Saturday, August 31, 2013

Key things to watch out in a balance sheet

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In the past few articles of this series, we discussed about the various aspects of a profit and loss account, right from revenues to appropriation. In the next few articles, we will touch upon few of the key constituents of a balance sheet.

What is a balance sheet?
A balance sheet gives a snapshot of a company's financial strength. The statement shows what a company owns or controls (assets) and what it owes (liabilities plus equity). The balance sheet is broken in to two parts - 'Sources of Funds' and 'Application of Funds' - as they are called in accounting terminology. We shall first look into the key constituents of the head 'Sources of Funds', after which we will cover the head 'Application of Funds'.

Sources of Funds
'Sources of Funds' indicates the total financing that a company has received. In simple terms, it shows how a company has got the funds to purchase its assets. As such,

Total assets = Shareholders' equity + total liabilities

It may be noted that in the above ratio, total liabilities includes loans and current liabilities. As current liabilities are found on the lower half of the balance sheet, we will touch up on this topic in the next few articles.

Shareholders equity - In the simplest form, equity is that portion of the balance sheet which purely belongs to the shareholders. An easy way to calculate it is by using the above formula.

Shareholder's equity = Total assets - total liabilities

Shareholder's equity represents the total capital received from investors, plus the accumulated earnings which are displayed in the form of reserves and surplus.

As such, Shareholders' equity = Share capital + reserves and surplus

Share capital represents the funds that are raised by issuing shares. On multiplying the face value of a share by the number of shares issued, subscribed and fully paid, we get the value of share capital. The reason a company's share capital remains constant for years is on account of non-issuance of additional shares. When a company issues more shares, the effect is seen in the share capital.

The image below explains this better.











Source: Britannia FY11 annual report.

Reserves and surplus, as the name suggests, is the accumulated profits that a company has earned and retained overtime. Retained profits are the profits that are left after paying the dividends to the shareholders. When a company reinvests the left over profits, the reserves and surplus account will expand. Its complementary effect will be seen in the assets side.

The reserves and surplus account consists of different reserves such as 'General Reserve', 'Profit and Loss Reserve', amongst others. This section also includes a reserve which is called the 'Share premium account'.

When a company issues shares, the instrument would have to carry a denomination, known as the face value. For example, let us assume that the face value of a company's share is Rs 10. It fixes the issue price at Rs 100 per share. Now, out of each share that is issued, Rs 10 will go in the share capital account (as explained above) and the balance Rs 90 will go to the 'Share Premium Account'.

Loans and borrowings is the other major component of the 'Sources of Funds' side of the balance sheet. When a company is in need of capital (for any purpose), but is not able to generate enough internally, it would look borrowing money. The reasons for the same could vary from meeting capital expenditure requirements to meeting working capital requirement, amongst others.

Loans can be of various types. They could be short term (working capital loans) or long term (term loans) in nature. You would also find terms such as 'secured loans' and 'unsecured loans' in companies' annual reports. Secured loans are loans that are secured by collateral to reduce the risk associated with lending.
In the next article of this series, we will discuss the key constituents of the 'Application of Funds' side of the balance sheet. is India`s leading independent equity research initiative

How to evaluate taxes, net profit, appropriation of a company

Why Operating Margins is a key valuation parameter

Friday, August 30, 2013

Technology Stock Roundup: Apple Soars, Finally - ...

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Last week was a relatively uneventful one for big tech.

More Talk About Apple Choosing TSM

Particularly since one analyst started saying that this was such a bad thing for Intel (INTC) since it continues to invest in capacity that would most likely go empty. So was this such a good deal for Apple (AAPL) or such a bad deal for Intel?

Apple is joining hands with a company that has always lagged Intel in process technology and also had significant yield issues on transitions to lower nodes -- something that at one point cost Advanced Micro Devices (AMD) some market share. Intel, on the other hand, is seeing its core computing market melting away and it still has limited exposure to the mobile segment.

Apple is obviously distancing itself from Samsung, which has traditionally manufactured some of its components. But alternative capacity was necessary because of the growing animosity between the two. TSM was the logical choice because most Apple components are manufactured in Asia.

Also, TSM remains the leading foundry, and being a foundry, it is less likely to turn into a competitor. The partnership would help it grow not only in its traditional markets, but also in other areas, such as wearable devices.

Growth projections for things like Google (GOOG) Glass and smart watches indicate that this market will go through the roof in the next 4-5 years. Google Glass has already become a hot topic of conversation and Google is already in the market for watches through Motorola (MotoACTV). Last week saw Apple trademarking iWatch in Japan.

Intel too is not adding capacity for nothing. At this point it definitely looks like the chip giant is placing its bets on mobile. Recent news reports indicate that its new mobile chips are going to be better than those showcased, with cheaper and better Atom processors also on the way.!

So this holiday season, we are likely to see a number of tablets from companies like Samsung, ASUS, Hewlett Packard (HPQ), Dell (DELL) and Acer with Intel inside. Intel will earn better margins on its own chips than it could on a foundry deal with a competitor. Strategic foundry partnerships like the one with Altera (ALTR) also remain in the cards.

About Microsoft Re-"Surfacing"

Microsoft's (MSFT) Surface tablet did not pick up as expected and the company is doing all it can to grow sales. The RT version was heavily discounted and pushed toward students in particular, which is just as well because it is likely to die a natural death.

The Pro, on the other hand, could grow with some help. Or so Microsoft thought when it authorized distributors like Ingram Micro (IM), SYNNEX and Tech Data (TECD) to sell the device to authorized resellers.

Microsoft also launched AppsForSurface for ISVs, to promote the development of apps around the platform. The increased availability and app support is expected to encourage enterprise buyers.

Google: One Battle at a Time

Google's books project scored a small win last week, when the judge held that evidence regarding "fair use" was necessary before authors could bring a class action lawsuit against the company. Google has been digitizing copyrighted material ( it has already scanned 20 million books) and displaying snippets from them, for which the Authors Guild is suing it for $3 billion.

The "fair use" doctrine allows the use of copyrighted materials for educational, research or news purposes. This decision is what Google was looking for because it has for long held that its actions constituted "fair use."

Also, since some of the concerned copyrights belong to untraceable holders, which is leading to extinction of the concerned books, Google could show an altruistic motive. However, the inability to file a class action lawsuit could make it difficult to fight Google.

And ! a Qwiki f! or Yahoo

Yahoo (YHOO) has been snapping up companies with great regularity and last week it acquired an iPhone app maker called Qwiki. The only difference is, this time, Yahoo is not going to withdraw support to the existing app, probably because it is trying to befriend Apple. Both the other acquisitions (fantasy football maker Bignoggins and address book manager Xobni) that it acquired last week are being absorbed into Yahoo.

Apple is the only one that beat the market last week, with Google trading more or less in line and all the others notably weaker.


Last Week's Performance

6 month performance





















! +20.97%

The week ahead –

Microsoft is internally discussing restructuring actions although officials continued reserve comment. However, a number of details reported by Businessweek and AllThingsD indicate that the restructuring is real.

As a result, Windows chief Julie Larson-Green, Windows Phone software chief Terry Myerson, Server and Tools chief Satya Nadella and Skype president Tony Bates may be expected to see an expansion in their roles. It's also being rumored that the departure of Xbox chief Don Mattrick was a part of this restructuring. A formal announcement is expected this week.

Wednesday, August 28, 2013

Seadrill, Cardon IV in $222M Deal - Analyst Blog

Norwegian oilfield service firm, Seadrill Limited (SDRL) has entered into a deal with Cardon IV Venezuela, a joint venture between Italy's Eni SpA (E) and Spain's Repsol SA (REPYY).

Per the deal, West Freedom, a LT-Super 116E jack-up rig of Seadrill, will be used by Cardon IV for drilling activities off the coast of Venezuela. After the 30-month contract, Seadrill and Cardon IV will have the option to extend the agreement for six months at a rate agreed by both the companies. The expected revenues from the deal will be roughly $222.0 million, which includes $8.5 million for mobilization.

Seadrill reveals that the rig is presently employed at Qatar and is expected to be available by the latter half of Sep 2013.

On May 28, 2013, Seadrill reported its first-quarter earnings. Earnings per share came in at 69 cents, exceeding the Zacks Consensus Estimate of 59 cents by 16.9%. The better-than-expected result was owing to better utilization of rigs.

