Tuesday, July 31, 2012

Cramer: This Mortgage Settlement Is Huge

Most efforts to solve the housing glut have led to naught, largely because the banks and state and federal governments have been have so antagonistic to each other.

See if (JPM) is traded within the Action Alerts PLUS portfolio by Cramer and Link

That's why this $25 billion settlement between the federal and state government and five big banks and mortgage services, over the outrageous foreclosure procedures these institutions used during this period, is so important to the progress that's so needed for this incredibly important issue, the one that precipitated the U.S. downturn and remains at the epicenter of the tepid pace of the recovery.What exactly will it do?On the surface, it will provide aid from Bank of America(BAC), Citigroup(C), JPMorgan(JPM), Wells Fargo(WFC) and Ally Financial to states and to beleaguered homeowners for principal forgiveness and forbearance and refinancing.What it will actually do is put cold, hard settlement money into millions of homeowners' pockets and reduce payments in many cases.It will accelerate foreclosures to clean out inventory and speed up short sales to get past the big logjam for underwater home sales.And it will give the banks, like it or not, a real break in what had become a gigantic expense: legal fees. These have actually hurt the bottom line for years now.I don't know if you have tried to buy property during this period, as I have. Here's what you have faced. Banks have demanded a huge down payment, even as you might obviously be able to afford property. Banks have been unwilling to give you a refinance at these low rates that Fed Chief Ben Bernanke has made possible, unless you put down colossal amounts of money that most don't have. And banks have been the big obstacle to buying short-sale property.I know this. I have tried and given up buying short-sale property because of the banks' intransigence. I had to pay down a gigantic amount of money to refinance after going through dozens of banks to let me do so. I am in the process of buying property, and I know that I might as well buy it with cash.

I don't like to play the 1% card, but if I am having problem with these issues, then everyone is having problems, and I can tell you that this settlement is a godsend.

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Is it a reason to buy the bank stocks? You know, I have been a huge fan of Wells Fargo, and I have to tell you the answer is yes, absolutely, even as the bank stocks failed to react to the deal. I think banks will be able to free up a lot of a capital to do more to help homeowners, and I think you are going to begin to see a real dent in the inventory overhang and, yes, the beginning of a sustained rise in home prices.

See if (JPM) is traded within the Action Alerts PLUS portfolio by Cramer and Link

We have all become too jaded about any government initiative to solve this brutal problem. This one is big. Recognize it. Take it as a sign that we are now over the hump of the housing issue, and be prepared to hear about much better numbers going forward.Me? After giving up in 2011, I am going to search for short-sale opportunities to buy. I bet there some real bargains. With these low interest rates, I want them.At the time of publication, Cramer had no positions in stocks mentioned.

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Vulcan Materials Erupts With Hostile Bid

Now a half-decade into the punishing economic downturn that has pushed many construction-related materials companies toward the brink, the two largest aggregate suppliers in the United States finally appear set to combine forces.

The idea of a business combination between Vulcan Materials (NYSE: VMC  ) and Martin Marietta (NYSE: MLM  ) had been tossed around for quite some time, but Vulcan "disengaged" from talks earlier this year without striking a bargain. Accordingly, Martin Marietta has opted to take its offer straight to Vulcan's shareholders, complete with sweet enticements like a pledged 20-fold increase in the dividends presently paid by Vulcan.

The hostile bid proposes to exchange each Vulcan share for 0.5 share of Martin Marietta, creating the world's largest supplier of aggregates (crushed stone, sand and gravel, etc.) and a pro forma market capitalization of about $7.7 billion. Because the two companies share such similar product mixes and structures, Martin Marietta expects the combination to yield annual cost savings of $200 million to $250 million. Even without the prospect of a 20-fold dividend increase, that enhanced efficiency makes a compelling case for Vulcan shareholders to support the combination.

Vulcan does not find itself in a particularly strong position from which to fend off the advance. The company is marred by substantial net debt at 8.9 times trailing EBITDA, while the pro forma entity would cut that figure in half once cost synergies are taken into account. And although neither company has suffered the degree of devastation that has slammed the shares of cement giant Cemex (NYSE: CX  ) or wallboard manufacturer USG (NYSE: USG  ) , Martin Marietta has emerged as the strong relative outperformer over its larger rival Vulcan. Nonetheless, they have all failed to outperform the mere 13% dip in the S&P 500 (INDEX: ^GSPC  ) over the past five years. Have a look at the following five-year chart:

Vulcan Materials Company Stock Chart by YCharts

With a reminder that challenging business conditions show no signs of abating, Martin Marietta Chairman and CEO C. Howard Nye added: "Recent events, including the fragile state of the U.S. economy, the lack of visibility as to when a sustainable recovery will take place, and the uncertainty surrounding government spending on infrastructure projects, only strengthen the rationale behind a combination." There can be little doubt that the proposed combination will yield a company better equipped to withstand and adapt to protracted weakness in demand for aggregates.

I continue to recommend that investors keep their strategic distance from the producers of construction materials until the relevant market conditions signal a convincing about-face, though I continue to track the entire domestic industrial sector carefully for early signs of sustainable improvement. I regularly review trusted commentary from Nucor (NYSE: NUE  ) CEO Dan DiMicco and recent takeover target Commercial Metals (NYSE: CMC  ) , and I concur with Martin Marietta that sustainable recovery in most segments of American industrial demand remains nowhere in sight. Nonetheless, I am inclined to view the pro forma company resulting from the proposed share transaction as "best in class" among the producers of bulk construction materials, and I intend to track the company's performance by placing the stock on My Watchlist.

  • Add Martin Marietta to My Watchlist.
  • Add Vulcan Materials to My Watchlist.
  • Add Nucor to My Watchlist.
  • Add Commercial Metals �to My Watchlist.
  • Add Cemex to My Watchlist.

10 Fun Super Bowl Facts That Could Make You Money

Yesterday concluded another glorious season of football, and now the reality of having to wait another six months for pre-season games to begin is starting to settle in.

Yesterday also represented the mecca of all spending days for some of America's top-branded businesses. Super Bowl has become, in and of itself, a mini-Christmas for U.S. businesses. It pays to note where consumers are dropping their dollars when the big game rolls around.

With that in mind, I set out to combine two of my favorite things -- football and the stock market -- and compile a list of 10 fun facts about the Super Bowl. Then, I'll look at how these facts could translate into bottom-line profits for companies that could in turn make you money.

1. The average 30-second Super Bowl ad cost $3.5 million.
One day doesn't make a year, but Super Bowl Sunday certainly put something on the order of $250 million into Comcast's coffers. Comcast, which owns NBC, raked in the highest per-ad rate in Super Bowl history.

2. An estimated $10 billion was wagered on the Super Bowl this year.
It really was Christmas in Las Vegas yesterday -- this was the most-gambled-on Super Bowl event ever. Wynn Resorts (Nasdaq: WYNN  ) , which just last week reported a 7% increase in year-over-year gambling sales in Las Vegas, could carry this Super Bowl momentum forward.

3. 1.25 billion chicken wings were consumed this weekend.
There was no balking this weekend -- chicken producers like Sanderson Farms love the Super Bowl for the bump in chicken sales. Unfortunately for Sanderson, rising material costs are crushing its margins. I guess the Super Bowl came just in time!

4. An estimated 49.3 million cases of beer were sold yesterday.
Does this one really need any explanation? The company to watch here is Molson Coors (NYSE: TAP  ) , whose Coors Light recently surpassed Anheuser-Busch InBev's Budweiser to become the No. 2 most sold beer in the U.S., behind Bud Light. Could the King of Beers be losing its grip in the United States?�

5. Pizza Hut, Papa John's, and Domino's combined to sell roughly 4 million pizzas yesterday.
The compelling play here still remains Domino's Pizza (NYSE: DPZ  ) . Even taking its huge run-up into account, CEO Patrick Doyle has done a masterful job of making his company transparent and reinforcing an image of quality with his brand. There is a reason he was my No. 2 choice for Best CEO of 2011.

6. 2012 was the first year the Super Bowl was streamed live to mobile devices.
Verizon (NYSE: VZ  ) had the exclusive rights with the NFL in 2012 to stream live coverage from the Super Bowl. Users only had to download an NFL app to watch the game, but Verizon did throw in a $10 monthly streaming fee for those with 3G who chose to stream the game from their Verizon phones.

7. 8 million pounds of guacamole was consumed on Super Bowl Sunday.
Eight million pounds of dip means a lot of avocados being sold -- music to the ears of Calavo Growers, the primary producer of avocados and avocado products in the United States. One day won't make or break the year, but Super Bowl Sunday is nonetheless crucial for its business.

