Health Insurance 2013,Health Care Insurance 2013: June 2014

Sunday, June 29, 2014

Cisco's Short-Term Issues Are a Concern for Investors

One of the major things that has been driving optimism among analysts is Cisco's commitment to the "Internet of everything," an encompassing business concept that would provide it with massive opportunities in the networking solutions segment. Unarguably, Cisco has robust fundamentals that could generate sustainable growth in the long run, but is the company good enough to give credible short-term returns? Let us see.

The old guard is struggling to revive growth in its age-old performing segments that include switching and routing equipment. While CEO John Chambers has shown excessive optimism in the new "Internet of Everything" concept, investors are still in confusion over the actual potential of the business idea and the way that Cisco is going to leverage this opportunity. Besides the mentioned skepticism, analysts and investors are cognizant of the threat posed by Software Defined Networking (SDN).

Is SDN a Looming Threat?

I have no intent of going deep into discussing the features and future of SDN, but a little understanding of this idea that started as a research project would help in understanding the dynamics of the networking industry. Basically, the aim of SDN is to simplify networking programmability and to achieve a holistic management of network configuration. Earlier, experts equated SDN to OpenFlow, a communications protocol that was essentially used to manage low-level packet flows using a centralized controller. But of late, it has been realized that SDN is an expansive concept and it should be adopted to ensure easy use of networks and reduction in operating costs.

Cisco Is Getting Ready to Combat the Threat

Though the potential of SDN controllers has not been fully established yet, the catch is that enterprises are looking at options to reduce their operating expenses and get collaborative networking solutions. Cisco has hitherto been a seller of individual networking components, and its decentralized architecture has not promoted a smooth alliance of several of its products. Now, under the threat of SDN, Cisco has adopted a novel and simplistic marketing model. Instead of selling individual elements, it is pitching these as a bundle of software and services called as Cisco ONE essentials.

Thus, if SDN is poised to be the disruptive technology that could change the way enterprises manage their IT systems, then Cisco has the resources to take advantage of this novel idea. Being the behemoth it is, the only thing Cisco needs to do is change the packaging of its products and move to a solutions provider label so as to provide its clients with full-fledged systems for maintenance of IT. If Cisco can successfully manage this transition, then it can easily leverage this opportunity.

Has Cisco Been Wrongfully Downgraded?

Barclays recently downgraded Cisco to a price target of $23, stating the uneven demand trends and lack of performance enhancers as a reason. Other analysts have also adopted a similar stance, and it is justifiable to a certain extent considering the past history of the stock. The stock price has stagnated over the past few months, as investors are unable to see a big clincher that could change the fortunes of the company.

These downgrades suggest that there are certain downsides to the company, and to an extent, it is true. Cisco is unarguably the leader in its space, but the growth in the past few years has been really dismal. And for a company that has hardly any competitors in its operating space, it indicates poor performance standards. Additionally, the buybacks and dividends are being used to disguise the low growth rate in the company's business and to push the yield to a comparable level with the S&P index.

Final Thoughts

In my view, Cisco needs to redesign and revamp certain components like the structure of the company, product design, and above all, its expertise in providing solutions to its clients. As I mentioned earlier, the company lacks a collaborative structure that could foster building of streamlined solutions, which has pushed clients to look for scope in SDN. Though Cisco has realized its shortcomings and has started working on it, it still needs to increase the pace of transition.

In conclusion, I would reiterate the fact that Cisco is a good buy for the long run, because it has huge scope in networking, and also, it is available at a cheap valuation. At a P/E of around 11x and a yield of around 3.5%, the company is definitely undervalued and represents an entry-point. However, if you have a shorter horizon, then I would not recommend a position in the stock for these reasons:

1.The company is still in a transition phase, and it would take considerable time to capitalize on opportunities presented by "Internet of everything" and SDN. As such, the market also will require time to regain confidence in the stock.

2. Keeping aside the future opportunities, Cisco's current numbers are not looking so good. Sequential growth in the company's essential business units is declining.

3. Cisco's management lacks the agility to take quick decisions that could enhance Cisco's basket of offerings. For instance, top management is more inclined towards combating the threat of SDN, rather than utilizing its existing resources and turning it into an opportunity.

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Saturday, June 28, 2014

Refiners: It’s Not Just Oil Exports

After bouncing back yesterday from their oil-export related losses, refiners like Marathon Petroleum (MPC), HollyFrontier (HFC), Tesoro (TSO) and Delek US (DK) are falling once again.

And while it’s easy to blame the decision to allow exports of ultra-light crude oil, Credit Suisse analysts Edward Westlake and Bryan Baritot explain why there’s more to the drop in refiners–and their decision to cut Holly Frontier:

Bloomberg News

2014 has been a year of consolidation in refiner shares. The US refiners sit at the low end of the global cost curve, have value in logistics and retail, have demonstrated the ability to generate significant cash flow when crude markets dislocate, and US production (even ex-condensate) is rising at 800-900kbd pa. However, the market has been reminded that US refining is still linked to the world – the US imports 7.4 MBD of crude (4.7 mbd ex-Canada), there is over-capacity in global refining and the risk premium in the oil price is rising. Leading edge consensus EPS for 2Q started to fall a few weeks back – we cut our earnings today. This week the market was also reminded that the lightest barrels (condensate) in US production can be exported (via distillation towers) at relatively low cost, creating more runway for black oil (now stands at maybe over 4 years). In addition to lowering EPS (see Exhibit 10) for the group, we downgrade Holly Frontier back to Neutral, as we expect macro fears to side-swipe its operational recovery.

Westlake and Baritot also worry about Tesoro, which “needs to beat convincingly in 2Q earnings…to drive furtehr relative upside.” They recommend Marathon Petroleum “is becoming significantly more interesting after underperforming,” they say, while they “see most potential in niche refiners,” like Delek US Holdings and Western Refining (WNR).

Shares of Holly Frontier have dropped 2.2% to $44.48 at 2:58 p.m., while Marathon Petroleum has fallen 1.4% to $79.77, Tesoro has decline 0.7% to $59.51, Delek US has slid 3.5% to $28.67 and Western Refining is off 1% at $38.26.

And as a final note, I recommended HollyFrontier in this May column. It’s down 8.4% since then.

