Greenville-New Bern-Jacksonville in North Carolina; Las Vegas, Nevada; Philadelphia, Pennsylvania; and Wilmington, Delaware. The company also operates one radio station in the expanded AM band in Augusta, Georgia. In addition, it provides management services to two FM stations in Las Vegas, Nevada. Beasley Broadcast Group was founded in 1961 and is based in Naples, Florida.

Top 10 Dividend Companies To Buy For 2014: Signet Group(SIG.L)

Signet Jewelers Limited operates as a specialty jewelry retailer in the United States, the United Kingdom, the Republic of Ireland, and the Channel Islands. The company retails jewelry, watches, and associated services. As of January 28, 2012, it operated a network of 1,318 stores in 50 states in the United States that trade nationally in malls and off-mall locations as ?Kay Jewelers?, and regionally under various mall-based brands, as well as operated as destination superstores under the ?Jared The Galleria Of Jewelry? trade name. The company also operated a network of 535 stores in the United Kingdom, including 14 stores in the Republic of Ireland and 3 in the Channel Islands under the ?H.Samuel?, ?Ernest Jones?, and ?Leslie Davis? trade names in high street locations and shopping malls. Signet Jewelers Limited was founded in 1950 and is based in Hamilton, Bermuda.

Top 10 Stocks For 2014: MEMSIC Inc.(MEMS)

MEMSIC, Inc. provides semiconductor sensor and system solutions based on integrated micro electro-mechanical systems (MEMS) technology and mixed signal circuit design. It offers sensor products, principally accelerometers. The company?s sensors are used for motion, direction, and pressure sensing applications; and accelerometer products are used to measure tilt, shock, vibration, and acceleration, as well as in various applications, such as mobile phones, automotive safety systems, video projectors, global positioning systems, video gaming systems, interactive toys, inclination sensing, earthquake detection, cardiac pacemakers, and image projectors. Its system solution products include wireless sensors that connect the physical environment with enterprise management and information systems to provide monitoring, automation, and control solutions for a range of industries, as well as inertial systems that provide end-users and systems integrators with MEMS-based solutions for the measurement of static and dynamic motion in a various environments, such as avionics, remotely operated vehicles, agricultural and construction vehicles, automotive test, and wind power turbines. The company also engages in the development of multi-sensor and MCU integrated system products at the integrated circuit level for the consumer and mobile market, as well as at the module level for the industrial, automotive, and general aviation markets. It sells its products directly, as well as through systems integrators, resellers, distributors, and sales representatives worldwide. The company was founded in 1999 and is headquartered in Andover, Massachusetts.

Advisors' Opinion:

[By Triska Hamid]
In Abu Dhabi, researchers at the ATIC-SRC Center of Excellence for Energy Efficient Electronic Systems (ACE4S), a center jointly established by the Advanced Technology Investment Company and the Semiconductor Research Corporation, are working on the development of systems on chip (SOC) and micro-electromechanical systems (MEMs) in health care.

Top 10 Stocks For 2014: CenturyLink Inc.(CTL)

CenturyLink, Inc., together with its subsidiaries, operates as an integrated communications company. The company provides a range of communications services, including voice, Internet, data, and video services in the continental United States. Its services include local exchange and long distance voice telephone services, as well as enhanced voice services, such as call forwarding, caller identification, conference calling, voicemail, selective call ringing, and call waiting; wholesale local network access services; and data services, including high-speed Internet access services, data transmission services over special circuits and private lines, and switched digital television services, as well as special access and private line services. The company also offers fiber transport, competitive local exchange carrier, security monitoring, and other communications, as well as professional and business information services. In addition, it provides other related services, such as leasing, selling, installing, and maintaining customer premise telecommunications equipment and wiring; payphone services; and network database services, as well as participates in the publication of local telephone directories. Further, the company offers printing, direct mail services, and cable television services; and wireless broadband Internet access services and satellite television services. As of December 31, 2010, it operated approximately 6.5 million telephone access lines. CenturyLink, Inc was founded in 1968 and is based in Monroe, Louisiana.

