Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you have to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.

It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders.

Company �	52-Week High	Recent Price	CAPS Rating (out of 5)
Tele Norte Leste Participacoes (NYSE: TNE  )	$19.22	$8.49	*****
Bank of America (NYSE: BAC  )	$15.31	$5.17	***
SunTrust Banks	$33.14	$16.53	**
Research In Motion (Nasdaq: RIMM  )	$70.54	$16.00	**
salesforce.com (NYSE: CRM  )	$160.12	$104.93	*

Companies selected from the list of stocks hitting new intraday 52-week lows as reported on finviz.com. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

The week in weak stocks
Wall Street knocked investors for a loop last week. The Dow Jones Industrial Average (INDEX: ^DJI  ) posted its worst Thanksgiving week performance in 69 years, sending hundreds of stocks tumbling to new 52-week lows.

What went wrong? It wasn't always clear. As I mentioned last week, salesforce.com was recently punished despite reporting earnings that beat consensus estimates, and despite raising guidance and boosting estimates going forward. The stock continues to slide regardless.

At Research In Motion, shoppers are rioting in Indonesia, literally fighting for the chance to buy a BlackBerry Bold. Here in the U.S., RIM has cut the price on its PlayBook tablet in an effort to grab market share, while one rival, Apple, is said to be selling fewer iPads than predicted; while another, Hewlett-Packard, just wrote off a $1.7 billion investment in Palm's tablet technology and has been sent back to Square One. Sounds like good news for RIM -- yet the stock's down 12% on the week.

And the banks? Bloomberg just reported that U.S. lenders are coming off their "most profitable quarter since 2007." Yet worries over their exposure to European debt persist and have SunTrust and B of A trading at yearlong lows.

Consequently, CAPS investors seem less than enthused about the prospects for all of these stocks -- with one exception: five-star-rated Brazilian telecom Tele Norte Leste. Let's find out why, as we review ...

The bull case for Tele Norte Leste Participacoes
All-Star CAPS investor foontok introduced us to Tele Norte two years ago as a provider of "landline, broadband, and wireless" telecom services "in a growing market." Or CAPS participant continues: "Second largest wireless service in Brazil. As a Brazilian company, it has a home field advantage."

CAPS member OhianTx78 expects Tele Norte to enjoy a burst of popularity "once [the] Olympics start in Brazil."

That's in 2016, by the way, so anyone hoping for a pop in the stock based on Olympic exposure has some waiting to do. Fortunately, as CAPS member nightsinbear reminds us, Tele Norte is happy to pay investors for their patience: "this is a great div play with sold foundations and is in one of the biggest growing markets there is."

Indeed, Tele Norte offers a dividend yield on par with what you can get from American telecoms like AT&T (NYSE: T  ) or Verizon (NYSE: VZ  ) . At the same time, it offers far greater growth potential. The two ex-Ma Bell divisions currently sport megacap market caps of $160 billion and $100 billion, respectively. Tele Norte, in contrast, is valued at all of $4 billion -- and has plenty of room to grow.

Foolish final thought
The big question, of course, is how fast and how far Tele Norte will, in fact, grow. At 16 times earnings, the stock carries a higher P/E than either AT&T or Verizon sport. Problem is, no one's quite sure whether Tele Norte will grow fast enough to support that valuation -- or even whether it will grow at all. According to Yahoo! Finance, the company is expected to see earnings contract over the next five years. S&P Capital IQ, in contrast, posits growth rates anywhere from as low as 14% per year (over the next five years) to as high as 51%!

That's a pretty wide range of possible outcomes. Call me a crazy optimist, but I think the prospects for growth in Brazil look bright, and the prospects for Tele Norte, likewise. Plus, with a near-6% dividend to support it, I suspect all Tele Norte really needs is 10% growth to make its stock price reasonable. Anything more than that -- and yes, I believe this stock could pop.

Not sure you want to invest in individual stocks located in foreign lands? No worries. If you're more comfortable sticking with broad-based ETFs, we have you covered there, too. Read the Fool's new -- and free! -- report on 3 ETFs Set to Soar During the Recovery.

Is the iPhone the Only Camera You Need?

F. Martin Ramin for The Wall Street Journal (cameras, phone); Lisa Corson/The Wall Street Journal (sunset)

The iPhone simplifies the photographic process—you can shoot, edit, share and order prints using one device.

I, POINT-AND-SHOOT, hereby call to order the inaugural meeting of the Secret Society of Digital Cameras That Are Sick and Tired of the iPhone. Ultra Zoom. Micro Four Thirds. Budget Digi Camera that takes AA batteries. Thanks for coming.

Photos: iPhoneography

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Lisa Corson/The Wall Street Journal

A photo taken with the Hipstamatic app

View a slideshow of iPhone photos.

Share Your iPhone Photos With Us: #morningWSJ

It's your turn to show us how you use your phone to snap pictures. We'll feature the best in an online gallery.

Here's how to participate:

• Use your phone to take pictures on the theme: How do you start your morning?
• Email the photo to yourphotos@wsj.com or share them on Twitter and Instagram with the hashtag #morningwsj
• Include your name, date, time of day, type of phone you used, and location for the photo

Disclaimer: By submitting any photographs to The Wall Street Journal/Dow Jones through any medium, including social media, (the "Photographs"), you agree that The Wall Street Journal and Dow Jones (collectively "Dow Jones") have the perpetual right to modify the Photographs and publish or republish the Photographs or portions of thePhotographs, in any medium now known or hereinafter developed. Dow Jones, in its sole discretion, can credit you by name if it publishes your Photographs.

You represent and warrant that (a) the Photographs are original and that you own the rights to your Photographs, (b) the Photographs do not violate the rights of any third party, (c) the Photographs have not been altered and do not convey a false or misleading impression, and (d) any additional information you submit about the Photographs is accurate.

You also agree to the Subscriber Agreement and Terms of Use, located here.

Readers' Photos

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Bob Cummins

Departing Phoenix at 6:30 a.m. on March 29, 2012. Device: iPhone 4S.

I think everyone knows why we're here in the basement of this abandoned Circuit City in Ho-Ho-Kus, N.J. I mean, it's in the name of our club: the iPhone. A lot of you have been sitting in junk drawers, so I'll bring you up to speed. It ain't just a phone. It has a camera. And not one of those 1.3-megapixel numbers from a decade ago. This is the real deal. People have already started documenting their breakfasts with it. We're in trouble.

Have you checked out Flickr lately? The iPhone is the site's most-used camera. Instagram, an app that let's people share photos, reached 27 million users to become one of the world's biggest social networks. It hit that milestone purely with the iPhone. Last time I checked, we took photos. Where is our piece of the zeitgeist pie?

There was a time when we were renegades ushering in a new era of photography. Mavericks, really. We kicked those old film cameras into flea-market stalls. Now only pros and artsy types use them. Guess what? We're the ones starting to collect dust. And don't think anyone's going to revisit us. Film cameras occupy the same hip space as vinyl. Where are we going to fall on the technological nostalgia spectrum? Next to the LaserDisc.

The digital photography revolution was a promise to streamline things for the everyman. To let him shoot as many sunsets and cats wearing bread (seriously, Google it) as he wanted without having to worry about film. Anyone with a laptop could edit like a pro. Like the Brownie and Polaroid before us, we were democratizers of photography.

Not any more. The iPhone hijacked our vision for the future—our legacy!—while we were busy fooling people that more megapixels meant better pictures. (Sorry, Budget Digi Cam, it doesn't.) Talk about simplifying the photographic process—you can shoot, edit, share and order prints without taking your mitts off an iPhone. We're on our way to becoming a footnote on its Wikipedia page.

Related Video

Is Alcoa 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. Let's figure out what makes a great retirement-oriented stock, then examine whether Alcoa (NYSE: AA  ) has what we're looking for.

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 Alcoa.

Factor	What We Want to See	Actual	Pass or Fail?
Size	Market cap > $10 billion	$10.8 billion	Pass
Consistency	Revenue growth > 0% in at least four of five past years	2 years	Fail
�	Free cash flow growth > 0% in at least four of past five years	2 years	Fail
Stock stability	Beta < 0.9	2.09	Fail
�	Worst loss in past five years no greater than 20%	(68.3%)	Fail
Valuation	Normalized P/E < 18	12.03	Pass
Dividends	Current yield > 2%	1.2%	Fail
�	5-year dividend growth > 10%	(27.5%)	Fail
�	Streak of dividend increases >= 10 years	0 years	Fail
�	Payout ratio < 75%	13.4%	Pass
�	�	�	�
�	Total score	�	3 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With only three points, Alcoa doesn't have the track record that conservative investors prefer to see. With huge share price volatility, sporadic growth, and a big dividend cut in recent years, the company's low valuation seems quite justified.