Based in Hamilton, Bermuda, Seadrill renders offshore drilling services, which include exploration, completion and maintenance of offshore wells; production and well maintenance; and well services to customers worldwide. The company is operating 61 units, which include jack-up rigs, semi-submersible rigs, drill ships and tender rigs.

Seadrill currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, in the oil and gas drilling sector, one firm with a favorable Zacks Rank is Ocean Rig UDW Inc. (ORIG). The stock currently retains a Zacks Rank #1 (Strong Buy).

Sunday, August 25, 2013

China Drugmakers Decline on Corruption Crackdown: Shanghai Mover

Jiangsu Hengru Medicine Co. shares fell the most in three months as drugmakers declined after the official Xinhua News Agency reported China is starting a campaign to crack down on illegal competition in the industry.

Jiangsu Hengru dropped 4.4 percent to 33.31 yuan at the 11:30 a.m. local-time break, poised for the biggest loss since May 20. Beijing SL Pharmaceutical Co. slid 4.1 percent to 56.57 yuan. A gauge of health-care companies fell 2 percent, the most among 10 industry groups on the CSI 300 index. The Shanghai Composite index and CSI 300 index were little changed.

"The crackdown on irregularities in the medical sector has undermined confidence among some investors and they expect drug prices to fall," said Wu Kan, a Shanghai-based fund manager at Dragon Life Insurance Co., which oversees $3.3 billion in assets.

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The campaign, which will last until the end of November, will target "commercial bribery" and "unfair competition" by companies abusing a dominant market position, Xinhua said, citing the State Administration for Industry & Commerce.

China has expanded its anti-corruption probe of pharmaceutical companies to drive down drug prices as it seeks to expand health care to the poor and uninsured. President Xi Jinping has made affordable health care a key part of the Communist Party's agenda.

The National Development & Reform Commission is already investigating 60 foreign and local pharmaceutical companies in relation to pricing, the China Daily reported separately.

Sanofi, Glaxo

Authorities in the southeastern province of Fujian said 1,088 medical professionals from 73 hospitals were suspected of corruption after a six-month investigation, Xinhua reported on July 24. In southern Guangdong province, 39 employees of a hospital will be punished for taking illegal kickbacks from pharmaceutical companies, according to another Xinhua report.

Sanofi, France's largest drugmaker, said on Aug. 10 it will cooperate with a review of its business in China after a newspaper reported this month a whistle-blower's allegations that the company paid about 1.69 million yuan ($276,000) in bribes to 503 doctors in the country.

GlaxoSmithKline Plc, the U.K.'s largest drugmaker, is the subject of a corruption probe, and three other companies have been, or are in the process of being, examined by authorities. Johnson & Johnson was fined for monopolistic practices this month, while Eli Lilly & Co. was reviewed earlier this year by authorities in Shenyang, the company said on Aug. 1.

Authorities budgeted 850 billion yuan in April 2009 for an overhaul of the nation's health care system to reduce the costs of essential drugs and provide more than 90 percent of the population with basic health insurance. Spending in the three years since then had exceeded 1.1 trillion yuan, Xinhua reported in March 2012.

Friday, August 23, 2013

Target-Date Funds Post ‘Respectable’ Results: Ibbotson

Target-date funds aren’t keeping up with S&P 500, though they are staying ahead of a key fixed-income benchmark, according to the latest data released by Ibbotson on Wednesday.

“Despite volatile markets, target maturity fund returns for the quarter fell squarely in between equity and bond returns. For the 12-month period ending in June, target maturity funds earned a respectable 11.9%, driven by the strong performance of U.S. equities,” wrote Jeremy Stempien and Cindy Galliano, both directors of investments for Ibbotson (a unit of Morningstar) in the Q2 report.

In the second quarter, target-date funds declined 0.6% on average.

As the experts note, these figures put target-date funds behind the 2.9% Q2 results and 20.6% 12-month returns of the S&P 500; however, they outpaced the Barclays U.S. Aggregate Bond Index, which declined 2.3% in Q2 and 0.7% in the past 12-month period.

Target-date funds with exposure to commodities, Treasury inflation-protected securities and emerging-market equities underperformed other funds in the group over the past year, according to Ibbotson. These assets classes have been “struggling,” with losses of between 7 and 10% in the quarter, the research firm notes.

Fund Flows Moderate

As for fund flows, assets moving into target-date funds in Q2 returned to “normal levels” of $12 billion, after a record-breaking positive flow of $23 billion in the first quarter. At end of the second quarter, total assets in target-date funds totaled an estimated $545 billion, representing a 27% increase from a year ago.

Vanguard and Fidelity earned the top two spots for fund families in terms of asset flows, followed by JP Morgan and T. Rowe Price.

Vanguard, Fidelity and T. Rowe Price – often referred to as the “Big Three” in the target-date field continue to capture about three-quarters of fund flows. Principal, American Funds, TIAA-CREF, Wells Fargo Advantage,JP Morgan and John Hancock each have between 2-4% of market share as of June.

Close to 50% of the target-date assets, or $261 billion, are held in the three categories: 2016-2020, 2021-2025 and 2026-2030.

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Volatility Matters

The major asset classes have seen “a wide range of returns over the prior 12 months, ranging from a 25.3% gain in large-value equity, down to an 8.0% loss in commodities,” the analysts point out.

Developed-market equities, excluding the United States, significantly outperformed emerging equities, they add, over the past year. Also, U.S. small-cap and large-cap value equities posted gains of over 23%.

While REITs and emerging-market equities have hurt the performance of target-date funds during the past 12 months, commodities – which have had negative returns for the last three quarters – “have been far and away the worst-performing asset class … ,” the Ibbotson experts say. “The inclusion of commodities over the past year not only detracted value on a relative basis, but also on an absolute basis.”

Monday, August 19, 2013

3 Intelligent Personal Finance Thumb Rules

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With the plethora of personal finance sites and the wealth of advice floating around on the web, given by your bank, or insisted upon by your advisor, sometimes it helps to take a step back and do a broad check to see if overall, you�re doing the right things.

This is where general thumb rules can save you time and let you know if broadly you are on the right track.

But remember, by saving time, you are effectively taking a short cut. Thumb rules are imprecise. They are generalizations, and may not specifically apply to you. For personalized advice, you need to speak with your personal financial planner for a financial solution to your specific situation. So is there an in-between solution for people who don�t yet have a personal financial planner and don�t want to follow only broad generalizing thumb rules? Yes there is.

This article will show you some lesser known, more precise thumb rules that will still save time, and will be better for your personal finance situation than just a broad guideline. Let�s see what these thumb rules are:

1. Equity � Debt Exposure & Your Goal Time Horizon

There is a thumb rule that people sometimes follow, which states that your equity exposure should be (100 � Your Age)%. The balance should be in debt or fixed income instruments.

So, if you are 30, then 70% of your wealth (100 � 30)% should be in equity.

This isn�t completely appropriate.

A 30 year old might have a number of short term financial goals due to a significant life event, such as a wedding, or a first born child, or buying a car and so forth. Having 70% of your exposure in equity therefore would be a bad idea, because there is no capital protection and your funds would be exposed to market volatility. If you need to suddenly pull out money, you might take a loss on your investments.

The more appropriate and still easy thumb rule is this:

3 years or less left for your goal = No Equity Exposure.

It might seem difficult, but if you have a goal like the ones stated above that is happening within 3 years, avoid equity completely. Think of the people who invested lump sums of money in the Sensex at 20,000 levels. Their money would still be in the red, even after more than 3 years. (Read our article titled To SIP or to VIP � That is the Question to understand the benefits of SIP investing compared to Value Averaging Plans)

So, if your goal is at least 3 years or more away, then consider equity investments, otherwise don�t.

And the longer the time duration for your goal, the more equity exposure you can have. For example, if you have 5 years to your goal, consider 60% equity, 40% debt. For a goal that is 10 years away, consider 80% equity, 20% debt. Your age has very little to do with it.

2. Rule of 69

You have probably heard of the Rule of 72.

It helps you calculate what rate of return it will take to double your money.
For example, if somebody tells you that by investing in so-and-so product, your money will double in only 8 years, the quick calculation would be:

Rate of Return = 72 / Number of Years to Double Money

�and this calculation would tell you that the product the advisor is recommending should be giving you an annual return of 72/8 i.e. 9% p.a.

