Bill Gates founded Microsoft (Nasdaq: MSFT) in 1975 and for a time was the wealthiest person on the planet, thanks to the company's ubiquitous Windows operating system. In June 2008, Gates gave up his day-to-day role at Microsoft to spend more time working with his wife at the Bill & Melinda Gates Foundation. Mexican businessman Carlos Slim has since taken the title as the world's richest person, while Gates has shifted focus to his philanthropic efforts.

A significant portion of Gates' $56 billion wealth has shifted to his foundation as well as his private investment vehicle, Cascade Investment LLC. The foundation received significant further support when Gates' long-time friend and fellow billionaire Warren Buffett committed to donating a significant portion of his $47 billion net worth to the Bill & Melinda Gates Foundation.

When you are investing such vast sums of money for philanthropic work, you need to play it safe in terms of investment risk and preserving the long-term value of the asset base. After all, the Gates Foundation has to fund grants to support causes such as global health and related charitable gifting for many years to come. As such, investors following these types of investments can sleep well knowing that they're intended to be relatively safe.

Recently, Cascade and the Bill & Melinda Gates Foundation have been accumulating a nearly $1 billion stake in Mexican bottler Coca-Cola FEMSA S.A.B de C.V. (NYSE: KOF). Better known as Coca-Cola Femsa, it is the largest bottler of Coca-Cola (NYSE: KO) products in Latin America. Mexico is the company's largest market in the region, at close to 40% of sales, followed by Venezuela at more than 20%. The company also serves Brazil, Argentina and most of Central America.

Coke is the dominant carbonated beverage in Latin America, with an estimated market share of 60%. Given the popularity of Coke, Coca-Cola Femsa has grown rapidly in recent years. In the past decade, sales and net income have expanded by more than 20% annually. Growth has slowed somewhat in the past three to five years but has still been impressive, as annual sales and earnings increases have both been in the mid-teens. This year will likely be no exception: analysts currently project sales growth of 17.7% and total sales of nearly $10 billion. They also expect earnings of $4.96 per share, more than 10% ahead of last year's $4.50 per share.

Bill Gates founded Microsoft (Nasdaq: MSFT) in 1975 and for a time was the wealthiest person on the planet, thanks to the company's ubiquitous Windows operating system. In June 2008, Gates gave up his day-to-day role at Microsoft to spend more time working with his wife at the Bill & Melinda Gates Foundation. Mexican businessman Carlos Slim has since taken the title as the world's richest person, while Gates has shifted focus to his philanthropic efforts.

A significant portion of Gates' $56 billion wealth has shifted to his foundation as well as his private investment vehicle, Cascade Investment LLC. The foundation received significant further support when Gates' long-time friend and fellow billionaire Warren Buffett committed to donating a significant portion of his $47 billion net worth to the Bill & Melinda Gates Foundation.

When you are investing such vast sums of money for philanthropic work, you need to play it safe in terms of investment risk and preserving the long-term value of the asset base. After all, the Gates Foundation has to fund grants to support causes such as global health and related charitable gifting for many years to come. As such, investors following these types of investments can sleep well knowing that they're intended to be relatively safe.

Recently, Cascade and the Bill & Melinda Gates Foundation have been accumulating a nearly $1 billion stake in Mexican bottler Coca-Cola FEMSA S.A.B de C.V. (NYSE: KOF). Better known as Coca-Cola Femsa, it is the largest bottler of Coca-Cola (NYSE: KO) products in Latin America. Mexico is the company's largest market in the region, at close to 40% of sales, followed by Venezuela at more than 20%. The company also serves Brazil, Argentina and most of Central America.

Coke is the dominant carbonated beverage in Latin America, with an estimated market share of 60%. Given the popularity of Coke, Coca-Cola Femsa has grown rapidly in recent years. In the past decade, sales and net income have expanded by more than 20% annually. Growth has slowed somewhat in the past three to five years but has still been impressive, as annual sales and earnings increases have both been in the mid-teens. This year will likely be no exception: analysts currently project sales growth of 17.7% and total sales of nearly $10 billion. They also expect earnings of $4.96 per share, more than 10% ahead of last year's $4.50 per share.

What would you do with $10 billion? That's the tough question posed to a handful of CEOs every year. These executives must redeploy that much money every year, trying to find the right mix of acquisitions, share buybacks, debt reductions and dividend streams. How they spend it is largely a function of where that company is in its life cycle.

For ExxonMobil (NYSE: XOM), the prodigious profits have a clear purpose. The energy giant topped the list of America's most profitable companies and usually focused on stock buybacks. Exxon's share count fell for eight straight years before rising a bit in 2010. Profits were spread over 6.8 billion shares back in 2002, yet ExxonMobil has bought back two billion shares since then, leading to a 29% reduction in the share count.

Why did the share count rise slightly in 2010? It's because the oil giant deviated from the game plan a bit, making a few stock-based acquisitions in the natural gas sector such as the early-year acquisition of XTO Energy. Assuming ExxonMobil will once again focus on stock buybacks, the share count may drop from the current 4.8 billion to just four billion by the middle of 2013. For a company with$30 billion in annual income, the shrinking share count will mean record profits per share.

Major U.S. banks are following a different path. They're moving fast to shore up depleted capital bases, hoping to be in stronger financial shape before the next economic crisis. The last crisis was devastating for the sector.

For many years, Citigroup (NYSE: C) had been the most profitable banking firm in the United States. Yet a series of foolish moves has led the bank to backtrack, opening the door for JP Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC) to surpass Citigroup. These two banks are getting stronger as many regional banks continue to weaken, and if the U.S. economy can move on to a higher plane in the next few years, then both JP Morgan and Wells Fargo may eventually surpass Microsoft (NYSE: MSFT) and AT&T (NYSE: T) on this list. [Though I'm still a fan of Citigroup, which is slimming down at home to become a stronger player abroad.]