8. 1.5 million TV sets were sold during the week of the Super Bowl.
Yes, this actually means there could be life yet for electronic big-box retailer Best Buy (NYSE: BBY  ) , which has struggled with declining margins, especially in regard to TV sales. One week of decent sales isn't going to be enough to drag a company like Sony out of an eight-year-long losing streak for its TV division, but it's better than a kick in the pants.

9. Sales for antacid increased by 20% Super Bowl weekend.
There is a price to be paid for 1.25 billion chicken wings, about 4 million pizzas and 8 million pounds of guacamole -- and heartburn is the reward. Luckily for consumers, Big Pharma has you covered. GlaxoSmithKline's Tums, Novartis' Maalox, Procter & Gamble's Pepto-Bismol, and Bayer's Alka-Selzter were waiting down the first-aid aisle come early Monday morning.

10. Roughly 35% of people who attend the Super Bowl will write it off as a corporate expense.
OK, so this one isn't exactly going to make you money, but I wanted to throw it in here to show just how absurd our tax system is, that a football game is viewed as a corporate expense. And you wonder why we can't figure out how to cut $2.2 trillion out of the federal budget?

Do you have a favorite Super Bowl fact or one that stood out the most to you? Share it in the comments section below. Also, if you want access to more companies set to benefit from increased consumer spending, then get your copy of our latest special report, "3 American Companies Set to Dominate the World," in which our top-notch analysts name three companies raking in the dough in the emerging markets. Best of all, this report is completely free! Don't miss out!

Ticketmaster to settle service-fee lawsuit

New York (CNNMoney) -- If you've ever been enraged by Ticketmaster's hefty processing fees -- and have made a purchase through the company in the last 12 years -- you're in luck. Kind of.

The ticket-selling giant has agreed to settle a class-action lawsuit alleging Ticketmaster "defrauded," "bilked," and "wrongfully collected" ordering processing fees from customers who purchased tickets online and over the phone.

The payout: A whopping $1.50 credit for up to 17 transactions to be used on future Ticketmaster purchases. Additionally, a separate $5 credit will be issued to consumers who paid extra for expedited UPS delivery of their tickets, also on up to 17 orders.

According to court documents, customers who purchased tickets between October 21, 1999 through October 19, 2011 are eligible to participate in the settlement.

The class action lawsuit was filed in 2003 by two customers; Ticketmaster has agreed to pay each of the two named Plaintiffs $20,000.

A website has been set up to help customers claim their coupons. They can type in the old email addresses they used to buy tickets and have their coupons routed to a current address. Ticketmaster said it encourages customers to provide updated contact information.

"We believe that the settlement is fair, reasonable and adequate as a compromise of highly disputed claims," Jacqueline Peterson, Ticketmaster spokesperson, told CNNMoney.

But the deal doesn't do anything to rein in Ticketmaster's hefty service fees. Instead it only requires that the ticket-seller change the language it uses on its website to describe its fees.

In a statement, Ticketmaster disputes that its fee descriptions were ever misleading.

"Ticketmaster attempts to earn a profit for its services, and it will continue to charge fees for the services it provides," Peterson said. "Nonetheless, as part of the settlement, Ticketmaster has modified its disclosures to emphasize that there is a profit component in these fees."

Calls and emails to attorneys for Ticketmaster and the plaintiffs were not returned. The final approval hearing for the settlement is scheduled for May 29, 2012. 

Monday, July 30, 2012

Opinion: Henninger: Would Harry Truman Blame Paris?

The Europe of Charlemagne, Marco Polo and Churchill, after millennia of undoubted achievement, has finally spent itself to the verge of collapse and irrelevance. Witnessing this historic catastrophe, Barack Obama, the president of the United States, is complaining that it's bad for business in Pittsburgh. What electorates in Europe and here have long suspected is proven true. Ours is the age of small men.

Europe is in the grip of a financial plague wiping out a generation of wealth and opportunity for millions of its citizens and threatening the world's economies. Does anyone believe that JFK's Treasury secretary, Douglas Dillon, would, like Tim Geithner, wave toward Europe that the solution "is in their hands"? Or that former Secretary of State Dean Acheson, the architect of NATO, would have been as screamingly silent as Hillary Clinton is now? Or that Democratic President Harry Truman, who appointed George Marshall, would blame Madrid for tanking his re-election prospects in Milwaukee?

Before American public education fell into the anti-history hands of the teachers unions and politically corrected textbooks, Europe's heritage was routinely taught in the United States. Young Americans knew why Europe mattered in their lives. Music ed meant Mozart, Verdi, Bach and Beethoven. Art appreciation stretched from da Vinci to Picasso. Science was James Watt and Marconi. European literature, for those of us who fell into the writing trade, was an endless delirium.

Not that Europe's modern intellectuals or its political class, with notable exceptions, have made much effort to sustain the postwar ties that unraveled in recent years. For those Americans who were subjected to the moral condescension of European journalistic and academic elites in the years before Barack Obama abandoned them, the euro's current crisis is as good as it gets for Schadenfreude—if one is inclined to taking pleasure in the misery of others.

One problem with peace, especially in handsome Europe, is the illusion of economic prosperity. Life looks good. The restaurants are open. Nice clothing is available. If amid this seeming plenty, a profligate young man dissipated his life into ruin, all would call him a wastrel. Centuries of European schoolchildren once learned virtue and self-discipline from the fables of Aesop or Fontaine. "The Emperor's New Clothes" comes to mind. Alas, no one writes fables for nations, and so a whole continent can dissipate the productive wealth of its people year after year on wastrel public spending and no one will notice.

Enlarge Image

Close Corbis

The big story of the past six months isn't the debt itself but the market's disowning of European sovereign debt. Recall in January when this newspaper reported that investors were shifting out of European debt and buying instead the debt of such emerging market powers as Brazil, Indonesia and South Africa because of "economic fundamentals." That is the sound of Europe losing centuries of economic and political power.

An antique phrase on the lips of every European elite just now is "economic growth." Attending a workshop last weekend in Venice of the Council for the United States and Italy, I heard one of them sum up the problem as succinctly as a French aphorist: "The growth agenda is nice to say but difficult to fill up." Difficult but not impossible.

A young woman working as a tour guide in Siena summarized for me over lunch the long-term prospects for her generation in a no-growth world. "We all used to go out together for dinner most nights; now we eat out one night a week. We went to the seashore twice a year but never any longer than five days. My best friend has a degree in electrical engineering, and he is working at a nothing job in a hotel." I asked her where the ones who leave go. "Brazil. A lot have gone to Brazil. Or China. Or Australia."

Italy's youth unemployment rate is 36% and Spain's an almost incomprehensible 50%. Does anyone really believe that Europe's smart young people don't want to work? That its engineers, designers, business-school graduates, architects, scientists and the rest wouldn't thrive, create new companies, new jobs, and produce benefit for Italy, Spain, France or the U.K. if they had breathing room to do so and were allowed to retain their earned income rather than transfer most of it to l'état?

Here's pro-growth advice no one in Europe will take: Stop listening to the IMF bleeders and the Obama spenders. If you wish to relearn real, long-term growth, consult the U.S. governors who did that themselves. Scott Walker in Wisconsin, Mitch Daniels in Indiana and Chris Christie in New Jersey all took over states nearly as moribund as Italy and Spain and put before their publics hard but obvious choices about spending, taxes, pensions, unions and bureaucracies. Their publics voted against dying.

One may ask: Would a European electorate, if given an honest chance to choose self-salvation rather than the bleed-to-death choices they've been given the past two years, vote to save themselves? The betting here is many indeed would vote for a liberated future. Or would have.

Brazil beckons.

Write to henninger@wsj.com

AMD: Jefferies Ups to Buy on Balance Sheet, Yield Improvements

Shares of chip maker Advanced Micro Devices (AMD) are higher by 46 cents, or 6%, at $8.22 after Jefferies & Co.’s Mark Lipacis this morning raised his rating on the shares to Buy from Hold, and raised his price target to $10.50 from $7, writing that the stock is not reflecting an improved balance sheet, nor improved standing in mobile computing graphics chip sales, nor its prospect in server microprocessors.

Lipacis recounts the various “rock and hard place” scenarios of AMD over the decades, where it constantly found itself struggling to fund competitive microprocessor families given Intel’s (INTC) dominant position.

He acknowledges that ARM Holdings (ARMH) is now seen as the real challenger, not AMD:

We�ve heard some wonder aloud if ARM ultimately replaces AMD as a stalking horse on Intel MPU pricing, if not as a second MPU source.

But then Lipacis cites the many things that are going in AMD’s favor or could go in the company’s favor.