This is quick, but the reason the number 72 is chosen is because it is easily divisible by many denominators and because it is close enough to the real number, which is 69.

So the more accurate rule is:

Rate of Return = 69 / Number of Years to Double Money

The Rule of 69 will give you a more accurate answer to your double-your-money question.

In the example above, if something is doubling your money in 8 years, then 69 / 8 gives you 8.625% p.a. i.e. lower than 9%. Consider taxation eating into your returns, and suddenly this double-your-money-in-8-years product doesn�t seem very attractive, does it?

3. Save and Invest at least 25% of your salary

A rule that many people follow is to save and invest 10% of their incomes. In no uncertain terms, this is not enough.

Remember this: the more you save now, the more your money compounds. And if there�s one magical thing about finance, it�s the power of compounding. You might have to cut back on discretionary expenditures to save 25% of your salary, but in the end it will be worth it. (Read our article titled Do You Have Your Own Budget.)

So aim for at least 25% of your take home salary being saved and invested. Invest it as per your goal time horizon (see Rule No. 1) and as your salary increases, remember to at least proportionately increase your investments.


Thumb rules are, by their nature, imprecise. If you want a completely accurate and personalized financial solution to help you achieve your life goals, your financial planner is the person to talk to. Until then, be careful what thumb rules you follow, and err on the side of caution when dealing with your finances.

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Sunday, August 18, 2013

BBBY Hits New 52-Week High - Analyst Blog

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Shares of Bed Bath & Beyond Inc. (BBBY) touched a new 52-week high of $76.94 on Friday, Jul 12, 2013 and eventually closed trade at $76.74. The stock has been performing well based on the company's robust quarterly results, impressive outlook and store growth initiatives. This specialty retailer has amassed a year-to-date return of 36.7%.

Average volume of shares traded over the last 3 months was approximately 2,061K. Moreover, the company currently trades at a forward P/E of 15.3x, an 8.8% discount to the peer group average of 16.77x. The last traded price is 0.6% above the Zacks Consensus average analyst price target of $76.29. Additionally, the company's long-term estimated EPS growth rate is 13.6%.

Investors are optimistic about this Zacks Rank #3 (Hold) stock as it constantly strives to expand and renovate its stores, boosting online presence, incorporating technological advancements and reviving its merchandise mix to enhance productivity. Such measures bode well for future sales.

Currently, it enjoys a strong countrywide network of more than 1,100 stores and is focused on offering merchandise to suit consumer preferences. In the long run, the company envisions opportunities to operate over 1,300 Bed Bath & Beyond stores across the U.S. and Canada, while it plans to expand other concepts from coast to coast.

Bed Bath & Beyond's efforts are paying off well, as evident from its first-quarter fiscal 2013 earnings that rose 4.5% to 93 cents per share, benefiting from the performances of World Market (Cost Plus Inc.) and Linen Holdings. Moreover, the company's earnings were in line with the Zacks Consensus Estimate.

This company also witnessed sales growth of 17.8% year over year, driven by the aforesaid acquisitions as well as increase in comparable store sales and new store openings.

Ma! nagement projects fiscal 2013 earnings per share in the range of $4.84–$5.01, while second-quarter fiscal 2013 earnings per share are estimated to range from $1.11–$1.16. Net sales are expected to rise 7% to 9% in the second quarter and 5% to 7% for fiscal 2013.

Bed Bath & Beyond's focus on developing its diversified product portfolio will position the company more advantageously than its peers. Given the strength of many of its brands and the opportunities in distribution, we believe that it is well poised for long-term growth.

Apart from Bed Bath & Beyond, other retail stocks such as The Gap, Inc. (GPS), Big 5 Sporting Goods Corp. (BGFV) and Conns Inc. (CONN) achieved new 52-week highs of $45.37, $24.00 and $58.40, respectively, on Jul 12, 2013.

Saturday, August 17, 2013

ETFs for Japan's Buyback Bonanza

U.S. companies love to repurchase their own shares. S&P 500 members buying back nearly $98 billion of their shares in the first quarter proves as much and investors benefit.

While investors may not always pick the stock that benefits the most from a share repurchase plan, they do not have to when they can simply use the PowerShares Buyback Achievers ETF (NYSE: PKW), a fund that has outperformed the S&P 500 by over 2,500 basis points over the past three years.

PKW is not the only ETF that offers investors exposure to buyback stories. Some familiar Japan ETFs could be sound options for playing companies' new found penchant for share buybacks in the world's third-largest economy. Companies that trade on the Topix, a broad Japanese benchmark, repuchased $17.8 billion of their own shares in the first half of this year, Bloomberg reported.

The closest thing U.S. investors have to a Topix tracking ETF is the iShares Japan Large-Cap ETF (NYSE: previously highlighted as a stealth Japan play, has surged 10% in the past month.

This year's level of Japanese share repurchases is the best since 2005, a year in which the iShares MSCI Japan ETF (NYSE: DXJ), the top-performing U.S.-listed Japan ETF this year, did not debut until June 2006.

While Japanese share repurchases still pale in comparison to what is seen in the U.S., it must be remembered that practice was not even allowed in Japan until 1994. In 2000, Japanese companies repurchased just $9 billion worth of their own stock, according to a Keio University study.

However, Japanese companies have previously shown an ability for getting good value when repurchasing their own shares. Keep in mind U.S. companies are boosting buybacks as the S&P 500 reaches a string of record of highs. However, Japanese companies increased buybacks by 33 percent in 2008 from 2007, according to the Financial Times.

Obviously, 2009 was not a great year for stocks because the financial crisis was drawing to a close, but Ja! panese buybacks did bear fruit. From the second quarter through the middle of the fourth quarter 2009, EWJ and DXJ each surged nearly 50 percent.

Important to ETF investors looking to profit from future Japanese share repurchases is the fact that companies there appear committed to ongoing buybacks. Share repurchases in Japan may double to 3.8 trillion yen in year ending March 2014, funded by higher earnings and cash balances, Bloomberg reported, citing Goldman Sachs.

Critics allege that Japanese companies are merely embracing buybacks as means of anticipating inflation that will erode the purchasing power of their free cash streams. That is akin to saying U.S. companies have boosted dividends and buybacks because of piddly interest rates. It might be true. It probably is, but investors need not be concerned with the "why." Not when DXJ surged almost 28 percent over the past six months. EWJ and ITF are up an average of 20 percent over that time, indicating Japan ETFs have already gotten a jolt from buybacks.

In terms of sectors that have been home to robust buybacks in Japan, Financial services, industrials and technology were among the leaders in 2009. Industrials, technology and staples have been noticeable share repurchases this year and those groups combine for about 49 percent of DXJ's weight. Those sectors combine for 48 percent of ITF's weight.

As for small-caps, consumer discretionary and technology constituents of the Russell 2000 have been voracious buyers of their own shares. Should Japanese small-caps follow suit, the WisdomTree Japan Hedged SmallCap Equity Fund (NYSE: DXJS), a credible weak yen play in its own right, should benefit.

The newly minted DXJS allocates about 35 percent of its weight to discretionary and technology names. And if Japanese small-cap industrials and financials that do the leading when it comes to buybacks of smaller stocks, DXJS has investors covered with a combined 37.6 percent weight to those sectors.

For more on ETF! s, click ! here.

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Friday, August 16, 2013

Hancock Initiated at Neutral - Analyst Blog

On Jul 3, we initiated our coverage on regional bank, Hancock Holding Company (HBHC) at Neutral, based on its strong organic and inorganic growth prospects. However, persistently rising operating expenses, a low rate environment and increased regulations remain major causes of concern.

Why the Neutral Stance?

Hancock's focus on its organic growth strategy as well as expansion through acquisitions prompted us to initiate with this stance. Further, the company continues to build capital, resulting in a better financial position that will help in fulfilling the stringent capital requirements. Moreover, with a strong liquidity position and meaningful capital deployment, Hancock remains an asset for yield-seeking investors.

Nevertheless, due to the low interest rate environment, Hancock is expected to continue experiencing pressure on its net interest margin. Moreover, increased non-interest expenses and significant exposure to real estate markets remain major causes of concern for the company. In addition, Hancock's profitability remains subject to the stringent regulatory landscape.

Further, in the first quarter of 2013, Hancock lagged the Zacks Consensus Estimate due to decreased revenues and higher operating expenses. The company is scheduled to announce its second-quarter results on Jul 25.

