The Incredible Two-Day Jump in US Treasure Debt

October 6th, 2010

Things are getting so, so, so weird that I was locked inside the Mogambo Bunker Of Panic (MBOP), looking through the periscope to keep a vigilant watch for the social explosion outside that was coming, I figured, so, so soon, with my finger on the trigger of something fully loaded and reassuringly .45 caliber, and a slice of yummy pizza in my one free hand to keep my energy level up via the universal Magic Of The Pepperoni (MOTP).

To show you that I am not over-reacting like the hyper-excitable, gun-nut, gold-bug, Austrian school of economics kind of weird guy that I actually am, here is an example of the corrupt, game-playing crap going on with the Federal Reserve and the Treasury: On Wednesday, 9/29/10, the national debt was $13.466 trillion. The next day, 9/30, it goes to $13.561 trillion. Again, “the next day,” 10/1, the start of the new federal fiscal year, it rises to $13.610 trillion!

This $144 billion is a staggering lot of borrowing that, somehow, happened in Two Freaking Days (TFD)! This is $72 billion per day! This is the government borrowing – per day! – almost $240 for every man, woman and child in the Whole Freaking Country (WFC)! Gaaaahhhh!

The scream at the end of the previous paragraph is Secret Mogambo Code (SMC) to alert all Junior Mogambo Rangers (JMRs) to buy more gold, silver and oil as fast as they can, because of this kind of monstrous liquidity injection by governmental deficit-spending, made possible by a crazily irresponsible Federal Reserve literally creating the money necessary, and then, committing a central-banking sin known as “monetizing the debt,” the Fed used the money to buy the debt that the government wanted to sell!! Gaaaahhhh!

As many have deciphered by now, the concluding “Gaaaahhh!” of the previous paragraph, combined with the double exclamation points of the previous sentence, is surely more Secret Mogambo Code (SMC), available only to Junior Mogambo Rangers (JMRs), although you can probably figure out what is Freaking Me Out (FMO), which is always the same thing FMO, making that whole Secret Mogambo Code (SMC) thing just another piece of Stupid Mogambo Crap (SMC), as implied by their identical acronyms.

Anyway, this $144 billion in additional federal debt, accumulated in Two Freaking Days (TFD), is, annualized at this astounding rate for each of the government’s roughly 250 working days per year, an outrageous $18 trillion a year! This incomprehensible sum is about $5 trillion more than the entire GDP of America! And more than half of GDP is already composed of government spending right now! We’re Freaking Doomed (WFD)!

We are doomed for allowing the Federal Reserve to create so much more fiat money, which creates inflation in prices, which is why I probably noticed, in Barron’s, that the new Gross Domestic Product Deflator for the second quarter of 2010 is a laughably-low 1.9%, which is almost double the previous quarter’s also-laughably-low 1.0% inflation!

By this rude disrespect and outright loathing I mean inflation – by the most conservative of estimates of inflation that can be cooked up – is still growing by 90% in one quarter! Inflation is growing at 1,303% a year, compounded? Yikes! Yikes! Yikes!

Okay, I admit I am being stupidly simplistic, overly dramatic and acting irresponsibly in every sense of the word, in that I am writing this Stupid Mogambo Crap (SMC) at my desk when I should be working, but I am surely going to get fired anyway, so what’s the point, ya know what I mean?

Obviously I am wasting my time, and your time, in being silly, especially in light of everyone else thinking that 2% inflation is OK, it certainly seems OK with Congress and with most egghead academic economists, while I am the only guy who is freaked out by it.

And I haven’t heard much of a gasp from any of them about Ben Bernanke, chairman of the Federal Reserve, now “targeting” monetary policy to achieve a suicidal 5% inflation in prices! Insane!

So, here at the end, here at the “bust” part of the boom-bust cycle, it looks like it will be a race! How exciting!

So which will it be? Will the price of gold go so high so quickly that I can tell my boss that I quit, and how I am thrilled to wash my hands of this stupid company, its stupid employees and stupid customers always calling me hurtful names like “incompetent bonehead,” with which I totally disagree, and “lazy, gold-bug moron,” which is a little nearer the truth.

And as a lazy, gold-bug moron, all I do is simply buy gold, silver and oil when the Federal Reserve is acting so insanely irresponsible, especially so that the federal government can desperately deficit-spend, and doubly-especially when the money concerned is around 10% of GDP!

With horrifying facts like that screaming at you, “We’re freaking doomed!” buying gold, silver and oil is, “Whee! This investing stuff is easy!” in all its glorious action! Whee!

The Mogambo Guru
for The Daily Reckoning

The Incredible Two-Day Jump in US Treasure Debt originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Incredible Two-Day Jump in US Treasure Debt




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

The Incredible Two-Day Jump in US Treasure Debt

October 6th, 2010

Things are getting so, so, so weird that I was locked inside the Mogambo Bunker Of Panic (MBOP), looking through the periscope to keep a vigilant watch for the social explosion outside that was coming, I figured, so, so soon, with my finger on the trigger of something fully loaded and reassuringly .45 caliber, and a slice of yummy pizza in my one free hand to keep my energy level up via the universal Magic Of The Pepperoni (MOTP).

To show you that I am not over-reacting like the hyper-excitable, gun-nut, gold-bug, Austrian school of economics kind of weird guy that I actually am, here is an example of the corrupt, game-playing crap going on with the Federal Reserve and the Treasury: On Wednesday, 9/29/10, the national debt was $13.466 trillion. The next day, 9/30, it goes to $13.561 trillion. Again, “the next day,” 10/1, the start of the new federal fiscal year, it rises to $13.610 trillion!

This $144 billion is a staggering lot of borrowing that, somehow, happened in Two Freaking Days (TFD)! This is $72 billion per day! This is the government borrowing – per day! – almost $240 for every man, woman and child in the Whole Freaking Country (WFC)! Gaaaahhhh!

The scream at the end of the previous paragraph is Secret Mogambo Code (SMC) to alert all Junior Mogambo Rangers (JMRs) to buy more gold, silver and oil as fast as they can, because of this kind of monstrous liquidity injection by governmental deficit-spending, made possible by a crazily irresponsible Federal Reserve literally creating the money necessary, and then, committing a central-banking sin known as “monetizing the debt,” the Fed used the money to buy the debt that the government wanted to sell!! Gaaaahhhh!

As many have deciphered by now, the concluding “Gaaaahhh!” of the previous paragraph, combined with the double exclamation points of the previous sentence, is surely more Secret Mogambo Code (SMC), available only to Junior Mogambo Rangers (JMRs), although you can probably figure out what is Freaking Me Out (FMO), which is always the same thing FMO, making that whole Secret Mogambo Code (SMC) thing just another piece of Stupid Mogambo Crap (SMC), as implied by their identical acronyms.

Anyway, this $144 billion in additional federal debt, accumulated in Two Freaking Days (TFD), is, annualized at this astounding rate for each of the government’s roughly 250 working days per year, an outrageous $18 trillion a year! This incomprehensible sum is about $5 trillion more than the entire GDP of America! And more than half of GDP is already composed of government spending right now! We’re Freaking Doomed (WFD)!

We are doomed for allowing the Federal Reserve to create so much more fiat money, which creates inflation in prices, which is why I probably noticed, in Barron’s, that the new Gross Domestic Product Deflator for the second quarter of 2010 is a laughably-low 1.9%, which is almost double the previous quarter’s also-laughably-low 1.0% inflation!

By this rude disrespect and outright loathing I mean inflation – by the most conservative of estimates of inflation that can be cooked up – is still growing by 90% in one quarter! Inflation is growing at 1,303% a year, compounded? Yikes! Yikes! Yikes!

Okay, I admit I am being stupidly simplistic, overly dramatic and acting irresponsibly in every sense of the word, in that I am writing this Stupid Mogambo Crap (SMC) at my desk when I should be working, but I am surely going to get fired anyway, so what’s the point, ya know what I mean?

Obviously I am wasting my time, and your time, in being silly, especially in light of everyone else thinking that 2% inflation is OK, it certainly seems OK with Congress and with most egghead academic economists, while I am the only guy who is freaked out by it.

And I haven’t heard much of a gasp from any of them about Ben Bernanke, chairman of the Federal Reserve, now “targeting” monetary policy to achieve a suicidal 5% inflation in prices! Insane!