The sale of the GlobalFoundries manufacturing arm has improved AMD’s balance sheet, making its financing crunch less threatening:

Today, its net debt position is under $500 million, and its interest coverage ratio is approaching 5.0 (charts 3 and 4). Having shed its manufacturing unit, AMD no longer needs to make multi-billion dollar capital investments every couple of years just to stay in the game.

The company has gained 4 percentage points of share in mobile microprocessors in the last year with its “Llano” family of notebook processors versus Intel’s “Core i3” chips, notes Lipacis, likely because notebook computers require more and more graphics performance. “By integrating its graphics into the same chip as its CPU, AMD is uniquely able to offer a superior graphics experience,” he writes. Intel “compares favorably” to Intel in terms of performance per dollar, he writes, after reviewing benchmarks, including on pure CPU (integer) performance.

AMD may also benefit from its next version of its notebook processor, the low-power “Trinity” application processor, which may do well in “ultrathin notebook” designs, he thinks.

With improving yields for Llano out of GlobalFoundries, moreover, Lipacis sees the prospect for improved gross margin. He raised his 2012 EPS estimate to 65 cents from 61 cents, though he cut his 2013 estimate to 75 cents from 82.

FOREX-Euro dips after Spain auction, ECB eyed – Reuters

Moneycontrol.comFOREX-Euro dips after Spain auction, ECB eyed
Reuters
* Euro falls after Spanish auction yields jump * ECB expected to keep rates on hold at 1145 GMT * Markets positioning for dovish Draghi comments By Nia Williams LONDON, May 3 (Reuters) – The euro dipped against the dollar on Thursday as a jump in …
Forex-Euro and kiwi slip on weak data; ECB eyedCNBC.com
WORLD FOREX: Euro Tumbles On Weak Europe, US Economic DataWall Street Journal
FOREX-Euro steadies ahead of Spain auction, ECBReuters UK
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  • dinarguru 5/3/12

SM: More Tax Breaks for Supporting...

If you're helping out a financially stressed relative, you're doing a good thing. In return, you might be entitled to some tax breaks that do you some good. Please read this to find out if you qualify. (This is the second instalment of our two-part series on this subject; here's the first episode.

Claim Deduction for Paying Relative's Medical Expenses Also See
  • Tax Breaks for Helping Relatives

As you probably know, you can only claim an itemized medical expense deduction to the extent your total health-care expenses for the year exceed 7.5% of adjusted gross income (AGI). If your expenses don't exceed that threshold, you get no write-off. (AGI is the number on the last line of page 1 of your Form 1040.) While clearing the 7.5%-of-AGI hurdle is usually difficult, it can be much easier if you pay medical expenses for a qualifying relative. Why? Because you get to count the medical expenses you pay for that person plus all of your own expenses.

Figuring Out If You Have a Qualifying Relative

For a person to be your qualifying relative for medical expense deduction purposes, all the following requirements must be met.

Support Requirement: You must provide over half the person's support for the year.

Relationship Requirement: The supported person must be your child including a stepchild, adopted child, or descendant of your child (typically a grandchild); or your brother, stepbrother, half-brother, sister, stepsister, half-sister, or a descendent of one of these individuals (typically a niece or nephew); or your son-in-law, daughter-in-law, father, stepfather, father-in-law, mother, stepmother, mother-in-law, brother-in-law, sister-in-law, aunt, or uncle.

Citizen or Resident Requirement: The supported person must be a U.S. citizen, a U.S. resident alien, a U.S. national, or a resident of Canada or Mexico.

Same Household Requirement for Person Who Fails Relationship Requirement: If the supported person doesn't meet the relationship requirement, he or she is still considered to be your qualifying relative if you live in the same household and the other tests listed earlier are passed. For example, a supported godchild could fit into this category even though he or she is not a blood relative or in-law.

Add Up the Expenses and Claim Your Deduction

Once you've established that you have a qualifying relative, add up all your medical expenses plus those you pay for the relative. If the total expenses exceed 7.5% of your AGI, you can claim your rightful itemized deduction on Schedule A of Form 1040. But don't get carried away. You're only allowed to count a relative's expenses when you pay them directly to the medical services or health insurance provider. Simply subsidizing amounts paid by your relative won't do the trick.

Supporting a Relative May Also Allow You to Use Favorable Head of Household Tax Filing Status

A common (and expensive) error committed by unmarried individuals is filing as a single taxpayer when you could file as a head of household (HOH). In these tough economic times, HOH status may be available to you for the very first time because you're now supporting a struggling parent or out-of-work relative. If so, you want to file as an HOH because it gives you a bigger standard deduction and wider tax brackets than if you file as a single. These differences can lower your tax bill by a meaningful amount.

Supported Parent

If you're unmarried and can claim a personal exemption deduction for supporting your mother or father under the rules explained in my earlier article, you can file as an HOH if you also pay over half the cost of maintaining the parent's principal residence for the year. You need not live in the same household.

Other Supported Relative

If you're unmarried and can claim a personal exemption deduction for someone other than a parent under the rules explained in the earlier article, you're eligible for HOH filing status if you also pay over half the cost of maintaining a household that serves as the principal home for both you and the supported person for over half the year. In other words, you and the supported person must actually live in the same household for over half the year for you to qualify for HOH filing status in the non-parent scenario.

Example: Say you're unmarried and paid over half the support for your beloved 26-year-old niece during 2011. She was out of work the entire year and had less than $3,700 of gross income. You can claim a $3,700 personal exemption deduction for your niece on your 2011 Form 1040. So far so good, but there may be more. If your niece also lived in your household for over half the year and you paid over half the cost of maintaining the household (which you obviously did), you can use HOH filing status for 2011 based on supporting your niece and maintaining the household where you both lived. It's a tax-saving double play.

The Last Word

The rules allowing tax breaks for supporting relatives have been around for many years, but you might not have ever needed to know before the economy went into the tank and stayed there. For more details, see IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information) at www.irs.gov.

Top Stocks For 2012-1-12-8

DrStockPick.com Stock Report!

Thursday August 20, 2009


Elephant Talk Communications, Inc. (OTC Bulletin Board: ETAK), an international telecom and multimedia content distributor specializing in carrier grade mobile enabling platforms, announced second quarter 2009 financial results and is providing a shareholder update.

Dreams, Inc. (NYSE Amex: DRJ) the vertically integrated leader in the licensed sports products industry, today announced an agreement with JCPenney that provides customers the ability to purchase from a tremendous array of licensed sports memorabilia and apparel directly from the retailer’s online sports fan shop at (www.jcp.com). Representing the largest collaboration of its kind for Dreams, Inc., the new site provides an expanded offering of licensed sports merchandise from professional teams, colleges and athletes - all at JCPenney’s signature affordable prices. The new and expanded online sports fan shop will launch in October.

Power Oil & Gas (OTCBB: PWOIF) is pleased to announce that it has acquired the petroleum and natural gas rights to more than 600 contiguous acres in the Medicine Hat region of southern Alberta.

The board of directors for Hillenbrand, Inc. (NYSE: HI) has declared a dividend of $0.185 per share on the company’s common stock. The dividend is payable Sept. 30, 2009, to shareholders of record at the close of business on Sept. 16, 2009.

American Exploration Corp., a Nevada company, (OTC Bulletin Board: AEXP), has signed a Letter Agreement to acquire 5000 net acres in Jefferson County, Mississippi in order to drill and evaluate the potential Haynesville Shale gas formation in the region.

The Brink’s Company (NYSE: BCO), a global leader in security-related services, announced that it made a voluntary $150 million contribution to its U.S. pension plan to improve the funded status of the plan. The contribution was comprised of $92.4 million of cash and 2,260,738 newly issued shares of Brink’s common stock valued at $57.6 million. The contribution addresses the company’s pension obligation in a proactive and tax-efficient manner while enhancing its financial flexibility to invest in future growth opportunities. The company’s intent to make the voluntary contribution was first announced on July 30, 2009.

New Residential Construction Data: Housing Remains Weak

Today’s New Residential Construction Report showed a notable gain for single family permits and a notable decline for single family starts which, considering the truly depressed level of new home construction activity, appears to suggest that housing is continuing to remain historically weak.

Single family housing permits, the most leading of indicators, increased 5.5% on a month-to-month basis to 440K single family units (SAAR) but declined a notable 14.9% below the level seen in December 2009 and an astonishing 75.53% below the peak in September 2005.

Single family housing starts declined 9.0% to 417K (SAAR) units, dropping 14.2% below the level seen in December 2009 and a whopping 77.13% below the peak set in early 2006.