The Zacks Consensus Estimate for the quarter is pegged at 56 cents per share. The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Hancock is +1.79% for the second quarter. This, along with its Zacks Rank #3 (Hold), makes it likely for the company to report a positive earnings surprise.

Other Stocks to Consider

Other stocks in the same industry that are currently performing well include Capital City Bank Group Inc. (CCBG), SY Bancorp Inc. (SYBT) and WesBanco Inc. (WSBC). All of them carry a Zacks Rank #1 (Strong Buy).

Thursday, August 15, 2013

Tesco Plc – Does the “New Reality” Checkout?

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It's difficult to write about Tesco because what can I say that hasn't already been said? Nonetheless, I will try to add some insight to that of the 41 sell-side and umpteen buy-side analysts who cover the stock full time.

I think Tesco is a "time horizon arbitrage" long at this stage. The old adage is that profit warnings come in threes. So far we've only had one, so there may be more bad news to come. Because of this, most of the sell side has taken a big step back and will avoid the stock for a few quarters until we have "more clarity" (and the price has moved one way or the other by 20%).

For the buy side, there is a decent amount of risk in being seen to have "topped up" if it falls again because the knives are out for the company right now. For investors who can look out a year or two then I think this is an interesting opportunity which on that kind of horizon, with the help of the dividend, will handily beat the return on the FTSE 100 or on cash.


Tesco Plc is an international retailer. The principal activity of the company is retailing and associated activities in the UK, China, the Czech Republic, Hungary, Ireland, India, Japan, Malaysia, Poland, Slovakia, South Korea, Thailand, Turkey and the U.S. It is the market leader in the UK, Thailand and South Korea. The company also provides retail banking and insurance services through its subsidiary, Tesco Bank. Its online businesses include online grocery and Tesco Direct.

Market Cap (£) £26bn

Price 325p

P/E 10x

Dividend Yield 4.5%

Dividend Cover 2.2

Piotroski Score 8

Investment Case Summary


Tesco is twice the size of its UK peers. Size and scale matter in this business; look at Walmart's (WMT) operational performance. Tesco has a long history of operational excellence! , is a market leader and has a strong, investment grade quality balance sheet with expansionary spending mostly behind them. Tesco is one of few businesses that benefits from a negative working capital cycle; they do not have to pay suppliers for goods until after they have already sold them and received payment from customers.


The shares have been significantly de-rated thanks to the company's first-ever profit warning in January. The sell side has become increasingly focused on the metric of LFL sales in the UK business which has been struggling and will be difficult to turn around quickly, as operating momentum in grocery retailing is not easily won.

Management has announced they will be re-basing UK profitability by investing in the "customer offer" — in price and in better staffing. They confess they have probably "over-earned" in the UK in the last few years by running the business too lean. An example of this is that the number of employees per 1,000 square feet of store has declined from 74 to 61 since 2004.

The value opportunity arises because this myopic focus overlooks that there are other parts of the business at FCF inflection points or showing good value. Operationally the business is struggling but we have to remember its history of delivery — for the 2000's Tesco grew earnings at a compound 11.5% per annum. This isn't going to happen going forward but this is at least a GDP-plus-inflation growth business.

Additionally, it is interesting to note that three directors and Berkshire Hathaway have purchased shares since the price decline in mid-January. Warren Buffett now owns 5% of the company.


Tesco has a long list of potentially value-creating options at its fingertips. It has promised that Fresh & Easy will either start performing or close in the next year or so. At the moment this division loses around £100 million a year. The closure of the Japanese business shows a more ruthless approach from management re! garding n! on-core operations — they should either deliver or be closed from now on. The businesses in Korea and Thailand have now achieved critical mass, contributing 10% and 5% of profits respectively. Asian operations are expected to produce almost £700 million of profits in 2012.

Tesco Direct provides the online shopping element of TSCO, groceries and non-food. Interestingly, online sales are done at an 8% margin rather than a 6% margin for the business as a whole so this businesses growth should help going forward. However, the true look-through margin differential may actually be less impressive given that many of the costs of the online business are borne by the normal stores where "pickers" collect the shopping before it is sent out to customers. This will likely be addressed over time by moving online business to centralized "dark stores" and distribution centers where there are no customers, only staff focused on fulfilling online orders. The benefit of this is that the stores can be built on much less expensive real estate and do not have to be quite as aesthetically pleasing.

Although non-food Tesco Direct — which sells home, clothing and electronics, etc., is currently a weak part of the business because the UK economy is weak and because it takes up a lot of expensive floor space in the hypermarkets, I do not believe this shall always be so. Looking five years out I think the UK High Street is doomed, sales are going to move online to Amazon,, and ASOS, and the incumbents like Comet, Argos, Dixons and Matalan are going to start dropping like flies. They cannot offer the same range of products and they can't sell it at the same margin due to their expensive square footage. Over time we might see the Tesco Direct floorspace in stores become like a shop window for the most popular deals from the more than 100,000 products available online.

The services division offers a few "free options" for growth in things like Tesco Telecom which the! y aim to ! contribute £150 million of profits by 2013 or Dunnhumby which owns consumer information making £80 million per annum and finally the insurance business where Tesco are actually the sixth-largest motor insurance business in the UK. All of these businesses are materially valuable and robust, but they are a little lost within the context of the giant conglomerate.

Business & Management


Through Clubcard, Tesco knows its customers' shopping habits better than any of its peers. Historically, Tesco's retail execution has been very strong with its multi-format flexibility allowing it to closely align store space with its target markets and target customers.


Management has no credibility yet, due to a short track record and a failure to deliver on initiatives. It seems the new CEO may have been thrown a "hospital pass" upon taking the job. There are worries that its decades of success have left Tesco a sprawling conglomerate suffering from "mission creep" and perhaps a little complacency.

The highest P/E multiples are placed on focused specialists rather than generalists. For example, management must ask why they are in the garden center business when it doesn't move the needle and just provides a distraction.

The dramatic lowering of profit expectations has allowed the doubters of Tesco to jump on the bandwagon citing that the business has been run too hard for efficiency, it has become complacent, there are cultural issues and their marketing effort has been weak.

Margins are going to be a bit weaker in the UK business due to the "over-earning" issues from the past. Tesco does however have the best margins in the sector, so a move back towards its peers is now getting priced into the market.

Opportunities in Tesco Bank

Hypermarkets may be ex-growth but Tesco has many opportunities in the smaller stores like Extra or in the roll-out of the Services division, particularly Tesco Bank which is just rolling ! out its m! ortgage offering in the UK. I think Tesco has a very large opportunity here to steal basic banking/savings/deposit business from the incumbent major UK banks. RBS, Lloyds and to a lesser extent Barclays have permanently impaired their reputation and their relationships with their customers. Tesco may have a reputation as a big, nasty, profit-sucking corporation but not to anything like the same degree as the banks. For banking, TSCO's ubiquity and brand recognition will help. The placing of "branches" in the stores will save money because there is no incremental high street real estate required and furthermore, they are guaranteed footfall from the stores.

At the moment Tesco Bank is a negligible part of the business (circa £150 million of profit) but in 10 years it's possible that they will have considerable market share. Analysts have been quite explicit that there is no risk at this stage that the bank will jeopardize the broader Tesco balance sheet with undue financial risks.

Opportunities in Real Estate

The Tesco freehold real estate portfolio was valued as of the last annual report at roughly £32 billion. I think the sell side is almost completely ignoring this asset backing because of their focus on the income statement and the fact its inherent value is a slow burning process. The property assets provide a degree of inflation protection too.

The stated aim of selling down the real estate portfolio over time to realize imbedded profits, whilst implementing the new commitment to limiting the capex on expanded on store expansions in the UK, will materially shift FCF in a positive direction. UK capex was £2.6 billion in 2008 and some analysts estimate this new rationalization could take this down to £1.3 billion by 2014 which could add 5% to the FCF yield.

Tesco has been selling down real estate assets at a rate of around £1 billion a year, realizing £200-300 million of profit. This could be ramped up going forward and there are further considerations! of a Tha! i Tesco REIT or other such OpCo/PropCo options.