Alcoa has a special place in providing an overall read on the economy. Not only does the aluminum giant tend to follow the ups and downs of the business cycle, but it also reports very early every earnings season. As a result, investors see the company as a bellwether for the entire stock market's health.

Right now, that connection to the overall economy is hurting Alcoa. Late last month, fellow Fool Morgan Housel noted that Alcoa and General Motors (NYSE: GM  ) could be among the hardest hit if the economic recovery has in fact ended. On the other hand, with the stock price so low, anything short of a double-dip recession could lead to gains.

Still, as poor as Alcoa's numbers look, they may be inflated. Revelations of Goldman Sachs (NYSE: GS  ) and its practice of warehousing aluminum ingots may have boosted profits of not only major producers like Alcoa and Rio Tinto (NYSE: RIO  ) but also smaller producers Century Aluminum (Nasdaq: CENX  ) and Kaiser Aluminum (Nasdaq: KALU  ) .

Despite Alcoa's presence in the Dow Jones Industrials (INDEX: ^DJI) and its good overall reputation, retirees and other conservative investors can't be happy with all the uncertainty associated with the stock. Until the dust clears, you'd be better off looking for more stable stocks for your retirement portfolio.

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 Alcoa 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.

1 Stock Crumbling Ahead of FDA Committee Meetings

For investors in the biopharma arena, there's no voice more important than the Food and Drug Administration's. It's for this reason that FDA advisory committee hearings this week are keeping investors in certain stocks on the edge of their seats.

Share prices can exhibit significant volatility around these meetings and when the briefing documents are released two days prior. And while a committee's vote can conflict with the ultimate FDA decision, the two tend to have a strong correlation.

In some instances, the outcome of a committee meeting is so material that trading in shares is frozen on the day of the meeting, as is the case today as the Gastrointestinal Drugs Advisory Committee reviews NPS Pharmaceuticals'� (Nasdaq: NPSP  ) short-bowel-syndrome drug Gattex.

On Wednesday and Thursday, the Endocrinologic and Metabolic Drugs Advisory Committee is meeting to review LDL cholesterol-lowering drugs from Aegerion (Nasdaq: AEGR  ) and Isis Pharmaceuticals (Nasdaq: ISIS  ) .�Aegerion's briefing documents, released Monday, suggest a positive committee outcome and eventual FDA approval for its drug lomitapide, which is focused on a narrower subset of patients suffering from homozygous familial hypercholesterolemia.

While Aegerion shares are trading about 15% higher than Friday's closing price, shares of Isis are trading more than 15% lower after following today's briefing document release. The document outlines safety risks around Isis' drug mipomersen, developed in conjunction with Sanofi's (NYSE: SNY  ) Genzyme unit, including increased cancer risk for patients receiving the drug relative to the placebo group. The trial also exhibited a high dropout rate, a negative for any drug targeting a chronic condition such as hypercholesterolemia.

While today's news is certainly negative for Isis shareholders, it doesn't mean that the drug is a failure. After all, homozygous familial hypercholesterolemia is a deadly condition with few options for treatment. Instead, today's action reflects the increased likelihood that mipomersen won't be able to achieve more expanded approvals outside of homozygous familial hypercholesterolemia in the future.

Of course, nothing�s a sure thing when it comes to FDA decisions. The binary nature of the FDA approval process attracts many risk-tolerant investors and makes the industry extremely exciting to follow. However, another high profile binary event is right around the corner: November�s presidential election. In�this special free report, our analysts discuss how each presidential candidate has his own plans to reignite the American growth engine into a full roar, meaning there are unique ways to profit from the election. To discover these opportunities ahead of the election, claim your free report by�clicking here.

Top Stocks For 2011-12-25-10

DrStockPick.com Stock Report!

Wednesday August 5, 2009

Walgreens (NYSE, NASDAQ: WAG), whose home care division is a national leader in providing home infusion and respiratory services, has entered into a joint venture with Vanderbilt Medical Center, a Nashville-based comprehensive healthcare facility and a major patient referral center for the mid-South. The joint venture will operate under the name Vanderbilt Home Care, affiliated with Walgreens Infusion and Respiratory Services, and will be located in Brentwood, Tenn.

Beeline, the workforce solutions business unit of MPS Group, Inc. (NYSE:MPS), today announced another Ariba certification. Having attained Ariba Ready Invoice and Payment certification, Beeline continued to work with its client base and Ariba to achieve certification as Ariba(R) Ready(TM) Catalog PunchOut. Ariba Ready is a special designation awarded to suppliers that have demonstrated the ability to effectively transact with and provide content to organizations using Ariba Buyer(TM) through Ariba Supplier Network(TM).

Assured Guaranty Ltd. (NYSE:AGO), the holding company for Assured Guaranty Corp. and Financial Security Assurance Inc. (”FSA”), announced today that Assured Guaranty Corp. and FSA guaranteed a combined par amount of approximately $3 billion of municipal bonds, in the month of July, representing 12.9% of new issue public finance volume. FSA, which was acquired by Assured on July 1, contributed $222 million of the par amount.

The USA Mutuals Generation Wave Growth Fund (Nasdaq: GWGFX) and the USA Mutuals Vice Fund (Nasdaq: VICEX), were rated by Lipper, Inc. as Lipper Leaders. The USA Mutuals Generation Wave Growth Fund was recognized as a Lipper Leader for Preservation as of 6/30/2009 (out of 9399 funds in the Equity asset class.) The USA Mutuals Vice Fund was recognized as a Lipper Leader for Total Return as of 6/30/2009 (out of 610 funds in the Multi-cap Core category.) The overall calculation is based on an equal-weighted average of percentile ranks for the Preservation and Total Return metrics over the three-, five-, and ten-year periods (if applicable.) Being recognized as a Lipper Leader is an important accomplishment. Lipper’s evaluation system only rates the top 20% of all funds in each category as a Lipper Leader.

NC4, Inc., the leader in Situational Readiness solutions for incident monitoring, crisis management, and secure collaboration, today announced participation as a first adopter in the Unified Incident Command and Decision Support (UICDS) program. UICDS is a “middleware foundation” that will enable a broad array of technology vendors to share emergency management information across jurisdictions. Based on design criteria taken from the National Response Framework, National Incident Management System and the Incident Command System, the UICDS prototype reference implementation of the national architecture for emergency information sharing was successfully demonstrated at the Virginia Emergency Operations Center in late April. UICDS is sponsored by the Science and Technology Directorate of the U.S. Department of Homeland Security, and is being executed through a contract with prime contractor Science Applications International Corporation (NYSE: SAI)

Tandy Leather Factory, Inc. (AMEX: TLF) today reported financial results for the second quarter of 2009. Consolidated net income for the quarter ended June 30, 2009 was $761,000 compared to consolidated net income of $655,000 for the second quarter of 2008, an increase of 16%. Fully diluted earnings per share for the quarter were $0.07, compared to $0.06 in the second quarter of last year. Total sales for the quarter ended June 30, 2009 were $13.2 million, down 5% from $13.8 million in the second quarter last year.

Source: E-Gate System from Alphatrade.com

The Market’s 3 Most Vulnerable ETFs

While the market�s still technically in an uptrend, things are getting uncomfortably frothy, and a pullback might be closer than you think. That dip is going to whack ETFs, too — some of them more than others.

Here�s a closer look at the market�s most overbought exchange-traded funds, and exactly why they�re so vulnerable now:

Select Sector Technology SPDR

Click to EnlargeSince the Dec. 19 market bottom, the technology sector — represented by the Select Sector Technology SPDR (NYSE:XLK) — is the market�s third-best performer with a 16.4% gain. Since the middle of January it�s the top performer, with a 10% advance. Yes, it�s a fun ride while it lasts, but those big moves don�t come without a price. That price is more than the fund�s fair share of potential profit-taking.

That being said, bear in mind such a pullback would be an intermediate-term phenomenon at best, and probably closer to a short-term correction.

Why? In spite of plenty of pessimism, the fact is technology stocks just posted their most profitable quarter ever. And it�s one of the few groups that�s expected to hit new record earnings levels by the end of the year. Better still, the sector as a whole remains near a record low valuation of 14.85 times its trailing 12-month earnings.

iShares Barclays 20 Year Treasury Bond Fund

Click to Enlarge In August and September, when investors thought the world was going to end (when interest rates plunged and traders fled to the safety of U.S. Treasury bonds), the run-up from the iShares Barclays 20 Year Treasury Bond Fund (NYSE:TLT) came as no surprise. TLT advanced 27% in a little over two months — a huge move for a bond fund.