Advisors' Opinion:

[By Rick Munarriz]
Finally, we have CenturyLink� (NYSE: CTL ) coming through with encouraging bottom-line results. Its adjusted profit of $0.76 a share was ahead of the $0.68 a share it posted a year earlier. The pros were targeting flat earnings growth.
[By Muhammad Bazil]
Windstream has the highest debt/equity ratio of all direct competitors, as well as from the industry. Companies like Verizon (VZ) and CenturyLink (CTL), have a debt to equity ratio which is slightly above the industry average of 0.92, while AT&T (T) has a debt/equity ratio of 0.88, which is lower than the industry average. A debt/equity ratio demonstrates how many times a company's long-term debt exceeds its equity. A higher proportion of debt compared to equity leads to higher volatility in earnings and increases the probability that a company may default on debt due to higher financial leverage. Given that Windstream has been very acquisitive over the past few years, the financial risk is fairly explained by the company's inability to increase its profits through debt financing. However, the ratio is extremely high.
[By Selena Maranjian]
Telecom company CenturyLink (NYSE: CTL ) shed 4%, and recently yielded 6.1% (which reflects a dividend cut of about 25% as the company focuses more on share buybacks). The company landed a hefty Pentagon contract in April, with a possible 10-year value of $750 million, and has been moving into promising arenas such as cloud computing (via its purchase of SAVVIS). The company has substantial debt, though, topping $19 billion, but also significant free cash flow, near $3 billion�annually. Its EPS has been rising �in the past few years, but revenue growth is mixed.

Top 10 Stocks For 2014: Alliance Data Systems Corporation (ADS)

Alliance Data Systems Corporation, together with its subsidiaries, provides data-driven and transaction-based marketing, and customer loyalty solutions primarily in the United States and Canada. The company operates in three segments: LoyaltyOne, Epsilon, and Private Label Services and Credit. The LoyaltyOne segment includes AIR MILES Reward Program that enables consumers to earn AIR MILES reward miles as they shop within a range of retailers and other sponsors participating in the AIR MILES Reward Program; and offers loyalty services, including loyalty consulting, customer analytics, and creative services. The Epsilon segment provides integrated direct marketing solutions, which combine database marketing technology and analytics with a range of direct marketing services comprising email marketing campaigns. This segment's products and services consist of marketing database services, analytical services, strategic consulting and creative services, proprietary data service s, and digital communications. The Private Label Services and Credit segment encompasses credit card processing, billing and payment processing, customer care and collections services for private label retailers, as well as private label retail credit card receivables financing, including securitization of the credit card receivables that it underwrites from its private label retail credit card programs. The company serves financial services, specialty retail, grocery and drugstore chains, petroleum retail, technology, hospitality and travel, media, and pharmaceuticals end markets. Alliance Data Systems Corporation was founded in 1996 and is headquartered in Plano, Texas.

Advisors' Opinion:

[By Lee Jackson]
Alliance Data Systems Corp. (NYSE: ADS) has had a very strong year so far. The company and its combined businesses are North America’s largest and most comprehensive provider of transaction-based, data-driven marketing and loyalty solutions serving large, consumer-based industries. The Thomson/First Call price target for the stock is set at $220.
[By James O'Toole]
S&P also announced Wednesday that clothing retailer Abercrombie & Fitch (ANF) and communication technology firm JDS Uniphase Corp. (JDSU) will be leaving the index, to be replaced by Alliance Data Systems (ADS) and floor-covering producer Mohawk Industries (MHK, Fortune 500).
[By Rich Duprey]
Loyalty and marketing specialist Alliance Data Systems (NYSE: ADS ) grabbed a tiger by the tail with a multiyear agreement to�provide private label credit card services�to�Systemax (NYSE: SYX ) subsidiary TigerDirect.