Consumer sentiment towards big business is poor, exemplified by campaigns from high-profile TV chefs, amongst other things. This trend has yet to translate towards sales moving away from the Big 4, however, which seems unlikely due to their one-stop, price-competitive position. Depending on one's macro view, Tesco's non-food exposure is a threat relative to its peers. Austerity induced fiscal drags and fuel price inflation which takes significant wallet share will be a secular headwind for consumer spending going forward.

There is an unfavorable supply/demand dynamic in UK Food retail currently. Sales growth is slow and slowing but industry floor space is still expanding. This points towards some leaner years ahead for profits.

What Needs Work?

Marketing has been poor for years and there is a less clear brand message than MRW and SBRY in particular. There is also less impetus in their own brand products than their peers', and it seems to be coasting on the fact it is all things to all people. There is no attempt via product or store architecture to differentiate or target particular customers. A store in a high-end area will appear almost identical to a store in a poorer post code. Stores remain industrial and bland-feeling, with character being sacrificed for lean productivity.

Tesco has a very attractive final salary pension scheme relative to peers and it is a major draw or retainer for much of Tesco's staff. It seems like the profit warning will be a good opportunity for management to take steps to "rationalize" or "right-size" this pension promise that they really no longer can afford.

Competitive Position

Supplier Power

The UK food retail market is highly consolidated, has high levels of property ownership, national pricing and relatively flexible labor laws. Tesco's scale and buying power means it exerts considerable pressure over its suppliers.

The four big! players ! in the UK — TSCO, MRW, SBRY and ASDA — are pretty rational. In 2000 they had a combined 55% share of a £50 billion market, now they have a 70% share of an almost £100bn UK food market. Tesco's share is largest at around 30% of the market. All are listed and all have the same time horizons. It seems unlikely that a price war is anyone's best way to take share from anyone else.

Food retail in the UK is a very competitive business and continuing operating weakness in the UK does not bode well for Tesco's market share. As of today, however, they are still very dominant.

UK food retail has significant barriers to entry due to the enormous economies of scale in the incumbent market leaders. There is also a degree of loyalty among consumers who tend to change where they shop slowly due to habitual behavior.

Customer Power

Tesco's market dominance has allowed it to permeate many aspects of its customers' lives but they do retain the ability to vote with their feet. It would seem that a customer's habits are somewhat sticky and they often shop in the supermarket closest to them.

Management Incentives

Compensation was changed to focus on ROCE since 2006 and the target is from today's 12.9% to 14.6% by 2014.

This focus on ROCE will only hasten the team to deliver on or close Fresh & Easy stores like they did in Japan. There should be some natural improvement in ROCE as the project pipeline of stores roll off and open and are not replaced with the same intensity of development.

Management will receive bonuses of between 225-300% of salary if they can achieve compound EPS growth of 12% over the three years to 2015.


The investment case for Tesco remains the same as it was a year ago: The major capex of rapid UK store and overseas expansion is largely behind us — critical mass has been achieved. This leaves Tesco trading two standard deviations below its long-term P/E multiple.

We expect management to start to ! focus on ! shareholder returns and customer satisfaction. There are a number of relatively easy-to-implement options that can be deployed to start to bring the intrinsic value of the business to the market's attention. Warren Buffett and the directors of this business know it well and they have been adding to their already sizable holdings. The share price decline from 400p to 320p presents a fantastic opportunity for long-term investors to pick up a consistent, market-leading, asset-backed franchise at a discount to the value of its bricks and mortar.

Very Rough Sum of the Parts – What Do We Get?

Freehold Property – £25-32bn

UK – £2.4bn profit @ 8x for a low margin, low growth business = £19bn

Asia – £650m profit @ 10x to reflect long term growth prospects = £6.5bn

Europe – £500m profit @ 8x for a low margin, low growth business = £4bn

Bank – £150m profit @ 7x to reflect low rating of financials = £1bn

Total = 25bn + 19bn + 6.5bn + 4bn + 1bn = £55.5bn

Minus £10bn debt and £1.5bn pension = £44bn/8bn shares outstanding = £5.50 per share

Per Share Breakdown =

+ 312p Property

+ 237p UK Business

+ 80p Asian Business

+ 50p European Businesses

+ 12p Tesco Bank

= 690p in Assets

– 140p in debt and pension

= 550p Value


A friend of mine and their partner work at Tesco, so I sought their opinion on a number of the criticisms recently raised by analysts and their thoughts on the steps management would be taking to address the issues. I attach below their comments verbatim.

What I find interesting is that these problems were very visible on the ground but yet were left unaddressed. However, one might say that at least now the top and bottom of the organization both know where they were going wrong and are headed in the same direction.

"Alas I have seen changes in the past two years. I'd say particularly in the past year. Staff who lea! ve are no! t replaced or replaced with someone with fewer hours or a lower wage. Particular departments run on skeleton staff or no staff at all. They rob Peter to pay Paul. All this is amounting to a growing unrest amongst staff, low morale, less energy. Personally, I don't enjoy my job 70% of the time, mainly because I don't have the time or resources to fulfill customer's needs. New staff are not being offered the same Sunday rate as current staff (150%). New service desk staff are not awarded a premium, they are offered the same rate as a checkout/shelf stacker.

The Big Price Drop was introduced by closing all stores overnight in order to change prices/promo material. Customers expected massive bargains and instead received goods at the same prices they were a few weeks earlier – it's nuts! I'm not sure how well my store relates to the mean but my outlook is pretty bleak. (Name) would love to move elsewhere but I still think he's in one of the safest jobs he could have currently."

"Customers believe there are many things done to deliberately trick them into buying goods at a higher price than they believe. Shelf edged promos and promo labels are often a bit misleading. Promos "From £1″ merchandising posters are next to products where only about 25% of the goods are £1.

I could go on listing the negatives but I think it's important to mention the positives. Unfortunately, many customers are unaware of Clubcard points and their rewards. Some customers, including myself, revel in the scheme whereby Tesco reward loyalty by issuing money saving vouchers which may be used against grocery shopping or traded for 4x their value to spend elsewhere. Many customers do appreciate this but it doesn't deal with the immediate shopping experience. I reckon change is needed whereby honesty is key. Customers want to be able to do their shopping quickly and efficiently, they want to glance at the price and know it's what they'll pay at the checkout."

"In stores yo! u have ge! neral assistants, team leaders, department managers, senior managers, deputy managers and store managers. I think team leaders are surplus to requirements, except at checkouts. Dept managers vary widely in competence. It seems to be a case of who your chums are and not what you know that sees you through to management – at least this is the only way I can explain what I have seen. Deputy Managers are like floor managers and Senior Managers, of which there are 3 or 4 in my store, are not so hands on, but its variable.

Beyond that there are directors who look after groups of stores across the country. There are also floating managers who take on roles out with their job description/special projects to be rolled out to different stores."

"When it comes to produce items, I wouldn't buy fresh fruit or veg from ASDA (Wal-Mart subsidiary) because I don't believe it's as fresh. I get all mine straight from the fruit market. Tesco is a mixed bag. I prefer Tesco overall. If Marks & Spencers was larger and less expensive it would win hands down. As for the competition, I am not a huge fan of ASDA as I just couldn't do a full shop there, it's too basic/low end. Sainsburys seems of a very similar quality to Tesco but is overpriced. I've never liked Morrisons as I believe it lacks variety."

Tuesday, August 13, 2013

Where Will EMC Go Next?

With shares of EMC (NYSE:EMC) trading around $22, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

EMC develops, delivers and supports the information technology industry's range of information infrastructure and virtual infrastructure technologies, solutions and services. The company manages its business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure. Through its categories, EMC provides a foundation for organizations to store, manage, protect, analyze and secure information, improve business agility, lower cost of ownership and enhance their competitive advantage. As businesses continue to expand and look for ways to use technology for their benefit, companies like EMC will continue to see rising profits by delivering these essential products and services.

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T = Technicals on the Stock Chart are Weak

EMC stock has seen a consistent uptrend over the last several years. Currently, the stock is struggling to trade above a key $25 to $30 area. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, EMC is trading below its declining key averages which signal neutral to bearish price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of EMC options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

EMC Options




What does this mean? This means that investors or traders are buying a normal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options



June Options



As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a normal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on EMC’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for EMC look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





EMC has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been mixed with EMC’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has EMC stock done relative to its peers, Hewlett-Packard (NYSE:HPQ), International Business Machines (NYSE:IBM), NetApp (NASDAQ:NTAP), and sector?






Year-to-Date Return






EMC has been a trailed by a wide margin, year-to-date.