The profit superstar
Yet only one large U.S. corporation can truly be called a growth stock. Of course, I'm talking about Apple (Nasdaq: AAPL). The company's performance was impressive enough that net income rose from $8.2 billion in 2009 to $14 billion in 2010.

What's more impressive is the road ahead. Merrill Lynch predicts Apple will earn $34 billion by 2013, putting it at a close second behind ExxonMobil for the claim of America's most profitable company. To go from barely cracking the top 20 in 2009 to almost the top of the board in just four years is likely a feat unparalleled in U.S. history.

But for Apple's executives, this also creates a real headache. The company had $23 billion in cash and investments in 2009, and that figure could top $100 billion by 2013 if current trends continue. Management is likely ill-inclined to begin buying back shares after they have nearly tripled in two years. Major acquisitions are also unlikely, as Apple prefers to rely on its own R&D. And looking to the balance sheet won't help — there's no debt to pay off.

The only likely option is a dividend. Apple is likely to generate $25 billion in free cash flow this year. If the company took the really bold step of distributing all of that money to shareholders (leaving a similar amount still parked on the balance sheet), then investors would be looking at a $25 dividend, good for a 7% yield. Using Merrill Lynch's free cash flow projections, the payout could rise to $35 by 2013, good for a 10% yield.

Action to Take –> How these companies handle their rising cash hoards will help determine where their stock prices go. Steady stock buybacks can boost shares for even the slowest-growing companies. A shrinking share count partially explains why ExxonMobil's stock has more than doubled in the past decade. Then again, companies that have largely avoided any share-boosting moves, like Microsoft, now trade for half their peaks of the early 2000s.

Curiously, it's the most troubled group on this list that really catches my eye. The major bank stocks are expected to show revenue declines this year, yet they are also the only ones that can really be called “cheap” because they're trading right around book value. [Read my previous analysis on bank stocks.] Rising net income should bolster book values for these banks at a reasonably fast clip. This could attract value investors back into the group in coming quarters and boost stock prices.

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
The Most Profitable Companies in America — Which are the Best Buys?

Read more here:
The Most Profitable Companies in America — Which are the Best Buys?

Every once in a while, my wife sends me an email with the latest on-sale bargains from a membership warehouse club we belong to. One time I noticed a Westinghouse 42” LED LCD flat-screen TV that was on sale for less than $600. Quite a bargain! Our 3-year-old has taken a keen interest to banging away on Rock Band virtual drums (the Beatles version is his favorite). A separate television set seemed advisable to encourage his musical aspirations, so we decided to snatch it up.

That $600 TV got me to thinking… We recently disposed of an old Sony TV that we had received secondhand. That unit was one of the early flat-panel plasma models, and was less than a decade old. The original price was a whopping $8,000. It suffered from the burn-in that is infamous in older plasma display technology. It also weighed a metric ton, consumed gobs of power and would get quite hot.

However, here in 2011, I am presented with a far better unit. It has better display quality and less power consumption than a 100-watt light bulb. The coup de grace: All of this goodness is available for only 7.5% of the price of the old Sony. Adjusting for inflation, it is even cheaper than that.

A large, high-resolution flat-panel television was within the reach of only a relatively wealthy person in 2001. That is not the case today. This state of affairs, of course, is a result of the innovative aspects of an open economy. A manufacturer producing televisions using 2001 technology and pricing would be out of business today.

Austrian economist Joseph Schumpeter summed it up well in his book Capitalism, Socialism and Democracy: “The capitalist engine is first and last an engine of mass production, which unavoidably means also production for the masses… The capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.”

To Schumpeter’s words, I would like to add that this process is not slowing down. Technological change is accelerating…exponentially.

The types of companies I recommend to the subscribers of my investment letter, Technology Profits Confidential, are precisely those that lower costs through superior technology. These are the “better mousetrap builders” – the innovators who have the world beating paths to their doors.

For example, one of the investments I have identified for my readers is a company that stands to benefit from the booming growth of wireless Internet products and technologies. This company has played a key role in lowering costs for the “common man.”

I can’t reveal the name of the company, but I can, and will, highlight some of the reasons for investing in the rapidly growing wireless Internet sector.

Last month, Cisco published a fascinating report entitled, Global Mobile Data Traffic Forecast Update. This report contained some very detailed and persuasive predictions about the growth of mobile technologies. I’d like to highlight some of the projections made by Cisco’s analysts. They are, to say the least, astonishing.

Consider that total global mobile data growth is expected to grow at a 92% compound annual growth rate over the next five years. All that traffic growth won’t be coming from existing devices, of course. It will be coming from brand-new ones.

Although the bulk of data traffic will still be on laptops and netbooks in 2015, as you can see, the mix of devices will look quite different. While per user growth for laptops and netbooks will grow at a very healthy 42% annual clip, smartphones will do well too, at 24%. Finally, tablets will be growing at a breakneck compound annual growth rate of 105%.

The phrase “the power of compounding interest” is a valid and often-repeated mantra for long-term investors. In this context, think about what the power of steep rates of compound growth in smartphones will do for the profitability of the world’s mobile market.

In addition, tablets are the fastest-growing mobile segment. 2011 has been called the “year of the tablet,” but we are just witnessing the tip of a future iceberg.

Another big change under way is in the operating system of choice for mobile platforms. The biggest gainer here is Google’s Android, which grew at a monthly average of 56.7% for the first nine months of 2010. The second strongest operating system, Nokia’s Symbian, managed only 37.9% by comparison. However, following Nokia’s recent announcement that it will switch to Microsoft’s mobile OS, Symbian will now be relegated to the dustbin.