So, here at the end, here at the “bust” part of the boom-bust cycle, it looks like it will be a race! How exciting!

So which will it be? Will the price of gold go so high so quickly that I can tell my boss that I quit, and how I am thrilled to wash my hands of this stupid company, its stupid employees and stupid customers always calling me hurtful names like “incompetent bonehead,” with which I totally disagree, and “lazy, gold-bug moron,” which is a little nearer the truth.

And as a lazy, gold-bug moron, all I do is simply buy gold, silver and oil when the Federal Reserve is acting so insanely irresponsible, especially so that the federal government can desperately deficit-spend, and doubly-especially when the money concerned is around 10% of GDP!

With horrifying facts like that screaming at you, “We’re freaking doomed!” buying gold, silver and oil is, “Whee! This investing stuff is easy!” in all its glorious action! Whee!

The Mogambo Guru
for The Daily Reckoning

The Incredible Two-Day Jump in US Treasure Debt originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Incredible Two-Day Jump in US Treasure Debt




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Looking for Value in September’s Biggest Losers

October 6th, 2010

Looking for Value in September's Biggest Losers

With reward comes risk. That's the painful lesson learned by biotech investors last month. Investors in Arena Pharma (Nasdaq: ARNA), Idenix Pharma (Nasdaq: IDIX), AMAG Pharma (Nasdaq: AMAG) and Vical (Nasdaq: VICL) all saw their investments plunge by nearly a fourth– or more — thanks to bad news on the drug approval front. Of the top four losers in the Russell 2000 last month, all are in biotech — an industry for which you've got to have a strong stomach.

Company (Ticker) Recent Price September Loss 52-Week High 52-Week Low Catalyst
Arena Pharma (Nasdaq: ARNA) $1.54 -76% $8.00 $1.51 FDA spurns company's anti-obesity drug
Idenix Pharma (Nasdaq: IDIX) $3.14 -48% $6.11 $1.81 Setback in Hepatitis C trials
AMAG Pharma (Nasdaq: AMAG) $17.85 -32% $52.49 $16.70 Disappointing results for anemia drug
Vical
(Nasdaq: VICL)
$2.21 -29% $4.43 $2.20 Poor results from blood-vessel growth drug
Flagstar Bancorp (NYSE: FBC) $1.86 -26% $7.85 $2.91 False start on a capital raise
Genoptix
(Nasdaq: GXDX)
$14.39 -20% $39.00 $13.51 Pre-announced tepid Q3 results
Virginia Commerce Bank (Nasdaq: VCBI) $4.81 -17% $7.69 $3.01 Being acquired by Discover

Arena looks unlikely to rebound, as the FDA made it clear that Arena's weight-loss drug offered too little help for dieters. And in a similar vein, AMAG's iron-boosting drug for the treatment of anemia may be in deep trouble, as recent clinical trials have revealed troublesome reactions. And that's often a kiss of death with the safety-conscious FDA.

Yet Idenix Pharma may emerge as a rebound candidate. The company is testing a pair of drugs for the treatment of Hepatitis C. One drug yielded minor liver concerns (though those quickly abated) while the other drug appeared to work just fine. Trouble is, Idenix would like to use the two drugs in concert.

Hepatitis C is considered to be one of the largest causes of illness for which no permanent cure exists. That's why a range of companies are pursuing remedies in clinical trials. Bristol-Myers Squibb (NYSE: BMY) paid nearly $900 million in early September to acquire Zymogenetics (Nasdaq: ZYMO) for its promising, but unproven, drug pipeline.

Right now, Idenix Pharma thinks the recent issues are merely a delay, and the company hopes to resume clinical testing by year end. As a near-term milestone, the company is expected to release a lot more clinical trial information in late October, and as much of the data is expected to be relatively positive, this stock could see a nice pop on the heels of that event.

The outlook for Vical is the least clear of this group. The company's drug (licensed to Sanofi-Aventis (NYSE: SNY)) did not fare well in tests to see if it could create new blood vessels to help increase blood flow to distressed limbs. But the company has several promising drugs that are being tested earlier in the clinical process, and some analysts think this latest setback will be forgotten if those other drugs can make headway in clinical trials.

Flagstar's dilution problem
Michigan-based Flagstar Bancorp (NYSE: FBC) likely shot itself in the foot. The bank needs to shore up its capital base and had hoped to quietly raise $600 million through an equity offering. But word got out and existing investors ran for the hills, as their positions in the bank would suddenly become very diluted. Now, with shares shedding a quarter of their value in the past few weeks, the bank needs to figure if such an offering is still a good idea.

Flagstar doesn't actually need $600 million to cover its losses — it instead wanted to build up a small war chest to make local acquisitions. With shares now below $2, management has likely had a change of heart. In fact, it increasingly appears as if Flagstar will sit tight and muddle through with a less-than-ideal balance sheet. In fact, shares rose roughly +3% on Friday as investors realized that such an equity offering is unlikely in the near-term. Shares look pretty enticing trading at about a fourth of book value.

Virginia Bancorp (Nasdaq: VCBI) had seemingly learned the dangers of unexpected dilution. The company's stock surged more than +20% in late July after it announced plans to cancel an equity raise. But management later had a change of heart and pulled off a $10 million equity financing late in September. Shares are off more than -20% since September 21. With the deal done, it may actually be safe to re-enter this name, as it is now selling at 60% of book value.

Genoptics (Nasdaq: GXDX)
I took a look at this maker of blood-diagnostic testing kits back in June after its shares had slid nearly -20% to around $18. [Read more here]

At that time, I cautioned that the company my see even more near-term weakness as “a new sales staff will need several more quarters to start gaining traction.” Adding concern, the health care sector is seeing cost-containment pressures and competition is starting to build.

Sure enough, the company recently announced another quarterly shortfall, and shares recently touched an all-time low dating back to its late 2007 IPO. At this point, this has become a deep value play with half of the market value being accounted for in cash. And while per share profits are under pressure, they are likely to remain north of $1. As a result, shares have likely found a floor at current levels and could start to rebound over the winter as the company's new sales staff gains further traction. It's not yet time to buy this name, but shares are certainly worth monitoring.

Action to Take –> The only names you should bottom-fish here are the two banks and Idenix. Both banks trade well below book value and are likely to rebound once investors realize how much they were oversold. Idenix still has many potential positive milestones ahead of it, though as with any biotech, it is a high risk play.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
Looking for Value in September's Biggest Losers

Read more here:
Looking for Value in September’s Biggest Losers

Uncategorized

Looking for Value in September’s Biggest Losers

October 6th, 2010

Looking for Value in September's Biggest Losers

With reward comes risk. That's the painful lesson learned by biotech investors last month. Investors in Arena Pharma (Nasdaq: ARNA), Idenix Pharma (Nasdaq: IDIX), AMAG Pharma (Nasdaq: AMAG) and Vical (Nasdaq: VICL) all saw their investments plunge by nearly a fourth– or more — thanks to bad news on the drug approval front. Of the top four losers in the Russell 2000 last month, all are in biotech — an industry for which you've got to have a strong stomach.

Company (Ticker) Recent Price September Loss 52-Week High 52-Week Low Catalyst
Arena Pharma (Nasdaq: ARNA) $1.54 -76% $8.00 $1.51 FDA spurns company's anti-obesity drug
Idenix Pharma (Nasdaq: IDIX) $3.14 -48% $6.11 $1.81 Setback in Hepatitis C trials
AMAG Pharma (Nasdaq: AMAG) $17.85 -32% $52.49 $16.70 Disappointing results for anemia drug
Vical
(Nasdaq: VICL)
$2.21 -29% $4.43 $2.20 Poor results from blood-vessel growth drug
Flagstar Bancorp (NYSE: FBC) $1.86 -26% $7.85 $2.91 False start on a capital raise
Genoptix
(Nasdaq: GXDX)
$14.39 -20% $39.00 $13.51 Pre-announced tepid Q3 results
Virginia Commerce Bank (Nasdaq: VCBI) $4.81 -17% $7.69 $3.01 Being acquired by Discover

Arena looks unlikely to rebound, as the FDA made it clear that Arena's weight-loss drug offered too little help for dieters. And in a similar vein, AMAG's iron-boosting drug for the treatment of anemia may be in deep trouble, as recent clinical trials have revealed troublesome reactions. And that's often a kiss of death with the safety-conscious FDA.