There�s a problem with seeing that kind of move right here and right now, however. Interest rates already were rock-bottom based on some serious economic and currency worries before the rally. For traders to think things could be even more alarming come August may have been a little unrealistic in retrospect. Nevertheless, the TLT popped, and is very vulnerable to a dip now.

In fact, that dip might already have started now that the economy — and Europe in particular — seems to be on firmer footing. The 20-day moving average has fallen under the 50-day as well as the 100-day moving average lines, and all three are pointed lower now.

iShares S&P MidCap 400 Value Index

Click to Enlarge Since the market bottom from early 2009, midcaps have been leading the bullish charge. And, since the major bottom hit in early October, value stocks have been blazing the trail for the rest of the market. The overlap of those two groups, however, has carried one group of stocks too far, too fast.

Yes, it�s the S&P 400�s value names — via the iShares S&P MidCap 400 Value Fund (NYSE:IJJ) — that are alarmingly overbought right now.

That�s not to say the rest of the market isn�t overbought. However, this segment as a whole is over-baked — in the near-term. As was the case with the technology sector, though, investors might not want to steer clear for too long. With a forward-looking (2012) P/E of 13.7 and an anticipated earnings growth rate of 28.5% for this year (following 2011�s income growth of 21.3%), the midcap value names still pack a potent long-term punch for portfolios.

Last Word

Being overbought is one thing, but doing something about it is another. While these three ETFs come with a little more than their fair share of downside risk now, at least in the case of the iShares MidCap Fund and the Technology SPDR, it will take marketwide weakness to trip them up. Once we do get that weakness, though, look out below.

As for the Treasury Bond Fund, its pullback can materialize independently of stock market pressures.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Alternative Investments – Financial Alternatives

It is now a widely held belief that investing in stocks and other financial instruments in the traditional manner generates an investment return that is driven more by the latest piece of political rhetoric, or the most recent announcement of sovereign debt risk or unemployment figures from some far flung corner of the world, than by underlying company fundamentals like good management and a strong balance sheet. Aside from this inherent volatility, many investors also feel over-exposed to financial markets, especially those coming close to retirement that may have little time left to regain catastrophic losses in any one holding.

This shift in mind-set amongst investors has driven a huge growth in alternative investment management, with most financial institutions now offering investments that are organised and managed in such a way as to attempt to avoid volatility, or generate a return when markets fall, or some other such strategy.

Short Only
Short only funds bet on particular stocks losing value. Investors might buy into a short only fund if they felt particularly bearish (pessimistic) about the short term future of financial markets in general, and some may allocate capital to this strategy as a hedge against the impact of a general downturn.

Ultra-Short Bond Funds
This a type of investment fund that invests fixed-income bonds with very short-term maturities. Such a fund will usually invest in bonds with maturities of around 12 months. This strategy is designed to generate higher yields than traditional bond investing with less volatility.

Market Neutral
Market neutral is an alternative investment strategy designed to profit from growth and depreciation in the value of stocks. Whilst there is no finite technical definition for market neutral investing, for the most part, the overall strategy will involve taking long and short position in a stock (betting both for and against it) in order to maximise the return from making good stock selections and minimise the impact from broad market movements.

Absolute Return
The original name for hedge funds – absolute return investing involves a wide variety of alternative investment management techniques designed to capture financial gains during any and all market conditions. Absolute returns refer specifically to the return of the fund or investment over a given period of time i.e. the actual growth or depreciation. This differs from relative returns, which is a measure of investment returns when compared to similar investments or a sector.

Long / Short
A true mixed bag of investing, long short strategies involve taking long positions in one stock and betting against the value of another stock. In theory, as one sector or company makes a gain, there will be losses in competing sectors, and investment manager aim to identify such opportunities and capitalise on them. A broad example might be an investment manager who thinks oil prices will rise significantly based on some impending political or social crisis, so they might buy into oil company stocks and short stock of companies that rely heavily on oil as a key input in their business.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Is Citigroup Now The Best In Financials?

So the market has finally gotten off of the double dip talk. While stocks still face many challenges, there is a strong sense that the market has likely bottomed for the year. While the fact that volatility has decreased doesn't necessarily mean the market will continue to move higher, I think the stability in even beat-up sectors like the financials makes these historically cheap stocks worth researching a little more. The financial stocks bottomed around when the market hits its September low of 1060, stocks like Wells Fargo (WFC), Citigroup (C), JP Morgan (JPM), all have share prices that remain at or near their all-time lows.

Investing in the financials has been in unrewarding endeavor for most investors for some time. Not only have these stocks performed the worst during market sell-offs, they have also rebounded only slightly during market bounces and some of the more sustained moves up over the last several months we have seen. Still, despite the horrific trading action in the financials we have seen for some time, now that the likelihood of a major credit event in European or the U.S. has diminished significantly, it's worth asking if there is value to be found in this troubled sector.

What was most interesting to me about the recent earnings reports of the financials was that they finally showed a separation between the more internationally focused business models of Bank of America (BAC) and Citigroup, from the more domestic focused growth strategies of JP Morgan and Wells Fargo. Despite consistent positive commentary by Buffett and others on JP Morgan and Wells Fargo, Citigroup was the only bank that delivered on earnings and showed solid growth in its core businesses. This separation in profitability between the more internationally-focused business models of Citigroup and Bank of America, and the domestic-focused banks like JP Morgan and Wells Fargo appears to be widening now.

To me it is becoming very clear that JP Morgan and Wells Fargo offer little to no current value. While some argue that these are the best run financials in the U.S., these companies continue to get the vast majority of their revenue from the increasingly smaller U.S. debt markets, where a large number of companies are just chasing fewer financial and other business opportunities. The banking sector in the U.S. is heavily saturated and the financials who rely primarily on the domestic economy for growth continue to struggle. Also, since trading revenues have weakened significanlty in recent quarters at the U.S.-centered banks, their business models have continued deteriorate in even new areas over the last couple quarters.

If you look at the earnings reports of the major U.S. financials over the last couple of quarters, the international based banking revenues of Citigroup and Bank of America have been the only real areas that have showed consistent and solid growth. Obviously, though, Citigroup remains the only internationally-focused U.S. financial that has been cleared to pay dividends by the fed and isn't facing any imminent and daunting legal challenges.

Despite failing to get any of the big name CEOs like John Thain or Larry Fink, Citigroups's decision to promote Vikram Pandit internally appears to have worked out very well. Since Pandit was more modest and eager to prove himself worthy of his new title rather than put his own stamp on the company, he acted quicker and more decisively than many of his peers. Citi was much quicker to sell-off assets, write-down CDO exposure and also cooperate with regulators and settle potential lawsuits. Citi also apologized openly to the public for its behavior during the financial crisis and quickly moved to refocus their business model on the best parts of their global banking franchise. Today, when you look at Citi's business model, the company looks like an international bank headquartered in the U.S., since the company gets nearly 70% of its revenue overseas. While other banks fought with regulators and dealt with moderate to severe liability issues, Citi cooperated with its regulators and took swift action to refocus the bank's business model. Today the company is strongly positioned in almost every major emerging market economy with bold plans for continued future growth.

While Bank of America also has a strong global presence in many international financial markets, Citi is the only U.S. financial that has generally enjoyed a good relationship with regulators and has not had the same kind of troubling legal and financial issues. While Jamie Dimon gets all the press over his flamboyant comments about various new regulatory proposals, Citi continues to quietly execute very well across the interntioanl markets it gets most of its revenues from.

In Latin America, for instance, Eduardo Cruz, one of the most respected executives in the banking industry, continues to be highly successfully building out the company's retail and investment banking presence. Also, In Asia, where Citi has its largest international footprint, the company continues to be similarly successful in building out its core banking business across the region, with a particularly strong retail franchise in India.

The only obvious problem with these arguments is that they have been true for nearly a year, and although Citi and other financials have had bounces, they have not been able to hold gains for some time. Given the regulatory uncertainty and other headwinds preventing capital from moving into the financials today, the question is how you can invest in this sector and get a solid return if the stocks take some time to recover. While Citi has had several good earnings reports now, the company's share price continues to remain depressed along with the other financials. Money managers also seem unwilling to commit significant capital to this sector because of the view that the regulatory and economic challenges that this industry faces are simply insurmountable.