Patrick Cox, editor of Breakthrough Technology Alert, says:

There is, in fact, going to be a rapid acceleration in the adoption of smartphones very soon. This is because the Android OS has basically won the technological battle of the bands. It will become the standard…

Microsoft has been beaten in the mobile space and their proprietary OS is fading fast. Nokia has made a series of blunders as well and is now losing the mobile OS space it once seemed destined to own forever…

In Q4 2010, the Android OS was the world’s best-selling smartphone platform, ending the 10-year reign of Nokia’s Symbian. Recent events have solidified this trend. Open source advocates may have lost the personal computer battles, but they’re set to win the mobile war. This opens the doors for third-party developers like they’ve never been open before. Most importantly, it does so just as mobile devices, including phones and pad computers, are gaining the power they need to supersede laptops.

The next generation of Android pad computers is simply going to rock.

Since Android is essentially free, we can’t invest in it directly as a pure play. However, there will be profitable opportunities to ride on its coattails. One avenue is to invest in mobile applications developers.

In a recent Forbes interview, George Gilder, senior fellow of the Discovery Institute, explained how crucial “deep packet inspection” (DPI) technology will be to grow the wireless Internet. He said:

Deep packet inspection is absolutely critical to our technology and the advance of digital technology, because you can’t really have cloud computing, you can’t really have video teleconferencing, you can’t do any of the new promise of broadband without having ways to differentiate among different packets.

I do hope that the FCC will sanely manage the exploding wireless Internet. However, whether or not the US’s mobile Internet gets swamped in a regulatory nightmare, the strongest growth will be in the rest of the world. This is a market I will be watching closely and recommend you do the same.

Ad lucrum per scientia (toward wealth through science),

Ray Blanco
for The Daily Reckoning

The Power of Exponential Technological Change originally appeared in the Daily Reckoning. The Daily Reckoning now provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The Power of Exponential Technological Change

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.

“My business is writing for corporations (mostly Microsoft),” writes a reader, “so I pay close attention.

“Even though I agree with your politics, I prefer not to see anyone’s political views in my financial newsletters.”

Our reader goes on to suggest these reasons why we should omit politics from our writing:

* Including political views instantly loses you half your potential readers. And it doesn’t really endear you to the rest

* Including political views panders to your political preference, and curries favor. That’s uncomfortable and patronizing.

“Worst of all,” says our reader “it makes me wonder if you ever unconsciously – God forbid, consciously! – shade your financial advice to conform with my political views.

“You make me doubt your veracity and research. Do you ever give me financial advice you think I emotionally want to hear, rather than giving me your best, coldhearted financial research?”

Ahh to provide coldhearted research. We humbly submit… Politics are the problem, and you ignore them at your peril.

Exhibit A: The “Republican response” by Rep. Paul Ryan (R-WI).

“Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe… Their day of reckoning has arrived. Ours is around the corner. That is why we must act now.”

We couldn’t agree more. We published the first edition of Financial Reckoning Day in 2003. Two months before a Republican Congress passed a Republican president’s plan to create a vast new entitlement program called Medicare Part D. Which, according to the Medicare Trustees has exceeded its projected $1 trillion price eightfold, adding $9.4 trillion to the pile of US government’s unfunded liabilities.

It passed with the enthusiastic support of Rep. Paul Ryan.

Mr. Ryan has since scrubbed this press release from his website, but it’s still floating in cyberspace.

“I am convinced that this is a step forward for Wisconsin seniors,” he said at the time, “and that it will help save Medicare for future generations, including the 77 million baby boomers who will begin retiring soon.”

Sure they “saved” Medicare, but at what cost? The true cost never gets discussed. We wonder… Is pointing this out a political view?

For his part, the president offered to freeze “some” discretionary spending that would trim the deficit by $400 billion…over the next 10 years. That met with some applause and approval during the speech.

But let’s do the math. $400 billion over 10 years is $40 billion per year. The Congressional Budget Office (CBO) announced this morning they project the 2011 deficit to come in at $1.5 trillion. So the cut in discretionary spending works out to just 2.7% of this year’s deficit.

This proposal will get about as far as the promise he made last year to freeze “some” discretionary spending for three years, saving $250 billion. Is making that observation a political view?

The president also threatened to veto any bill with “earmarks.” The promise went over well with the “Bridge to Nowhere” crowd, yes, but earmarks typically make up just 1-2% of overall federal spending.

Even that’s a side note. Eliminating earmarks actually does nothing to cut the overall amount of spending.

“Because earmarks are funded from spending levels that have been determined before a single earmark is agreed to,” wrote our friend Dr. Ron Paul (R-TX) two years ago, “with or without earmarks, the spending levels remain the same.”

The president promised to get the infamous 1099 provision of the health care bill repealed. But if it’s such a bad idea, why did it pass both houses of Congress and get signed into law in the first place?

Too, there’s a pledge to cut the corporate tax rate, second-highest in the world behind Japan. It’s not the first time the administration has talked about this.

These are two good ideas. But what, if anything, is on the table for addressing the deficit? The debt? Unfunded promises to provide security, health care and retirement over the next 75 years?

“We know what it takes to compete for the jobs and industries of our time,” says the president. “We have to make America the best place on Earth to do business… The first step in winning the future is encouraging American innovation.”

“Novel concept,” wrote our friend Mark Gordon of Odyssey Marine, a true innovator in the use of robotic technology to recover sunken treasure. “The government needs to support American businesses that are creating innovation breakthroughs that in turn will create employment and strengthen our economy!”