Yet Idenix Pharma may emerge as a rebound candidate. The company is testing a pair of drugs for the treatment of Hepatitis C. One drug yielded minor liver concerns (though those quickly abated) while the other drug appeared to work just fine. Trouble is, Idenix would like to use the two drugs in concert.

Hepatitis C is considered to be one of the largest causes of illness for which no permanent cure exists. That's why a range of companies are pursuing remedies in clinical trials. Bristol-Myers Squibb (NYSE: BMY) paid nearly $900 million in early September to acquire Zymogenetics (Nasdaq: ZYMO) for its promising, but unproven, drug pipeline.

Right now, Idenix Pharma thinks the recent issues are merely a delay, and the company hopes to resume clinical testing by year end. As a near-term milestone, the company is expected to release a lot more clinical trial information in late October, and as much of the data is expected to be relatively positive, this stock could see a nice pop on the heels of that event.

The outlook for Vical is the least clear of this group. The company's drug (licensed to Sanofi-Aventis (NYSE: SNY)) did not fare well in tests to see if it could create new blood vessels to help increase blood flow to distressed limbs. But the company has several promising drugs that are being tested earlier in the clinical process, and some analysts think this latest setback will be forgotten if those other drugs can make headway in clinical trials.

Flagstar's dilution problem
Michigan-based Flagstar Bancorp (NYSE: FBC) likely shot itself in the foot. The bank needs to shore up its capital base and had hoped to quietly raise $600 million through an equity offering. But word got out and existing investors ran for the hills, as their positions in the bank would suddenly become very diluted. Now, with shares shedding a quarter of their value in the past few weeks, the bank needs to figure if such an offering is still a good idea.

Flagstar doesn't actually need $600 million to cover its losses — it instead wanted to build up a small war chest to make local acquisitions. With shares now below $2, management has likely had a change of heart. In fact, it increasingly appears as if Flagstar will sit tight and muddle through with a less-than-ideal balance sheet. In fact, shares rose roughly +3% on Friday as investors realized that such an equity offering is unlikely in the near-term. Shares look pretty enticing trading at about a fourth of book value.

Virginia Bancorp (Nasdaq: VCBI) had seemingly learned the dangers of unexpected dilution. The company's stock surged more than +20% in late July after it announced plans to cancel an equity raise. But management later had a change of heart and pulled off a $10 million equity financing late in September. Shares are off more than -20% since September 21. With the deal done, it may actually be safe to re-enter this name, as it is now selling at 60% of book value.

Genoptics (Nasdaq: GXDX)
I took a look at this maker of blood-diagnostic testing kits back in June after its shares had slid nearly -20% to around $18. [Read more here]

At that time, I cautioned that the company my see even more near-term weakness as “a new sales staff will need several more quarters to start gaining traction.” Adding concern, the health care sector is seeing cost-containment pressures and competition is starting to build.

Sure enough, the company recently announced another quarterly shortfall, and shares recently touched an all-time low dating back to its late 2007 IPO. At this point, this has become a deep value play with half of the market value being accounted for in cash. And while per share profits are under pressure, they are likely to remain north of $1. As a result, shares have likely found a floor at current levels and could start to rebound over the winter as the company's new sales staff gains further traction. It's not yet time to buy this name, but shares are certainly worth monitoring.

Action to Take –> The only names you should bottom-fish here are the two banks and Idenix. Both banks trade well below book value and are likely to rebound once investors realize how much they were oversold. Idenix still has many potential positive milestones ahead of it, though as with any biotech, it is a high risk play.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
Looking for Value in September's Biggest Losers

Read more here:
Looking for Value in September’s Biggest Losers

Uncategorized

These Bad Boy Investments are Perfect for This Market

October 6th, 2010

These Bad Boy Investments are Perfect for This Market

Here's the thing about sin: though ugly, it tends to roll on in any economy.

This fact is a huge benefit to companies that deal in vice. When searching for investments in a slow-growth or uncertain economy, investors often look to defensive industries such as healthcare, food and utilities. After all, people still get sick and need to eat and stay warm regardless of the state of the economy.

But, it's seldom mentioned that people consistently do something else in any economy — drink and smoke. In fact, vice just might be the most defensive business of all.

Stocks in the cigarette and beer industries seem to keep on making profits and the stocks keep going up regardless of what the market is doing. While the S&P 500 is lower now than it was 10 years ago, Morningstar's cigarette industry category soared at a remarkable average of more than +21% a year for the past 10 years. The Beverage-Brewer (beer) category returned an average of about +16% per year for the same period.

And the outperformance is continuing.

Stocks of cigarette companies are up +24% so far this year and the beer stocks are up a lofty +41% on average, compared to less than +4% for the S&P 500.

While the recovery sputters in an environment even the Federal Reserve calls “unusually uncertain”, investors (without a moral objection) might find a profitable port in the storm from the world of vice.

Bad Boys worth a look
Phillip Morris International (NYSE: PM) is the second largest tobacco company in the world (next to China National Tobacco, which has a near monopoly). The cigarette giant owns seven of the world's 15 leading brands, including the iconic Marlboro brand, Parliament, Lark, Chesterfield and others. Operating in 160 countries, Phillip Morris International has a whopping industry-leading 15.4% market share of the international market outside the United States, and 26% not including China.

Phillip Morris International is the international division spun off by Altria (NYSE: MO) in 2008. The spin off freed the company from a host of legal and regulatory hurdles that face Altria, while capturing the growth in international markets. The company generated 42% of first half 2010 revenue in fast growing emerging markets, and has a huge 30% average market share in the top 10 emerging market countries excluding China.

Although highly defensive, the cigarette industry is not immune to economic conditions as smokers quit or buy cheaper brands in a soft economy. The company estimates worldwide cigarette volume will decrease about -2% in 2010. But, the company estimates its own sales volume to increase about +3% to +4% for the year because of exposure to emerging markets.

Phillip Morris International is an absolute cash cow that generates free cash flow of 30% of net revenue (a figure among the highest for large multinational companies). The company just increased the quarterly dividend +7.4% and the stock now pays a solid 4.6% yield.

Boston Beer Company (NYSE: SAM) is the fourth largest brewer in the United States and the largest domestic producer of craft beer with its flagship Sam Adams brand. Craft beer is differentiated from mass produced beer in that it is defined as any beer that sells less than two million barrels per year. Beer drinkers are increasingly choosing the more unique and rich taste of craft beer.

Craft beer has been the fastest growing category in alcoholic beverages. While liquor and mainstream beer sales fell during the recession, craft beer sales increased +6% in 2008 and +5% in 2009. In the first half of 2010, craft beer sales have increased +9% from last year, compared to a year-over-year decrease for mainstream beer sales of -2.7%.

Boston Beer has plenty of room to grow. While net income more than doubled between 2005 and 2009, the company is still relatively small with 2009 revenue of just $415 million. Boston Beer is well-positioned financially, as it has (as of June 30th) $54 million in cash and no debt.

The stock has soared +80% during the past year and +43% year to date, but it still sells at just under 24 times earnings, which is lower than the beer category average and lower than its average multiple for the past five years.

Action to Take –> Both Phillip Morris International and Boston Beer should continue to generate strong earnings in either a good economy or a bad economy. The resilience of these companies makes them ideal investments in today's environment. Both stocks can be purchased at current prices.


– Tom Hutchinson

P.S. –

Uncategorized

These Bad Boy Investments are Perfect for This Market

October 6th, 2010

These Bad Boy Investments are Perfect for This Market

Here's the thing about sin: though ugly, it tends to roll on in any economy.

This fact is a huge benefit to companies that deal in vice. When searching for investments in a slow-growth or uncertain economy, investors often look to defensive industries such as healthcare, food and utilities. After all, people still get sick and need to eat and stay warm regardless of the state of the economy.

But, it's seldom mentioned that people consistently do something else in any economy — drink and smoke. In fact, vice just might be the most defensive business of all.

Stocks in the cigarette and beer industries seem to keep on making profits and the stocks keep going up regardless of what the market is doing. While the S&P 500 is lower now than it was 10 years ago, Morningstar's cigarette industry category soared at a remarkable average of more than +21% a year for the past 10 years. The Beverage-Brewer (beer) category returned an average of about +16% per year for the same period.

And the outperformance is continuing.

Stocks of cigarette companies are up +24% so far this year and the beer stocks are up a lofty +41% on average, compared to less than +4% for the S&P 500.