With the substantial headwinds of rising unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Click to enlarge charts


Sunday, July 29, 2012

Try a Buy Write on Apple Before Earnings

Apple (NASDAQ: AAPL) stock traded down Friday as traders continued to feel the impact of the rebalancing of the Nasdaq 100 (NASDAQ: QQQ), and the competitive impact of Research In Motion�s (NASDAQ: RIMM) new Playbook tablet. The initial reviews are in and they have been unfavorable for RIMM.

Options trading investors should take advantage of the unfounded short-term Apple selling ahead of earnings, scheduled for release on Wednesday, April 20. The stock has historically breezed past earnings estimates and this time should be no different. Apple is down approximately 6% the past few weeks and strong earnings should reverse the trend. With a �true cash� adjusted P/E of 16 I believe that Apple is a bargain, as reflected in option values.

With this information, executing a buy-write on AAPL Apr 21 325 Calls is the best strategy due to the risk-return profile. If you are uncomfortable with this level of risk, I suggest utilizing the 330s. Conversely, to increase potential returns the 335s may be a better choice for your individual strategy. An alternative strategy is to sell out-of-the-money puts and collect the premium without having to purchase the stock outright; the 320s, 325s, and 330s are attractive for this purpose. Think about it: would you be willing to receive $5 to potentially be forced to buy Apple at $320? Note that if the stock declines to the strike price, you are obligated to buy the stock (or closeout the position).

For more depth, please consult a detailed option chain. To read my full analysis, please continue here.

 

Disclosure: Paul Zimbardo is long AAPL.

Is Canadian National Railway the Right Stock to Retire With?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

At its most basic level, the global economy involves moving things from place to place as efficiently as possible. With energy prices on the rise, a resurgence in the popularity of rail transportation has come in recent years. Canadian National Railway (NYSE: CNI  ) is one railroad company seeking to cash in on that trend, with a rail network that connects the Atlantic, Pacific, and Gulf of Mexico. But can the company stand up to its railroad competition? Below, we'll look at how the company does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Canadian National Railway.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $35.0 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
Free cash flow growth > 0% in at least four of past five years 2 years Fail
Stock stability Beta < 0.9 0.46 Pass
Worst loss in past five years no greater than 20% (21.4%) Fail
Valuation Normalized P/E < 18 20.24 Fail
Dividends Current yield > 2% 1.6% Fail
5-year dividend growth > 10% 15.2% Pass
Streak of dividend increases >= 10 years 15 years Pass
Payout ratio < 75% 23.9% Pass
Total score 6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With six points, Canadian National Railway does a pretty good job of giving conservative investors what they want from their stocks. The railroad stood up fairly well during the market's meltdown three years ago, but it hasn't grown as quickly as some of its peers, raising questions about its competitiveness in a tough industry.

Canadian National benefits from its presence in resource-rich Canada. The railroad has access to a wide variety of transportable products, including oil, fertilizers, coal, forest and agricultural products, along with finished goods like automobiles. Moreover, unlike rival Canadian Pacific (NYSE: CP  ) , Canadian National has managed to post decent earnings growth both last year and over the longer term.

The problem, though, is that the growth rates on Canadian railroads have lagged behind their U.S. counterparts. Union Pacific (NYSE: UNP  ) has managed to grow its income at a 17% clip over the past five years, compared to Canadian National's 3.3%. And both CSX (NYSE: CSX  ) and Norfolk Southern (NYSE: NSC  ) have left Canadian National in the dust over the past year, with growth rates of 25% and 31% respectively. Moreover, all three major U.S. railroads have much healthier dividend yields than Canadian National.

For retirees and other conservative investors, Canadian National has provided consistently strong dividend growth since its IPO in the mid-1990s. But ideally, the stock should boost its dividend yield to provide the same opportunities that American railroads offer. Until past strength in the commodities markets reestablishes itself, investors might well be better served sticking with U.S. railroad stocks.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add Canadian National Railway to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the "13 Steps to Investing Foolishly."

A Hidden Reason That the Future Looks Bright for American Railcar Industries

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at American Railcar Industries (Nasdaq: ARII  ) out of line?

To figure that out, start by comparing the company's inventory growth to sales growth. How is American Railcar Industries doing by this quick checkup? At first glance, not so great. Trailing-12-month revenue increased 62.7%, and inventory increased 97.2%. Over the sequential quarterly period, the trend looks worrisome. Revenue grew 12.4%, and inventory grew 63.4%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at American Railcar Industries? I chart the details below for both quarterly and 12-month periods.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, raw materials inventory was the fastest-growing segment, up 139.6%. On a sequential-quarter basis, raw materials inventory was also the fastest-growing segment, up 74.3%. Although American Railcar Industries shows inventory growth that outpaces revenue growth, the company may also display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

  • Add American Railcar Industries to My Watchlist.

Are You Watching This Trend at Whole Foods Market?

Margins matter. The more Whole Foods Market (Nasdaq: WFM  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Whole Foods Market's competitive position could be.

Here's the current margin snapshot for Whole Foods Market over the trailing 12 months: Gross margin is 35.0%, while operating margin is 5.7% and net margin is 3.5%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Whole Foods Market has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Whole Foods Market over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 35.0% and averaged 34.6%. Operating margin peaked at 5.5% and averaged 4.6%. Net margin peaked at 3.4% and averaged 2.4%.
  • TTM gross margin is 35.0%, 40 basis points better than the five-year average. TTM operating margin is 5.7%, 110 basis points better than the five-year average. TTM net margin is 3.5%, 110 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Whole Foods Market looks like it is doing fine.

  • Add Whole Foods Market to My Watchlist.

Limited Brands and Abercrombie & Fitch Reports Q2 Results Wednesday

Limited Brands, Inc. (LTD) trades an average of 5.27 million shares per day, and has a market cap of $10.60 billion. Limited Brands, Inc. operates as a retailer of women's intimate and other apparel, beauty and personal care products, and accessories in the United States and Canada. The company was founded in 1963 and is based in Columbus, Ohio. The Limited Brands will report Q2 earnings on Wednesday, the 17th of August.

  • Time Released: After Closing Bell

  • Industry: Retail (Apparel)

  • Recent Price: $34.63

  • 52 Week High: $42.75

  • 52 Week Low: $23.57

  • Book Value: $3.66

Analysts are expecting an improvement of $0.05 in earnings per share compared to last quarter's results of $0.40. The estimated mean earnings are $0.45 per share. Analyst estimates range between $0.44 and $0.47 per share.

For the same fiscal period year-over-year, revenue has improved to $9.61 billion for 2011 vs. $8.63 billion for 2010. The bottom line has rising earnings year-over-year of $805 million for 2011 vs. $448.00 million for 2010. The company's earnings before income and taxes are rising with an EBIT year-over-year of $1.28 billion for 2011 vs. $868.00 million for 2010.

Annually, revenue is growing at a rate of 11.36%. (Click chart to enlarge)

Gross reported revenue compared to the mean estimate (rounded).

Fiscal Quarter Ending Month-Year Revenue Estimates Actual $ Difference Difference %
Apr-11 $ 2.19 B $ 2.22 B $ 31.62 M 1.45%
Jan-11 $ 3.34 B $ 3.46 B $ 112.47 M 3.36%
Oct-10 $ 1.96 B $ 1.98 B $ 28.24 M 1.44%
Jul-10 $ 2.20 B $ 2.24 B $ 46.46 M 2.12%
Apr-10 $ 1.90 B $ 1.93 B $ 29.53 M 1.55%

M = millions, B = billions

Reported earnings per share compared to the mean estimate. Differences are rounded.

Fiscal Quarter Ending Month-Year Estimate Actual Difference Difference %
Apr-11 0.39 0.40 0.01 2.56%
Jan-11 1.25 1.26 0.01 0.8%
Oct-10 0.17 0.18 0.01 5.88%
Jul-10 0.35 0.36 0.01 2.86%
Apr-10 0.19 0.25 0.06 31.58%

(Some onetime items are often excluded in reported EPS)

Abercrombie & Fitch Co. (ANF) trades an average of 3.14 million shares per day, and has a market cap of $6.00 billion. Abercrombie & Fitch Co., through its subsidiaries, operates as a specialty retailer of casual apparel for men, women, and kids. The company was founded in 1892 and is headquartered in New Albany, Ohio. Abercrombie & Fitch will report Q2 earnings on Wednesday, the 17th of August.