Top 10 Stocks For 2014: Silvore Fox Minerals Corp (SFX.V)

Silvore Fox Minerals Corp., a development stage company, engages in the acquisition and exploration of mineral resource properties in Canada. The company explores for base and precious metals, such as copper, gold, silver, molybdenum, zinc, and cobalt. It primarily holds interest in the Coxheath property and Oceanview claims located in the Nova Scotia. The company was formerly known as Silvor Foxx Capital Corp. and changed its name to Silvore Fox Minerals Corp. in October 2008. Silvore Fox Minerals Corp is headquartered in Toronto, Canada.

Top 10 Stocks For 2014: Senior Eng Grp(SNR.L)

Senior plc designs, manufactures, and markets high technology components and systems worldwide. The company operates through two divisions, Aerospace and Flexonics. The Aerospace division offers aerospace ducting systems, aerospace fabricated components, aerospace machined components, bellows and seals, couplings and valves, hydraulic and fuel systems, machined aero structures, machined airframe and interiors, and sensors and monitoring systems. The Flexonics division provides automotive common rail, drain tube, exhaust connector, flexible tube, heat exchangers, and high pressure lines; fabric expansion joints; fuel cells; industrial air ducts, dampers and diverters, flexible tubing, and metal bellows; and metal expansion joints and spring hangers. Senior plc serves original equipment producers in the aerospace, defense, diesel engine, exhaust system, land vehicle, and energy markets. The company was formerly known as Senior Engineering Group plc and changed its name to Se nior plc in 1999. Senior plc was incorporated in 1933 and is headquartered in Rickmansworth, the United Kingdom.

Top 10 Stocks For 2014: New York Mortgage Trust Inc.(NYMT)

New York Mortgage Trust, Inc., together with its subsidiaries, operates as a real estate investment trust (REIT) in the United States. The company engages in acquiring, investing, financing, and managing mortgage-related assets. It primarily invests in agency residential adjustable-rate, hybrid adjustable-rate, and fixed-rate mortgage-backed securities (RMBS); non-Agency RMBS; prime adjustable-rate residential mortgage loans held in securitization trusts; commercial mortgage-backed securities; commercial mortgage loans; and other commercial real estate-related debt investments. The company has elected to be taxed as a REIT and will not be subject to federal income tax if it distributes at least 90% of its REIT taxable income to its stockholders. New York Mortgage Trust, Inc. was founded in 1989 and is headquartered in New York, New York.

Advisors' Opinion:

[By Amanda Alix]
More mREITs stay the course, but two trim payouts
Despite suffering many tumbles and bruises, several mREITs have announced that their dividends will be unchanged from the previous quarter. Several did so last week, and yesterday saw Hatteras Financial (NYSE: HTS ) , an agency-only trust, keeping its own $0.70 per share�payout the same. Hybrid New York Mortgage Trust (NASDAQ: NYMT ) also kept its dividend stable, at $0.27 per share, in line with its four most recent distributions.

Top 10 Stocks For 2014: Apollo Global Management LLC(APO)

Apollo Global Management, LLC is a publicly owned investment manager. The firm primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles, and corporations. It manages client focused portfolios, hedge funds, real estate funds, and private equity funds for its clients. The firm invests in the fixed income and alternative investment markets across the globe. Its alternative investments include investment in private equity and real estate markets. The firm's private equity investments include traditional buyouts, distressed buyouts and debt investments, corporate partner buyouts, distressed asset, turnaround, corporate restructuring, special situation, acquisition, and industry consolidation transactions. Its fixed income investments include distressed debt, senior bank loans, and value oriented fixed income securities. The firm seeks to invest in chemicals; commodities; consumer and retail; oil an d gas, metals, mining, agriculture, commodities, distribution and transportation; financial and business services; manufacturing and industrial; media distribution, cable, entertainment, and leisure; energy, packaging and materials; and satellite and wireless. It seeks to invest in companies based in across North America with a focus on United States, and Europe. The firm employs a combination of contrarian, value, and distressed strategies to make its investments. It conducts an in-house research to create its investment portfolio. The firm seeks to acquire minority positions in its portfolio companies. Apollo Global Management, LLC was founded in 1990 and is headquartered in New York, New York with nine additional offices in North America, Europe, and Asia.