While the recovery sputters in an environment even the Federal Reserve calls “unusually uncertain”, investors (without a moral objection) might find a profitable port in the storm from the world of vice.

Bad Boys worth a look
Phillip Morris International (NYSE: PM) is the second largest tobacco company in the world (next to China National Tobacco, which has a near monopoly). The cigarette giant owns seven of the world's 15 leading brands, including the iconic Marlboro brand, Parliament, Lark, Chesterfield and others. Operating in 160 countries, Phillip Morris International has a whopping industry-leading 15.4% market share of the international market outside the United States, and 26% not including China.

Phillip Morris International is the international division spun off by Altria (NYSE: MO) in 2008. The spin off freed the company from a host of legal and regulatory hurdles that face Altria, while capturing the growth in international markets. The company generated 42% of first half 2010 revenue in fast growing emerging markets, and has a huge 30% average market share in the top 10 emerging market countries excluding China.

Although highly defensive, the cigarette industry is not immune to economic conditions as smokers quit or buy cheaper brands in a soft economy. The company estimates worldwide cigarette volume will decrease about -2% in 2010. But, the company estimates its own sales volume to increase about +3% to +4% for the year because of exposure to emerging markets.

Phillip Morris International is an absolute cash cow that generates free cash flow of 30% of net revenue (a figure among the highest for large multinational companies). The company just increased the quarterly dividend +7.4% and the stock now pays a solid 4.6% yield.

Boston Beer Company (NYSE: SAM) is the fourth largest brewer in the United States and the largest domestic producer of craft beer with its flagship Sam Adams brand. Craft beer is differentiated from mass produced beer in that it is defined as any beer that sells less than two million barrels per year. Beer drinkers are increasingly choosing the more unique and rich taste of craft beer.

Craft beer has been the fastest growing category in alcoholic beverages. While liquor and mainstream beer sales fell during the recession, craft beer sales increased +6% in 2008 and +5% in 2009. In the first half of 2010, craft beer sales have increased +9% from last year, compared to a year-over-year decrease for mainstream beer sales of -2.7%.

Boston Beer has plenty of room to grow. While net income more than doubled between 2005 and 2009, the company is still relatively small with 2009 revenue of just $415 million. Boston Beer is well-positioned financially, as it has (as of June 30th) $54 million in cash and no debt.

The stock has soared +80% during the past year and +43% year to date, but it still sells at just under 24 times earnings, which is lower than the beer category average and lower than its average multiple for the past five years.

Action to Take –> Both Phillip Morris International and Boston Beer should continue to generate strong earnings in either a good economy or a bad economy. The resilience of these companies makes them ideal investments in today's environment. Both stocks can be purchased at current prices.


– Tom Hutchinson

P.S. –

Uncategorized

Wall Street’s Hands are Tied — and That’s a Good Thing

October 6th, 2010

Wall Street's Hands are Tied -- and That's a Good Thing

In recent weeks, stock market pundits have been wrestling with a curious phenomenon. Trading activity has fallen sharply, which these market-watchers presume to mean that investors have lost interest in stocks. Mom-and-pop investors have likely become more gun-shy this year. But the main culprit for lower trading volumes: Wall Street's own trading desks.

Recent regulations have forced major investment banks to shrink divisions that have used house money to bet on the stock market. Some firms like Bank of America (NYSE: BAC) are getting out of the business altogether. These “prop trading” desks had been a solid source of profits, and Wall Street is surely sorry to see them go.

The ostensible reason for these new regulations is that it makes the whole financial system less risky. If there firms aren't putting their own money at risk, they are less likely to fail. For the rest of us, the demise of prop trading is a clear positive. That's because Wall Street has just lost the incentive to save the best ideas for itself for a while.

Just ask Goldman Sachs (NYSE: GS). Even as Goldman was telling clients to buy slumping housing stocks and bonds in 2008, its own prop trading desk was betting against housing — kind of like a used car dealer pawning a lemon off on you.

The decision to shrink or exit the prop trading business won't deal a sharp blow to the major banks. The prop trading divisions typically account for just 8% to 10% of revenue, and since their results can be very volatile, analysts don't tend to assign a high value to their profit streams. Nevertheless, the fact that consensus earnings forecasts for Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America have held up even as its increasingly clear that banking and trading business has slowed in recent months should give you pause. Each of these firms is expected to report quarterly results during the next two weeks, and their shares may be vulnerable to a reduction in forecasts.

The steady wind down of trading at many prop trading desks is already being felt as trading volume is clearly slumping. IBM (NYSE: IBM), for example, traded less than six million shares daily, on average, in August and September. That represents the lowest volume of the year, which is not necessarily a bad thing for large company stocks. But lower volume means that bid and ask spreads on micro-caps and small cap stocks may be a bit wider than usual (as volume in a stock rises, market makers compete more aggressively to fill stock orders and the bid/ask spread shrinks). So it makes sense to place a limit order rather than market orders on these smaller stocks.

Shrinking volume
As noted earlier, declining trading volume is viewed as a sign that individual investors have lost interest in stocks. But the exchange-traded fund (ETF) phenomenon brings that into question. Many exchange-traded funds have seen a commensurate rise in trading volume that roughly offsets the trading volume of individual stocks. For example, the SPDR S&P 500 ETF (NYSE: SPY) used to trade less than 75 million shares per day back in 2005. By 2007, that figure routinely exceeded 100 million and it now averages more than 200 million. [6 Rules ETF Investors Must Know]

The shift away from stock picking and toward ETFs tells you that stocks in a specific sector are more likely to move in lock-step, at least in the short-term, as these ETFS buy and sell all of the components in tandem. For investors with a medium to long-term time horizon, stock-picking is still a winning strategy as fundamental factors like sales and profit growth will always be the long-term determinant of stocks.

Action to Take –> The demise of the individual investor is a current theme playing out among market pundits. Don't you believe it. As the economy sputters back to life in 2011 and 2012, stocks are likely to find newfound favor as they remain cheap by historical standards. The fact that trading volume is light right now simply gives you more time to sharpen your best research ideas. And as noted earlier, Wall Street may be feeling some pressure from changing business trends, but that's not necessarily a bad thing for you.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
Wall Street's Hands are Tied — and That's a Good Thing

Read more here:
Wall Street’s Hands are Tied — and That’s a Good Thing

ETF, Uncategorized

Wall Street’s Hands are Tied — and That’s a Good Thing

October 6th, 2010

Wall Street's Hands are Tied -- and That's a Good Thing

In recent weeks, stock market pundits have been wrestling with a curious phenomenon. Trading activity has fallen sharply, which these market-watchers presume to mean that investors have lost interest in stocks. Mom-and-pop investors have likely become more gun-shy this year. But the main culprit for lower trading volumes: Wall Street's own trading desks.

Recent regulations have forced major investment banks to shrink divisions that have used house money to bet on the stock market. Some firms like Bank of America (NYSE: BAC) are getting out of the business altogether. These “prop trading” desks had been a solid source of profits, and Wall Street is surely sorry to see them go.

The ostensible reason for these new regulations is that it makes the whole financial system less risky. If there firms aren't putting their own money at risk, they are less likely to fail. For the rest of us, the demise of prop trading is a clear positive. That's because Wall Street has just lost the incentive to save the best ideas for itself for a while.

Just ask Goldman Sachs (NYSE: GS). Even as Goldman was telling clients to buy slumping housing stocks and bonds in 2008, its own prop trading desk was betting against housing — kind of like a used car dealer pawning a lemon off on you.

The decision to shrink or exit the prop trading business won't deal a sharp blow to the major banks. The prop trading divisions typically account for just 8% to 10% of revenue, and since their results can be very volatile, analysts don't tend to assign a high value to their profit streams. Nevertheless, the fact that consensus earnings forecasts for Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America have held up even as its increasingly clear that banking and trading business has slowed in recent months should give you pause. Each of these firms is expected to report quarterly results during the next two weeks, and their shares may be vulnerable to a reduction in forecasts.

The steady wind down of trading at many prop trading desks is already being felt as trading volume is clearly slumping. IBM (NYSE: IBM), for example, traded less than six million shares daily, on average, in August and September. That represents the lowest volume of the year, which is not necessarily a bad thing for large company stocks. But lower volume means that bid and ask spreads on micro-caps and small cap stocks may be a bit wider than usual (as volume in a stock rises, market makers compete more aggressively to fill stock orders and the bid/ask spread shrinks). So it makes sense to place a limit order rather than market orders on these smaller stocks.