More Countries Adding Graphic Warnings to Smokes

Cigarette Graphic Warnings Tatan Syuflana/APPacks of cigarettes displaying graphic health warnings at a convenience store in Jakarta, Indonesia. JAKARTA, Indonesia -- Indonesia became the newest country to mandate graphic photo warnings on cigarette packs Tuesday, joining more than 40 other nations or territories that have adopted similar regulations in recent years. The warnings, which showcase gruesome close-up images ranging from rotting teeth and cancerous lungs to open tracheotomy holes and corpses, are an effort to highlight the risks of health problems related to smoking. Research suggests these images have prompted people to quit, but the World Health Organization estimates nearly 6 million people continue to die globally each year from smoking-related causes. The tobacco industry has fought government efforts to introduce or increase the size of graphic warnings in some countries. Here are a few places where pictorial health warnings have made headlines: United States: The Law: No graphic pictures on packs. Timing: The government stepped away from a legal battle with tobacco companies in March 2013. Background: There are currently no pictorial warnings on cigarette packs in the U.S. After the tobacco industry sued, a Food and Drug Administration order to include the graphic labels was blocked last year by an appeals court, which ruled that the photos violated First Amendment free speech protections. The government opted not to take the case to the U.S. Supreme Court, but will instead develop new warnings. About 18 percent of adult Americans smoke. Indonesia: The Law: 40 percent of pack covered by graphic photos. Timing: Deadline to be on shelves was June 24. Background: Many tobacco companies missed Tuesday's deadline to comply with the new law requiring all cigarette packs in stores to carry graphic warning photos. Indonesia, a country of around 240 million, has the world's highest rate of male smokers at 67 percent and the second-highest rate overall. Its government is among the few that has yet to sign a World Health Organization treaty on tobacco control. Thailand: The Law: Portion of cigarette packs that must be covered with graphic health warnings rising from 55 percent to 85 percent. Timing: Change will take effect in September. Background: Last year, the Public Health Ministry issued a regulation increasing the level of coverage to 85 percent. Tobacco giant Philip Morris and more than 1,400 Thai retailers sued, and a court temporarily suspended the order. On Friday, the Supreme Administrative Court ruled that the regulation can take effect. Australia: The Law: No cigarette brand logos permitted; graphic health warnings required on 75 percent of front and 90 percent of back. Timing: Plain packaging law went into effect in 2012. Background: Australia became the first country in the world to mandate plain cigarette packs with no brand logo or colors permitted. Instead, the packs are solid brown and covered in large graphic warnings. Tobacco companies fought The Law, saying it violated intellectual property rights and devalued their trademarks, but the country's highest court upheld it. Figures released this month by the country's Bureau of Statistics found that cigarette consumption fell about 5 percent from March 2013 to the same period this year. The World Trade Organization has agreed to hear complaints filed by several tobacco-growing countries, but other governments have expressed interest in passing similar laws. Smokers make up 17 percent of Australia's population. Philippines: The Law: Graphic warning legislation approved this month requires 50 percent of bottom of the pack to be covered by graphic warnings. Timing: Legislation awaits president's signature. Background: The Philippines is expected to join a handful of other countries that put graphic warnings at the bottom of their packs, meaning they are not visible when displayed on store shelves. Anti-smoking advocates say labels on the bottom of the packs are less effective, and have denounced tobacco industry involvement in the implementation process. Health officials said around 17 million people in the country of 96 million, or 18 percent, smoked in 2012. Uruguay: The Law: Graphic warnings cover 80 percent of packs. Timing: Regulations implemented in 2010.

Wednesday, June 25, 2014

JC Penney: The Bar is Just Too Darn High

JC Penney (JCP) has come a long way since the once-proud retailer traded at a 30-year low and analysts were predicting $2.50 a share. Sterne Agee’s Charles Grom and team aren’t sure how much further it can go, now that JC Penney has gained 70% since its Feb. 4 low. The reason: JC Penney management has set the bar too high:

…after working the numbers in detail, we believe management has set the comps/margin bar arguably high and with execution risk elevated and P&L losses looming, visibility into fair value is minimal…

Simply put, running the math implied by “break-even FCF guidance” suggests JCP believes the business will improve markedly in coming quarters. To this point, we can back into a rough net income number. Starting with zero FCF, we adjust upward by: (a) adding back $250.0 million in cap-ex and (b) subtracting out $630.0 million of D&A, resulting in a net “loss” of $380.0 million. Taking this one step further up the income statement, assuming 2Q-4Q comps of ~5.0% (FY14 guidance is “mid single-digits”) and keeping our other modeled P&L assumptions intact means that 2Q-4Q GPM needs to be ~39.9% in order for JCP to lose $380 million. Of course, this is likely too aggressive as JCP expects working capital to be a source of funds (although not quantified by the management team), which means the implied net loss as well as the implied comps/GPM would be lower.

…barring an unforeseen cash benefit, a dramatic improvement in Penney’s underlying business over the next few quarters in embedded in company targets. Given, the execution risk (and despite our encouraging store checks), we prefer to take a more conservative stance for now.

Shares of JC Penney have gained 0.9% to $8.63 at 2:01 p.m., impressive considering that its competitors have mostly fallen today. Macy’s (M), for instance, has dropped 0.6% to $58.12, while Kohl’s (KSS) has declined 0.5% to $52.80 and Dillard’s (DDS) is off 0.7% at $115.69.

15 Most Affordable Online MBAs

For graduate students juggling work and family obligations, an online business graduate degree can open numerous career doors. All the better if it doesn’t break the bank.

A free web guide to online degree programs called Top 10 Online Colleges published a ranking of the most affordable online business master's degrees.

To arrive at its ranking, the site's researchers examined the 100 top-ranked online MBA programs according to U.S. News and World Report, and found the average in-state graduate school yearly tuition rate at each school with the College Navigator of the National Center for Education Statistics. It then sorted the list from high tuition to low tuition, and chose the most affordable online business graduate degrees from those with the lowest overall graduate tuition.

Following are the 15 most affordable online business graduate degrees, including their U.S. News Online Business Graduate Degrees Rank.

University of Nevada-Reno campus. (Photo: Wikimedia Commons)

15. University of Nevada – Reno: Reno, Nev.

College of Business

Graduate students have the opportunity to pursue a master of accountancy, an MA in economics, an MBA and an MS in finance or in information systems as well as an online Executive MBA.

U.S. News Rank: #75

Tuition: $4,878

14. University of South Dakota: Vermillion, S.D.

Beacom School of Business

Along with a slew of undergraduate business degree programs, the school offers an MBA and a master of professional accountancy program fully on campus or online for developing high-quality executive business leaders.

U.S. News Rank: #27

Tuition: $4,723

Oklahoma State University, Student Union Building. (Photo: Wikimedia Commons)

13. University of Louisiana–Monroe: Monroe, La.

College of Business and Social Sciences

For qualified graduate students seeking a flexible delivery format, the college hosts an online MBA program with concentrations available in accounting, economics, finance, management or marketing.

U.S. News Rank: #87

Tuition: $4,466

12. Oklahoma State University: Stillwater, Okla.

Spears School or Business

Graduate students can pursue an MBA, a dental MBA and an MS in management information systems, telecommunications management or entrepreneurship completely online.

U.S. News Rank: #91

Tuition: $4,272

Bud Walton Arena on the University of Arkansas campus (Photo: AP)

11. Sam Houston State University: Huntsville, Texas

College of Business Administration

Although the main focus is on undergraduate education, there is the option of pursuing an MBA, an MS in accounting or project management and an online Executive MBA in banking and financial information.

U.S. News Rank: #43

Tuition: $4,266

10. Arkansas State University–Jonesboro: Jonesboro, Ark.

College of Business

Graduate students have the opportunity to earn a master of accountancy, an MBA, an online MBA and a master of science in education for business technology.

U.S. News Rank: #14

Tuition: $4,140

Texas A&M University Student Rec Center. (Photo: Wikimedia Commons)

9. East Carolina University: Greenville, N.C.

College of Business

For both business and non-business graduates, the college offers an online or hybrid MBA program and an on-campus MS in accountancy program.

U.S. News Rank: #58

Tuition: $4,009

8. West Texas A&M University: Canyon, Tex.

College of Business

The college awards master of professional accountancy, MS in finance and economics and MBA degrees online.

U.S. News Rank: #27

Tuition: $3,914

Home side of University of West Georgia Stadium.

7. Western Carolina University: Cullowhee, N.C.

College of Business

For graduate students, the college offers a master of project management and a master of entrepreneurship fully online for completion anywhere in the world with an Internet connection.

U.S. News Rank: #82

Tuition: $3,794

6. University of West Georgia: Carrollton, Ga.

Richards College of Business

Along with the master of professional accountancy, master of education in business education, and MBA offered in the traditional on-campus format, the college also provides an exclusively online MBA program.

U.S. News Rank: #4

Tuition: $3,366

Fayetteville State University campus in Fayetteville, N.C. (Photo: AP)

5. University of Texas–Brownsville: Brownsville, Texas

School of Business

The school provides the chance to pursue an MBA fully online for nontraditional students seeking positions in mid- or upper-level management, business consulting and small-business management.

U.S. News Rank: #75

Tuition: $3,347

4. Fayetteville State University: Fayetteville, N.C.

School of Business and Economics

Graduate students can pursue an MBA fully online with a focus area in accounting, entrepreneurship, finance, management, marketing or international business.

U.S. News Rank: #82

Tuition: $3,008

Fort Hays State University campus. (Photo: AP)

3. Fort Hays State University: Hays, Kansas

College of Business and Entrepreneurship

The college provides the opportunity for graduate students to earn an MBA fully online with a concentration in finance, health care management, human resource management, information assurance, international business, leadership studies, management information systems, marketing, sports management or tourism and hospitality management.