EMC provides essential and innovative technology products to industry participants around the world. The stock has done reasonably well over the last several years but is currently seeing increased selling. Earnings and revenue figures have been steadily increasing but investors have been expecting more from the company. Relative to its peers and sector, EMC has done extremely poorly in year-to-date performance. STAY AWAY from EMC stock for now.

Sunday, August 11, 2013

Is UnitedHealth Group a Buy at All-Time Highs?

With shares of UnitedHealth Group (NYSE:UNH) trading around $67, is UNH an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

UnitedHealth Group is a diversified health and well-being company. The company operates in four segments: Employer & Individual, Medicare & Retirement, Community & State, and Optum. Through its segments, UnitedHealth Group serves individual consumers and employers, the health needs of seniors, the public health marketplace (offering states Medicaid solutions), and health system participants (including consumers, physicians, hospitals, governments, and pharmaceutical companies).

Adequate healthcare is very important to most consumers and companies. In the United States, healthcare companies are seeing drastic changes in the industry, with an increasing number of healthcare companies coming under the spotlight. UnitedHealth Group is able to provide healthcare products and services to a growing number of concerned individuals and companies around the world.

T = Technicals on the Stock Chart are Strong

UnitedHealth Group stock has been trending higher over the last several years. This year, the stock has jumped to all-time high prices, and hasn’t show any signs of slowing just yet. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, UnitedHealth Group is trading above its rising key averages, which signal neutral to bullish price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of UnitedHealth Group options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

UnitedHealth Group Options




What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options



August Options



As of today, there is average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for shares of UnitedHealth.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions can help gauge investor sentiment on UnitedHealth Group’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for UnitedHealth Group look like, and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





UnitedHealth Group has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from UnitedHealth Group’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has UnitedHealth Group stock done relative to its peers, Humana (NYSE:HUM), Aetna (NYSE:AET), WellPoint (NYSE:WLP), and the overall sector?

UnitedHealth Group





Year-to-Date Return






In a strong sector, UnitedHealth Group has been average performer, year-to-date.


UnitedHealth Group is a diversified healthcare company that is seeing increased attention as healthcare concerns take center stage. The stock has been steadily trending higher, and is now trading near all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise, but investors in the company expected a little more. Relative to its strong peers and sector, UnitedHealth Group has had an average year-to-date performance. Look for UnitedHealth Group to continue to OUTPERFORM.

Thursday, August 8, 2013

The Changing Wealth Demographic (And How To Leverage It)

Hot Safest Stocks To Own For 2014

Across the globe, a new wave of affluent wealth is appearing.

This "new wave" is younger, more socially conscious, and much more in tune with technology than their Baby Boomer parents. How can advisors connect with them? By showing them you are socially conscious and more in tune with Twitter, Facebook and mobile apps.

And that's just for starters.

That's right, change is coming to the financial market, and its newly emerging face is that of a young investor looking to leverage his or her financial futures, as his or her Baby Boomer parents begin to transition into their golden years.

That transition affects financial advisors, too.

For example, younger investors – think the Generation X demographic (born in the 1960s and 1970s) and the Generation Y demographic (born in the 1980s and early 1990s) are set to overtake the Boomers in overall financial assets in the next decade.

That's good to know, on one level, but flip the script and there is a scary trend developing for advisors. Just because you do business with the Baby Boomers doesn't mean you'll earn the business of those Gen X and Y sons and daughters coming into their financial prime.

In fact, the odds are highly likely that you won't earn their business.

Studies show that 98% of new wealth inheritors change financial advisors. The good news? Family specialists who take a "glass half full" outlook can benefit from that trend, as the field is wide open for advisors looking to add some of that newbie wealth to their client lists.

Just how much wealth are we talking about? About $28 trillion in total wealth by 2018, says a new study from Deloitte Wealth Management entitled "A New Breed: Opportunities for Wealth Managers to Connect With Gen-X and Gen-Y."
How can you best position your business to attract a healthy slice of that $28 trillion? Take these steps and you'll be first in line when young investors start looking for professional financial services help.

Emphasize Social Consciousness
What do young Baby Boomers look for when seeking professional investment advice? Two words – trust and values. But not their kids. Younger investors place a much higher priority on transparency and community. Think "social responsibility" and you'll really start to see that new face of tomorrow's financial consumer.

Check Your Google Fingerprints
Gen X and Gen Y were raised in the information age, where data is as much a commodity as widgets and washing machines. That's why, when they get a referral with your name on it, job one for young financial consumers is to check you out on Google. Be prepared for that by conducting an "online facelift," and assess your practice's profile, image and message online to see if it matches the social responsibility theme that means so much to the younger generation. If it does not, scrub away what doesn't promote transparency and trust, and create a new image that promotes those themes.

"As financial advisors provide services to the younger generation, they need to include more interactive online capabilities," says Jill Jacques, wealth management and retirement lead/principal for North Highland, a global consulting company.

Go Where the Business Goes
Gen X and Gen Y clients love hanging out on social media sites such as Facebook, Linked In and Twitter. If you don't establish a presence on such sites, you'll come off as detached and aloof from the technology trends that young investors value. The good news (besides the edge in positioning over your competition) is that establishing social media credibility is fast, cheap and highly effective.

Jacques says one of the biggest differences between generations is that those in Generations X and Y are more likely to do research before and after their meeting. "Often, they will come prepared with thoughtful questions about research they have done online themselves. And they'll often research their potential advisor through social media. Financial advisors should maintain a presence on LinkedIn, Facebook and Twitter as long as they remain compliant."

Hire a young "contact" – Jeff Seavey, a client advisor at SunTrust, advises building stronger connections with younger investors by having younger staffers close by to interact with them. "The best way for financial advisors to connect with younger clients is to devote resources to serving them better," he says. "Having a member of the advisor team who is close in age and exclusively devoted to serving them is the best approach."

The Bottom Line
For a burgeoning financial practice, learning all you can about Gen X and Gen Y isn't a luxury – it's a necessity.

In that regard, promoting a new image and message that matches up with what the new face of financial consumers want and expect is a process where failure just isn't an option.

Wednesday, August 7, 2013

Good News for Ford and GM in Europe

Ford (NYSE: F  ) and General Motors (NYSE: GM  ) have had a terrible time in Europe recently. Each lost nearly $2 billion in the region last year, and both are expected to lose big again in 2013. Turnaround plans are under way, but continued declines in Europe's new-car sales have raised doubts about their chances of success.

But some good news for a change: Sales were up slightly last month, amid signs that the situation is stabilizing. In this video, Fool contributor John Rosevear looks at the state of the European new-car market -- and at why the latest developments bode well for the bottom lines at both Ford and GM.

Improving conditions in Europe are just one of several good reasons to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.

Tuesday, August 6, 2013

Apple Thinks Google Now Is Guilty

Amid the smartphone patent wars, Apple (NASDAQ: AAPL  ) has typically shied away from targeting Google (NASDAQ: GOOG  ) directly, instead opting to drag rival Android OEMs to court. The most prominent case is none other than Samsung, for which Apple initially scored a $1 billion victory that's since been scaled back and remains up in the air until November.

Earlier this month, Apple set its sights on Google for the first time, albeit indirectly as a third party to its Samsung battle. Siding with Apple, courts ordered Google to hand over certain search terms used in Android's documentation. Google had argued that complying would be an "undue burden." U.S. Magistrate Judge Paul S. Grewal called out the irony of the search giant saying it would be too much trouble to produce search data.

Apple is now going after Google in another way: Google Now. Again, this is all taking place within the broader Samsung suit, according to FOSS Patents. Among other features, Apple is now arguing that Now infringes on two of the Mac maker's patents related to Siri and unified search.

The oddest part about the addition of Google Now to the ongoing patent infringement lawsuit is that Apple just cleared Google Now for takeoff within its own iOS App Store.

The virtual assistant feature, which many consider to be superior to Siri, was included as an update to Google's iOS search app, and as such was subject to the standard approval process that all apps face. It's not like Google just slipped this in without Apple knowing. Apple undoubtedly scrutinizes Google's submissions to a greater extent than other developers, plus it was all over the news that Google was preparing to bring Now to iOS. Google Now landed on iOS less than a month ago.