We can forgive Mark for feeling a little churlish, seeing how both the Bush and Obama administrations sided with the Spanish government in a court case over the $500 million “Black Swan” treasure that Odyssey found in 2007.

Some of the WikiLeaks cables released in December reveal the fruits of Odyssey’s labor were offered up by the State Department to the Kingdom of Spain in exchange for a painting a wealthy political family from California says was stolen by the Nazis and now hangs in a museum in Madrid.

“I know that I sure feel like the beneficiary of that government support!” Mark says.

“Our free enterprise system is what drives innovation,” the president continued. “Throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need.”

But what does this really mean? The answer may well lie in something the president didn’t even touch on last night.

Uncle Sam is getting into the business of developing new drugs. The Obama administration is launching a $1 billion agency called the National Center for Advancing Translational Sciences.

Seems someone in the White House has decided the pharmaceutical industry isn’t developing new drugs fast enough. “The center will do as much research as it needs to do so that it can attract drug company investment,” The New York Times explains.

“Nothing good will come from this,” says one of Patrick Cox’s contacts – a scientist who’d been in charge of new drug approval for a Big Pharma firm.

“I’m not telling you his name or the company, however, because everybody lives in fear of the FDA,” Patrick says. “If you irritate the gatekeepers to the market, the regulators who control the drug approval process, you are in serious trouble.”

The “problem” isn’t that drug companies are failing to innovate…rather, they have a miserable time running their innovations through the FDA’s gauntlet.

Example? A weight-loss drug called lorcaserin. “It was denied approval,” Patrick explains, “because rats in the test had a minuscule, within the margin of statistical error, increase in cancers. On the other hand, obesity causes huge and verifiable health problems in people, but the FDA decided we can’t have lorcaserin. Madness.”

“The beneficiaries” of the new federal agency “will almost certainly be Big Pharma companies that supported the President’s health care plan. They also benefit from the high regulatory barriers because small drug startups can’t afford to go through the regulatory process. As a result, they are forced to cut bad deals with Big Pharma.”

We could go on, but we wouldn’t want politics to interfere with our coldhearted research.

Addison Wiggin
for The Daily Reckoning

The Politics of Finance 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 Politics of Finance

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.

Oil, technology, minerals and banking. Those are the industries that are host to the world's most richly-valued companies. In fact, with a market cap of more than $250 billion, these companies are larger than the gross domestic product (GDP) of countries such Portugal, Egypt or Chile.

I'll tell you how you can profit from these titans of industry in a minute, but first, take a look at the five most valuable stocks on the planet…

Joining this exclusive club is quite an honor, but you can be kicked out at any time. GE (NYSE: GE) was worth roughly $600 billion a decade ago, the biggest company in the world at the time, and now it doesn't even rank in the top 10. Microsoft (Nasdaq: MSFT) eventually overtook GE, but has since fallen to No. 6 in the world.

Just below Microsoft resides Brazil's energy titan Petrobras (NYSE: PBR) and the China Construction Bank (OTC BB: CICHF) isn't far behind. [My colleague Ryan Fuhrman thinks Petrobras could be the first $1 trillion stock]

The fact that four of the nine largest companies in the world reside in China or Brazil should tell you we live in a changed world.
A Crystal ball into the future

How will this list look five years from now? Well, a look at each of the top companies' prospects gives us a pretty idea about tomorrow's titans — and how you can profit.

1. Exxon Mobil (NYSE: XOM)
The odds are against this energy company retaining its top spot, for one simple reason: buybacks. Shares outstanding peaked at 6.9 billion and have been falling ever since, to less than five billion currently. Management intends to stick with that plan, and the share count could fall below four billion in the next five years. Shares would need to rise about 25% simply to offset that trend, and that's not assured because this is now a slow-growth company. (2010 sales are likely to be on par with sales levels back in 2006). Then again, a fresh “Super-spike” in oil prices would give a solid boost to shares. But surging oil prices have a way of creating conditions for a pullback as demand gets choked off.

Prediction: ExxonMobil's market value will be less than $400 billion five years from now.

2. Apple (Nasdaq: AAPL)
I'm in the minority on the prospects for this hot tech stock. The fickle world of consumer electronics means that it's hard to stay on top of the mountain for an extended period. (Just ask Sony (NYSE: SNE) or Microsoft). It's impossible to deny Apple's near-term momentum, stellar brand and stoked balance sheet (The cash pile has just grown to $60 billion). In all likelihood Apple will power even higher in coming weeks and months, as most analysts have very lofty price targets. But as the year plays out, shares are at risk. Investors are expecting a tremendous surge in iPad sales in 2011, after an already-stellar 2010, and any shortfall to current forecasts combined with the uncertainty surrounding Co-founder and CEO Steve Jobs' health would punish the stock.

Prediction: Apple's market value works its way toward the $400 billion mark before starting a long and steady decline that puts it back in Google (Nasdaq: GOOG) and Microsoft territory (i.e. below $250 billion).

3. Industrial and Commercial Bank of China
Even if the world's largest bank failed to grow in coming years, it still looks poised to rise in value. That's because it increasingly looks as if China's yuan will appreciate 15%, 20% or even 25% at some point down the road. [Read why investors should be worried...]

A 20% move in the currency would push ICBC's market value above $300 trillion. Of course the fate of the Chinese economy will also play a role. The country's breakneck economic growth has not come without cost. Media reports note that China is sitting on a vast oversupply of newly-built apartment complexes, a number of which stand empty.

And who would be left holding the bag if real estate developers default on loans? ICBC and its banking peers. That could push the bank's market value down in coming quarters. But over the long-term, further growth in the Chinese economy looks inevitable, simply based on projections of rising per capita income.