U.S. News Rank: #64

Tuition: $2,913

2. University of Massachusetts–Amherst: Amherst, Mass.

Isenberg School of Management

The school offers a flexible online learning format for earning an MBA in entrepreneurship, finance, health care administration or marketing.

U.S. News Rank: #64

Tuition: $2,913

Texas Southern University in Houston. (Photo: Wikimedia Commons)

1. Texas Southern University: Houston

Jesse H. Jones School of Business

For graduate students seeking an online business education, the school hosts an online Executive MBA in energy finance or general business, a dual MBA/Juris Doctorate and an MS in management information systems.

U.S. News Rank: #80

Tuition: $1,836

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Check out 13 Best & Worst 529 College Savings Plans of 2014: Morningstar on ThinkAdvisor.

Tuesday, June 24, 2014

Green Automotive Has the Pedal to the Metal (TSLA, KNDI, GACR)

Prior to today, competitors (yet frenemies) like Kandi Technologies Group Inc. (NASDAQ:KNDI) and Tesla Motors Inc. (NASDAQ:TSLA) could only wonder what kind of traction that electric vehicle maker Green Automotive Co. (OTCMKTS:GACR) has been getting, with most of the pieces of its revenue puzzle not being laid until the latter half of last year. TSLA and KNDI don't have to wait any longer, however, as GACR put it all out there today. While it might be overdoing it to say Kandi Technologies or Tesla should be worried about the kinds of results - and the kind of growth - Green Automotive is getting, it wouldn't be inaccurate to say GACR's numbers are something the rest of the EV industry should take note of.... this little player is coming on strong.

While Tesla Motors certainly needs no introduction, and Kandi Technologies Group doesn't need much of one (the company makes tiny electric vehicles that are handy but not highway legal in the U.S., mainly to serve the Chinese market), Green Automotive Co. might need something of an explanation. It's a company that could very easily be the next great electric vehicle name, but so far has kept its focus on serving as a retailer of other company's electric vehicles in the UK, as a repair shop for EVs in the same market, and as a builder/designer of shuttle buses in the United States; the electric bus market is by far the company's biggest opportunity - and opportunity that it panning out too, according to this morning's quarterly filing.

All told, last quarter, GACR generated $1.4 million in sales. No, it's not a lot, but it's a lot for this particular $10.9 million company. Not only was it a record-breaker, but it was the third straight quarter of rising revenue, validating all of the initiatives and acquisitions Green Automotive Co. implemented last year. Sequentially, GACR grew revenue from $218K in the first quarter of 2013 to $429K in the second quarter to $1.0 million in Q3 to the fourth quarter's top line of $1.4 million. If there was any doubt that Green Automotive was the real deal, the persistent growth pace should have put them to bed by now.

With all of that being said, there's a critical - and compelling - footnote that needs to be added to the Green Automotive story - the bulk of that sales growth is attributable to sales of electric busus. Thing is, even the fourth quarter's top line doesn't do the electric shuttle bus opportunity its due justice.

Though it didn't start Q4 out at this pace, by the end of the fourth quarter, Green Automotive - through its Newport Coachworks subsidiary - was building electric buses at a pace of 2 per week. That's uncanny, given that the manufacture of electric shuttle buses didn't begin at all until March. At 2 busus per week at an estimated average retail price of $100,000 apiece, the Newport Coachworks division alone is capable of generating $2.6 million in quarterly revenue. The company, however, has two other key divisions with which it can also drive sales.... its Goin' Green retail network, and its Liberty E-care EV maintenance division.

And yes, those buses are highly marketable. The company sold fourteen electric shuttle buses at the February limousine and charter show in Las Vegas, in their public debut; more orders may have trickled in since then. Bigger and better still, the current backlog of buses to be built stands just shy of (and this isn't a misprint) 500. That's guaranteed revenue for at least a few years.

Green Automotive noted in today's press release that it was going to offer some more details and a revenue forecast for 2014 later this week. That will add some color to today's news, though even with the data that investors gleaned today, it's clear that GACR is making strong forward progress.

For more on Green Automotive Co., visit the SCN research page here, or review the SCN research report here. For deeper details on GACR and its EV opportunities, this report from Wall Street Research takes a much closer look.

Monday, June 23, 2014

Coach Wants to Be Michael Kors, Will Consumers Buy It?

Coach (COH) has plunged 27% this year after dropping 12% last week. Still, Wedbush’s Corinna Freedman thinks now is a perfect time to downgrade the beaten-down luxury retailers shares. The reason: It’s going to get worse before it gets better for Coach. She explains:

Bloomberg News

Following the comprehensive Analyst meeting held last week in New York City (COH's first in seven years,) we are downgrading our rating on share of COH to UNDERPERFORM from NEUTRAL as we have incremental concerns about the company's turnaround plans and while we do find some incremental positives and while we continue to hold out hope that marketing plans will be compelling, we believe the shares are likely to remain under pressure for the balance of the year. We believe it remains to be seen whether COH will be successful in changing brand perception and although its strategic initiatives touching product, marketing and stores are dramatic and bold, we are concerned about the lack of testing and ultimately customer acceptance in the near-term. We believe a more conservative stance for beyond fiscal 2015 (relative to management's long-term goals) is warranted and as such, we believe valuation is likely to further compress. Though some may argue that the guidance is 'kitchen sinked,' and somewhat de-risked, we believe that beating very conservative guidance by any magnitude, still indicates a brand in decline as the difference between guidance of a -27 – 29% North American retail comp and reporting a -20% comp may not ultimately be relevant given the continued hemorrhaging of market share. Though the timeline has been drastically extended and tangible results of the turnaround may not be evident until 2H15, a flat dividend (we do not expect any increase in FY15 or FY16) and declining in free cash flow may not be enough to satisfy longer-term holders.

Changing perception of Coach certainly won’t be cheap. Freedman notes that Coach recently switched ad agencies, hiring Michael Kors’ (KORS) Baron & Baron to head up its new campaign. Coach plans to spend about 3.4% of sales on advertising, Freedman notes, well above the 2% of sales Michael Kors spent in 2013.

Shares of Coach have dropped 2% to $34.02 at 1:41 p.m. today, while Michael Kors has dipped 0.2% to $88.43.

Sunday, June 22, 2014

Toyota $1.2 Billion Deal OK'd to End Criminal Probe

Japan US Toyota Utah Highway Patrol/AP NEW YORK -- A U.S. judge signed off on Toyota Motor's (TM) $1.2 billion settlement of criminal charges that it concealed safety problems in its vehicles, an accord that could serve as a model for a similar probe into General Motors (GM). U.S. District Judge William Pauley approved the Japanese automaker's deferred prosecution agreement at a hearing Thursday in Manhattan. His approval came one day after the U.S. Department of Justice said it resolved its investigation into problems that caused Toyota vehicles to accelerate suddenly. Pauley said the case presented a "reprehensible picture of corporate misconduct," and expressed hope that the government would ultimately hold the responsible decisionmakers at Toyota accountable. "This unfortunately is a case that demonstrates that corporate fraud can kill," he said. Pauley ruled shortly after Christopher Reynolds, Toyota's North American legal chief, entered a "not guilty" plea on behalf of the automaker to one count of wire fraud. The $1.2 billion settlement is the largest such penalty ever levied by the United States on an auto company. It resolves issues that have dogged Toyota since at least 2007 and have been linked to at least five deaths. Toyota still faces hundreds of private lawsuits. The settlement marked a huge victory for safety advocates who fought for years for criminal prosecution of automakers over safety violations. Toyota agreed to a so-called statement of facts, in which it admitted to having misled U.S. consumers and a federal regulator about two problems that caused cars to accelerate even if drivers tried to slow them down. No guilty plea was required, and the government agreed not to prosecute Toyota for wire fraud for three years. The charge will be dismissed in 2017 if Toyota follows the terms of the accord, which include allowing an independent monitor to review its safety practices. A spokeswoman for Toyota declined to comment, as did a spokeswoman for U.S. Attorney Preet Bharara in Manhattan. U.S. authorities are investigating GM over its handling of an ignition switch defect linked to 12 deaths, and which resulted in a recall last month of more than 1.6 million vehicles, mostly in the United States. Attorney General Eric Holder told reporters Wednesday that he hoped the Toyota deal would "serve as a model for how to approach future cases involving similarly situated companies." The Toyota investigation flowed out of publicity starting in 2009 over unintended acceleration linked to at least five deaths, and which prompted hundreds of lawsuits. Last year, a federal judge approved a settlement valued at $1.6 billion to resolve claims by Toyota owners that the value of their cars dropped because of the negative publicity. The case is U.S. v. Toyota Motor Corp., U.S. District Court, Southern District of New York, No. 14-cr-00186.