Adding Now to the Samsung suit underscores Apple's strategy with the patent battles. Apple is attempting to obtain preliminary injunctions against competing devices that infringe on its IP, while it has no problem allowing the exact same features run on its own devices. Competition aside, the presence of Google's vast array of popular services like Google Maps makes the iPhone better.

This all implies that an iPhone running Google Now would infringe on Apple's own patents, though I don't think Apple will be seeking iPhone injunctions any time soon.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

This Bank Can Withstand a Market Crash

In the following video, Motley Fool financial analysts David Hanson and Matt Koppenheffer look at a statistic from the technical-analysis side of things, saying that 98% of financial stocks are currently trading above their 50-day moving averages. Could this be an indicator that financial stocks are overheated? David talks about the financial sector as a whole and whether he thinks it's gotten too frothy compared with the broader market, and he gives investors one financial stock that he'd be glad to hold even if financial stocks did experience a major pullback.

Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

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

Monday, August 5, 2013

10 Best Small Cap Stocks To Watch Right Now

LONDON -- The FTSE 100 (FTSEINDICES: ^FTSE  ) entered its third losing session in a row today, down 0.5% to 6,312 points as of 10:55 a.m. EDT. Share prices for miners bounced back a little after recent falls, but the big U.K. banks are having a hard time of it today. At the moment, it's hard to see the index regaining its five-year high of 6,534, set on March 12, anytime soon.

But there are individual shares doing worse. Here are three that are falling behind their various indexes today.

EMED Mining (LSE: EMED  )
EMED Mining shares have slipped 2% to 10.2 pence despite the firm's announcement that the public comment period for its Rio Tinto Copper tailings project has been closed by the Andalusian government. Apparently, the consultation raised only one negative comment, which the company says "raised nothing of a material nature that had not already been taken into account." EMED now sounds pretty upbeat about its project to extract copper, silver, and gold from waste materials.

10 Best Small Cap Stocks To Watch Right Now: bebe stores inc.(BEBE)

bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.

Advisors' Opinion:
  • [By Wyatt Research]

    The women's apparel retailer reported fiscal fourth-quarter sales and same-store sales both rose 7 percent. The stock is up 30 percent year-to-date.

10 Best Small Cap Stocks To Watch Right Now: Rackspace Hosting Inc(RAX)

Rackspace Hosting, Inc. operates in the hosting and cloud computing industry. It provides information technology (IT) as a service, managing Web-based IT systems for small and medium-sized businesses, as well as large enterprises worldwide. The company?s service suite includes dedicated hosting comprising customer management portal and other management tools that manage data center, network, hardware devices, and operating system software; and cloud computing that enables customers to provide and manage a pool of computing resources, as well as delivery of computing resources to business when they need them. It offers cloud servers, cloud files, and cloud sites, as well as cloud applications, such as email, collaboration, and file back-ups; and hybrid hosting that provides a combination of dedicated hosting and cloud computing services. The company also offers customer support services. It sells its service suite through direct sales teams, third-party channel partners, an d online ordering. The company was formerly known as, Inc. and changed its name to Rackspace Hosting, Inc. in June 2008. Rackspace Hosting, Inc. was founded in 1998 and is headquartered in San Antonio, Texas.

Advisors' Opinion:
  • [By Sherry Jim]  

    This computing specialist that provides web-based IT systems has soared 60%+ in the past year.  With a P/S above 3 and Price to Cash of 10 this stock is poised to continue to soar and outperform it’s peers. $25 in a year is a realistic bet.

Top 5 Blue Chip Companies To Own In Right Now: Texas Instruments Incorporated(TXN)

Texas Instruments Incorporated engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company?s Analog segment offers high-performance analog products comprising standard analog semiconductors, such as amplifiers, data converters, and interface semiconductors; high-volume analog and logic products; and power management semiconductors and line-powered systems. Its Embedded Processing segment includes DSPs that perform mathematical computations to process and enhance digital data; and microcontrollers, which are designed to control a set of specific tasks for electronic equipment. The company?s Wireless segment designs, manufactures, and sells application processors and connectivity products. Its Other segment offers smaller semiconductor products, which include DLP products that are primarily used in projectors to create high-definition images; and application-specific integrated circuits. This segment also provides handhe ld graphing and scientific calculators, as well as licenses technologies to other electronic companies. The company serves the communications, computing, industrial, consumer electronics, automotive, and education sectors. Texas Instruments Incorporated sells its products through a direct sales force, distributors, and third-party sales representatives. It has collaboration agreements with PLX Technology Inc.; Neonode, Inc.; and Ubiquisys Ltd. The company was founded in 1938 and is headquartered in Dallas, Texas.

Advisors' Opinion:
  • [By Fabian]

    Texas Instruments investment returned 46.3% during the past year. The amount of investment is $403 Million. Miller reduced his TXN holdings by 25% during the last quarter of 2010. Since then the stock returned 11.1%. David Tepper also bought TXN during the third quarter.

  • [By Paul Goodwin]  

    How do they make their money? TXN makes the PA Duplexer Module and the CDMA PA that goes into every iPhone. With a PEG ratio of 0.2 reveals huge discount compared to peers. This is a cash rich company and one I feel will be a strong performer within the next year.

10 Best Small Cap Stocks To Watch Right Now: OmniVision Technologies Inc.(OVTI)

OmniVision Technologies, Inc. designs, develops, and markets semiconductor image-sensor devices. The company offers CameraChip image sensors, which are single-chip solutions that integrate various functions, such as image capture, image processing, color processing, signal conversion, and output of a processed image or video stream for use in various consumer and commercial mass-market applications; and CameraCube imaging devices that are image sensors with integrated wafer-level optics. It also provides companion chips used to connect its image sensors to various interfaces, including the universal serial bus and other industry standard interfaces; and companion digital signal processors that perform compression in standardized still photo and digital video formats. In addition, the company designs and develops software drivers for Linux, Mac OS, and Microsoft Windows, as well as for embedded operating systems, such as Blackberry OS, Palm OS, Symbian, Windows CE, Windows Embedded, and Windows Mobile. Its products are used in mobile phones, notebooks, Webcams, digital still and video cameras, commercial and security and surveillance, and automotive and medical applications, as well as in entertainment devices. The company sells its products directly to original equipment manufacturers and value added resellers, as well as indirectly through distributors worldwide. OmniVision Technologies, Inc. was founded in 1995 and is based in Santa Clara, California.

Advisors' Opinion:
  • [By Karim]  

    They make the 5-megapixel sensors in the camera of every iPhone. Along with this they carry a strong balance sheet and upbeat earnings expectations boding well for future growth.

10 Best Small Cap Stocks To Watch Right Now: Sky-mobi Limited(MOBI)

Sky-mobi Limited engages in the operation of a mobile application store in the People?s Republic of China. It works with handset companies to pre-install its Maopao mobile application store on handsets and with content developers to provide users with applications and content titles. The users of its Maopao store could browse, download, and purchase a range of applications and content, such as single-player games, mobile music, and books. The company?s Maopao store enables mobile applications and content to be downloaded and run on various mobile handsets with hardware and operating system configurations. It also operates a mobile social network community, the Maopao Community, where it offers localized mobile social games, as well as applications and content with social network functions to its registered members. The company owns proprietary mobile application technology in the cloud computing, the MRP format, and SDK development environment. As of March 31, 2011, it had entered into cooperation agreements with approximately 523 handset companies to pre-install Maopao. The company was formerly known as Profit Star Limited and changed its name to Sky-Mobi Limited in October 2010. Sky-mobi Limited was incorporated in 2007 and is headquartered in Hangzhou, China.

Advisors' Opinion:
  • [By Wyatt Research Staff]

    MOBI hit another 52-week high of $12.15 late last week. The stock continues to surge on increasing volume. The latest advance in share price came after Oppenheimer upgraded the stock to "Outperform".

    Last week, the China-based internet portal and gaming provider giant (Nasdaq: SOHU), announced an advertising agreement with MOBI.

10 Best Small Cap Stocks To Watch Right Now: Panera Bread Company(PNRA)

Panera Bread Company, together with its subsidiaries, owns, operates, and franchises retail bakery-cafes in the United States and Canada. Its bakery-cafes offer fresh baked goods, sandwiches, soups, salads, custom roasted coffees, and other complementary products, as well as provide catering services. The company also manufactures and supplies dough and other products to company-owned and franchise-operated bakery-cafes. As of March 29, 2011, it owned and franchised 1,467 bakery-cafes under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Cafe names. The company was founded in 1981 and is based in St. Louis, Missouri.