Prediction: ICBC's market value swells to more than $400 billion at some point in the next five years, thanks to economic growth and currency appreciation.

4. PetroChina (NYSE: PTR)
To meet China's insatiable energy needs, PetroChina has been on a spending spree, snapping up energy fields on virtually every continent. Were it not for domestic concerns about energy security in the United States, PetroChina would likely have already been a very active buyer of U.S. energy plays. As is the case with ExxonMobil, rising energy prices would help to boost this company's value. Shares, which trade for $140, spiked to $263 in October 2007 when oil prices hit an all-time high of $140 a barrel. A repeat of that scenario would take PetroChina's market value north of $350 billion.

Prediction: A continuing acquisition spree helps PetroChina to overtake Exxon Mobil in four to five years as the world's largest publicly-traded energy concern.

5. BHP Billiton (NYSE: BHP)
BHP's exposure to a wide range of commodities helped this stock rise 150% in 2010. Commodity prices are rising on expectations that global economic growth will accelerate in 2011 and 2012 and demand will outstrip supply for many metals and minerals. But it's hard to make a case for a much higher spike in commodity prices. After all, firming prices have led to production increases in past economic cycles, capping any further gains. And as noted above, the Chinese economy may experience a hangover in the future, which would dramatically alter the supply and demand equation.

Prediction: Shares of BHP Billiton continue to appreciate — but a much more modest pace, and the company's market value fails to crack the $300 billion barrier.

Action to Take –> The Industrial and Commercial Bank of China could occupy the No. 1 perch five years from now. Google, Petrobras and China Construction Bank are knocking on the door. One of these firms is likely to end up on the leader board five years from now. My money is on Petrobras. The oil giant's massive R&D program should eventually set the stage for surging cash flow. [Read more of Ryan's excellent analysis of Petrobras here]

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
The Five Most Valuable Stocks on the Planet

Read more here:
The Five Most Valuable Stocks on the Planet

Oil, technology, minerals and banking. Those are the industries that are host to the world's most richly-valued companies. In fact, with a market cap of more than $250 billion, these companies are larger than the gross domestic product (GDP) of countries such Portugal, Egypt or Chile.

I'll tell you how you can profit from these titans of industry in a minute, but first, take a look at the five most valuable stocks on the planet…

Joining this exclusive club is quite an honor, but you can be kicked out at any time. GE (NYSE: GE) was worth roughly $600 billion a decade ago, the biggest company in the world at the time, and now it doesn't even rank in the top 10. Microsoft (Nasdaq: MSFT) eventually overtook GE, but has since fallen to No. 6 in the world.

Just below Microsoft resides Brazil's energy titan Petrobras (NYSE: PBR) and the China Construction Bank (OTC BB: CICHF) isn't far behind. [My colleague Ryan Fuhrman thinks Petrobras could be the first $1 trillion stock]

The fact that four of the nine largest companies in the world reside in China or Brazil should tell you we live in a changed world.
A Crystal ball into the future

How will this list look five years from now? Well, a look at each of the top companies' prospects gives us a pretty idea about tomorrow's titans — and how you can profit.

1. Exxon Mobil (NYSE: XOM)
The odds are against this energy company retaining its top spot, for one simple reason: buybacks. Shares outstanding peaked at 6.9 billion and have been falling ever since, to less than five billion currently. Management intends to stick with that plan, and the share count could fall below four billion in the next five years. Shares would need to rise about 25% simply to offset that trend, and that's not assured because this is now a slow-growth company. (2010 sales are likely to be on par with sales levels back in 2006). Then again, a fresh “Super-spike” in oil prices would give a solid boost to shares. But surging oil prices have a way of creating conditions for a pullback as demand gets choked off.

Prediction: ExxonMobil's market value will be less than $400 billion five years from now.

2. Apple (Nasdaq: AAPL)
I'm in the minority on the prospects for this hot tech stock. The fickle world of consumer electronics means that it's hard to stay on top of the mountain for an extended period. (Just ask Sony (NYSE: SNE) or Microsoft). It's impossible to deny Apple's near-term momentum, stellar brand and stoked balance sheet (The cash pile has just grown to $60 billion). In all likelihood Apple will power even higher in coming weeks and months, as most analysts have very lofty price targets. But as the year plays out, shares are at risk. Investors are expecting a tremendous surge in iPad sales in 2011, after an already-stellar 2010, and any shortfall to current forecasts combined with the uncertainty surrounding Co-founder and CEO Steve Jobs' health would punish the stock.

Prediction: Apple's market value works its way toward the $400 billion mark before starting a long and steady decline that puts it back in Google (Nasdaq: GOOG) and Microsoft territory (i.e. below $250 billion).

3. Industrial and Commercial Bank of China
Even if the world's largest bank failed to grow in coming years, it still looks poised to rise in value. That's because it increasingly looks as if China's yuan will appreciate 15%, 20% or even 25% at some point down the road. [Read why investors should be worried...]

A 20% move in the currency would push ICBC's market value above $300 trillion. Of course the fate of the Chinese economy will also play a role. The country's breakneck economic growth has not come without cost. Media reports note that China is sitting on a vast oversupply of newly-built apartment complexes, a number of which stand empty.

And who would be left holding the bag if real estate developers default on loans? ICBC and its banking peers. That could push the bank's market value down in coming quarters. But over the long-term, further growth in the Chinese economy looks inevitable, simply based on projections of rising per capita income.

Prediction: ICBC's market value swells to more than $400 billion at some point in the next five years, thanks to economic growth and currency appreciation.