Feb. housing starts slip 0.2%; permits surge

Housing starts steadied last month but building permits rebounded to levels last seen in the fall, the Commerce Department said Tuesday.

Builders started construction of new homes at a seasonally adjusted annual rate of 907,000. That's down 0.2% from January's revised estimate of 909,000. The government's previous estimate was 880,000.

February's level was close to economists' median forecast of 910,000 in Action Economics survey. But it's a slowdown from the 1-million-plus annual pace in November and December.

Housing starts increased in the South and Midwest last month, but slowed in the Northeast and West.

Permits, a gauge of future construction, ran at an annual pace of just over 1 million, a 7.7% increase from January and the highest level since October. The gain was all in multifamily housing, where permits have climbed to mid-2008 levels. But permits for single-family houses fell 1.8%, the third straight monthly decline.

The trend reflects a broader shift in housing construction market, observed economists for the Royal Bank of Scotland in a client note Tuesday.

Over the past 12 months, multi-unit homes accounted for 33.8% of starts and 36.8% of permits, the bank said. Seven years ago, before the recession, those shares were 19.1% and 26.0%.

Other economists had mixed reactions to the report.

Joel Naroff, of Naroff Economic Advisors, said the pick-up in permits overall is a good sign for construction activity in the months ahead.

"Since builders generally don't pay the money for permits unless they expect to do something with them, you can bet that once the warm weather returns, so will the bulldozers," he said.

Richard Moody, chief economist of Regions Financial, said single-family starts and completions were rising at a slower pace so far this year than he had anticipated. "Builders continue to be plagued by shortages of lots, labor, and materials and unless and until these constraints begin to ease, any rebound in single family constr! uction will remain restrained," he said.

Those same concerns also were cited Monday in the National Association of Home Builders' statement on its builder sentiment survey for March.

The NAHB/Wells Fargo index rose to 47 from 46 in February while builders' expectations for the next six months weakened by a point to 53. Readings below 50 indicate more builders view sales conditions as poor rather than good.

Saturday, June 21, 2014

The Contrarian Play: Emerging Markets Energy Sector

Emerging markets natural resource companies can be dirty companies, but they’re dirt cheap.

So says Research Affiliates’ Ryan Larson, essentially anyway, in the fundamental indexing firm’s June newsletter.

The Newport Beach, Calif., firm regularly emphasizes the return advantage of contrarian investment plays that involve selling popular high-performing stocks and buying unloved, poor performers.

The firm’s chief investment officer, Chris Brightman, made that point explicitly with reference to emerging markets natural resource companies in a debate with dumb beta proponent Rick Ferri.

The pain of contrarian investment decisions, Brightman said Thursday, would be “like buying [Russian oil producer] Lukoil today. Does that feel like a comfortable trade? No. It means selling Internet stocks in the late ’90s, buying emerging-market resource stocks today.”

That pain, and potential gain, is described in greater detail in Larson’s analysis.

“Not since the Asian Contagion and Russian ruble crises of 1997–1998 have emerging market stocks underperformed U.S. stocks by as much as they have over the past three years,” writes Larson, noting a nearly 60% return premium for U.S. stocks versus their emerging-market counterparts.

“Through March 31, 2014, the three-year cumulative return of emerging market stocks as measured by the MSCI Emerging Markets Index is –8.35%, while that of U.S. stocks as measured by the S&P 500 Index is 50.73%,” he details.

Larson argues that two factors driving stock market returns over the long-term—mean reversion and valuations—both favor investing in emerging-markets, particularly its most battered natural resources sector.

As to mean reversion, net earnings in the U.S. are 50% above their historic average while they are 10% below trend in emerging markets. And, Larson adds, today’s globalized economy tends to homogenize profit margins from region to region, so one should not discount emerging-market earnings because they are not advanced economies.

As to valuations, using Shiller CAPE, the U.S. stock market trades at a multiple of 25 compared to a multiple of just 14, nearly half, in emerging markets.

The view is starker still on a price-to-book basis: “fundamentally weighted emerging markets portfolios trade near book value, levels touched in the depths of the Global Financial Crisis in February 2009.” Larson hastens to point out how well (fundamentally weighted) emerging markets performed in the immediate aftermath of the crisis, rising almost 150% from February 28, 2009 through end-year 2010.

“What is more likely to have a positive surprise: a market with high valuations, above trend profits, and high expectations, or a market with dirt cheap valuations, below average profits that can revert to the mean, and overwhelmingly negative sentiment?” Larson writes.

But the Research Affiliates analyst does not rest his case merely with the attractiveness of emerging markets.

Like Brightman, he drills down a little further to show divergences within emerging markets where consumer stocks and high tech are actually trading at high multiples, whereas natural resource stocks are experiencing death throes.

“Led by high-flying Internet companies, tech stocks are the top performing sector in the emerging markets, up nearly 40% over the past three years,” he writes, pointing out that a company like South Africa’s Naspers sports a nosebleed P/E ratio of 90.

In contrast, emerging market energy stocks have fallen 33% over the past three years, even as they have risen 18% in the U.S., a variance of over 50%. On a price-to-book level, emerging-market energy stocks are 60% less valued.

This gap suggests to Larson that it is reasonable to anticipate emerging-market outperformance at some point.

And yet investors are highly reluctant to invest in places that are “full of problems.”

It is precisely such emotions, though, that push prices down.

Citing a Credit Suisse study that looked at returns in the period 1976 through 2013 based on dividend yields and currency, the analysis found an annualized return advantage of about 20% in buying high yield and weak currency, two measures of investors’ skittishness.

“The reason high yields and weak currencies are profitable is that they are a by-product of fear and pessimism, emotional responses that lead to low prices and create opportunities to earn a higher risk premium,” Larson writes.

Like his colleague Brightman, Larson concludes that the discomfort one feels is a validating signal of a contrarian strategy like fundamentally weighted indexing that explicitly rebalances into low P/E and low P/B stocks.

-- Check out Brightman, Ferri Slug It Out Over Smart Beta

Friday, June 20, 2014

Prem Watsa Comments on the Grand Disconnect and Fairfax's Common Stock Hedge

Last year, I quoted a major U.S. bank CEO who famously said, ''As long as the music is playing, you have to get up and dance.'' You can see how difficult it is not to dance! And what a party it was in 2013! The S&P went up 30% while the Russell 2000 was up 37%....

Signs of speculative excesses are everywhere – even though the U.S. economy is still very tepid. The world might muddle through as it did in 2013, but the grand disconnect between stocks and bonds, and the real economy, continues. You will remember, we consider the 2008 – 2009 contraction to be a one in 50 or a one in 100 year event – similar to the 1930s in the U.S. and Japan since 1990. Because of massive fiscal and monetary stimulus in the U.S., the economic consequences have yet to play out. We continue to worry about the unintended consequences, and continue to hedge our common stock portfolio for the reasons discussed in our last few Annual Reports. Just to highlight a few of them:

1. The U.S. total debt/GDP ratio is at a very high level and significant deleveraging is yet to come. This applies to Europe and the U.K. also.