Advisors' Opinion:

[By Hilary Kramer]

3. Private Equities Private equities are also no longer an exclusive asset class for ultra-high-net-worth investors. You may not be able to buy into Bain Capital's funds, but you can certainly own shares of elite management companies like Blackstone (NYSE: BX) and Apollo Global Management (NYSE: APO) and share a piece of their behind-the-scenes expertise and financial success.
[By David Hanson and Matt Koppenheffer]
Private equity firm Apollo Global Management (NYSE: APO ) has reported first-quarter earnings, with profit up 72% to $792. However, this is an industry full of volatility, and there's a lot to understand here before jumping in. Where should investors be looking? In this video, Fool financial analysts David Hanson and Matt Koppenheffer discuss some of the key metrics involved in understanding the private equity business and compare some of the biggest players in this space.

Sunday, December 8, 2013

Is Conn's a Better Buy Than Best Buy and hhgregg?

Conn's (NASDAQ: CONN ) will release its quarterly report on Thursday, and the lesser-known retailer of appliances and consumer electronics has quietly put together an impressive long-term investing record. Yet with Best Buy (NYSE: BBY ) having bounced back over the past year from big losses in previous years, the future for Conn's investors hasn't stood out as much. Will smaller companies like Conn's and hhgregg (NYSE: HGG ) keep outpacing Best Buy, or will the larger company end up having the last laugh over its rivals?

Conn's has evolved recently from being a pure retailer of appliances and electronics to becoming a credit-facilitator for those with less than perfect credit. With financing terms that go further than most retailers are willing to go to close sales, Conn's is willing to expose itself to credit risk, a move that has paid off handsomely during the recovery from the financial crisis. But if the economy turns, will Conn's find itself in a world of hurt? Let's take an early look at what's been happening with Conn's over the past quarter and what we're likely to see in its report.

Stats on Conn's

Analyst EPS Estimate	$0.64
Change From Year-Ago EPS	68%
Revenue Estimate	$289.9 million
Change From Year-Ago Revenue	41%
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Can Conn's earnings keep soaring this quarter?
In recent months, analysts have gotten more optimistic about Conn's earnings, raising their October-quarter calls by $0.02 per share and their full-year fiscal 2015 projections by a nickel per share. The stock has lost its upward momentum, though, falling 12% since late August.

Conn's July quarter earnings report was to blame for the stock's declines, with a big bottom-line miss disappointing investors who had gotten used to good news from the retailer. Revenue gains of 30% confirmed that customers were continuing to shop at Conn's, but the company's credit card business weighed on profitability. That in turn called into question Conn's strategy of offering credit to those who might not be able to get it elsewhere, and although the company kept its guidance for the full year steady, investors had hoped for at least a small boost.

The challenge that Conn's has that hhgregg and Best Buy have largely sidestepped is making sure that its customers can actually pay for their purchases. Conn's gets a whopping 75% of its sales from offering customers in-house financing, making purchases possible for those with marginal credit ratings between 550 and 650. When things go well, that gives Conn's an extra revenue stream of finance-charge income that Best Buy and hhgregg don't generally get. But during tougher times, the credit exposure is an added risk that Conn's must face.

The real question is whether Conn's can benefit from improving conditions in the housing market. Investors had hoped that a big boost in home prices and home-buying activity might jump-start sales of furniture and appliances, but higher home prices also mean that buyers are stretching to afford their homes, leaving them less able to deal with payments on high-ticket furnishings as well. Best Buy still relies somewhat on appliances, but it has doubled down on mobile devices and other high-margin electronics even as Conn's and hhgregg have tried to defend themselves against online retailers by emphasizing larger items that aren't as readily shippable.

In the Conn's earnings report, watch closely at the credit-related results from the company's operations. If borrowers get into more trouble, it could spell difficulty not just for Conn's but for retailers in general, as they've counted on a healthy consumer to help boost their overall growth.

Can Conn's survive retail's transformation?
Conn's is dealing with the same challenges as many bricks-and-mortar retailers. To learn about two companies with much better prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

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