The question is how to invest in the financials in a manner that enables you to get take part in the upside move in these equities while still geting a nice return while the share prices of these companies continue to stay weak. Obviously, it is likely that the share prices of the financials may not appreciate significantly for some time. Still, the Citi preferred offers safe returns of 5-6% a year while still giving the investor upside in the companies share price as well. While the tax implications may vary for people in different income brackets, a 5-6% a year yield in a stocks that is likely a moderately-to-significantly undervalued equity with strong future growth opportunities is rare.

To conclude, banking stocks are certainly not a popular investment today. While many good reasons exist to not invest in a number of financials in the U.S. and elsewhere, I still believe that there are good opportunities in this sector. No investment is risk-free, and that is certainly true when investing in the financials. Still, given that Citi has a rock solid balance sheet and the best growth opportunities of any of the U.S.-based financials, this looks like a safe way to invest in a sector that could offer significant long-term returns. Timing the market is hard, but being able to invest in way that offer value and yield with the possibility of moderate to strong future growth prospects is rare.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

An Ugly Month for Equity Markets

It was an ugly week and month as the major indexes and all sectors continued their declines for the third week in a row.

In our portfolios, we took some risk off the table in the Standard Portfolio by closing our XOP and IYR position on Wednesday and then being stopped out of our QQQQ position on Friday. We currently have two long positions and three in cash.

In the 2X portfolio we were stopped out of our long positions on Friday and currently are in cash.

Our macro indicators have gone to red and we anticipate still lower prices ahead in the short to intermediate term.

Clearly sentiment has changed for the short term on a technical basis and fundamental basis as concerns about global debt and slow growth have come to the fore.

All major U.S. indexes remain above their 200 Day Moving Averages which indicate the long term uptrend is still in place, but the Shanghai Composite broke its 200 day moving average on Friday and that index is seen by some as a leading indicator for world markets.

The View from 35,000 Feet

January turned out to be the worst month since last February with the S&P down -3.9%, the Dow -4.0% and the NASDAQ down -5.4%.

The losses last week came in the face of mostly positive news with Ben Bernanke being reappointed Fed chief and the FOMC saying that rates would stay low for an extended period.

4th quarter GDP came in at 5.7%, the strongest since late 2003, and Consumer Confidence rose to the highest level in two years. The Chicago Purchasing Managers Index rose to 61.5 from 58.7, with readings above 50 signaling expansion.

Earnings were mostly positive with Amazon showing a 71% gain in net revenue and Microsoft reporting positive results and more than 3/4 of companies reporting so far have beaten earnings estimates.

Durable goods orders grew, although at a slower rate than 3rd Quarter, and initial unemployment claims were down by 8,000.

On the negative side of the ledger, December existing and new home sales both declined from the previous month. Greece appears to be edging closer to default and at the World Economic Summit in Davos many of the attendees polled said that a sovereign debt crisis default could cause the next world crisis.

Greece’s debt is at 12% of GDP and appears to be the most dangerous spot but S&P warned Japan about their debt and here at home the U.S. debt is 10% of GDP, the highest since World War 2.

For the week, all sectors found themselves in negative territory as shown in the chart below.

Chart courtesy of StockCharts.com

The Week Ahead

The week ahead brings more major economic and earnings reports with 3 Dow and 94 S&P 500 components reporting and economic reports from the Real Estate sector and the widely watched Non Farm Payrolls and unemployment reports.

Major Earnings Reports

Monday: Exxon Mobil

Tuesday: Dow Chemical, Kraft, UPS

Wednesday: Pfizer, Cisco

Major Economic Reports

Monday: December Personal Income, December Personal Spending, December Construction Spending, January ISM Index

Tuesday: December Pending Home Sales, January Auto Sales

Wednesday: ADP Employment Report

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, December Factory Orders

Friday: January Non Farm Payrolls

Sector Spotlight

Leaders: Biotech, Bullish Dollar

Laggards: Broadband, Natural Gas, Metals

Disclosure: None

Apple: ‘Spectacular Screen,’ ‘Zippy’ LTE in iPad Reviews

The reviews are in for Apple’s (AAPL) newest iPad, and generally, they contend that the machine is a desirable upgrade, and perhaps keeps Apple ahead of other tablet makers.

The bottom line:

David Pogue, New York Times: “For the same price as before, you can now get an updated iPad that�s still better-looking, better integrated and more consistently designed than any of its rivals. And if you already have the iPad 2, here�s an even brighter side: At least this time around, you don�t have to feel quite as obsolete as usual.”

Walt Mossberg, The Wall Street Journal: “Since it launched in 2010, the iPad has been the best tablet on the planet. With the new, third-generation model, it still holds that crown.”

Edward Baig, USA Today: “If you’re a tablet newbie, there’s no better choice on the market than an iPad, provided � and this is a pretty big if � price isn’t an issue and you don’t want a tablet that would fit in your pocket, such as the $199 Amazon Kindle Fire.”

Joshua Topolsky, The Verge: For owners of the iPad 2, this isn’t necessarily a slam dunk [...] However, if you’re in the market for your first tablet, or upgrading from the original iPad or an Android device, do not hesitate. The new iPad is the most functional, usable, and beautiful tablet that any company has ever produced.”

The details:

Pogue: Pogue starts off by teasing Apple about not giving the new model a version number. He thinks it should be called the “iPad 2S” because it’s “not exactly new” but has been “tastefully enhanced.” Apps re-written for the sharper “Retina Display” of the device are “just incredibly sharp and clear” while unretouched apps don’t see as much benefit. Pogue notes that everyone will lose some of their flash storage space, including iPhone owners, because apps tweaked for the Retina Display are universal binaries that will consume two to three times as much space on every iOS-device. The Verizon LTE service Pogue tested was “really, really nice,” with download speeds of up to 29 megabits per second. Pogue got 9 hours on all-day testing of LTE. You feel the difference in thickness, though, if you’re used to the old model, he contends.

Mossberg: Calls the “key upgrades” of Retina Display and LTE “massive” changes to the device. The Retina Display is like “getting new eyeglasses,” and is the “most spectacular display” he’s seen on a mobile device.” Mossberg found the claim to consistent battery life was met. Mossberg thinks the extra weight and bulk is worth it, as those key features keep the product at the top of the tablet game. Mossberg fond LTE “felt like I was always on WiFi.” Owners of the iPad 2 needn’t feel like they need to get this, but if you do a lot of e-reading, this “new model could make a big difference.”

Baig: The lack of Siri, and the general lack of new, new features is “no big deal,” Baig contends. The new unit “snatches the crown” from the old as the best you can buy in the tablet market. The display is “spectacular” (are they reading from a script?) and “a screen to die for.” It’s like getting “Lasik” surgery, he contends. Baig found LTE to be “really zippy” in the San Francisco and Austin, Texas areas. Web pages loaded “much faster.” Still images, and video, captured with the enhanced camera were “generally pleasing,” helped by the “stabilization” feature. He found the voice-dictation to be “decent enough.” He found the unit got through “an entire day of being worked hard with no battery problem.”

Topolsky: The unit is a “slight bit thicker [...] and, yes, it’s somewhat heavier, but that’s about it.” You’ll notice the weight, he says, but “only the most particular (and whiny) critics will have an issue.” Topolsky finds the industrial design “classic,” as always, but gripes about things that shouldn’t have been done to begin with, like the placement of the headphone jack on the upper left corner. The Retina Display “makes all other displays look pedestrian by comparison.” It’s “outrageous,” “stunning,” “incredible,” “otherworldly,” he says. Even up close, he notes it’s hard to see the pixels. The new “A5X” processor seems “every bit as powerful as it should be.” LTE service “screams,” similar to Verizon 4G phones. He got downloads of more than 22 megabits per second. Battery life lived up to Apple’s claims. Pictures with the new camera were “pretty favorable.” HD videos were “crisp and stutter-free.”

Apple shares are up $6.49, or 1%, at $596.07 and briefly hit $600.

Fin

Investors Behaving Emotionally – The 7 Key Mistakes To Avoid

Today I want to look at how emotions can influence an investor when making decisions on their investments.

This subject has been discussed in depth over the years and is now known as Behavioural Finance. Essentially, the concept behind this is that whenever emotions get involved, investors can get hurt (not physically, of course!).

As long ago as 1934, Graham Benjamin, author of “Security Analysis”, said:

“The investor’s chief problem, and even his worst enemy, is likely to be himself”!

So what are the main mistakes that investors make when they let themselves be ruled by emotion? Well, there are quite a few.