2. Economic growth in the Western world is still very weak in spite of huge monetary and fiscal stimulus by the Fed and the ECB. In nominal and real terms, annually since 2009 the U.S. only grew by 3.9% and 2.3% respectively (while Europe grew by 1.6% and 0.5% respectively). In spite of this anemic growth, after-tax profit as a percentage of GDP in the U.S. is at the highest level of the last 60 years.

3. Inflation in the U.S. and Europe, after five years of huge fiscal stimulus, is still in the 1% area – and falling. We remind you that it took five years after the stock market crash in 1990 before Japan saw deflation – and this deflation continued for most of the following 19 years.

4. QE1, QE2 and QE3 have helped the financial markets but have not worked in the real economy. What happens when everyone realizes that the Fed and the ECB have no more bullets?!

5. There is a monstrous real estate and construction bubble in China, which could burst anytime. It almost did in 2011 but China increased its credit growth significantly since then.

6. Reaching for yield continues everywhere, with junk debt at record low yields, emerging market debt in U.S. dollars at very low yields and corporate bonds at very low spreads. Many emerging market countries also have significant external debt in foreign currencies. All vulnerable to a ''risk off'' run on the bank!

From Fairfax Financial 2013 Chairman's Letters to Shareholders

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Staples to Shut as Many as 225 Stores, Cut Costs by $500 Million

Staples Plunges Most in a Year After Cutting Profit Forecast Patrick T. Fallon/Bloomberg via Getty Images Staples (SPLS), the largest office-supplies chain, will close as many as 225 stores in North America and reduce costs by as much as $500 million by the end of 2015, as it forecast sales to drop for a fifth consecutive quarter. The savings are expected to come from supply chain, retail store closures and measures including "labor optimization, non-product related costs, IT hardware and services, marketing, sales force and customer service," the Framingham, Mass.-based company said in a statement Thursday. Staples is facing increased competition from online retailers including Amazon.com (AMZN). Revenue in its fiscal first quarter will fall from a year earlier, excluding any potential impact from its restructuring plan, the retailer said Thursday without providing a projection. Shares fell 15 percent to $11.35 at 11:08 a.m. in New York and earlier dropped as much as 17 percent for the biggest intraday decline since Aug. 15, 2012. The stock slid 16 percent this year through yesterday, compared with a 1.4 percent gain for the Standard & Poor's 500 index (^GPSC) . "With nearly half of our sales generated online Thursday, we're meeting the changing needs of business customers and taking aggressive action to reduce costs and improve efficiency," Chief Executive Officer Ron Sargent said in the statement. The company expects earnings of 17 cents to 22 cents a share for the first quarter. That compares with the average analyst estimate of 27 cents on an adjusted basis, according to data compiled by Bloomberg. Analysts on average estimate the retailer to post revenue of $5.74 billion in the quarter, compared with $5.81 billion a year earlier. Kirk Saville, a spokesman for Staples, didn't immediately respond to voicemails and an e-mail seeking comment on how many jobs will be eliminated by the cost-cutting plan Staples joins RadioShack (RSH), the electronics retailer, in trying to overhaul its business by closing stores in the face of increasing competition from e-commerce rivals. The company announced plans March 4 to close about a fifth of its stores after fourth-quarter sales missed estimates. Staples shuttered 42 stores in North America last year, ending 2013 with 1,846 in the region. The company reported fourth quarter income from continuing operations of $212 million, or 33 cents a share, compared to $90 million, or 14 cents a share, a year earlier. the world's largest office-supplies chain, plans to shutter as many as 225 stores in North America and cut costs by as much $500 million by the end of 2015, as it forecast a first-quarter sales decline. The savings are expected to come from supply chain, retail store closures and measures including "labor optimization, non-product related costs, IT hardware and services, marketing, sales force and customer service," the Framingham, Mass.-based company said in a statement Thursday.

Enbridge Clears Yet Another Hurdle

In the past few weeks, we've focused on some of the challenges facing Canada's LNG export projects. Meanwhile, progress continues toward getting landlocked Canadian crude to fast-growing Asian markets. This week, the country's federal government finally approved Enbridge Inc's (TSX: ENB, NYSE: ENB) CAD7.9 billion Northern Gateway project.

The company's nearly 1,200 kilometer pipeline will have the capacity to move as much as 525,000 barrels of oil per day from the resource-rich province of Alberta to a deepwater port on Canada's west coast.

Northern Gateway is key to Canada's eventual diversification of its export markets. At present, the US absorbs 99 percent of the country's crude oil exports, often at discounted prices.

Indeed, the spread between the benchmark West Texas Intermediate crude and Western Canada Select is currently USD20.75, or a discount of 19.5 percent for Canadian crude. Over the past year, the differential between the two benchmarks has been as wide as USD42.00 and as narrow as USD12.00.

There are a number of factors contributing to the spread. The glut of production in Canada is competing with similarly abundant supplies from the prolific US shale plays. The result is that Canadian crude is being crowded out from crucial pipelines leading to various US markets. And the heavy, sour crude mined from Canada's oil sands is more costly to refine than the light, sweet crude produced from North Dakota's Bakken.

But the latest approval for Northern Gateway is just one hurdle in what continues to be a mind-numbingly complex approval process. We've previously detailed Enbridge's efforts to pacify various constituencies at the provincial level in British Columbia, including politicians, First Nations groups, environmentalists and labor unions.

Though the pipeline could commence operations by late 2018, Enbridge must still decide if the project will ult! imately prove economic.

That's because the company must fulfill 209 conditions set by the Joint Review Panel established by the government's National Energy Board. And 113 of those must be met before construction can even begin. This process is expected to take 12 to 15 months.

In addition to the numerous consultations required with First Nations groups and other communities along the pipeline's proposed route, Enbridge will also have to apply for regulatory permits and authorizations from federal and provincial governments.

Some Aboriginal groups have threatened legal action to further delay the pipeline's construction. To date, the company has signed 26 equity partnerships with these communities, representing about 60 percent of their population in British Columbia.

Of course, the cost of compliance, revenue sharing and taxation all add up. And Enbridge CEO Al Monaco has said the firm will have to recalculate the cost of the project before it can proceed with a final investment decision. "Obviously there's a lot of capital involved here to put to work, to execute a project like this, and that takes careful consideration," Mr. Monaco observed during the company's Tuesday conference call. The final cost estimate is expected later this year.

Still, Enbridge is hardly going it alone. This massive project has 10 funding partners, including oil sands giant Suncor Energy Inc (TSX: SU, NYSE: SU).

But even if Northern Gateway meets the aforementioned conditions and secures sufficient long-term commitments from energy shippers, it still faces competition from other projects, including TransCanada Corp's (TSX: TRP, NYSE: TRP) Keystone XL pipeline, which itself remains mired in endless political maneuvering.

While Northern Gateway is an important project for Enbridge that has cost the company and its partners CAD400 million thus far, it's just one of an estimated CAD36 billion worth of projects that the company considers commercially secure through 201! 7, with a! nother CAD5 billion worth of projects under development.

As such, some analysts believe that the project won't move the needle all that much for the company's near- to medium-term earnings. Management has targeted earnings per share growth of 10 percent to 12 percent annually through 2017.

But while Enbridge can endure without Northern Gateway, Canada can't remain dependent on the US as its sole energy export market forever. Although environmentalists and other groups have stymied progress in building necessary infrastructure, when there's demand, at least some output will always find a way to reach the market, as the crude-by-rail phenomenon has demonstrated.

Thursday, June 19, 2014

Kumbaya For Value Investors And Quants

Among investment managers there are generally two camps of stock pickers. There are Benjamin Graham value investors, who do intense fundamental analysis in search of stocks selling well below their own calculations of intrinsic value, and then there are quants, who rely on probabilities and computer screens of publicly available data on thousands of stocks in an effort to produce winning portfolios.

Both strategies can be successful, but rarely do the two groups mix in practice. It's kind of like the differences between Christianity and Judaism. They have different liturgies, but their end games are identical.