Shrinking volume
As noted earlier, declining trading volume is viewed as a sign that individual investors have lost interest in stocks. But the exchange-traded fund (ETF) phenomenon brings that into question. Many exchange-traded funds have seen a commensurate rise in trading volume that roughly offsets the trading volume of individual stocks. For example, the SPDR S&P 500 ETF (NYSE: SPY) used to trade less than 75 million shares per day back in 2005. By 2007, that figure routinely exceeded 100 million and it now averages more than 200 million. [6 Rules ETF Investors Must Know]

The shift away from stock picking and toward ETFs tells you that stocks in a specific sector are more likely to move in lock-step, at least in the short-term, as these ETFS buy and sell all of the components in tandem. For investors with a medium to long-term time horizon, stock-picking is still a winning strategy as fundamental factors like sales and profit growth will always be the long-term determinant of stocks.

Action to Take –> The demise of the individual investor is a current theme playing out among market pundits. Don't you believe it. As the economy sputters back to life in 2011 and 2012, stocks are likely to find newfound favor as they remain cheap by historical standards. The fact that trading volume is light right now simply gives you more time to sharpen your best research ideas. And as noted earlier, Wall Street may be feeling some pressure from changing business trends, but that's not necessarily a bad thing for you.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
Wall Street's Hands are Tied — and That's a Good Thing

Read more here:
Wall Street’s Hands are Tied — and That’s a Good Thing

ETF, Uncategorized

After the Market’s Biggest September in 70+ Years, Time to Prepare for a Pullback

October 6th, 2010

After the Market's Biggest September in 70+ Years, Time to Prepare for a Pullback

You have undoubtedly heard that various components or asset classes of the market are, from time to time, manipulated. “Manipulating the market” means that by some purposeful and sometimes with nefarious intentions, a market that should move higher, moves lower… or, as in the case of September, the market moved higher when it probably would normally have moved lower.

If I am not mistaken, the unemployment rate is still near 10%, the housing crisis is far from over — with foreclosures expected to grow, employers are not hiring, our national debt is piling up to such an extent and such a rate as to defy any common sense that it will ever be paid off without some intervening economic event — like double-digit inflation, for example.

The Federal Reserve is using obtuse tactics to move many billions of dollars (created out of thin air) into large institutions (banks) that are buying our own debt and accumulating massive positions in hard-asset stocks on a global scale. This could, and I think will, have a cataclysmic ending of massive economic proportions one of these days in the not too distant future.

The result of all of this is faux growth in stock prices, coupled with unusually low volume, and it has buoyed the market to the biggest September gain in more than 70 years.

Ask yourself a question: do you really believe the economy is strong enough or will be strong enough to justify that kind of upward trend?

I happen to be in the camp that believes the market is being manipulated higher, but maybe I am just trying to understand why a virtual dearth of fundamental reasons exists for such a big run up in the market. It is not that I am unhappy with the big run-up in September. Quite the contrary: the portfolio in my premium newsletter, Mastering the Markets, is literally on fire. Double-digit gains have become the norm. I hear from subscribers every day, thanking me for all the money they have made.

No, I am not unhappy with the upward trend in the market, but as you can see from my forecast for October (below), there is an 80% probability that we will see a huge swoon in October, that is, unless Bernanke and company decide to artificially juice the market. A somewhat more socially acceptable term for this is also called, “Quantitative Easing.”

Why do you care? You should care because if you believe, as I do, that the market could move dramatically lower in the next few weeks, and if you plan on trading with that bearish bias, which I plan to do, then you could lose a lot of money if the market is manipulated higher when it should move lower.

This is why my rules-based approach to an exit strategy is always in place. This week's trade is recommended because I believe the chart above of the S&P 500 has an 80% probability of being accurate. If the forecast proves to be accurate, then having a short bias in the market makes a lot of sense. If the trade is wrong, then I want out as quickly as I can — so be sure to use a solid and reasonable stop loss on this week's trade.

My trade for this week is ProShares UltraShort S&P 500 ETF (NYSE: SDS).

SDS is an exchange-traded fund (ETF) that is designed to move up at about twice the rate the S&P 500 moves down. If the S&P 500 moves higher, SDS will drop in price at about twice the rate the S&P 500 moves higher.

Could October be just as booming as September? Sure, but my data and my analysis indicate that the market is due for a correction. Yes, I know there is a sea-change election coming up in about a month. Yes, I know what the polls say about who is going to win and who is going to lose.

But all that is for November — not October. My bet is on a correction sometime within the next week or two — and an SDS play could generate a sizable return.

Action to Take –> I think SDS is a good trade if you're looking to hedge your portfolio against a possible downturn. I recommend buying SDS with a limit order at $29.21 good for the week and setting an initial stop loss at $27.94. The target price for this trade would be about $37.50, so traders could expect to see a gain of roughly +28% on this trade.


– Mike Turner

ETF, Uncategorized

After the Market’s Biggest September in 70+ Years, Time to Prepare for a Pullback

October 6th, 2010

After the Market's Biggest September in 70+ Years, Time to Prepare for a Pullback

You have undoubtedly heard that various components or asset classes of the market are, from time to time, manipulated. “Manipulating the market” means that by some purposeful and sometimes with nefarious intentions, a market that should move higher, moves lower… or, as in the case of September, the market moved higher when it probably would normally have moved lower.

If I am not mistaken, the unemployment rate is still near 10%, the housing crisis is far from over — with foreclosures expected to grow, employers are not hiring, our national debt is piling up to such an extent and such a rate as to defy any common sense that it will ever be paid off without some intervening economic event — like double-digit inflation, for example.

The Federal Reserve is using obtuse tactics to move many billions of dollars (created out of thin air) into large institutions (banks) that are buying our own debt and accumulating massive positions in hard-asset stocks on a global scale. This could, and I think will, have a cataclysmic ending of massive economic proportions one of these days in the not too distant future.

The result of all of this is faux growth in stock prices, coupled with unusually low volume, and it has buoyed the market to the biggest September gain in more than 70 years.

Ask yourself a question: do you really believe the economy is strong enough or will be strong enough to justify that kind of upward trend?

I happen to be in the camp that believes the market is being manipulated higher, but maybe I am just trying to understand why a virtual dearth of fundamental reasons exists for such a big run up in the market. It is not that I am unhappy with the big run-up in September. Quite the contrary: the portfolio in my premium newsletter, Mastering the Markets, is literally on fire. Double-digit gains have become the norm. I hear from subscribers every day, thanking me for all the money they have made.

No, I am not unhappy with the upward trend in the market, but as you can see from my forecast for October (below), there is an 80% probability that we will see a huge swoon in October, that is, unless Bernanke and company decide to artificially juice the market. A somewhat more socially acceptable term for this is also called, “Quantitative Easing.”

Why do you care? You should care because if you believe, as I do, that the market could move dramatically lower in the next few weeks, and if you plan on trading with that bearish bias, which I plan to do, then you could lose a lot of money if the market is manipulated higher when it should move lower.

This is why my rules-based approach to an exit strategy is always in place. This week's trade is recommended because I believe the chart above of the S&P 500 has an 80% probability of being accurate. If the forecast proves to be accurate, then having a short bias in the market makes a lot of sense. If the trade is wrong, then I want out as quickly as I can — so be sure to use a solid and reasonable stop loss on this week's trade.

My trade for this week is ProShares UltraShort S&P 500 ETF (NYSE: SDS).

SDS is an exchange-traded fund (ETF) that is designed to move up at about twice the rate the S&P 500 moves down. If the S&P 500 moves higher, SDS will drop in price at about twice the rate the S&P 500 moves higher.

Could October be just as booming as September? Sure, but my data and my analysis indicate that the market is due for a correction. Yes, I know there is a sea-change election coming up in about a month. Yes, I know what the polls say about who is going to win and who is going to lose.

But all that is for November — not October. My bet is on a correction sometime within the next week or two — and an SDS play could generate a sizable return.

Action to Take –> I think SDS is a good trade if you're looking to hedge your portfolio against a possible downturn. I recommend buying SDS with a limit order at $29.21 good for the week and setting an initial stop loss at $27.94. The target price for this trade would be about $37.50, so traders could expect to see a gain of roughly +28% on this trade.