Let’s look at some of the main ones:

1. Hanging On To Poor Performing Shares

Some people simply hang on to losers! This is to do with loss aversion when they don’t want to sell as they hate admitting they were wrong. Secondly, they don’t like to abandon all hope of recovering the original capital sum invested.

Others have an emotional attachment to shares they inherited from their parents and may have a lot of money in one sector (which means they are not diversified).

2. Overconfidence

Investors quite often feel that they can beat the market, even when this has not worked in the past. When the overall market increases, an investor can look at their gains and attribute this to skill, and think that they can repeat this in all market conditions.

Overconfidence can also keep investors from meeting their investment goals as they could well invest too little due to overestimating the possible future returns.

3. Believing In Last Year’s “Hot Stocks”

Of course, certain funds or shares can give a stellar performance over a short period. Some investors then feel that they must pour more money in to make the most of this great performance.

They could then be buying something that is now very expensive, but greed is a powerful emotion and they could well be fearful that they will miss out if they stop buying now.

Many investors find themselves doing this. This is what Erik Davidson, Managing Director of investments for Wells Fargo Private Bank had to say:

“In all other areas of life, we want to buy more if prices go down. With investments, people buy when prices go up.”

4. Not Having An Investment Philosophy

Over the years investors can amass quite a large collection of shares and funds with no overall investment philosophy.

This means there is no discipline to their investments, so the ‘obvious’ risk to them is that their asset allocation (how much they hold in stocks, bonds, property and cash), is totally out of line with their comfort zone.

Of course it will be quite usual that they only have stocks and shares with no balancing investments (such as bonds). This often means they are taking too much risk.

Also, lack of diversification can be a big issue. Some, wanting to have say UK equities, decide to buy several UK Equity funds run by different fund managers, thinking this means they will have diversified.

What they miss is that the managers running these funds will quite often be buying the same companies totally defeating the investor’s objective!

5. Not Matching Their Investments To Their Goals

Some investors simply amass more and more wealth without stopping to think what it is they want to achieve from this.

So, how long is it since you took time out to really think about what you want?

Have you ever done it?

To get you thinking about this, if you did not have to work from today, how would you fill your time?

It really is worth sitting down and thinking hard about what you need to do to lead the life you want, and then building your own financial map and resulting strategy to get there as safely as possible.

6. Following The Herd

It is perfectly normal to be prone to this, however it could really damage your wealth.

Do your remember the tech stocks boom of 2000?

Valuations of these companies were totally unrealistic, but millions of investors were sucked in to invest their hard earned money because others they knew were doing it.

7. Timing The Market

Some investors think that they can wait for the stock market to fall to its ‘bottom’ and then buy while shares are cheap. They stay out of the market waiting for ‘the moment to buy’.

By being out of the market, the risk is that the investor will miss the big rises that really boost performance.

As an example of how important this is, if you take the years January 1986 to December 2010, here are the annualised rates of return based on missing certain periods:

Totally invested – 10.18%
Missed best 5 days – 8.54%
Missed best 15 days – 6.46%
Missed best 25 days – 4.75%

Source: Dimensional Fund Advisers

The chance of investing at the right time is so small it is simply not worth the risk. Our view is if you constantly wait to invest at the right time, it will never arrive as how will you know when the right time to invest is?

Studies Demonstrate The Investor Behaviour Effect

So, typically, what is the effect of this emotional behaviour on an investor’s money?

We’ll finish here with a study conducted by American research firm Dalbar, that looks at rolling periods of 20 years, and how an average investor in mutual funds compares to the Standard & Poors (S&P) Index.

S&P Index – 9.14%
Average Equity Mutual Fund Investor – 3.27%

This was the result of the 20 year period ending 31/12/2010, but shows a typical 6% behaviour gap that has been repeated in their various studies over time.

So this is why we believe in a buy & hold strategy – it works.

Quotes by Albert Einstein and Nils Bohr are perhaps relevant:

“Insanity: doing the same thing over and over again and expecting different results.”

“Prediction is very difficult, especially if it’s about the future.”

It is vital for a successful investing experience to eliminate emotion from your decisions. The evidence is there to see – it can really harm your wealth!

Review how you invest your money. Are you making some of these mistakes by letting emotion rule your decisions?

Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com where you can request your free retirement planning guide.

Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.

Eli Lilly Falls After Reporting In-Line Quarter

Meeting third-quarter earnings expectations did little to help bolster shares of drug maker Eli Lilly & Co. (LLY), which fell during morning market action.

At $38.64 a share, the stock dropped 0.13%, or six cents a share. Before today, they gained 10% this year.

Excluding one-time items, Lilly earned $1.13 a share, down from the $1.21 a share the company posted during the same period last year. Revenue increased 9% to $6.15 billion.

Lilly is aiming to overcome the loss of patents on Zyprexa, on Oct. 23, and other medicines without a major merger by investing in research. Investors are awaiting results from final-stage clinical trials on treatments for Alzheimer�s, diabetes and cancer. Lilly is also focusing on other growth areas such as emerging markets and animal health.

Lilly raised the lower end its forecast for full-year adjusted earnings to $4.30 a share from $4.25 a share.

Mercedes small cars coming to America

NEW YORK (CNNMoney) -- Over the next few years, Mercedes-Benz will bring a line of new compact cars to America, vehicles much smaller than the German luxury manufacturer has ever sold here before.

The cars are supposed to help Mercedes, a division or Europe's Daimler (DDAIF), meet tough new corporate fuel economy standards while also bringing new customers into the "Mercedes-Benz family."

And industry analysts think America is finally ready for pint-sized luxury.

"Size is no longer as much of a status symbol as it used to be," said Jeff Schuster, an analyst with industry consultants LMC Automotive.

The recession -- and rising gas prices -- have caused luxury shoppers to reconsider their priorities, agreed Bill Visnic, an analyst with the automotive Web site Edmunds.com

"It's not really cool right now to bring a brand new big-ass Mercedes into your driveway," he said.

These new Mercedes models will be anything but big.

Today, Mercedes' smallest -- and most popular -- model is the C-class, a compact car. In Europe, Mercedes sells even smaller cars, called the A-class and the B-class, and will begin selling redesigned versions of these subcompact hatchbacks in the U.S. in the next couple of years.

"It's going to have a fun, sporty, stylish execution," said Steve Cannon, head of marketing for Mercedes-Benz USA, of the new A-class. A concept version of the car was unveiled at the New York Auto show in April. The production car will be somewhat less dramatic looking and will have four doors, not two.

Mercedes has done its homework, said Cannon, and is confident these cars will be well received.

"I've done a ton of work with customers," he said. Mercedes-Benz dealers, also, have thoroughly gone over the new models and are pleased, he said.

Mike Jackson, chief executive of AutoNation (AN, Fortune 500), the largest auto dealership group in America, said he has pushed Mercedes to speed up introduction of the A-class here.

"Great design," Jackson said in an email, "and it gives Mercedes customers more selection."

Before joining AutoNation, Jackson was CEO of Mercedes-Benz USA.

Gallery: 12 great cars (you can't get in the U.S.)

Mercedes isn't the only luxury car maker going smaller. Both Audi and BMW have introduced small cars -- the Audi A3 and the BMW 1-series -- but those models haven't exactly set the sales charts afire, said Visnic. But they don't need to.

"For the most part, it's incremental for them because these are cars that are, first and foremost, designed for Europe," he said.

Besides the recession and gas prices, newer cars, such as the Ford (F, Fortune 500) Focus, have paved the way for customers to see small cars in a different light, said Schuster. The Focus is available with features, like hi-tech voice-integrated phone and stereo connections, that used to come only on high-end cars. It even has an available self-parking feature, something few cars offer at any price.

"We're seeing higher price points and more content on cars in general," Schuster said.

One advantage for the Mercedes cars will be the Mercedes badge itself, said Thilo Koslowski, an industry analyst with Gartner. The three-pointed star will remove any expectation that these cars will be cheap, something Americans usually expect of small cars.

But, to succeed, the cars will have to be good enough to warrant the badge.

"Once you break that barrier," he said, "you also have to deliver." 

Obama Gets Interactive With Budget

The White House compiled Monday a nifty interactive graphic for American taxpayers to study President Obama's fiscal year 2013 budget proposed and sent to Congress.