On the 15th floor of a Los Angeles office tower not far from UCLA's Westwood campus, there's a fast-growing money management firm that has achieved a kumbaya equilibrium between managers who practice the art of deep value investing and math nerds who are immersed in the science of quantitative analysis.

The firm is Causeway Capital Management, and it's headed by a value-quant matchmaker named Sarah Ketterer. Today Ketterer, 53, is probably the most successful female money manager in the business. In the last 18 months assets in her firm have more than doubled, from $16 billion to $33 billion, thanks largely to the company's stellar performance. For example, her firm's flagship mutual fund, Causeway International Value, has a five-year average annual return of 14% versus 10% for its benchmark index. The $6 billion fund gained 25% in 2012 and another 24% in 2013.

Sitting in the firm's sunny L.A. conference room wearing a red leather jacket and sporting a brown pixie haircut, Ketterer is determined to convince a visitor of the firm's team approach. But if it were not for her own serendipitous path into the business of money management, this successful quant/value experiment might have never occurred.

Ketterer comes from West Coast investing royalty. She is the daughter of John Hotchkis, 81, one of the founders of asset management giant Trust Company of the West as well as of über-successful value boutique Hotchkis & Wiley.

After a few boring summer jobs in the back office of her father's firm, Sarah wanted nothing to do with stock picking. She started at Stanford as a premed student, switched to political science and economics, and eventually went to Dartmouth for an M.B.A. After business school she took a job in corporate finance at Bankers Trust in New York. But instead of becoming enamored by big mergers and investment banking, she shifted her focus to data–or more precisely, the Tower of Babel that was the state of European company databases in the late 1980s.

"I remember visiting a company in Italy that made sports equipment, and they were pulling their data out of a drawer, and I was thinking, What are they doing? This is not good," says Ketterer. "I think he was smoking, too."

So Ketterer quit her M&A advisory job to create a new company that would scrub and organize European data and sell it to investment managers.

Her first stop was her father's firm, Hotchkis & Wiley, back in L.A. But instead of seeding her business or becoming a client, her father and his partner, George Wiley, asked her to join the firm and help them start a new international equity arm.

"I had never really thought of being in asset management before that," says Ketterer, "but I had spent a lot of time in Europe talking to database owners. I recognized that the data was imperfect, and it struck me as quite obvious that there must be price inefficiencies in these markets."

Ketterer's career pivot inadvertently set her on a path to developing a new model of money management and ultimately prompted her and her Irish-born comanager, Harry Hartford, to break away from Hotchkis & Wiley (then owned by Merrill Lynch) and start their own internationally focused asset management firm in 2001.

In data-lover Ketterer's value-investing operation, numbers geeks share equal power with the tire-kicking fundamental analysts, and not a single stock can be purchased unless a consensus is arrived at by the team. Indeed, all picks must first pass muster with the quants, who screen 3,000 global stocks with market caps greater than $1 billion each week.

"They are looking for a subset of stocks that are already biased to outperform the market," says Ketterer. In other words, which stocks are selling at historically low enterprise value (market capitalization plus debt) to cash flow multiples and are beginning to see positive earnings estimate momentum from the most statistically accurate brokerage analysts. They also seek companies that are returning capital to shareholders, mostly through dividends or buybacks.

"We identify stocks that others are truly not interested in, when earnings look flat and there seems to be no prospect of improvement on the horizon," says Ketterer.

Even With Its Exciting Upcoming Casino, Melco Crown Remains Undervalued

Macau's already incredible skyline is about to get even better. Photo: ChinaTourAdvisors.com

Melco Crown (NASDAQ: MPEL ) is one of the most profitable and rapidly growing casino companies in Macau. Along with competitors Wynn Resorts (NASDAQ: WYNN ) and Las Vegas Sands (NYSE: LVS ) , Melco Crown has made massive gains from the increased visitation and revenue growth of the Macau gaming market. Yet the stock currently looks undervalued for its current strength and future growth prospects. With each of the major companies bringing new casinos to the Cotai strip in Macau in the next two years, here's why you should be excited over Melco Crown's coming Studio City.

The circled area above shows what will be the Melco Crown triangle on the Cotai Strip. Photo: MacauTripping.com

Melco Crown has already proven itself in Macau
Melco Crown currently operates two casinos in Macau: City of Dreams in Macau's main strip called Cotai, and Altira Macau in nearby Taipa. These casinos did very well for the company in the first quarter of this year, which drove the company's revenue up 19% over the first quarter of 2013.

EBITDA itself jumped 31% for the same period, which was driven mainly by an increased focus on mass-market revenue. Analysts at Deutsche Bank, Citigroup, and The Street agree that Melco Crown has very good prospects for continued growth and profit expansion in 2014 and beyond, possibly the best prospects in the industry.

Now, the coming resort will take that to the next level
Now, it's time to get excited about what is coming next, Melco Crown's Studio City casino. This integrated resort with a cinematic theme on the Cotai strip is set to be better than anything Melco Crown has produced yet, with 500 gaming tables, more than 1,500 slot machines, a five-star hotel, shopping mall, and more. Analysts at both Citigroup and Deutsche Bank have said that Studio City will be the "best situated" resort on the Cotai strip, as it will be directly adjacent to the Lotus Bridge that connects the strip to mainland China and a proposed stop for the new intercity light rail coming next year.

Melco Crown's CEO Lawrence Ho continues to lead the company's growth prospects. Photo: Bloomberg

Melco Crown CEO Lawrence Ho is excited as well. He said:

We are extremely excited about our newest integrated resort in Macau, which remains firmly on track to open in mid-2015. The property's cinematic theme and vast array of unique entertainment and attractions will enhance Macau's appeal as a leading tourist destination in Asia.

But competition is coming from other major players
Las Vegas Sands has been aggressively growing in Macau since it arrived, and is continuing to do so. Sands is now developing its third attraction in the area, The Parisian, which will open in 2015 as well. This resort will be the biggest of the new resorts coming to Cotai, at least in terms of the number of guests it can hold, with over 3,000 hotel rooms and suites, around 450 table games, 2,500 slots, a retail mall, and a replica of the Eiffel Tower at 50% scale.

The Parisian promises to be an impressive resort with a 50% scaled Eiffle Tower. Photo: Las Vegas Sands

CEO Steve Wynn introduces the vision for the new resort on the Cotai strip back in 2012. Photo: Reuters

Wynn Resorts, not to be left out, also has a new casino resort coming to the Cotai strip in the next 18 months. The $4 billion Wynn Palace on Cotai has an expected opening date in 2016. Wynn's resort will include a 1,700-room hotel, a performance lake which will put the one in Las Vegas to shame, and much more.

While it has fewer rooms than Las Vegas Sands' new resort, the 1,700 extra rooms will help Wynn take advantage of one of its best operational highlights: nearly full hotel occupancy. One major operating highlight of Wynn's first-quarter earnings was that the company raised its hotel room occupancy rate to 98.1% from 93% in the year-ago period.

Foolish Investment takeaway: Great company, undervalued stock
Melco Crown has already been rewarded for its great operations in Macau, but is set to see an even bigger jump in profits when its Studio City casino opens next year. The current price in the low $30s, even at a price-to-earnings multiple of around 21, looks like a bargain when compared with Deutsche Bank's price target of $55.

Shares of Las Vegas Sands and Wynn Resorts were at the same level only a couple of years ago before their shares each shot up following incredible growth and profits in Macau. Las Vegas Sands and Wynn Resorts are now pricier than Melco Crown at P/E ratios of 24 and 26, respectively. Based on its already strong revenue growth and the exciting new casino Studio City on the way, now might be a good time for Foolish investors to play Melco Crown.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Wednesday, June 18, 2014

Forget the Head and Shoulders: S&P Is Now Breaking Out

"The difference between average people and achieving people is their perception of and response to failure." -- John Maxwell

NEW YORK (TheStreet) -- We saw very slow and weak action all day leading into the Federal Open Market Committee meeting.