– Mike Turner

ETF, Uncategorized

Another Tech Company on the Hunt — Which Stock Will Benefit?

October 6th, 2010

Another Tech Company on the Hunt -- Which Stock Will Benefit?

While companies like Hewlett-Packard (NYSE: HPQ), Intel (Nasdaq: INTC) and IBM (NYSE: IBM) have revved up their acquisitions latesly, Oracle (Nasdaq: ORCL) has been quiet. But this won't last for long. The company has integrated its $7.5 billion deal for Sun Microsystems and also snagged the former CEO of HP, Mark Hurd.

Actually, at the latest analyst meeting, Oracle's CEO, Larry Ellison, talked-up his acquisition strategy, and his thinking has undergone some important changes. After all, he wants to buy chip companies.

Huh? It does seem quixotic. But that's usually the first reaction to Ellison's pronouncements. Wasn't Wall Street skeptical about his plans in 2005 to buy up business software companies like PeopleSoft? But of course, it has paid off. Oracle's stock is up +60% in the past five years, while competitors like SAP (NYSE: SAP) and Microsoft (Nasdaq: MSFT) are only up +18% and +10%, respectively.

But if Oracle wants to keep-up the momentum, it will need to think different. This means essentially expanding into the hardware business.

Ellison points out that Apple (Nasdaq: AAPL) has done this successfully. While not easy to pull off, it can result in more seamless technologies and yes, more revenue opportunities.

With the Sun deal, Oracle has already delved into the hardware business. This is with the Sparc chip, which is a key part of enterprise servers. Consider that Oracle recently launched its Exadata database and cloud-computing platforms, which combine its software with Sun hardware.

OK, so what chip companies will Oracle buy? There are many top operators to choose from, including ARM Holdings, Advanced Micro Devices, Altera, Nvidia, Broadcom and Marvell. All are definitely high-quality companies.

But there are some complications. Keep in mind that Ellison says he wants a chip company for its “intellectual property.” In other words, there was no mention of having large fabrication plants (known as “fabs”). So it's a good bet that Ellison wants a fabless chip company, that is, one that doesn't actually make the chips. What's more, he probably wants to focus on companies that have mostly an enterprise business.

What companies fit the profile? Take NetLogic Microsystems (Nasdaq: NETL), which develops high-speed chips to improve the performance and security of networks. As a testament to the company's technology prowess, there are more than 400 patents in the company's portfolio.

In the second quarter, NetLogic posted a sizzling +192% increase in revenue to $95 million (the sequential increase was +10%). A big boost came from its acquisition of RMI, which broadened the company's product offering.

While the company is still losing money, this is to be expected for a high-growth operator. Besides, there is $201 million in the bank.

Another prospect for Oracle is Mellanox (Nasdaq: MLNX). The company develops sophisticated chips, adapters and cables that connect data centers with storage devices. The technology helps to reduce infrastructure investments, lower energy costs and improve overall performance. As a result, Mellanox has a sterling customer list that includes companies like JPMorgan (NYSE: JPM), Exxon (NYSE: XOM) and Shell (NYSE: RDS-A).

Something else: Oracle uses Mellonox products for its own storage and server products. The technology is even at the core of the Exadata offering. And yes, the financials have been stellar. In the second quarter, Mellonox saw a +58% increase in revenue, to $40 million, and net income of $5.3 million.

Basically, Mellonox is in the sweet spot of major technology trends like cloud computing, virtualization and data-center automation. No doubt, the growth ramp is likely to continue. [A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks]

Action to Take –> Of the two, I think Mellonox would be the most attractive buyout target for Oracle. The companies are already key partners, and Mellonox's technologies are mostly for the enterprise markets. And with its hefty growth rate, Oracle will need to pay a premium price. But Mellonox's attractive fundamentals and unique technologies are likely to entice other bidders to the table. This is something that's happened with other recent deals, such as for 3Par (which sold at a big premium). True, there still may not be a buyout. But even so, the fact remains that Mellonox should continue to be a standout player in the industry.

What about Oracle? While the stock has already made a nice move, the company has a huge slug of cash and a top-flight management team. Oracle has already proven it knows how to make deals work and is ahead of the curve for the next stage of deal making. In other words, combining its powerful software business with hardware will be key for Oracle in achieving the next stage of growth.


– Tom Taulli

Tom has been a stock commentator for 15 years. He has written a best-selling book, “Investing in IPOs,” and become a frequent guest on shows like CNBC and CNN. Tom has also appeared in the New York Times, BusinessWeek Online and Forbes.com. Read more…

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
Another Tech Company on the Hunt — Which Stock Will Benefit?

Read more here:
Another Tech Company on the Hunt — Which Stock Will Benefit?

Uncategorized

Another Tech Company on the Hunt — Which Stock Will Benefit?

October 6th, 2010

Another Tech Company on the Hunt -- Which Stock Will Benefit?

While companies like Hewlett-Packard (NYSE: HPQ), Intel (Nasdaq: INTC) and IBM (NYSE: IBM) have revved up their acquisitions latesly, Oracle (Nasdaq: ORCL) has been quiet. But this won't last for long. The company has integrated its $7.5 billion deal for Sun Microsystems and also snagged the former CEO of HP, Mark Hurd.

Actually, at the latest analyst meeting, Oracle's CEO, Larry Ellison, talked-up his acquisition strategy, and his thinking has undergone some important changes. After all, he wants to buy chip companies.

Huh? It does seem quixotic. But that's usually the first reaction to Ellison's pronouncements. Wasn't Wall Street skeptical about his plans in 2005 to buy up business software companies like PeopleSoft? But of course, it has paid off. Oracle's stock is up +60% in the past five years, while competitors like SAP (NYSE: SAP) and Microsoft (Nasdaq: MSFT) are only up +18% and +10%, respectively.

But if Oracle wants to keep-up the momentum, it will need to think different. This means essentially expanding into the hardware business.

Ellison points out that Apple (Nasdaq: AAPL) has done this successfully. While not easy to pull off, it can result in more seamless technologies and yes, more revenue opportunities.

With the Sun deal, Oracle has already delved into the hardware business. This is with the Sparc chip, which is a key part of enterprise servers. Consider that Oracle recently launched its Exadata database and cloud-computing platforms, which combine its software with Sun hardware.

OK, so what chip companies will Oracle buy? There are many top operators to choose from, including ARM Holdings, Advanced Micro Devices, Altera, Nvidia, Broadcom and Marvell. All are definitely high-quality companies.

But there are some complications. Keep in mind that Ellison says he wants a chip company for its “intellectual property.” In other words, there was no mention of having large fabrication plants (known as “fabs”). So it's a good bet that Ellison wants a fabless chip company, that is, one that doesn't actually make the chips. What's more, he probably wants to focus on companies that have mostly an enterprise business.

What companies fit the profile? Take NetLogic Microsystems (Nasdaq: NETL), which develops high-speed chips to improve the performance and security of networks. As a testament to the company's technology prowess, there are more than 400 patents in the company's portfolio.

In the second quarter, NetLogic posted a sizzling +192% increase in revenue to $95 million (the sequential increase was +10%). A big boost came from its acquisition of RMI, which broadened the company's product offering.

While the company is still losing money, this is to be expected for a high-growth operator. Besides, there is $201 million in the bank.

Another prospect for Oracle is Mellanox (Nasdaq: MLNX). The company develops sophisticated chips, adapters and cables that connect data centers with storage devices. The technology helps to reduce infrastructure investments, lower energy costs and improve overall performance. As a result, Mellanox has a sterling customer list that includes companies like JPMorgan (NYSE: JPM), Exxon (NYSE: XOM) and Shell (NYSE: RDS-A).

Something else: Oracle uses Mellonox products for its own storage and server products. The technology is even at the core of the Exadata offering. And yes, the financials have been stellar. In the second quarter, Mellonox saw a +58% increase in revenue, to $40 million, and net income of $5.3 million.

Basically, Mellonox is in the sweet spot of major technology trends like cloud computing, virtualization and data-center automation. No doubt, the growth ramp is likely to continue. [A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks]

Action to Take –> Of the two, I think Mellonox would be the most attractive buyout target for Oracle. The companies are already key partners, and Mellonox's technologies are mostly for the enterprise markets. And with its hefty growth rate, Oracle will need to pay a premium price. But Mellonox's attractive fundamentals and unique technologies are likely to entice other bidders to the table. This is something that's happened with other recent deals, such as for 3Par (which sold at a big premium). True, there still may not be a buyout. But even so, the fact remains that Mellonox should continue to be a standout player in the industry.