The graphic allows for users to mouse over various boxes that reveal what percentage of the federal budget each spending program amounts to. Social Security, health care and national defense were the largest commitments, as the three areas made up about 62% of the budget."We must restore fiscal responsibility, and reform our government to make it more effective, efficient and open to the American people," a statement on the White House Web site said. "It targets scarce federal resources to the areas critical to winning the future: education, innovation, clean energy, and infrastructure." Education and job training accounted for some 2.8% of the budget while transportation -- which includes infrastructure expenditures -- totaled about 2.7% of the president's 2012 proposal.Mitt Romney called Obama's budget proposal an "insult" to American taxpayers and said it took no meaningful steps to curb an entitlement crisis."The President has failed to offer a single serious idea to save Social Security and is the only president in modern history to cut Medicare benefits for seniors," Romney said in a statement.House Majority Whip Kevin McCarthy's (R., Calif.) office released a YouTube video that called Obama's budget "monster" and showed images of poorly costumed monsters traipsing through old black-and-white horror movies."It's back, the return of the monster budget. Run, don't walk; it spends too much, it taxes too much, it borrows too much," an announcers voice said on the video. "We have to stop it before it's too late."Among some other notable programs, international affairs expenditures would amount to 1.7% of the budget, veterans benefits could come to about 3.3% and unemployment compensation in Obama's budget would make up 2.5% of it.>Follow Joe Deaux on Twitter. Subscribe on Facebook.>To order reprints of this article, click here: Reprints

Baird Boosts Recruiting as Reps Boost Sales 12.5%

Milwaukee-based Baird says it has recruited close to 250 advisors over the past two years or so, and its veteran reps have been boosting average fees and commissions by about 12.5% in 2010 and 2011, putting its year-over-year performance ahead of some larger rivals.

The employee-owned broker-dealer now includes about 700 financial advisors, says Matthew Curley (left), national sales director and COO of Baird’s private-wealth management operations. “We’ve just wrapped up another good year in terms of recruiting veteran advisors – not just high-quality people and teams, but also very successful advisors in terms of their production level,” he said in a recent interview with AdvisorOne.

Baird added nine financial advisors in the first seven weeks of 2012, after bringing on 65 reps and three branch managers in 2011. “The hires in 2011 were just shy of about $600,000 in average production,” noted Curley, a former-Smith Barney advisor. “We’ve been doing a great job at recruiting.”

As for assets under management, the Baird advisors were at about $97 million per rep in late 2011 and should be above that in early 2012, given current market conditions, says Curley. “The top 25% of our advisors are over $100 million in average assets,” he said.

As for the performance of the roughly 600 advisors who’ve been with Baird for over a year (or same-store reps), they have grown their yearly fees and commissions at 12.5% in both 2010 and 2011 “despite the challenging markets,” the executive said. “We’ve embarked on programs to support advisors in growing their business and clients.”

Baird’s attractiveness, he explained, “comes down to our unique structure: We’re not a regional, wirehouse or publicly held. We’re somewhat in between, since we’re owned by our associates. We can make the right long-term decisions, which resonates with clients, and for our associates, the structure gives them a wealth-building opportunity.”

Recent recruits have been tapped in Sarasota, Fla.; Boulder, Colo.; and Raleigh, N.C. “We’re off to a good start this year,” Curley said.  

Baird’s recruiting package includes “an upfront payment as well as bonuses based on certain factors as advisors transition,” he noted. “We point to the overall wealth opportunities for advisors, such as Baird stock and the attractive compensation and profit-sharing program.”

Still, there’s lots of competition for wirehouse and other advisors, including pressure from firms such as RBC and Barclays Wealth, which are affiliated with large global banks. How does Baird position itself against such rivals?

“We have all the capability of larger firms, but access to people and their active interest in the advisor’s success,” said Curley. “This is one of our differentiators.”

One recent program Baird has launched for FAs focuses on performance coaching and best practices in cooperation with CEG Worldwide. The firm pays half the cost of the coaching and reimburses advisors for all of it if they meet certain targets.

Advisors are also given exposure to best practices at the firm’s national summits, held last year at three different locations. “We have panels with top-advisor teams that share what’s worked for them and client-success stories, for instance,” Curley said. “Advisors often learn the most from their peers, and we want to create an environment to share what is working for them.”

This year, Baird aims to hire another 65 reps. It is also expanding a program for reps to become Chartered Private Wealth Advisors through a partnership with the University of Chicago.

“When it comes to recruiting, we can’t emphasize enough the uniqueness of our story, which resonates with advisors coming from larger firms and who tell us they cannot justify leaving their current firm in order to go to another large firm,” Curley said.

“They want something different, and there are not a lot of options,” he noted. “And there is no other option like Baird. We’ve been around for 90-plus years, are based on Midwest values and offer tremendous wealth-building opportunities.”

He admits that the firm isn’t for everyone, especially those reps looking for larger upfront packages. “Those coming to Baird come for all the right reasons,” Curley said.

Three price-to-book value buys

Quality companies with low price to book value ratios (P/BV) have outperformed companies with higher valuations for the past three-, five- and 10-year periods.

To find the best companies with low P/BV ratios, we required Value Line Financial Strength ratings of B++ or better, low price to earnings ratios, dividend yields of 1.0% or higher and good earnings prospects for the next 12-month and five- year periods.

Abbott Laboratories (ABT) is a terrific company selling at a reasonable price and yielding an above-average dividend.

Abbott is performing quite well with the help of strong sales in emerging markets and with recent acquisitions. Sales will increase 6% and earnings will likely increase 10% during the next 12 months.

ABT�s forward 12-month P/E of 10.7 is quite reasonable. Earnings will continue to increase at a 10% pace in future years, and the dividend yield is now 3.6%.

Drug stocks, in general, have lagged the stock market in 2011, but lately investors are beginning to notice the low P/Es, high yields and steady earnings growth.
There is good news at Abbott, too. The company will split into two separate companies before the end of 2012.

We believe the two companies will be worth more than the current company, and investors who wait will be justly rewarded! ABT is very low risk.� Our minimum sell price for the stock is 72.97 .

After several mergers and acquisitions, CME Group (CME) is now the world�s largest futures exchange and is capable of trading and clearing a wide variety of futures and options.

CME has produced rapid growth during the past eight years which will probably continue in the future. EPS growth of 12% is likely during the next 12-month period.

We foresee very little change in speculative futures trading, even though Congress has enacted restrictive regulation. The company is focused on increasing transparency and upgrading technology.

Elevated market volatility because of the sovereign debt crisis in Europe is sparking substantially higher options volume to the benefit of CME. We expect the high demand for options to continue well into 2012.

At 14.1 times forward 12-month EPS and 0.77 times book value, CME shares are very reasonablwill likely be raised soon, provides a respectable 2.1% yield. CME is low risk. Our minimum sell price is $480.

Occidental Petroleum (OXY) is one of the largest oil and gas companies in the U.S., but also has international exploration and production operations.

OxyChem, a subsidiary, is one of the largest U.S. marketers of chlorine and caustic soda.

Occidental sold several of its businesses and acquired others, so it can focus on oil and natural gas exploration and production.

Recent results have been impressive with revenues rising 24% and earnings jumping 47% during the past 12 months.

We forecast sales growth of 12% and an EPS increase of 14% based upon continuing high oil prices during the next 12 months.

The company has huge oil and gas reserves, which it will aggressively develop during the next several years. OXY is low risk. Our minimum sell price is $142.

Biotech’s Top and Bottom 10 From 2010

At the start of the year, we provided a favorable outlook for the biotechnology industry in 2010 that was based on the same six drivers we proposed for 2009, which included the following:

• Sector’s defensive characteristics and impact on future economic growth.
• Highest number of annual new product approvals since 2004.
• Record number of products in clinical trials and annual industry research and development investment.
• Improving access to capital.
• Brisk pace of industry consolidation and licensing transactions.
• Many small- and mid-capitalization companies remain undervalued.

With 2010 officially on the books, it appears an appropriate time to review the sector’s performance along with some of the themes highlighted in our previous articles.

Big Versus Small

The twenty-member NYSE Arca Biotechnology Index (BTK) was up 38% in 2010, while the broader Nasdaq Biotechnology Index (NBI) advanced 15%. Performance of the NBI was in line with the Dow Jones Industrial Average (DIA), S&P 500 (SPY), and Nasdaq Composite, which were up 11%, 13%, and 17%, respectively.

Why the huge discrepancy in returns between the two major biotechnology indices? Unlike the equal-weighted BTK, the NBI is calculated under a modified capitalization-weighted methodology, taking into account the total market value of the companies it tracks and not just their share prices. Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest weighting in the index.