  • Time Released: Before Opening Bell

  • Industry: Retail (Apparel)

  • Recent Price: $69.71

  • 52 Week High: $78.25

  • 52 Week Low: $33.97

  • Book Value: $21.84

On average, 28 analysts are expecting $0.25-0.26 per share, a drop of $-0.02 in earnings per share compared to last quarter's results of $0.27. A beat of $0.26 per share, will top the estimated mean earnings. Analyst estimates range between $0.19 and $0.35 per share.

Revenue year-over-year has increased to $3.47 billion for 2011 vs. $2.93 billion for 2010. The bottom line has rising earnings year-over-year of $150.283 million for 2011 vs. $0.25 million for 2010. The company's earnings before income and taxes are rising with an EBIT year-over-year of $231.93 million for 2011 vs. $117.91 million for 2010.

Annually, revenue is growing at a rate of 18.43%.

Click chart to enlarge:

Gross reported revenue compared to the mean estimate (rounded).

Fiscal Quarter Ending Month-Year Revenue Estimates Actual $ Difference Difference %
Apr-11 $ 795.83 M $ 836.67 M $ 40.84 M 5.13%
Jan-11 $ 1.13 B $ 1.15 B $ 20.01 M 1.77%
Oct-10 $ 884.86 M $ 885.78 M $ 0.92 M 0.1%
Jul-10 $ 742.03 M $ 745.80 M $ 3.77 M 0.51%
Apr-10 $ 672.81 M $ 687.80 M $ 14.99 M 2.23%

M = millions, B = billions

Reported earnings per share compared to the mean estimate. Differences are rounded.

Fiscal Quarter Ending Month-Year Estimate Actual Difference Difference %
Apr-11 0.12 0.27 0.15 125%
Jan-11 1.32 1.38 0.06 4.55%
Oct-10 0.51 0.56 0.05 9.8%
Jul-10 0.15 0.24 0.09 60%
Apr-10 -0.13 -0.13 0 NA%

(Some onetime items are often excluded in reported EPS)

Click charts to enlarge

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LTD, ANF over the next 72 hours.

Disclaimer: I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. You may want to use this article as a starting point of your own research with your financial planner. I use Seeking Alpha, Edgar Online, Google Finance, MSN Money, CNBC, Zacks and Yahoo Finance for most of my data. I use the "confirmed" symbols from earnings.com that I believe to be of the most interest.

Best And Worst Gold Bets For 2012

see photos

Click for full photo gallery: Best and Worst Gold Investing Ideas For 2012

Despite suffering a massive December correction, the underlying fundamentals for gold point to another strong year in 2012.  Extraordinarily loose monetary policy in so-called advanced economies, the beginning of anti-cyclical easing and stimulus cycles in emerging economies, and rising central bank demand for the physical metal, particularly from China, should push gold prices higher in 2012, setting the stage for some gold equities to shine.

There is no doubt that gold has been a market protagonist in 2011.  From the beginning of the year, gold prices went on an exponential jump, hitting regularnewnominal highs as it surged more than 35% to $1,920 an ounce in early September.  Just in a few weeks, though, gold plummeted more than $350, nearly 20% to lows near $1,550.  After attempting to break to the upside again, gold plummeted in December, falling to $1,574 an ounce on Wednesday, its lowest value since early July.

Even though traders like Dennis Gartman believe the yellow metal will fall even further, underlying variables that helped gold ride a decade-long bull run are in place to provide support in 2012.  If indeed gold will rise to$2,075 by the second quarter of 2012, as Barclays suggests it will, then the December correction could be a great buying opportunity.

SEE THE BEST GOLD INVESTING IDEAS FOR 2012 HERE.

It is hard to say precisely what variable is conditioning gold�s price behavior.  Gold, as Forbes� Robert Lenzner explains, trades inversely to the U.S. dollar 70% of the time.  Earlier this year, the yellow metal seemed to be the negative mirror image of 10-year Treasury yields, while recently it has traded more like a risk asset, moving in tandem with the Dow and the euro.  With low interest rates set to prevail across advanced economies, gold continues to benefit from a lower opportunity cost of holding an asset that doesn�t generate income.

For those who see gold as an inflation hedge, emerging economies, which will lead in terms of economic growth in 2012, are embarking on easing cycles to stimulate their slowing economies.  Brazil, China, and others are moving toward looser monetary policy, expanding their monetary base and unleashing fiscal stimulus.  These will join the central banks of the U.S., U.K., and Europe in expanding their balance sheets, which Tom Winmill of the Midas Funds estimates have already grown by about $6 trillion since the inception quantitative easing by the Fed.

The easiest, and purest, way to gain portfolio exposure to gold is through theiShares Gold Trust, the largest physically backed ETF.  GLD, which is the ETF�s ticker symbol, tracks the spot price of bullion and provides investors with a highly liquid and hassle free tool to bet on the precious metal.

SEE THE BEST GOLD INVESTING IDEAS FOR 2012 HERE.

Another way to play gold is via equities, but these have substantially underperformed in 2011.  The GDX gold miners ETF is down more than 20% vis-à-vis the GLD, and has fared worse than the S&P 500 this year.  Hedgie David Einhornsaid in November that the disparity between miners and metals has grown too big as he shifted some of his GLD holdings into GDX.  Jon Foster, head of Van Eck�s actively managed gold funds, adds that gold miners are pretty much all unhedged, fully exposing them to the price of gold.

Production costs per ounce stand at around $800, according to Barclays.  That means miners are set to make a 98% profit per ounce if they sold at spot prices, even despite the impressive December correction.  This will definitely benefit large-caps like Goldcorp, Barrick Gold, and Newmont, according to Winmill.

Beyond production costs, investors should look at a miner�s projects, and their relative safety, before jumping on board.  Winmill warns that several small caps, like Primero Mining, are overly exposed to bad projects.  Primero�s San Dimas mine, for example, was a castaway from Goldcorp and could pose big tax problems, Winmill noted.  Another point investors have to watch out for, Winmill explained, is companies� overall portfolio.  Freeport McMoran, for example, isn�t among Winmill�s favorites given its large exposure to copper and therefore the Chinese economic cycle.

SEE THE BEST GOLD INVESTING IDEAS FOR 2012 HERE.

Gold has proven to be a violently volatile asset in 2011, going on skyrocketing rallies and precipitous declines over short time frames.  If indeed the yellow metal continues its decade-long rally in 2012, then this latest correction will have proven to be a very profitable entry point for bullion.  And if it�s indeed time for miners to catch up, as Einhorn and Winmill think, then 2012 will be the time to place one�s bets.

Monday Bond Market Recap

By Maulik Mody

Stocks extended gains and Treasuries ended slightly weaker as investors continued to bank on hopes that the Fed will start purchasing securities to sustain the faltering recovery. The Dow Jones gained to its highest level in almost six months. The government Monday sold 5-Yr TIPS at a negative yield for the first time as investors continued to buy TIPS to protect themselves against the risk of inflation. Speculation that the Fed’s actions of further monetary easing will sustain the recovery drove yields lower. Existing home sales improved in September while the Chicago Fed reported slower manufacturing activity.

Economic Data

According to the Federal bank of Chicago, economic activity in the US damped during September. The Chicago Fed National Activity index fell to -0.58 in September versus a reading of -0.49 during the previous month. This pulled the 3-month moving average slightly lower to -0.33. Sub zero levels indicate slowing economic growth and easing inflation pressure. A 3-month reading below -0.70 suggests that there is a high probability that the economy has entered into a recession.

While on one hand the Chicago Fed index suggested a slowing economy, a record jump in existing home sales during September showed signs that the housing market might be recovering. Fueled by cheap borrowing costs, existing home purchases increased 10% to an annual rate of 4.53 million as reported by the National Association of Realtors. Single family home sales increased 10%, while condos and co-ops saw a 9.8% increase in sales.

In other positive news for the economy, the Dallas Fed Manufacturing Outlook level improved to 2.6 in October from -17.7 for the previous month, beating expectations of -8.0. The production component of the index gained to 6.9 from 4.0 for the previous month. Orders growth rate fell to -2.5 from 0 in September. Inventory still lies in the negative zone but has been improving since three months. Capacity utilization fell to -2.3 after rising to 3.0 last month.

Interest Rates

Treasuries ended slightly lower and yields pushed higher as investors continued to speculate that the Fed will declare another round of asset purchases in its meeting next week. The yield on the benchmark 10-Yr ended slightly higher at 2.56%. The 30-Yr bonds last traded at 3.91%. The 5-Yr bond fell slightly as its yield increased to 1.18%. The 2-Yr last traded at 0.36%.

Click to enlarge charts

Inflation expectations, as seen in the yield differential between the 10-Yr and the 10-Yr inflation protected index (TIPS), widened 5 bp to 2.17%. The government Monday sold 5-Yr TIPS at a yield of negative 0.55%.