What about Oracle? While the stock has already made a nice move, the company has a huge slug of cash and a top-flight management team. Oracle has already proven it knows how to make deals work and is ahead of the curve for the next stage of deal making. In other words, combining its powerful software business with hardware will be key for Oracle in achieving the next stage of growth.


– Tom Taulli

Tom has been a stock commentator for 15 years. He has written a best-selling book, “Investing in IPOs,” and become a frequent guest on shows like CNBC and CNN. Tom has also appeared in the New York Times, BusinessWeek Online and Forbes.com. Read more…

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
Another Tech Company on the Hunt — Which Stock Will Benefit?

Read more here:
Another Tech Company on the Hunt — Which Stock Will Benefit?

Uncategorized

How to Find the Next Apple… Ahead of Time

October 6th, 2010

How to Find the Next Apple... Ahead of Time

Ten years ago, people would have laughed at you for saying that we would soon be walking around with mini-computers tethered to us.

Now millions of people won't step out the door without their beloved BlackBerry or iPhone.

If you had put $10,000 into Blackberry maker Research in Motion (Nasdaq: RIMM) at its IPO, you would have been sitting on $766,650 in less than eight years. Apple (Nasdaq: AAPL) stock was $7.77 the day the iPod was launched. Today, thanks also to the iPhone, Apple is above $275. That's a 35-fold gain. $10,000 turned into $350,000.

Think of what Netflix (Nasdaq: NFLX) did to Blockbuster. Just a few days ago Blockbuster declared bankruptcy; Netflix simply revolutionized the video-rental business. Blockbuster will be wallowing in bankruptcy court while Netflix investors are deciding where to moor their yachts. Recently, Netflix was trading at $156 per share. It traded at $21 less than two years ago. That's +640%.

I have a pet name for companies like Apple, Research in Motion, and Netflix. I call them “game-changers.”

Game-changers are those companies sitting on a truly revolutionary product, concept, or business model. They can (and do) come from any industry, or any sector. They can be enormous companies, but I've found they're usually smaller businesses that few have heard about… and in which even fewer invest.

But there is one thing they all share in common — enormous potential that can translate to profits worth thousands, hundreds of thousands, even millions of dollars.

There is a problem, though. The ordinary media doesn't cover this beat. They'll tell you all about a discovery once it comes to light — but they don't look ahead to see where the next one is coming from.

That's why I wanted to provide you with some of the strategies I use to invest in game-changers. As the Chief Strategist for StreetAuthority's Game-Changing Stocks newsletter, it's my job to find those revolutionary ideas that could be the next big thing… and bring my results to readers.

Game-Changing Tip #1 – Be a Research Fanatic
Whether you have 60 minutes or 60 hours to devote a week, research is the only way you'll successfully find game-changers. Remember: Most game-changers are ignored by media outlets until they're bigger trends. By then the opportunity for the biggest profits has passed.

I do have a confession to make. I have an advantage over most when it comes to research — it's my full-time job. If you could see into my office, you'd see clippings, newspapers, SEC reports and magazines just about everywhere. (I read just about anything I can get my hands on.) Those piles don't include the amount of research I do on the computer — online medical journals, dozens of blogs, and updates on legislation. It actually comes as second nature; in a previous life, I was a business editor for some of the nation's biggest papers.

For those with more limited time, I recommend focusing on a market you're already familiar with and researching as much as you can in that area. For example, if you were a former sales rep for a pharmaceutical company, focusing on new game-changing medical breakthroughs is a natural fit.

Game-Changing Tip #2 – Consider the Potential Market
I have a quick reality check I give to any game-changing idea. I call it my “Segway” test. You might remember the buzz that accompanied the Segway, the two-wheeled “human transporter” first launched in 2001. The company boasted that it would revolutionize how we get around. Dean Kamen, Segway's inventor, even bragged the Segway “will be to the car what the car was to horse and buggy.”

But with a price tag in the thousands and few advantages over walking or riding a bike, the potential market has been limited to only specialty uses. The broad appeal the company expected never materialized.

It's an important lesson. A product can be revolutionary. It can present a bold new way of fixing a problem. But when you get to brass tacks, if there isn't a potential market, then it's worthless.

Game-Changing Tip #3 – Make Bold Predictions and Invest Accordingly
I mentioned the quote above by the Segway's inventor, but it's hard to fault him for being bold. To identify a groundbreaking idea, you have to be forward thinking… and you have to go out on a limb.

If you want to get in on the ground floor of an opportunity — where the most money is made — you've got to be willing to take a bold stand that makes other investors look at you funny.

That's why I like to come up with a list of predictions regularly, and use those to help guide my portfolio. Will all of them come true? I doubt it, but I do know that the profits from the predictions that do come to fruition should amply cover the rest.

[If you're interested in reading about my current crop of predictions, you can visit this link. I've put together an entire report -- The Hottest Investment Opportunities for 2011 -- based on these predictions.]

Game-Changing Tip #4 – Profits Can Come Literally Overnight, but Hold for the Long-Term

Companies behind game-changing ideas can see their shares “pop” seemingly overnight. Whether it's regulatory approval, a major contract with a new customer, or simply the launch of a new product, I've seen some stocks rise +50% or more in just a day or two on good news.

But that's not the sort of gain I'm looking for (although I wouldn't turn it down!). Real game-changers see strong returns for months and years — look at Apple. It's tempting to take a solid gain and book profits, but the most successful investors will continue to profit as more people discover and buy the shares of formerly unknown game-changers.


–Andy Obermueller

P.S. — I mentioned above my newest report, The Hottest Investment Opportunities for 2011. From tiny nuclear power plants that can be buried in your lawn, to revolutionary pain killers made from cobra venom, I'm convinced these game-changing ideas could take off in the coming year. To get briefed on these opportunities, and several others that I think could return many times your money, please read this memo.

Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…

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

This article originally appeared on StreetAuthority
Author: Andy Obermueller
How to Find the Next Apple… Ahead of Time

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How to Find the Next Apple… Ahead of Time

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How to Find the Next Apple… Ahead of Time

October 6th, 2010

How to Find the Next Apple... Ahead of Time

Ten years ago, people would have laughed at you for saying that we would soon be walking around with mini-computers tethered to us.

Now millions of people won't step out the door without their beloved BlackBerry or iPhone.

If you had put $10,000 into Blackberry maker Research in Motion (Nasdaq: RIMM) at its IPO, you would have been sitting on $766,650 in less than eight years. Apple (Nasdaq: AAPL) stock was $7.77 the day the iPod was launched. Today, thanks also to the iPhone, Apple is above $275. That's a 35-fold gain. $10,000 turned into $350,000.

Think of what Netflix (Nasdaq: NFLX) did to Blockbuster. Just a few days ago Blockbuster declared bankruptcy; Netflix simply revolutionized the video-rental business. Blockbuster will be wallowing in bankruptcy court while Netflix investors are deciding where to moor their yachts. Recently, Netflix was trading at $156 per share. It traded at $21 less than two years ago. That's +640%.

I have a pet name for companies like Apple, Research in Motion, and Netflix. I call them “game-changers.”

Game-changers are those companies sitting on a truly revolutionary product, concept, or business model. They can (and do) come from any industry, or any sector. They can be enormous companies, but I've found they're usually smaller businesses that few have heard about… and in which even fewer invest.

But there is one thing they all share in common — enormous potential that can translate to profits worth thousands, hundreds of thousands, even millions of dollars.

There is a problem, though. The ordinary media doesn't cover this beat. They'll tell you all about a discovery once it comes to light — but they don't look ahead to see where the next one is coming from.

That's why I wanted to provide you with some of the strategies I use to invest in game-changers. As the Chief Strategist for StreetAuthority's Game-Changing Stocks newsletter, it's my job to find those revolutionary ideas that could be the next big thing… and bring my results to readers.

Game-Changing Tip #1 – Be a Research Fanatic
Whether you have 60 minutes or 60 hours to devote a week, research is the only way you'll successfully find game-changers. Remember: Most game-changers are ignored by media outlets until they're bigger trends. By then the opportunity for the biggest profits has passed.