4. PetroChina (NYSE: PTR)
To meet China's insatiable energy needs, PetroChina has been on a spending spree, snapping up energy fields on virtually every continent. Were it not for domestic concerns about energy security in the United States, PetroChina would likely have already been a very active buyer of U.S. energy plays. As is the case with ExxonMobil, rising energy prices would help to boost this company's value. Shares, which trade for $140, spiked to $263 in October 2007 when oil prices hit an all-time high of $140 a barrel. A repeat of that scenario would take PetroChina's market value north of $350 billion.

Prediction: A continuing acquisition spree helps PetroChina to overtake Exxon Mobil in four to five years as the world's largest publicly-traded energy concern.

5. BHP Billiton (NYSE: BHP)
BHP's exposure to a wide range of commodities helped this stock rise 150% in 2010. Commodity prices are rising on expectations that global economic growth will accelerate in 2011 and 2012 and demand will outstrip supply for many metals and minerals. But it's hard to make a case for a much higher spike in commodity prices. After all, firming prices have led to production increases in past economic cycles, capping any further gains. And as noted above, the Chinese economy may experience a hangover in the future, which would dramatically alter the supply and demand equation.

Prediction: Shares of BHP Billiton continue to appreciate — but a much more modest pace, and the company's market value fails to crack the $300 billion barrier.

Action to Take –> The Industrial and Commercial Bank of China could occupy the No. 1 perch five years from now. Google, Petrobras and China Construction Bank are knocking on the door. One of these firms is likely to end up on the leader board five years from now. My money is on Petrobras. The oil giant's massive R&D program should eventually set the stage for surging cash flow. [Read more of Ryan's excellent analysis of Petrobras here]

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
The 5 Most Valuable Stocks on the Planet

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The 5 Most Valuable Stocks on the Planet

The risky part of investors blindly counting on long-standing hot streaks is that when the streaks finally turn cold, the fallout is enormous. On the flipside, the resumption of those winning streaks makes for incredible turnaround stories.

There's no better example of this than the video game industry, which just became investment-worthy again.

In 2009 — and for the first time in many, many years — sales of video games and gaming consoles actually fell. So much for the “video games are recession proof” theory, right?

Well, no, not exactly.

While the recession got the blame for declining video game sales, there's a more obscured reality that hasn't been voiced about the industry's 2009 demise. More important, it's a reality that bodes well for the shares of video game software designers.

What really happened between 2008 and 2009? For lack of a better way of saying it, most of 2009's new game releases stunk.

The video game titles “Grand Theft Auto IV,” “Call of Duty” and “Guitar Hero” are quickly recognized as some of the most successful and best-selling video games in recent history. Their sales made decidedly-positive impacts on the bottom lines of their developers, too.

Take-Two Interactive (Nasdaq: TTWO), for instance, sold 11.9 million copies of “Grand Theft Auto IV” — the single best-selling title for the Xbox 360 and PlayStation consoles — pumping up the company's top line by +56% in the same fiscal year of the game's release. Activision-Blizzard (Nasdaq: ATVI) sold 12.0 million copies from its red-hot “Call of Duty” series and sold another 9.3 million copies of “Guitar Hero” games in the same year, and beefed up its top line by +124% for the annual period.

There's one common element for all three games… each was launched in 2008, pushing the industry to its best-ever annual revenue.

Now fast-forward to 2009, when nothing even close to 2008's game successes could be found on shelves… save one.

The single-best selling title in 2009 (among games that weren't pre-packaged in the gaming console) was easily Activision's newest entry into the “Call of Duty” series, “Modern Warfare 2.” About 15.0 million copies were sold, and Activision grew its top line by another +41%. One can only wonder how big the bump may have been if the company had published another version of “Guitar Hero.”

Take-Two Interactive, conversely, didn't even manage to put a single game into 2009's top-seller list. Not surprising, Take-Two's top line shriveled by -37% that year.

Indeed, most designers were in the same boat as Take-Two was in 2009, failing to publish anything as exciting as what they had published in 2008. Game sales in 2009 weren't a victim of the recession; they were a victim of lousy games nobody wanted to buy.

Yes, one could make the argument that gamers didn't want 2009's games because they couldn't afford to buy them. The success of “Call of Duty: Modern Warfare 2″ that year trumps the argument, though. More “Call of Duty” games sold in 2009 than in 2008, and the actual game play between all those versions is nearly identical. If gamers can cough up the money for a revamped version of a game they likely already own, they could reasonably spring for other gaming titles, too.

Now fast-forward to today. Not that one broken record is an absolute sign of perfect health for the entire industry, but it's sure not a strike against it either. In any case, the all-time record for the first five days of sell-through for a new game title was witnessed in November of this year. The game? No surprises here — Activision-Blizzard's latest entry in its “Call of Duty” line, “Black Ops.”

Take-Two, having learned the importance of blockbusters in 2009 (when it didn't have one), righted that wrong. The company's “Red Dead: Redemption” game has sold 6.7 million copies this year, putting it near the top of the heap for the year so far. Needless to say, this year should be much better than last year for Take-Two.

It's not just better games driving the industry's revival, though. The recent releases of Microsoft's (Nasdaq: MSFT) motion-based Kinect controller for the Xbox and Sony's (NYSE: SNE) similar Move for the PlayStation 3 open up a whole new creative outlet for game designers that didn't want to develop a motion-based game that can only be played on Nintendo's (PINK: NTDOY) Wii platform.

Bottom line? If the 2006 launch of the Wii is any indication, revenue growth could gain traction for years on the heels of the industry's reinvention. And, with a new-found understanding that one hit title is apt to bear more fruit than several mediocre games, look for a slightly smarter business model from these companies going forward.