Yields across European countries mostly slid lower as government bonds rallied in price. The 5-Yr France bond traded 4 bp lower at 1.83%. %-Yr German Bunds slid 3 bp to 1.64%. The U.K. Gilts were mostly flat at 1.465%.

Yields were lower among peripherals too. Portugal’s bond rallied as yield slipped 17 bp to 4.28%. Italy’s benchmark bond traded 5 bp lower at 2.68%. Greece’s 5-yr bond gained as yield pushed 4 bp lower to 9.47%. Spain’s benchmark bond traded 7 bp lower at 2.91%.

Across The Capital Markets

Stock markets advanced on what seems like increased betting by investors that the Fed will start securities purchase to speed recovery. The S&P index gained 0.2% to 1185.62. NASDAQ jumped 0.5% to 2490.85. The VIX Volatility gained to 19.85 from 18.78 at last week’s close.

The Dollar DXY index, which measures the performance of the US dollar against six major currencies around the world, ended weaker at 77.103. The Euro gained against the greenback to 1.3965. The cable (GBP/USD) gained to 1.5723.

Gold gained on the first day of the week to 1339.85. Crude oil spot price increased by 1% to 82.52.

Jobs growth, Fed take center stage next week

MARKETWATCH FRONT PAGE

U.S. stock investors are likely to focus on jobs, the consumer and central bankers next week, with more tepid readings on the economy raising expectations for extra Fed stimulus. See full story.

2012 Olympics: The opening ceremony in pictures

Fireworks exploded over Tower Bridge during the opening ceremony of the London 2012 Olympic Games Friday night in London. The event featured bells, nurses, references to the Industrial Revolution, Doctor Who and characters from British literature�s children�s classics, such as Peter Pan and Mary Poppins. See full story.

SUVs for the rich who like getting filthy

There�s an exclusive but growing club of people willing to pay a premium for distinctive, custom-tailored sport utility vehicles tough enough for serious off-road adventures. See full story.

2013 Hyundai Elantra

Hyundai�s new coupe and hatchback models in the 2013 Elantra lineup draw enthusiastic responses from Ron Amadon, but he�s still skeptical of the Veloster, even with a turbo. See full story.

Stocks to watch Monday: Diebold, Anadarko

Among the stocks that could see active trade in Monday�s session are Anadarko Petroleum, Diebold and Martha Stewart Living Omnimedia. See full story.

MARKETWATCH COMMENTARY

Facebook Chief Executive Mark Zuckerberg probably views his company�s first earnings report as he would a trip to the dentist, but he still would be wise to get on the conference call with investors, writes Therese Poletti. See full story.

MARKETWATCH PERSONAL FINANCE

Most financial advisers have their clients� best interests at heart, but there are a few bad apples. Here�s how to protect yourself, and your retirement funds, from rogue brokers and bad advice. See full story.

Penn State hit with severe financial penalties

NEW YORK (CNNMoney) -- Penn State University was hit with an unprecedented series of financial penalties Monday as the NCAA and Big Ten conference announced sanctions related to the school's child abuse scandal.

The financial penalties are likely the first of many payouts the university will make.

Along with a loss of football scholarships and a four-year prohibition on postseason play, the university has agreed to pay a $60 million fine that will be used to help the victims of child abuse.

In a separate enforcement action, the Big Ten announced that Penn State will not receive a share of the conference's bowl revenues for four years, a hit of around $13 million.

The actions against Penn State, taken together, are likely to dramatically reduce the recruiting prowess and on-field performance of one of the nation's most storied football programs.

But the university is likely to suffer millions more in fines and payments as civil cases brought by Sandusky's victims are resolved. The school's credit rating could be downgraded, and corporate sponsorships are in jeopardy.

Related: Full CNN coverage

It was not immediately clear whether Monday's $60 million fine would be paid by the athletic department or another university fund.

Some penalties are likely to be assessed to the university at large, while others are paid by Penn State's athletic department -- one of the richest in the country, and almost uniquely well-suited to weather severe financial penalties.

"The money is there," said Dan Fulks, a professor of accounting at Transylvania University and a research consultant for the NCAA. "This athletic program is self-sufficient."

Last season, Penn State's revenue of $72.7 million from football was the fifth highest of any college program in the country, according to a CNNMoney analysis of figures reported by each school to the Department of Education.

And when comparing revenue to total expenses, Penn State football's profit of $53.2 million was second only to the University of Texas' total of $71.2 million.

In addition, Penn State reported an additional $24.1 million in athletic revenue not specifically assigned to one team or sport. Much of that is in general merchandise sales and sponsorships, driven by the popularity of football.

And while the NCAA said it arrived at the $60 million fine because that is roughly the amount of revenue the football program collects each year -- the penalty will be paid over a five-year period.

Still, significant questions remain about the university's exposure to civil lawsuits and the level of monetary support it can expect from alumni.

Credit rating agency Moody's Investors Service said in November that it was reviewing whether Penn State -- which carries the second highest credit rating -- should be downgraded.

Moody's has since affirmed its ranking, but the school remains on "credit watch negative," which means that a future downgrade -- an event that could make it more expensive for the university to borrow -- is still a possibility.

"The negative outlook reflects the high degree of uncertainty about direct litigation costs as well as emerging reputational risk that can result in weaker student demand or reduced philanthropic support from the university's alumni and other major donors," Moody's said earlier this month.

The school has an operating budget of about $4 billion dollars, and carries debt of $1.4 billion, according to Moody's.

Related: Penn State scandal will cost millions

In some respects, the non-monetary penalties imposed by the NCAA might have the largest effect on the athletic department's finances.

Football players are now eligible to transfer to other institutions without penalty, scholarships have been reduced by 40% and the team has been barred from post-season competition.

While Penn State was spared the so-called "death penalty" some were expecting -- in which a sports program is shut down entirely, typically for at least one year -- the sanctions will make it difficult for the university to field a competitive team.

"This might not be a sudden shut-down death penalty, but is very close to slow death by attrition," said John Vrooman, a sports economist at Vanderbilt University.

"Penn State football will not recover for over a decade," Vrooman predicted, citing the example of Southern Methodist University's program, which was given the death penalty in 1987 and has yet to fully recover.

For its part, the NCAA says the Penn State penalties are worse than the death penalty.

"The NCAA sanctions on Penn State, taken in sum, far exceed the severity of shutting down a program for a year or two," the group said on its website. "What some refer to as the death penalty was not severe enough."

Lackluster performance on the field coupled with the fresh memories of the Sandusky affair could lead to reduced enthusiasm from fans, who provide much of the program's revenue in the form of ticket and merchandise sales.

"Nittany Lion fans will still be faithful," Vrooman said. "But State College will be an empty place on fall afternoons."

CNNMoney's Chris Isidore contributed to this report. 

Whisper Numbers Show Continued Confidence for Earnings

Investors are looking for positive results from all but P&G this week as we provide an earnings preview of Ford (F), Procter & Gamble (PG), Dow Chemical (DOW), Exxon (XOM)
____________________________________________________

Ford (F):
The whisper number is $0.40 three cents above the analysts estimates. Ford has exceeded the whisper number in 25 of the 34 earnings reports we have data, including the past four out of five quarters. It's hard to believe that at the beginning of 2009 you could have purchased Ford stock for under $2.00 a share (the current share price is about $13.50). What's not surprising is that the whisper number (investors expectation) is very positive. Ford reports earnings 10/26.

Procter & Gamble (PG):
The whisper number is 0.98, a penny below the analysts estimates. P&G has exceeded the whisper number in only 19 of the 35 earnings reports we have data, but fallen short in the past two quarters. The company did experience a positive price move in a few trading days following last report, and is up 6% since that report. We're surprised investors aren't more positive for this quarter's earnings. PG reports earnings 10/27.

Dow Chemical (DOW):
The whisper number is $0.48, seven cents ahead of the analysts estimates. Dow has exceeded the whisper number in 17 of the 28 earnings reports we have data, including the past five out of six quarters. But the stock has seen (short term) negative price movement following each of the last four reports. So why are investor expectations showing such confidence in this quarter's earnings? More than likely because of the recent 15% run up in stock price since last report. DOW reports earnings 10/28.

Exxon (XOM):
The whisper number is $1.47, eight cents ahead of the analysts estimates. Exxon has exceeded the whisper number in only 18 of the 33 earnings reports we have data, including this past quarter. And last quarter the stock did see some positive price movement within five trading days following that report. Exxon reports earnings 10/28.

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Craft Brew Founder Widmer Savors Results

Craft beer is still a fairly young concept, but craft beer's old timers are savoring the growth of a sector they helped create.