Advisors' Opinion:
  • [By Fabian]  

    Most of you have probably eaten at one of these franchise bakery-cafes. If not I highly recommend it, as for the company itself they are exceptional. Profit soared 50% in the first quarter, operating margins rose several percentage points, and Panera is sitting on $300+ million of cash. Right now it’s at a 30% discount to its peer averages and the stock is very cheap when valued against future earnings. Strong buy expect it to rise to $105.

  • [By Sy_Harding]

    Panera is a great growth story that continues to get better. Panera is thriving in the casual dining arena with fellow Chipotle Mexican Grill (CMG). Quick food that is good and good for you. The company is now moving into cities, which provides another strong revenue stream for the company and continues to build up their image. It has the potential for a lot more stores, and we believe the company is ready to move into new markets. We have a $170 PT on the company, and we see this stock as a growth story about to take off even further in 2012.

    Allocation: $2000

    Entry: $137.00

    Target: $150, $170

10 Best Small Cap Stocks To Watch Right Now: Petroquest Energy Inc(PQ)

PetroQuest Energy, Inc. operates as an independent oil and gas company. It engages in the acquisition, exploration, development, and operation of oil and gas properties in Oklahoma, Arkansas, and Texas, as well as onshore and in the shallow waters offshore the Gulf Coast Basin. As of December 31, 2009, the company had estimated proved reserves of 1,931 thousand barrels of oil and 167,361 million cubic feet equivalent of natural gas. It owned working interests in 9 net producing oil wells and 277 net producing gas wells. PetroQuest Energy was founded in 1983 and is headquartered in Lafayette, Louisiana.

Advisors' Opinion:
  • [By SmallCap Investor]

    Shares traded sharply higher after the oil and gas explorer issued an operational update that revealed details of a discovery at its La Cantera site in Louisiana. Raymond James analysts bumped the stock rating to market perform based on the new findings and an improving balance sheet.

10 Best Small Cap Stocks To Watch Right Now: Achillion Pharmaceuticals Inc.(ACHN)

Achillion Pharmaceuticals, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of treatments for infectious diseases. The company focuses on the development of antivirals for the treatment of chronic hepatitis C; and the development of antibacterials for the treatment of resistant bacterial infections. Its drug candidates for the treatment of chronic HCV include ACH-1625, a protease inhibitor, which is in phase IIa clinical trial for the treatment of chronic HCV; ACH-2684, a pangenotypic protease inhibitor, which is in phase I clinical trial for the treatment of chronic HCV infection; and NS5A inhibitors for the treatment of chronic HCV infection, including ACH-2928, which is to enter a phase I clinical trial, as well as various additional NS5A inhibitors in preclinical development. Its pipeline of product candidates also includes ACH-702 and ACH-2881 for drug resistant bacterial infections; elvucitabine for HIV infection; and AC H-1095 for HCV infection. The company was founded in 1998 and is based in New Haven, Connecticut.

Advisors' Opinion:
  • [By Wyatt Research]

    The developer of treatments for infectious diseases has seen its shares rise 280 percent in the past year, and last month had a successful sale of 1.44 million more shares that raised $60.9 million.

  • [By Brian Nichols]

    Achillion is an odd play because it has both the most upside and the most downside of any stock on this list. The company's developing and testing its hepatitis C treating drug, ACH-1625, which is currently in phase II. The results of initial testing have consisted of ups and downs, but after many years and a long process, ACH-1625, appears to be on the right track for an FDA approval.

    The upside in shares of ACHN comes from two places: encouraging data from trials and its likelihood of being acquired. In my opinion, ACHN has a very high chance of being acquired in the next 6 months. Both Pharmasset (VRUS) and Inhibitex (INHX) were acquired over the last 5 months with insanely large premiums. VRUS was purchased at a 81% premium and INHX for a 182% premium. ACHN is perhaps the most speculative, but it could also be purchased the cheapest.

    The stock's recently pulled back after a downgrade and is trading much lower over the last couple weeks. The stock's trend reminds me so much of INHX; the month following the VRUS acquisition when INHX traded higher by nearly 300%. But then after the one-month gain, INHX lost its momentum and traded lower by 40% before being acquired with a 182% premium. INHX traded higher after the VRUS purchase because investors thought it would also be acquired, because of its hepatitis C candidate. ACHN is following the same trend, from November 12 till January 13 the stock more than doubled, but has since retraced.

    At $10 I think ACHN is a buy, it does have a good HCV candidate, and I believe that big pharma will bid to acquire ACHN in the near future. However, the risk in ACHN is if the company's not acquired, then it could have significant loss over the next year. But in a competitive biotechnology industry I believe the reward is worth the risk, and that a large pharma company will take the chance and purchase ACHN in an attempt to stay competitive and capitalize on the trend of investors being bullish on HCV treating drugs.

10 Best Small Cap Stocks To Watch Right Now: Voyager Oil & Gas Inc.(VOG)

Voyager Oil & Gas, Inc. engages in the exploration and production of oil and gas in the United States. It primarily focuses on oil shale resource prospects in Montana, North Dakota, Colorado, and Wyoming. As of May 17, 2011, the company controlled approximately 141,500 net acres in the five primary prospect areas comprising 28,000 net acres targeting the Bakken/Three Forks in North Dakota and Montana; 14,200 net acres targeting the Niobrara formation in Colorado and Wyoming; 800 net acres targeting a Red River prospect in Montana; 33,500 net acres in a joint venture targeting the Heath Shale formation in Musselshell, Petroleum, Garfield, and Fergus counties of Montana; and 65,000 net acres in a joint venture in the Tiger Ridge gas field in Blaine, Hill, and Chouteau counties of Montana. It supplies energy and fuel for industrial, commercial, and individual consumers. The company is based in Billings, Montana.

Advisors' Opinion:
  • [By SmallCap Investor]

    Shares of this explorer, which has operations in the Western U.S., crossed back above $3 and have risen 40 percent in the past month, amid increasing investor interest in companies drilling in the Bakken region.

10 Best Small Cap Stocks To Watch Right Now: FuelCell Energy Inc.(FCEL)

FuelCell Energy, Inc., together with its subsidiaries, engages in the development, manufacturing, and sale of high temperature fuel cells for clean electric power generation primarily in South Korea, the United States, Germany, Canada, and Japan. The company offers proprietary carbonate Direct FuelCell Power Plants that electrochemically produce electricity from hydrocarbon fuels, such as natural gas and biogas. Its fuel cells operate on a range of hydrocarbon fuels, including natural gas, renewable biogas, propane, methanol, coal gas, and coal mine methane. The company also develops carbonate fuel cells, planar solid oxide fuel cell technology, and other fuel cell technologies. It provides its products to universities; manufacturers; mission critical institutions, such as correction facilities and government installations; hotels; and natural gas letdown stations, as well as to customers who use renewable biogas for fuel, including municipal water treatment facilities, br eweries, and food processors. The company was founded in 1969 and is headquartered in Danbury, Connecticut.

Advisors' Opinion:
  • [By SmallCap Investor]

    The developer of stationary fuel cells used by commercial and government customers might be headed for a rebound from a pullback that began this spring - which has left the stock down 39 percent year-to-date.

  • [By Roberto Pedone]

     Fuelcell Energy (FCEL) designs, manufactures, sells, installs and services ultra-clean, highly efficient stationary fuel cell power plants for distributed baseload power generation. This stock is trading up 7.2% to $1.01 in recent trading.

    Today’s Range: $0.94-$1.01

    52-Week Range: $0.83-$1.95

    Volume: 1.27 million

    Three-Month Average Volume: 1.04 million

    From a technical perspective, FCEL is ripping higher here right above its 50-day moving average of 92 cents per share with above-average volume. This move is quickly pushing shares of FCEL within range of triggering a near-term breakout trade. That trade will hit if FCEL manages to take out its 200-day moving average at $1.05 and then once it takes out more overhead resistance at $1.06 with high volume.

    Traders should now look for long-biased trades in FCEL as long as it’s trending above its 50-day at 92 cents per share, and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.04 million shares. If that breakout hits soon, then FCEL will set up to re-test or possibly take out its next major overhead resistance level at $1.18. Any high-volume move above $1.18 will then put $1.39 into range for shares of FCEL.