Action to Take –> The introduction of the Kinect and Move hardware won't mean a great deal for the likes of Microsoft or Sony, each of which derives the bulk of revenue in other arenas. But, that new hardware will further boost game designer revenue.

With a legitimate blockbuster back on the list of Top 20 selling video games, Take-Two Interactive is positioned for strong revenue and earnings this quarter, and probably a couple more. And, not that Activision-Blizzard needed reviving, but another smash hit in its “Call of Duty” series can only bode well for the company, setting up more monster-sized growth. Both designers have compelling ideas in the pipeline as well. Each stock can easily be considered a worthy investment candidate once again

– James Brumley

James brings a wide degree of experience in the investment industry, including being the Director of Research of a trading newsletter. James' work has appeared in major investing sites such as Motley Fool and Investopedia. Read more…

This article originally appeared on StreetAuthority
Author: James Brumley
Why These Once-Hot Stocks are Set for a Comeback

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Why These Once-Hot Stocks are Set for a Comeback

After an impressive two-year surge that has seen its stock rise more than +200%, shares of Apple (Nasdaq: AAPL) appear to have stalled. The stock has been stuck in a tight range between $300 and $320 for the past six weeks, as bulls and bears have at it.

Yet this stock is far too popular and far too controversial to stay stuck in a trading range for very long. The key question for investors now: Will Apple resume its upward climb toward the $400 mark? Or is the long-awaited pullback that brings shares down to somewhere near $250 close at hand? Here are six catalysts to monitor that could move shares this winter. [Read more about catalysts and how they shape the market's biggest winners]

The positives.
There's no shortage of reasons to like Apple. Just ask Wall Street analysts. They universally sing the company's praises, and most expect shares to eventually climb to $375 or higher. That's not a huge stretch, as $375 reflects a price-to-earnings (P/E) ratio of just 15 on earnings per share (EPS) of $25 in 2011. (The consensus calls for $22, but since Apple routinely tops forecasts by at least 10%, $25 is the most likely outcome).

Why are analysts so bullish?

1. Quarterly trends are scorching. Apple posted spectacular quarterly results in late October, and it looks very likely that results for the December quarter will be even stronger thanks to holiday spending patterns. For example, Apple shipped 14.1 million iPhones last quarter (up +92% from a year earlier), and analysts think more than 15 million units will be sold in the current quarter. Sales of iPhones may cool a bit in the March quarter, but should go on to hit new heights once Verizon (NYSE: VZ) starts selling its own version of the phone.

2. The Mac is back. Just a decade ago, Apple had a miniscule share of the desktop and laptop computing market as Microsoft (Nasdaq: MSFT) looked set to declare game, set and match. These days, the Mac is on the move, taking market share from the Windows crowd quarter after quarter. Sales of Macs rose +26% in the most recent quarter compared with a year ago, while the PC sector grew less than +10%.

All of this success — every bit of it — comes from the halo effect of the iPod, iPhone and iPad, which all operate in the same eco-system. The rising installed base of Macs (both laptops and desktops) further feeds the virtuous cycle of app development, which enhances the sales proposition of all of Apple's products. The solid performance of Apple's fast-expanding store base also provides a positive feedback loop in terms of attracting new customers.

3. A financial dynamo. Apple generated more than $16 billion in free cash flow in fiscal (September) 2010, boosting its cash holding to $51 billion ($55 a share). Unless Apple makes a major move in terms of buybacks, dividends or acquisitions, cash is likely to exceed $80 billion by the end of 2012. Excluding the current cash balance, shares trade for around 13 times likely 2011 profits. That's a very reasonable multiple in light of the company's strong growth, impressive operating margins (they exceed 25%), and powerful brand.

The negatives
If you're looking for potential negatives for Apple among the Wall Street analyst crowd, you won't find much. This stock is so universally loved by sell-side analysts, that you wonder why shares can't seem to break past the current trading range, even after reporting such a stellar quarter. But potential red flags surely do exist, including:

4. Yphrum's Law (also known as the opposite of Murphy's Law). Everything that could go right for Apple is going right. The iPad has no real competition, Microsoft has proven to be a feeble foe, and Apple has been able to secure premium pricing for its products. Also, the transition to digitally downloaded music continues (sales at iTunes were up +22% in the most recent quarter).

Yet each of these factors carries the potential for reversals. For example, the iPad will soon have many rivals. The early crop of tablet computers offered by rivals has been uninspiring, but the sheer number that will be on the market could quickly turn this into a commoditized segment with little pricing power. In addition, Microsoft's stumbles are soon to be obscured by Google's (Nasdaq: GOOG) rising momentum. [See: "Apple's Biggest Fear"] Google has the unsportsmanlike habit of giving things away and figuring out how to charge for it later. That can wreak havoc for rivals that like to make profits.

5. Margins headed for a fall? Apple recently caused a dust-up by noting in its 10-K filing that gross margins may drop in the current year. That's understandable. The new line of Macs have received major price drops as Apple finds it increasingly difficult to take further market share while its desktops and laptops are notably more expensive than PC units. Apple has also recently benefited from a fairly benign environment for component pricing, and any spike in costs for memory, touch screens and other outsourced items would surely pressure margins.

6. Early adopters and the weak economy. This final point is the major thesis of the few lonely bears. They contend that Apple has done a remarkable job of generating buzz among the most tech-savvy of consumers. But with those early adopters largely spoken for, these bears question why analysts expect Apple's unit sales to come in at a much higher pace in fiscal 2011, as is reflected in most analysts' earnings models. Apple is expected to boost sales +34% this year. But with rising competition in the tablet and smart phone space, and most of those competing products likely to be priced more aggressively, Apple could lose some major momentum.