During 2010, most of the large capitalization biotechnology companies (greater than $10 billion) underperformed the median return of 11% for the 130 companies in the NBI. For example, Celgene Corporation (CELG) was up 6%, Cephalon, Inc. (CEPH) was down 1%, Amgen, Inc. (AMGN) was down 3%, Teva Pharmaceutical Industries (TEVA) was down 7%, and Gilead Sciences, Inc. (GILD) declined by 16%. Bucking the trend of underperformance among large capitalization biotechnology names were Shire plc (SHPGY), along with Genzyme Corporation (GENZ) and Biogen Idec, Inc. (BIIB), both of which were targeted by shareholder activist Carl Icahn.

Accordingly, the relative underperformance of large capitalization biotechnology companies in 2010 masked the fact that many smaller, innovative companies performed well, as evidenced by the fact that 30 of the 130 companies comprising the NBI produced greater than 50% returns during the period. This performance is consistent with our thesis that small- and mid-capitalization companies with positive clinical or regulatory catalysts would continue to outperform their larger industry peers in 2010. See Table 1 for a list of the top 10 gainers from the NBI in 2010.

Noticeably absent from the list of 2010 winners, however, were the staggering quadruple-digit returns witnessed in 2009 (Vanda Pharmaceuticals, Inc. (VNDA) +2,150% and Human Genome Sciences, Inc. (HGSI) +1,342%).

Table 1. Top 10 gainers from NBI in 2010

Company Name	Symbol	12/31/09 Close	12/31/10 Close	% Change
Akorn, Inc	AKRX	$1.79	$6.07	239%
Questcor Pharmaceuticals, Inc.	QCOR	$4.75	$14.73	210%
Neurocrine Biosciences, Inc.	NBIX	$2.72	$7.64	181%
InterMune, Inc.	ITMN	$13.04	$36.40	179%
Jazz Pharmaceuticals, Inc.	JAZZ	$7.88	$19.68	150%
Caliper Life Sciences, Inc	CALP	$2.54	$6.34	150%
SIGA Technologies, Inc.	SIGA	$5.80	$14.00	141%
Idenix Pharmaceuticals, Inc.	IDIX	$2.15	$5.04	134%
NPS Pharmaceuticals, Inc.	NPSP	$3.40	$7.90	132%
ARIAD Pharmaceuticals, Inc.	ARIA	$2.28	$5.10	124%

Last Year’s Laggards Become 2010 Winners

After declining 22% in 2009, shares of Akorn, Inc., a niche generic pharmaceutical company, staged an impressive comeback by becoming the largest percentage gainer within the NBI during 2010. In November 2010, the company announced that core business revenue is projected in the range of $79.0-80.0 million in 2010, a 76-79% increase over 2009, and up from the company’s prior guidance range of $71.0-75.0 million.

In another dramatic reversal of fortune, three of the top 10 gainers from the NBI in 2010 made the list of top 10 decliners in the prior year. Questcor Pharmaceuticals, Inc., Idenix Pharmaceuticals, Inc., and NPS Pharmaceuticals, Inc. rebounded sharply in 2010, each posting triple-digit returns due in part to the following:

• Questcor’s performance was largely due to strong revenue growth from its H.P. Acthar® Gel (repository corticotropin injection), which is indicated for the treatment of acute exacerbations of multiple sclerosis in adults, as monotherapy for the treatment of infantile spasms in infants and children under two years of age, and for the treatment of several other diseases and disorders.
• Despite news in September 2010 that the U.S. Food and Drug Administration (FDA) placed two of the company’s HCV drug candidates on clinical hold, Idenix Pharmaceuticals benefited from its drug candidate for the treatment of HIV/AIDS advancing into a Phase 2b trial by its corporate partner, ViiV Healthcare.
• Interest in NPS Pharmaceuticals can be attributed to the fact that in early 2011 the company expects to report top-line results from a Phase 3 study of teduglutide, a proprietary analog of GLP-2, in patients with short bowel syndrome who are chronically dependent on parenteral nutrition.

Losers Brought to You by the Letter “A”

Affymax, Inc. (AFFY), AMAG Pharma (AMAG), Arena Pharma (ARNA), Alexza Pharma (ALXA), and Alnylam Pharma (ALNY) were among the top 10 decliners from the NBI in 2010 (see Table 2).

Affymax, Inc., which hopes that its investigational anemia drug peginesatide could ultimately compete with Amgen Inc.’s Aranesp® (darbepoetin alfa), posted the largest percentage decline within the NBI for 2010. Top-line results from the Phase 3 clinical program released in June 2010 showed that the frequency of death, stroke, myocardial infarction, congestive heart failure, unstable angina, and arrhythmia was higher in non-dialysis patients taking peginesatide than those taking Aranesp, which sent shares of Affymax plummeting. In November 2010, Affymax and partner Takeda (TKPHF.PK) confirmed their goal of submitting a new drug application (NDA) for peginesatide for the treatment of anemia in chronic renal failure patients on dialysis in the second quarter of 2011.

AMAG Pharmaceuticals, Inc. launched Feraheme® (ferumoxytol) to treat iron deficiency anemia in July 2009, but anemic sales earned the company a spot in the top 10 decliners of 2010. Net product revenues from Feraheme were $15.1 million in the third quarter of 2010, well below the $500 million to $1 billion in annual sales originally projected by Wall Street analysts.

Table 2. Top 10 decliners from NBI in 2010

Company Name	Symbol	12/31/09 Close	12/31/10 Close	% Change
Affymax, Inc.	AFFY	$24.74	$6.65	-73%
China Sky One Medical, Inc.	CSKI	$22.75	$6.97	-69%
Medivation, Inc.	MDVN	$37.65	$15.17	-60%
Biodel, Inc.	BIOD	$4.34	$1.83	-58%
XenoPort, Inc.	XNPT	$18.55	$8.52	-54%
AMAG Pharmaceuticals, Inc.	AMAG	$38.03	$18.10	-52%
Arena Pharmaceuticals, Inc.	ARNA	$3.55	$1.72	-52%
Alexza Pharmaceuticals, Inc.	ALXA	$2.40	$1.25	-48%
Alnylam Pharmaceuticals, Inc.	ALNY	$17.62	$9.86	-44%
Curis, Inc.	CRIS	$3.25	$1.98	-39%

2011 Outlook

Most of the drivers supporting our favorable outlook for the biotechnology industry remain intact for 2011, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which should continue to outperform their larger industry peers in 2011.

The key exception relates to the number of FDA drug approvals, which declined in 2010 and is more than 50% below the high of 56 new approvals in 1996 despite the fact that legislation passed in 2008 gave the FDA more money and resources. There is no discounting the negative impact of clinical and regulatory setbacks on the psyche of biotechnology investors, as evidenced by the greater than 10% decline in the NBI in late February 2009 following a spate of high profile disappointments.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This Biotech Buys a Generic Lifeline

With its secondary hyperparathyroidism treatment, Sensipar, set to face generic competition in a few years, Amgen (Nasdaq: AMGN  ) made the most obvious move to solve the problem. It bought a biotech developing a compound for the disease.

Amgen is paying $315 million for KAI Pharmaceuticals -- entirely, it seems, for KAI-4169, which has completed phase 2 development. KAI had a partnership with Bristol-Myers Squibb (NYSE: BMY  ) to develop a heart drug, but that appears to have died in development.

Amgen wants to push KAI-4169 into phase 3 trials quickly, so it's lending KAI some money so the company can press on with trial planning before the deal closes. The fact that KAI needs a loan probably signals that it was a little desperate for a sale and that Amgen probably got a good deal.

There's no doubt the KAI acquisition is a good fit. There's the obvious experience in selling Sensipar, which brought in more than $800 million last year. But secondary hyperparathyroidism is a hormone imbalance that is often caused by kidney failure, so it fits well with Amgen's anemia drugs.

Follow-on compounds often struggle after the first-generation drug goes generic -- think Pfizer's (NYSE: PFE  ) Pristiq and Johnson & Johnson's (NYSE: JNJ  ) Invega competing against Effexor and Risperdal, respectively -- but KAI-4169 has one advantage because it'll be administered intravenously at the same time a patient is undergoing dialysis. Sensipar and Abbott Labs' (NYSE: ABT  ) Zemplar, which is also approved for secondary hyperparathyroidism, are taken orally. Patients usually prefer popping pills to other methods, but not if you're already hooked up to a machine.

The true sales potential for KAI-4169 will ultimately depend on the phase 3 efficacy data, so it'll be a while before we know whether the KAI acquisition was a good buy. But for now, it looks like a good move to combat the inevitable loss of Sensipar.