When Rob Widmer and his brother Kurt founded Widmer Brothers Brewery(HOOK) in 1984, craft beer was in its infancy and macros such as Bud(BUD) and Coors(TAP) weren't just dominating the market, they were the market. Boston Beer's(SAM) Jim Koch had just brewed his first batches of Samuel Adams Boston Lager in his kitchen. Ken Grossman and Paul Camusi were producing 25 to 30 barrels of Sierra Nevada Pale Ale a week using hand-me-down farm equipment. Fritz Maytag was producing just about 1,000 barrels of his Anchor Steam beer a year.American beer offerings at the time were so limited that when the Widmer brothers brewed a hefeweizen for Portland's Dublin Pub in 1986, it was called the first hefeweizen brewed in the U.S. That same year, the brothers' brewery unwittingly became the first in America to offer seasonal beers when it added a fall Festbier -- somewhat akin to an Oktoberfest beer -- to their lineup of Altbier, Weizenbier filtered wheat beer and hefeweizen. Two years later, the brothers hooked up with Bridgeport Ales and Portland Brewing to start the Oregon Brewer's Festival. Today it draws more than 80 breweries and 70,000 attendees a year as the largest outdoor brewing festival in the country and the Widmer Brothers produce more than dozen varieties each year, ranging from their original hefeweizen and Okto Festival Ale to a hopped barley wine and a rotating experimental IPA.Widmer Brothers' production has fermented over the past 27 years to 277,200 barrels in 2010. Their overall business operations have expanded as well after merging with longtime East Coast distribution partner Red Hook Brewery to form the Craft Brewers Alliance in 2007. As part of the deal, Anheuser-Busch InBev took a 32.2% stake in the company in return for help with distribution; the Widmer brothers maintained an 18% stake. This drove the craft beer geeks out of their hop heads and certainly wasn't helped when former Alliance partner Fulton Street Brewing, makers of the Goose Island brand that is still brewed at some Alliance facilities, outright sold A-B InBev a controlling stake in operations this year. Even before the sale, certain small-brewer organizations considered the Widmers and their Alliance partners tainted by the A-B connection and refused to identify them as "craft."We had a chance to speak with Rob Widmer about his history in craft beer, the state of the industry he helped create and why he doesn't listen when craft-beer-come-latelies question his credibility:

You served as a judge at the Great American Beer Festival in Denver a few weeks back. What did you see there that impressed you?

Widmer: This year there were 4,000 beers entered and just walking the hall, there was an incredible variety of beer. There's certainly a lot of beers that are really hot, but I would just walk up to random tables and the quality of the beer is really amazing, and that's one of the things that struck me. I've participated as a judge for 10 years now and way back you'd go through and there might be some clinkers, but now, my god, the level of the beer and the quality of the beer is so incredible. Kurt and I have always been really focused on the quality of our beer, but it's about trying to do our interpretation of beer style. It started with hefeweizen back in '86 and we continue to work with experimental hops. We've used a lot of unconventional ingredients: prickly pear, rose hips, one of our latest beers uses muscat grape juice. I just see a lot of other brewers doing that.Looking at beers such as your Rotator IPA and Brew Masters series, the creative spark is still there. How do you maintain it over the decades?Widmer: I think it's kind of inherent. Kurt and I started out as homebrewers. We loved beer and brewing, and that's just part of the DNA of someone who picks up that hobby. You're not quite satisfied with what's available so you go down the path of doing your own thing. The hallmark of craft brewing has been to break the rules and push the envelope, and that's just who we are.Is it odd to walk around, see other brewers' take on the American hefeweizen and know you and your brother started that variety?Widmer: We always talk about the serendipity of our early years, and being born Portlanders was a great thing. Portland was a great place to start a brewery in the mid-'80s, and then doing our interpretation of German-style hefeweizen kind of put us on the map. That was the first cloudy beer that beer drinkers had seen, and it was probably the first cloudy beer in more than 100 years in the U.S. I never forget how special that beer is.

How much does Portland itself help your brewing? Does being in a town that's already a great incubator for craft beer and breweries aid the creative process?

Widmer: It's fun to just do a little bit of a pub crawl here in Portland and be exposed to all kinds of unusual brewing techniques, styles and ingredients. We [recently] had the Fresh Hop Tastival and we're kind of uniquely positioned here where, within eight hours of getting our hops from the field, we are using them and all of our other Portland breweries are doing the same. You've lived and brewed so close to a source of great hops for so long. Is it difficult to step outside the comfort zone and brew with perhaps not-so-fresh hops from other sources?Widmer: We work with a fourth-generation hop grower and others here in the Willamette Valley, but we have no problem working with hop varieties from New Zealand and Europe. One of the [advantages] we have, because we've been doing it so long, is that we're usually first in line when there's a new variety. Something that's not widely known -- and I'll put a plug in for my old alma mater, Oregon State University -- is that a lot of the really famous aroma hops like Cascade came out of OSU, and we work real closely with their ag department and their brewing department. We've had a lot of fun with different projects over the years. They've made our X-114 and X-369. It's got that Cascady, citrusy character, and I just love the pine and the grapefruit and the tangerine flavor, but there are these interesting hops like the Nelson hops we got out of New Zealand that are melony and berrylike. Hop growers are excited to go down that path after there wasn't demand for those distinctive flavors for a while.Seasonal beer wasn't a tool for the industry until your brewery came along. Now that we've hit fall and the Oktoberfest and pumpkin beers, what has it been like for you to watch that seasonal approach evolve?Widmer: We like to remind people that we were the first U.S. brewery to offer four seasonal beers a year. Some of our beers we won't change, like our Oktoberfest has been basically the same since we started brewing it and that season has been very easy for people to get. You don't have to do too much explaining.When you say "Oktoberfest," people picture beer halls and boots of beer and pretzels and things. Our winter seasonal has changed a couple of times over the years and that's our most popular season. There's a joke that the winter beers start popping up here in August.

We're actually starting to see that the sessional beers that we try in the spring or summer have a year-round demand. Just for fun we did a Belgian table beer and that was 3.2% alcohol-by-volume. We did it at a Belgian beer fest where everyone used the same yeast and typically the beers were really big, and we thought we would go to the other end of the spectrum. It worked really well because in between those really strong beers, people really appreciated having a glass or two of the table beer we made. I think the pendulum has swung so far toward the super alcoholic, super exaggerated beers and it's kind of swung back.

You've taken one of the more unique approaches to the beer market after merging with Red Hook. What brought that decision about and how much input did you and Kurt have?Widmer: It really ended up being about distribution, and it was a long path. We had a relationship with Anheuser-Busch and we gained access to their very excellent logistics system through that and we'd always been friends with the folks at Red Hook. We started around the same time, they're right here in our backyard and we did some common brewing. We used their brewery in Portsmouth, N.H. One thing led to another, it just started a friendship and I guess you could say we dated and finally got married. What kind of impact did the distribution deal with Anheuser-Busch have on the Widmer brand and its reach?Widmer: We started using distributors not quite immediately, but before our alliance with A-B. We used wholesalers and back in the day they used to be aligned with Coors or Miller or A-B or that kind of thing. What we saw over time was that the A-B guys were the most professional and when it came to taking care of the beer and beer freshness, everybody talked about it but nobody did it quite like the guys in the A-B system. It sounds like a simple thing, picking up beer from a brewery and getting it to a dealer, but the wholesalers are kind of the unsung heroes. The A-B guys gave it tender, loving care and they have a nationwide network so communication was very easy. Being aligned with them has been awesome for the quality of our beer.

There are craft beer organizations that, because of Widmer's alignment with A-B, won't consider it craft. Since then, there have been disagreements about what size a brewery needs to be and what its output must be to be considered craft. Does this ever kind of gnaw at you?