It's never fun watching your stocks float lower but with the news to come I had to hold onto my stocks and see how they reacted to the news. Had they reacted poorly I would have just had to suck it up and take more of a loss, or smaller gains, than I wanted.

My thinking was stocks would come back and were just trying to shake week hands out. Luckily, I was right this time and the news was a non-event.

We saw some great moves and some superb closes in many leading stocks. The closing price is always the most important price to focus on. Let's move right into the SPDR S&P 500 ETF Trust (SPY) chart that has now cancelled out the small head and shoulders pattern and should now rip higher -- just how I like it. I am still into margin and only did one trade today, adding a new long position. SPY is now breaking out of the wedge pattern and off to the races. Nice volume pushed it to the breakout point which is what I always like to see.

We remain in a very strong market environment and buying dips is a great strategy for now along with breakouts. No matter what the bears tell you, the action speaks for itself and that is what I listen to, not someone's opinion. We still are on track for a very busy and strong summer. Enjoy your evening. Warren Bevan This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. >>Caveat Emptor, Investors: The Regulators Are Trying to Protect You

Planning 2014â€™s Taxes with Your 2013 Tax Return

Taxes are one of your largest retirement expenses. Your 2013 federal income tax form is a guide to reducing those taxes in 2014. Before filing away the return for last year's taxes, take a few minutes to study it. A careful review of the return can point the way to opportunities for decreasing your taxes and increasing after-tax wealth.

Most of the opportunities for those in or near retirement to reduce income taxes are on the front page of the Form 1040. On the back page there are itemized deductions (mortgage interest, charitable contributions, medical expenses, and a few others) plus tax credits. These offer limited planning opportunities for most people. Also, the stealth taxes that increase the burden of many of those in or close to retirement are imposed on adjusted gross income (AGI) or modified adjusted gross income. AGI is the last line of the front page of Form 1040. Examples of stealth taxes based on AGI are the surtax on Medicare premiums, the new net investment income tax under Obamacare, taxes on Social Security benefits, the phaseout of personal exemptions, and the reduction in itemized expenses.

The best opportunities for reducing the special retiree taxes are to reduce gross income and thereby adjusted gross income. Consider these strategies.

Reduce investment income. Does your taxable investment income exceed spending needs? If so, seek ways to shelter the excess. Consider moving money from conservative income investments into deferred fixed annuities. You'll earn a similar yield, and the income will compound tax-deferred. Or you could contribute some of the money to a Roth IRA. You won't receive current tax benefits, but the income will compound tax-free and also be tax-free when you withdraw it, reducing your taxes now and in the future.

Stocks paying qualified dividends also are worth considering. These are more volatile than conservative income investments, but the ! dividends are subject only to a maximum 20% rate, plus most companies that pay dividends increase the dividends each year. This has been a popular sector of the stock markets, so you might want to defer this strategy until valuations are more attractive or carefully choose the stocks.

Consider tax-exempt bonds. Most states and localities are in decent financial shape and aren't likely to default on their bonds. But tax-exempt bonds declined sharply in 2013 because of rising interest rates and an overreaction to the bankruptcy filing of Detroit. In most tax brackets, you earn a higher after-tax return from highly-rated tax-exempts than from treasuries or even investment-grade corporate bonds. You can buy individual bonds, mutual funds, or closed-end funds to capture the opportunity.

Manage your taxable investments. Reviewing your portfolio a few times a year and making some simple transactions can reduce your tax bill. Most investors don't do this and leave dollars on the table.

Harvesting investment losses means selling investments that have paper losses to lock in the losses. Deduct these against capital gains (including mutual fund distributions). If your losses exceed capital gains for the year, up to $3,000 of additional losses can be deducted against other income. Any leftover losses after that are carried forward to future years.

Harvesting losses doesn't mean keeping the investment out of your portfolio forever. If you still like the investment, you can buy it back. With stocks, mutual funds, and some other securities you have to wait more than 30 days to repurchase if you want to deduct the loss in the year of the sale. Or you can buy right away investments that aren't substantially identical. For example, sell one mutual fund and buy another at a different mutual fund family that has the same strategy.

Consider taxes before selling investments with gains. You save significant tax dollars by holding the investment for more than one year so the gain qual! ifies as ! long-term with a maximum tax rate of 20%. Sell a day early and it will be a short-term gain taxed at your ordinary income tax rate.

Even when a gain will be long-term, consider the full picture before selling. A long-term capital gain increases your adjusted gross income. It might be enough to trigger higher taxes on Social Security benefits, higher Medicare premiums, reduction of itemized deductions, and other tax penalties. That's why I say to consider the full picture before deciding to take a capital gain. Understand the full tax cost.

In other words, don't trade your investments too much. This is one area in which good tax strategies and investment strategies complement each other. One of the most frequent investment mistakes is trading too much, through either impatience or trying to time the market. A common tax mistake also is to trade too much, racking up taxable gains and missing the advantage of long-term gains.

Look for tax-advantaged investments. We already discussed tax-exempt bonds. You also should consider master limited partnerships. These pay high distributions. In the first 10 or so years you own them, about 85% of the distributions are tax-free. But the tax-free distributions reduce your tax basis, increasing taxes in the future. MLPs also make your tax returns more complicated, and some people avoid them for that reason. But they're worth considering.

Rental or investment real estate also is worth a look. This is more of a business than investment, because work is involved, and some of it is at inconvenient times. But it has tax advantages that make the efforts worthwhile for some people. You have to meet various requirements, such as being actively involved in management of the real estate, to reap all the benefits. Be sure you know the rules.

Manage retirement plan distributions. Distributions from IRAs and 401(k)s are taxed as ordinary income. Limit withdrawals from retirement plans and annuities to only the amounts needed for spending and! required! by law or contract.

Take business loss deductions. Losses from businesses also reduce AGI. Losses can come from a sole proprietorship, partnership, limited liability company, or subchapter S corporation. You might be able to turn a hobby into a business. You have to run the activity like a real business, not a hobby, to meet the IRS’s rules for deducting losses.

Deductions for AGI. There are some deductions you can take on the front page of the 1040 that reduce AGI. They aren't practical for many people age 55 and over, especially those already retired. The deductions include health savings account contributions, moving expenses, the deductible part of self-employment taxes, self-employed health insurance premiums, and some self-employed retirement plan contributions. There are a few others that don't involve much planning, such as alimony payments.

By all means, maximize these deductions to the extent you can. But they don't offer significant planning opportunities for most of those who are in or near retirement.

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Facebook pays $16 bln for new monetization problem

SAN FRANCISCO — Mark Zuckerberg recently solved Facebook's mobile monetization problem.

Now the CEO of the world's largest social network has a messaging monetization problem — and he paid $16 billion for the privilege of taking on this new head-scratcher.

The latest challenge comes in the form of WhatsApp, the fast growing mobile messaging service Facebook is acquiring, with founders who hate advertising and seemingly most other existing ways of making money from consumer Internet services.

"Advertising has us chasing cars and clothes, working jobs we hate so we can buy s**t we don't need," WhatsApp CEO and co-founder Jan Koum wrote on Twitter in August 2011, quoting Tyler Durden, the main character from the movie Fight Club.

In June 2012, Koum posted a blog on why WhatsApp does not sell ads.

"These days companies know literally everything about you, your friends, your interests, and they use it all to sell ads," he wrote, in what is an accurate summary of Facebook's current business model that is so loved by Wall Street.

"Advertising isn't just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought," added Kuom, a future member of Facebook's board of directors, with a say on how the social networking company will be run. "Remember, when advertising is involved you the user are the product."

Ads are not the right way to monetize messaging, Zuckerberg told analysts during a conference call about the WhatsApp acquisition.

That has Wall Street worried that Facebook agreed to pay a huge price and give away about 8% of the itself for a business with few ways of making lots of money anytime soon.