To be sure, international sales are likely to spike well higher in the next few years. But global players like Samsung and Acer can't be taken lightly as they push back, either. The bears also wonder if Apple can meet sales targets if the economy remains in a funk. Recent sales data imply that consumers are starting to spend again, but we'd need to see these trends sustained before Apple and others can truly be enthused about 2011.

Action to Take –> Shares of Apple certainly aren't overpriced in relation to near-term sales and profit trends. It's the longer-term trends that are worrisome to some. That's why investors will be closely tracking Apple's operating metrics in the next quarter or two for signs of possible slippage.

Apple is currently priced as if it will be a far larger company in three to four years. Time will tell. If you don't own the stock, best off staying clear — you've missed a great run. A pullback to $250 is the best place to get in, and a move to $400 makes the case to short the stock.

– David Sterman

P.S. –

Back on October 26th I suggested e-commerce software provider Art Technology Group (Nasdaq: ARTG) was an attractive buy at the then-current price of $4.39. [Click here to read the article] A few days later, the company was acquired by Oracle (Nasdaq: ORCL) at a price just under $6.00 — a nice +36% move in the span of about a week.

So how'd I do it? Well, it was actually quite simple. I was 100% confident the company was going to continue growing its bottom line, as it had been for a few quarters. I was about 70% sure those results would translate into a rising stock, as had been the case — mostly — since early last year. And, I had absolutely no idea the company was going to be snagged by Oracle.

I don't say that to create any self-deprecating humility that I'll turn around later; I really had no idea that Art Technology Group was a target. I just knew it was a great company I’d want to own, and as it turns out, Oracle agreed.

I have two more acquisition candidates like Art Technology in mind, but before I share them, it may be worth explaining my thought process.

The whole experience got me thinking about some of the other M&A chatter we’ve been dancing with during the course of this year, much of which never panned out.

Take Microsoft's (Nasdaq: MSFT) rumored buyout of Adobe (Nasdaq: ADBE) for instance. A mere meeting between Microsoft's head Steve Ballmer and Adobe's CEO Shantunu Narayen sent Adobe shares soaring as much as +16% when the buyout buzz was circulated on October 7th. The stock tumbled by about half that amount the next day when the rumors were snuffed.

Fortunately, Adobe shares have since reclaimed almost all of that lost ground, but surely more than a few investors bought at the high and then defensively sold at the low of that span.

California Pizza Kitchen (Nasdaq: CPKI) is another example of a fizzled acquisition-based rally. The company effectively put itself up for sale on April 9th, and pushed shares from $18.18 to $20.74 as traders jockeyed for a piece of the company before it was bought. By July, the stock had reached a low under $13.00, having never moved above that peak of $20.74, and still no suitor in sight.

The same story unfolded again when renewed whispers of a sale shot the stock to a peak price of $20.00 on July 28th. Since then, not only have we still not seen a buyout, but investors who bought it at $20.00 on acquisition hopes have yet to see the stock hit $20.00 again.

If you're keeping score, that's two buyouts that were well-publicized, then highly-speculated on, that ultimately fizzled — and cost investors money in the process.

Now contrast that with the acquisition of Art Technology Group, which nobody saw coming, yet managed to materialize and pay off on a big way.

Get the point? If your only goal is to step into a target company before a possible acquisition, you're likely to be disappointed more often than not — not to mention stuck with a stock you may not want. If you focus on owning great companies, though — as we all should — at the very least you'll own a great company and you may just win big from an acquisition anyway.

With that as a backdrop, I can unveil my next two potential acquisition targets. The first is A-Power Energy Generation Systems (Nasdaq: APWR), and the other is Xyratex (Nasdaq: XRTX).

No, neither of these company names has been spinning in the M&A rumor mill. That's the point. They are both great companies, however, that would be as attractive to another company as they are to individual investors.

Xyratex is a data-storage player, which is an arena that's seen more than its fair share of buyout interest lately. Most of the focus seems to be on Compellent Technologies (NYSE: CML) or STEC Inc. (Nasdaq: STEC) — I don't recall hearing Xyratex in any of the data storage consolidation discussions. Oddly though, Xyratex has been producing about 10 times the revenue that Compellent has been generating (with a similar income disparity), while Xyratex's market cap is about two-thirds of Compellent's. Better still, the stock boast's a strangely low trailing 12-month price-to-earnings (P/E) ratio of about 4.7.

A-Power Energy Generation Systems is primarily a Chinese energy management holding. It's not priced as low as Xyratex is right now, but the forward-looking P/E of about 6.1 is plenty attractive — and plausible. The kickers for A-Power here are growing institutional ownership and a growing wave of utility and energy acquisitions this year; a sector's merger-mania often develops its own inertia.

Action to Take –> If you're only jumping on a stock because the rumor mill is suggesting it is an acquisition target, you may find yourself stuck with a lousy stock — if you don't even want to own it for the long haul, why would another company want to? Besides, by the time you hear about an acquisition, it's probably too late to do anything about it.

On the other hand, winning the buyout lotto isn't a lost cause. Companies acquire other companies for the same reasons investors do: reliable income, leading technology, market share, etc. Find a good, undervalued company like A-Power Energy or Xyratex, and you'll do one of two things — you'll either (1) own a great stock, or (2) you'll benefit from a buyout. Either way, it's a win.

– James Brumley

James brings a wide degree of experience in the investment industry, including being the Director of Research of a trading newsletter. James' work has appeared in major investing sites such as Motley Fool and Investopedia. Read more…

This article originally appeared on StreetAuthority
Author: James Brumley
36% Gains From a Takeover — and Two More Stocks That Could Follow

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36% Gains From a Takeover — and Two More Stocks That Could Follow