Widmer: Not really. We don't focus on it that much.Actually, it's interesting to me because we pay attention to it, obviously, and the definition of craft can be confusing. Now there's a really interesting discussion that I've become aware of that says the word "craft" is kind of a historic term and because the evolution of small breweries has created so many beer styles and business models, "craft" was a word that meant something and now doesn't.If you tell consumers that Kurt and Rob were pioneers of the business and have been involved with brewing for almost 30 years and built our breweries brick by brick but aren't craft brewers, I think a lot of people would be confused by that. There really needs to be another word, or maybe it's just gotten to the point where there's no easy definition of what it is that we do.After Pete Slosberg sold Pete's Brewing in the late 1990s and Fritz Maytag sold Anchor Brewing last year, the number of brewers that started at the same time as you and Kurt is dwindling. Does the experimentation make it easier to stay?Widmer: Absolutely. Kurt and I share a very small office, and our desks are head to head and, not too long ago, I could see him puzzling over something and he looked up and said "I think I'm the oldest guy in the craft beer biz." We kind of ran through the list and he's older than Ken [Grossman of Sierra Nevada], and Fritz had retired, but I guess you could say we're some of the elders -- which is hard to say, but something we're proud of. We still enjoy it and I think as long as it's fun -- and I can't imagine brewing beer, drinking beer and the beer biz not being fun -- then we feel kind of privileged to be in the business. >To follow the writer on Twitter, go to http://twitter.com/notteham. >To submit a news tip, send an email to: tips@thestreet.com. RELATED STORIES: >>Why Joe Six-Pack Pays $11 A Beer Bottle>>5 Reasons To Pick Pumpkin Beer>>How Home Brewing Beer Beats BuyingFollow TheStreet.com on Twitter and become a fan on Facebook. >To order reprints of this article, click here: Reprints

Why Investors Love Amazon.com (Nasdaq: AMZN) Stock

Amazon.com (Nasdaq: AMZN) reported earnings after Thursday's closing bell that missed estimates and initially disappointed investors.

The company reported earnings per share for the quarter ended June 30 of $7 million, or a penny a share, on revenue of $12.83 billion. Analysts had expected EPS of two cents a share on revenue of $12.92 billion.

Amazon.com's Q2 numbers compared with earnings of $191 million, or 41 cents a share, on $9.9 billion in sales during the same period a year ago.

For Amazon.com this was a 96% drop in its second-quarter earnings from a year earlier. The company also forecast a third-quarter operating loss between $50 million and $350 million.

Amazon stock immediately fell about 7% in after-hours trading and appeared to be setting up for abysmal numbers today (Friday).

Fortunately for Amazon shareholders, the stock reversed course and soared to a 10-month high. AMZN closed up 7.87% at $237.32.

Why the turnaround?

Here's what smart investors were able to see when they looked at the numbers.

A Closer Look at Amazon.com (Nasdaq: AMZN) Earnings Even though profits were much lower than the same period a year ago, the company's gross profit margin, a closely watched measure of profitability, topped 26% in the second quarter - the highest level in at least nine years.

Money Morning's Chief Investment Strategist Keith Fitz-Gerald explained that what's really behind Amazon.com's huge profit drop is CEO Jeff Bezos doing some smart spending.

"I love it," Fitz-Gerald told Fox Business' "Varney & Co." host Stuart Varney when he joined the program Friday. "Bezos goes on the warpath and he says, "You know what? I'm going to spend right through this, I'm going to get into cloud computing, I'm going to do things on my technology, I'm going to make it easier, faster and better for my customer to get what they want,' - and the market rewards him."

Saturday, July 28, 2012

3 College Finance Tips for Scared Students (and Their Parents)


The cost of college rises every year, making it harder for cash-strapped families to afford tuition and other costs. But with both parents and students well aware the long-term value of a degree, most families are looking for ways to cover the bills.

A recent survey from Discover Student Loans found that more than 80% of parents of 16- to 18-year-olds believe college is important to their child's future. Yet three-quarters of them worry about being able to help out enough, while an even more overwhelming majority believe their children will need to shoulder at least some of the burden.

Let's look at a few tips that could make solving the college financing puzzle a little easier.

1. Make the Most of Your Savings.

The survey found that 36% of parents expect to pay for college with money from savings, more than any other option. But only one in three of those parents named 529 savings plans as a primary source of funds.

Tax-favored 529 plans, as well the similar Coverdell Education Savings Account, can help parents make the most of their college savings by cutting the tax burden associated with saving. Unlike savings and investments held in ordinary accounts, parents don't have to pay taxes on income generated from Coverdell or 529 plan accounts. And as long as you spend 529 and Coverdell money on eligible college expenses, the distributions are tax-free as well. That can save you hundreds or even thousands in taxes over the long run.

2. Be Careful With Loans.

Parents also realize that loans will play an important role in financing college. Of those surveyed, 28% said loans would be the primary source of funding.

Unfortunately, the hardest thing about dealing with loans is getting information to understand them. Different kinds of loans have very different terms, yet lenders don't always provide impartial advice on which loans are best. Nearly half of parents rely on college financial aid officers, yet even their objectivity was called into question back in 2007, when investigations revealed that financial aid officers at several well-known colleges had taken kickbacks from lenders in exchange for adding those lenders to the preferred lender list that students received.

Now, however, laws passed in the aftermath of those scandals expressly prohibit such dealings, which is likely one reason why parents trust financial aid officers as much as they do.

Nevertheless, the best time to understand the different loans available is before your child gets a financial aid offer. By using high school counselors and getting independent financial advice in advance, you'll be better prepared to deal with loans when the time comes.

3. Understand the Whole Package.

Another tough thing to understand is the combination of sources that financial aid packages include. With students and parents starting to weigh the costs and benefits of different schools, it's important to be able to compare financial aid packages from different colleges.

That's the idea behind the Consumer Financial Protection Bureau's work with the Department of Education in creating a financial aid shopping sheet. By fully listing both tuition and other costs and separating out grants and scholarships, work-study programs, and loans, students and parents should both be better able to see exactly what each school is proposing.

But while the Department of Education is urging colleges to use the standardized sheet, it won't require all schools to do so. That's appropriate, according to Justin Draeger, president of the National Association of Student Financial Aid Administrators. As Draeger said in a statement, "Institutions need flexibility to design a financial aid award letter that best meets the needs of their unique student populations." That means you may still need to do some legwork of your own to understand the different offers your child gets.

Don't Panic!

As difficult as financing a college education is, don't let the process intimidate you. By seeking help, you can get the information you need.

Gallery: Private Colleges With the Lowest Student Graduating Debt

For more on college and student loans:
  • Private Student Loans: The Subprime Mortgages of the College World
  • Tax Breaks Every College Student (and Parent) Should Know About
  • Lower College Loan Interest Rates Won't Fix the Student Debt Crisis

Motley Fool contributor Dan Caplinger has 10 more years before he has to worry too much about financial aid for his daughter. You can follow him on Twitter @DanCaplinger.

In Case You Missed Wednesday

Selloff, we hardly knew ye:

  • What, you thought we might have�two down days in a row? Stocks rebounded Wednesday from Tuesday’s gentle decline, posting another one of those two-year-highs. Tech outperformed, as did smallcaps. In fact, it seemed like a day that favored the mostly out of favor: Dell (NASDAQ:DELL)�jumped after a strong earnings report the night before, while both homebuilders and retailers were higher as a group. Oil prices creeped back up to about $85 a barrel, but nobody sweated it. Bonds ticked lower, raising the 10-year note yield to 3.61%. Also, the VIX was interestingly up 2% despite the broader�market’s gain.
  • After the closing bell, shares of Nvidia (NASDAQ:NVDA) really had no choice but�to go down after the company’s fourth-quarter earnings report. Even the most bullish announcement in the world�(and this one wasn’t bad) was going to engender a sell-the-news reaction on a stock that’s gained 85%(!) since its last earnings announcement on Nov. 11. Still, Nvidia was down just 0.8% after hours. NetApp (NASDAQ:NTAP) dipped 4.3% after the company’s third-quarter earnings report�included glum guidance�for the fourth quarter. Cliffs Natural Resources (NYSE:CLF) showed what’s up with a fourth-quarter earnings report�that blew away�expectations. The company’s shares were up 9.5%. And congratulations to shareholders of Joy Global (NASDAQ:JOYG), enjoy�Thursday’s bump from�joining the S&P 500.
  • On Thursday, we find out how much of that jump in producer-paid prices was passed along to consumers — the CPI report comes down at 8:30 a.m. EST. Also on tap will be the weekly jobless claims report, January real earnings, the February Philly Fed Index, and January’s leading indicators. On the earnings front, well, frankly, not a lot there that you can’t live without. Disney (NYSE:DIS) holds an investor conference.
OUT THERE SOMEWHERE:
  • Chevron (NYSE:CVX) having some issues in Ecuador. Or maybe not.
  • German malaise re the euro can’t be good for that currency.
  • Michael Lewis would be proud: the Irish may�be, um getting their Irish up.
  • In case you forgot: we’re also on the hook for Fannie’s legal fees.
  • Rolling Stone asks, Why Isn’t Wall Street in Jail?
  • 6 takeaways from the Era of Apple (NASDAQ:AAPL).
  • OK, it’s come to banks lending directly to municipalities.
  • For better and for worse, banks are back to that demanding a�down payment thing.
  • Those giant cash hoards at corporations? Turns out, they’ve spent a little of it.