I do have a confession to make. I have an advantage over most when it comes to research — it's my full-time job. If you could see into my office, you'd see clippings, newspapers, SEC reports and magazines just about everywhere. (I read just about anything I can get my hands on.) Those piles don't include the amount of research I do on the computer — online medical journals, dozens of blogs, and updates on legislation. It actually comes as second nature; in a previous life, I was a business editor for some of the nation's biggest papers.

For those with more limited time, I recommend focusing on a market you're already familiar with and researching as much as you can in that area. For example, if you were a former sales rep for a pharmaceutical company, focusing on new game-changing medical breakthroughs is a natural fit.

Game-Changing Tip #2 – Consider the Potential Market
I have a quick reality check I give to any game-changing idea. I call it my “Segway” test. You might remember the buzz that accompanied the Segway, the two-wheeled “human transporter” first launched in 2001. The company boasted that it would revolutionize how we get around. Dean Kamen, Segway's inventor, even bragged the Segway “will be to the car what the car was to horse and buggy.”

But with a price tag in the thousands and few advantages over walking or riding a bike, the potential market has been limited to only specialty uses. The broad appeal the company expected never materialized.

It's an important lesson. A product can be revolutionary. It can present a bold new way of fixing a problem. But when you get to brass tacks, if there isn't a potential market, then it's worthless.

Game-Changing Tip #3 – Make Bold Predictions and Invest Accordingly
I mentioned the quote above by the Segway's inventor, but it's hard to fault him for being bold. To identify a groundbreaking idea, you have to be forward thinking… and you have to go out on a limb.

If you want to get in on the ground floor of an opportunity — where the most money is made — you've got to be willing to take a bold stand that makes other investors look at you funny.

That's why I like to come up with a list of predictions regularly, and use those to help guide my portfolio. Will all of them come true? I doubt it, but I do know that the profits from the predictions that do come to fruition should amply cover the rest.

[If you're interested in reading about my current crop of predictions, you can visit this link. I've put together an entire report -- The Hottest Investment Opportunities for 2011 -- based on these predictions.]

Game-Changing Tip #4 – Profits Can Come Literally Overnight, but Hold for the Long-Term

Companies behind game-changing ideas can see their shares “pop” seemingly overnight. Whether it's regulatory approval, a major contract with a new customer, or simply the launch of a new product, I've seen some stocks rise +50% or more in just a day or two on good news.

But that's not the sort of gain I'm looking for (although I wouldn't turn it down!). Real game-changers see strong returns for months and years — look at Apple. It's tempting to take a solid gain and book profits, but the most successful investors will continue to profit as more people discover and buy the shares of formerly unknown game-changers.


–Andy Obermueller

P.S. — I mentioned above my newest report, The Hottest Investment Opportunities for 2011. From tiny nuclear power plants that can be buried in your lawn, to revolutionary pain killers made from cobra venom, I'm convinced these game-changing ideas could take off in the coming year. To get briefed on these opportunities, and several others that I think could return many times your money, please read this memo.

Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…

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

This article originally appeared on StreetAuthority
Author: Andy Obermueller
How to Find the Next Apple… Ahead of Time

Read more here:
How to Find the Next Apple… Ahead of Time

ETF, Uncategorized

3 Stocks to Watch as Earnings Season Kicks Off

October 6th, 2010

3 Stocks to Watch as Earnings Season Kicks Off

As my colleague Mike Turner has noted, September was one for the record books. [Read Mike's article here]

And as Mike notes, it never hurts to play a little defense after such a good run. But in these markets, you'll need to stay nimble. Coming earnings reports may just be good enough to keep the markets moving north, forestalling the moment when profit-taking dominates the action.

With that in mind, let's look at three companies that will report quarterly results in the next week or so. What they have to say about business conditions may well set the trading tone for the rest of October and beyond.

Aloca (NYSE: AA)
On the first Monday in October, the Supreme Court kicks off a new term. And a few days after that, Alcoa always kicks off earnings season. For the past few years, Alcoa has set a somber tone as global demand for aluminum has been in a slump ever since Europe and the United States headed into the downturn. Yet I recently opined that a turn may be coming for Alcoa. [Read: "The Best Rebound Play in the Dow"]

That turn is likely to be in evidence in 2011 and even more noticeably in 2012. But what about right now? Well, expectations are low, and that's a good thing. On Monday morning, Deutsche Bank downgraded Alcoa to a short-term sell rating. (Curiously, Deutsche Bank's target price was reduced from $18 to $15.50 which is still roughly +30% above current prices. And their analysts lowered their 2011 EPS forecast from $1.50 to $1.29, which is still well above the $1.01 consensus EPS estimate).

There is little that Alcoa can say to rattle the market as investors expect demand and aluminum pricing to stay weak for at least the remainder of 2010. But as I noted a few weeks ago, output of aluminum has been very restrained, and as a result, the London Metals Exchange (LME) reports that inventories now sit at a 52-week low. The market is already reflecting tighter supply: the spot aluminum price has risen from $1,900 per ton in June to a recent $2,330 (though it remains roughly $1,000 per ton lower than the 2008 peak).

Demand remains well below 2008 levels, but so does supply. So there's no reason that prices can't move back toward the $3,000 mark — as long as the industry maintains its current production discipline. On this Thursday's conference call, give a close listen to management's discussion of output. As the world's biggest supplier of aluminum, Alcoa can set the tone for supply — and pricing.

Supply, demand and pricing are key concerns for all kinds of metal producers. The market dynamics in aluminum apply to steel and copper as well, and as noted in this article, many metals producers sport very low P/E ratios.

Intel (Nasdaq: INTC)
This technology bellwether has given investors whiplash this summer. In mid-July, Intel released solid second quarter results and CEO Paul Ottelini told investors that “in Q2, we saw the return of corporate purchases,” adding that industry had finally moved past the 2009 downturn. “The difference is that corporations are buying now in addition to consumers,” Otellini said at the time. Well, six weeks later, Intel had a change of heart, lowering third quarter revenue forecasts by about $600 million. “Revenue is being affected by weaker-than-expected demand for consumer PCs in mature markets,” said Intel in late August. Shares now languish just above the 52-week low.

Even as shares appear cheap at less than 10 times projected 2010 profits, there may be little management can do to get the stock moving on next Tuesday's conference call. After the Jekyll-and-Hyde commentary from earlier this summer, few investors would believe the company if it spoke in bullish terms. And therein lies the opportunity for tech stocks. Investors now have ample time to digest earnings reports and look for the best tech names to own, as sector shares are unlikely to see heavy buying in coming weeks, no matter how strong earnings results and outlooks are.

That's not to say that tech stocks are unattractive, they just aren't timely. Yet many large tech stocks are trading at very cheap multiples. [See: "This Sector's Mountain of Cash Could Soon Line Your Pocket"]

And if a so-so earnings season makes these stocks any cheaper, then value investors will queue up to buy shares while they are at generational lows. Equally important, it's too soon to conclude that 2011 tech spending will be lousy, even if share prices seem to anticipate that. This is an industry where the reward seems far greater than the risk, even if no near-term catalysts exist. (If you're a tech investor, you should also check out Micron Technology's (NYSE: MU) results, which will be released on the same day.)

CSX Corp. (NYSE: CSX)
On the same day that Intel and Micron report, freight carrier CSX will also weigh in. Freight volumes are a key tell for investors trying to gauge the economic activity in the economy. Analysts expect CSX to report a +16% jump in revenue from a year ago, which should lead to a +40% spike in profits, thanks to impressive operating leverage. But investors should know that the easy gains may be winding down and the year-over-year comparisons in future quarters may be far less robust, as CSX's results already started to turn up nicely last fall.

Shares have made a solid +15% upward move since late August and aren't much of a bargain right now. So the key here is to see what CSX has to say about the broader economy. If freight volumes are off to a solid start in the fourth quarter, that's a good omen for the U.S. economy as a whole.

Action to Take –> The conference calls for Alcoa, Intel and CSX will tell a great deal about the current state of economic activity — pay particular attention to them even if you're not considering these stocks for your portfolio. Alcoa and Intel are deeply tied into global trends, while CSX is more focused on North American activity. With the economy appearing to wobble on the fine line between modest growth and modest contraction, these companies' outlooks will surely set the tone for the entire earnings season.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
3 Stocks to Watch as Earnings Season Kicks Off

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3 Stocks to Watch as Earnings Season Kicks Off

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