"While we see strategic merit, the acquisition is difficult to justify on metrics we use to value Facebook," Brian Wieser, an analyst at Pivotal Research Group, who downgraded Facebook shares soon after the WhatsApp deal was announced.

Facebook is paying $19 billion for WhatsApp, including $4 billion ! of new stock awards for the start-up's founders and employees.

To justify that price, WhatsApp would need to generate around $1 billion in annual cash flow by 2018, Wieser estimated.

"Few data-points to support such an assumption were provided by the company, as evidently few are available," the analyst added. "As management indicated, it expects WhatsApp to focus on product and users rather than monetization, anyways."

Ken Sena, an analyst at Evercore, downgraded Facebook to equal-weight from overweight on Thursday, saying there is a question mark over the best way to make money from mobile messaging services like WhatsApp.

Garmin Navigates to Growth, Plans Dividend Hike

Garmin Ltd. (NASDAQ: GRMN) reported fourth-quarter and full-year 2013 results before markets opened Wednesday. For the quarter, the GPS equipment maker posted adjusted diluted earnings per share (EPS) of $0.76 on revenues of $759.7 million. In the same period a year ago, the company reported EPS of $0.68 on revenues of $768.5 million. The quarterly results also compare to the Thomson Reuters consensus estimates for EPS of $0.62 and $712.78 million in revenues.

For the full year, Garmin posted EPS of $2.62 on revenues of $2.63 billion, compared with EPS of $2.85 and revenues of $2.72 billion in 2012. The consensus estimates called for EPS of $2.47 on revenues of $2.59 billion.

The company posted double-digit revenue growth for the quarter in its fitness, aviation and marine segments, offsetting a 12% decline in its auto and mobile segment. The firm’s outdoor segment also posted revenue growth of 7%, posting quarterly revenue of $410 million, more than half the firm’s total.

For 2014, Garmin guides revenue in a range of $2.6 to $2.7 billion and EPS at $2.50 to $2.60. Overall gross margin is forecast at 54% to 55%, and operating margin is estimated at approximately 21%.

The company’s CEO said:

In the fourth quarter, we also achieved operating income growth in all five segments. This success serves as a solid starting point for 2014 and highlights the strength of our diversified product portfolio.

Garmin will recommend at its June annual meeting an increase in its yearly dividend from $1.80 to $1.92. If approved, the new dividend rate would be payable beginning in the second quarter of this year.

Garmin shares were up more than 5% early Wednesday, at $49.57 in a 52-week range of $32.52 to $52.72. Thomson Reuters had a consensus analyst price target of around $50.00 before this report.

Tuesday, June 17, 2014

Taco Bell Goes Mobile

This story has been updated from 10:56 am EST to include Taco Bell confirmation.

NEW YORK (TheStreet) -- Yum! Brands' (YUM) Taco Bell is going mobile.

According to Nation's Restaurant News and confirmed by Taco Bell on Friday, the fast food chain plans to roll out mobile ordering later this year to all 6,000 locations, in a bid to shake-up the quick service restaurant segment.

A quick search through the Apple's (AAPL) App store shows that Taco Bell already has an app available, however customers currently cannot order through it.

According to the Feb. 10 article, the Irvine, Calif.-based chain began testing a mobile ordering app roughly two and a half years ago. More recently it began more specific location testing at five units in Orange County and plan to open it up to select consumers for further testing there. Fast-food chains are slowly getting on the bandwagon to mobile offerings. Big pizza chains like Papa John's (PZZA), Domino's (DPZ) and Pizza Hut, another Yum! Brands company, have been successful at showing customers a seamless experience and the ease of use at mobile ordering. Pizza Hut launched its smartphone app in 2009. Today, with digital orders representing about 40% of the brand's sales, mobile represents about half of the digital orders, spokesman Doug Terfehr told TheStreet on Friday. Customers can also offer Pizza Hut through their Xbox. Pizza Hut announced that deal with Microsoft (MSFT) last year. KFC customers near select U.K. stores can order through their smartphone, a separate search through the App store shows. A KFC spokesman did not return a request for comment. Taco Bell's mobile offering joins the likes of other fast-food chains getting into mobile offerings. Chipotle Mexican Grill (CMG) already offers mobile ordering. McDonald's (MCD), Chick-fil-A and Smashburger are also in the process of rolling out mobile ordering, the article says. Of course one cannot mention mobile and food without thinking of Starbucks (SBUX). CEO Howard Schultz did say that he wanted to focus his duties on "the convergence and integration of our retail and e-commerce, digital, card and mobile assets around the world," in an announcement last month citing management changes. Taco Bell is looking to target its primary demographic of young Millenials. "For these kids, it's not whether you have a smartphone; it's which smartphone do you have," Jeff Jenkins, mobile lead for Taco Bell told Nation's Restaurant News. "If you can get 10 million people to download your app, you're putting a portal to Taco Bell in 10 million pockets." -- Written by Laurie Kulikowski in New York. Follow @LKulikowski

Stock quotes in this article: CMG, SBUX, PZZA, DPZ

Monday, June 16, 2014

Time is Running Out for Apple's Long-Awaited iWatch

SMARTWATCH SEASON Michael Sohn/AP The smartwatch craze appears to have come and gone without changing the world. Pebble -- the Kickstarter-funded company the kicked off the revolution of Web-tethered wristwatches -- has been a fringe player at best. Samsung (SSNLF) -- the world's largest maker of smartphones -- hasn't had a lot of success with its Galaxy Gear line, now in its second incarnation. Silent through this ho-hum movement is Apple (AAPL), the one company that many figured would be the game changer in this once-promising niche of wearable computing. There was some hope that Apple would use its Worldwide Developers Conference earlier this month to announce its entry into the smartwatch market and woo top developers to start coding applications for the iWatch. It didn't happen. However, shortly after the conference closed, reports began to surface about Apple entering the market in October. This will be a big story if it happens, but it may be too late. Rock Around the Clock The smartwatch was supposed to change everything. Pebble's initial shortcomings -- it didn't make calls and ran only a limited number of apps -- seemed to have been addressed when Samsung and Qualcomm (QCOM) introduced fancier fare. However, with Samsung limiting its devices to work only with select Galaxy devices and Qualcomm's Toq coming up short due to a lack of voice commands and native input options, we find ourselves with a revolution that appears stuck in the mud. Apple could change that, but the world's leading consumer tech company faces an uphill battle to overcome obstacles that have soured the market's enthusiasm for timepieces with computing features. Time is Ticking Away Apple investors are hungry for innovation in a new product category. Mac sales have stalled; the iPod has been declining in popularity for a couple of years; and even the iPad saw a surprising drop in sales in the latest quarter. The iPhone continues to be the workhorse for Apple, and a little diversification wouldn't hurt. Tim Cook could also use a defining new product. The Mac, iPod, iPhone and iPad all came to life under Steve Jobs. Cook is now closing in on three years as Apple's CEO, and investors will begin to turn on him if the tech bellwether doesn't have a new sales workhorse in place if and when the iPhone begins to fade. It's easy to fathom how the iWatch could be successful. Outdoor recreation enthusiasts could check navigation without having to fumble through their pockets for their smartphones. Activating Siri would be a breeze. Videoconferencing through FaceTime -- even on a small wristwatch screen -- seems like a natural idea. Apple could clearly raise the bar here. It's not the kind of company that shows up fashionably late to the party unless it's bringing something new to the table. But it's about more than just a single wrist-hugging gadget. The iWatch could help spark sales of iPads and iPhones if its features are tied exclusively to Apple's iOS platform, though that comes with a juicy caveat: Samsung got burned by making its Galaxy Gear too restrictive. However, if it's a hit, it will tie Apple fans closer to Apple's mobile operating system. You're not likely to switch to Android when your iPhone contract runs out or your iPad grows stale if you have recently invested in an iWatch. Apple will have to hope that it's not too late to get it right with the smartwatch. There's plenty at stake if it's successful, but time is running out for the smartwatch to matter in the marketplace. More from Rick Aristotle Munarriz
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