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1 Amarin Catalyst to Watch

Amarin's drug Vascepa, a treatment for high triglyceride levels, was approved by the Food and Drug Administration this summer. While the company was able to successfully jump over this regulatory hurdle, it is currently trying to obtain New Chemical Entity, or NCE, status for its flagship drug. An NCE designation would give Vascepa five years of market exclusivity, while failure to obtain this status would result in only three years of protection. Fool.com health care bureau chief Brenton Flynn and analyst Max Macaluso discuss the potential impact of this decision on Amarin going forward.

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Stocks: Growth worries dampen enthusiasm

NEW YORK (CNNMoney) -- U.S. stocks were headed for a weak open Thursday, as investors were rattled by worries of a global growth slowdown after China and Germany reported soft manufacturing data.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were 0.5% lower ahead of the opening bell. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.

Global markets put a damper on any optimism after a Chinese manufacturing index compiled by HSBC hit a four-month low in March. The new reading came in at 48.1, down from 49.6 in February.

A reading below 50 indicates the sector is contracting, and HSBC said that a significant drop in new orders acted as the primary drag on manufacturing. Reflecting a broader slowdown, China lowered its growth target and hiked gasoline prices in recent weeks.

A reading on manufacturing activity in Germany showed the eurozone stalwart hit a soft patch in March, as the sector registered only a marginal expansion.

Thursday may bring signs of strength in the U.S. economy to help reverse two straight days of losses -- a prospect made more likely by better-than-expected jobs data released before the start of trading.

The FHFA Housing Price Index and the Conference Board's Leading Indicators Index, which is a combination of economic readings, will be released after the opening bell.

Buyout season is back for private equity

U.S. stocks faltered Wednesday, after the latest report on new home sales damped enthusiasm about the economy.

Overall, stocks have been supported this year by rising hopes for the U.S. economy and easing concerns about the debt crisis in Europe. But given the strength of the recent rally, analysts say a period of uneven trading is to be expected.

World markets: European stocks were lower in morning trading. Britain's FTSE 100 (UKX) shed 0.9%, the DAX (DAX) in Germany lost 1.5% and France's CAC 40 (CAC40) fell 1.6%.

Asian markets ended mixed. The Shanghai Composite (SHCOMP) slid 0.1%, while the Hang Seng (HSI) in Hong Kong ticked up 0.2% and Japan's Nikkei (N225) added 0.4%.

Japan's Ministry of Finance reported the island nation enjoyed a trade surplus in February. A deficit had been expected, and the announcement buoyed stocks.

Economy: The government reported that initial jobless claims for the week ended March 17 dropped to 348,000, a four-year low and a better number than analysts had expected.

The Conference Board's Leading Indicators Index for February is expected to increase by 0.6%.

Companies: Dollar General (DG, Fortune 500) reported earnings of 85 cents per share on $4.2 billion in revenue, topping projections. The company said same store sales increased 6.5% over the quarter.

FedEx (FDX, Fortune 500) reported better-than-expected earnings and sales, citing record holiday shipping. The company, seen as a proxy for the health of the broader economy, said it expects its 'solid performance' to continue.

ConAgra (CAG, Fortune 500) reported earnings of 51 cents per share on $3.4 billion in revenue, or slightly better than analysts had expected. Shares were off by almost 1% in premarket trading.

Athletic apparel maker lululemon athletica (LULU) reported that revenue surged 51.4% to $371.5 million in the fourth quarter, topping analyst estimates. But shares dropped almost 2% in premarket trading as the company lowered guidance.

McDonald's (MCD, Fortune 500) said Wednesday that CEO Jim Skinner plans to retire at the end of June, ending a seven-year turn at the helm of the fast food giant. The company's current president and COO Don Thompson will succeed Skinner.

Currencies and commodities: The dollar strengthened against the euro and the British pound, but fell versus the Japanese yen.

Oil for May delivery slipped $1.19 to $106.08 a barrel.

Gold futures for April delivery fell $15.20 to $1,635.10 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.27% from 2.29% late Wednesday.  

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SiriusXM: Buyout Or Buyback?

Speculation about SiriusXM's (SIRI) use of cash will continue, and likely increase, as the company's cash balance approaches $1.5 billion later this year. Investors and analysts are trying to determine what Sirius will do with its cash, what Liberty Media (LMCA) will do with its 40% stake in Sirius and what will be the impact on the share price of Sirius. (Liberty acquired its 40% stake in Sirius for a nominal fee as part of a complex loan arrangement that helped Sirius stave off bankruptcy and takeover attempts by Charles Ergen and EchoStar Corporation more than three years ago.) Last year during the year end conference call, Sirius CEO Mel Karmazin stated:

Growing EBITDA, no satellite CapEx, reduced interest payments and no meaningful income taxes will contribute to our dramatic free cash flow growth.

So the obvious question that arises from this is what will we do with the cash that we accumulate over time. There are only three things a company can deal with a significant amount of excess cash, pay down debt, buy assets to grow the business or return capital to the shareholders. Our board of directors will consider all the alternatives and make the big decision that is in the best interest of our shareholders.

...So will we buy assets with our excess cash? Perhaps, but we haven't seen anything yet that's worthy of any meaningful investment or acquisition. Then will we return capital to shareholders, although I certainly can't quantify the amount or the timing for this, I think it is reasonable to expect that the company will return capital to shareholders over time. Obviously, this perspective can change ...

And in response to a question, added:

We have already had a discussion at the board level about what we should do with our free cash flow. No determination has been made. Historically, I've always believed that a share buyback is a more tax efficient way of returning capital to shareholders as compared to a dividend. But clearly, that's not anything that has been determined. We certainly have not heard anything specific from Liberty about their interest in having less ownership in the company. So certainly, from where I'm sitting today, we are not thinking about using the free cash flow to buy in Liberty shares as much as we might be thinking about using it for our public float.

As recently as March 8th when Karmazin was interviewed by Jim Cramer on "Mad Money," the issue of the build-up of cash, share buybacks and Liberty's interest again came up. As Karmazin finished discussing the free cash flow (FCF) growth, Cramer asked:

If that's the case, you've got one of the smartest guys in the world [Liberty's John Malone], the 40% shareholder in Liberty, why shouldn't they now that it's gone away start buying and buy the rest of the company for $2.50 which is capping all of the return that you can give shareholders?

I doubt Cramer expected a clear answer, and none was forthcoming. Cramer later asked:

Why not initiate a gigantic buyback and make all those people who have stuck with you and that stock for so long, recognize that you believe like they do that the stock is way too cheap?

And Karmazin replied:

It's a board decision, I would hope that the board would share my feelings that way, but that has to be the agenda. That absolutely has to be the agenda.

It sounds like a simple solution, doesn't it? Use the excess cash to repurchase the public float. I believe that Mel honestly thinks it is the best and most tax efficient use of the cash for shareholders. I also believe the cash will not be used for that purpose any time soon.

Many companies repurchase their outstanding float despite studies that show most of these companies overpay for their own shares. Wouldn't it make sense for current management to protect their positions by getting rid of the excess cash on the balance sheet and making Sirius less attractive as a takeover candidate? The answer is simple, and Karmazin gave it to us. It's a board decision. That board includes Liberty Media's Chairman John Malone and its CEO Greg Maffei. They, and the rest of the Liberty-appointed directors, have more power than a 40% stake would normally carry.

According to the loan agreement between Liberty and Sirius, along with the related documents:

Consent Rights
For so long as an aggregate of at least 6,250,000 shares of B-1 Preferred Stock and B-2 Preferred Stock are issued and outstanding, neither the Issuer [Sirius] nor any of its subsidiaries will take any of the following actions without obtaining the prior written consent or affirmative vote of the holders of a majority of the outstanding shares of B-1 Preferred Stock and B-2 Preferred Stock, voting together as a separate class:

...any consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Issuer...

...subject to certain exceptions, any acquisition or disposition of assets, in each case, having a value of more than $10,000,000, or any series of related acquisitions or dispositions having a value in the aggregate of more than $20,000,000;

...conducting or engaging in any business in any material respect other than the business in which the Issuer and its subsidiaries are engaged as of the date hereof and any business reasonably related or complementary thereto;

There's more, but the point is that Sirius can't do many of the things the company's common shareholders might like without the approval of Liberty, at least not if my interpretation of the referenced document is correct. Without Liberty's consent:

• There can be no bidding war for Sirius if Liberty wants to buy the company - note the selection about mergers.

• There can be no significant acquisition or purchase of assets - note the $10/$20 million price cap

• There can be no share buyback if that is considered an asset purchase (admittedly, my interpretation)

Will Liberty permit a share buyback? I just don't see it happening at the current time because I can't find the value in it for Liberty. There are a few comments that lead me to this conclusion. On numerous occasions Greg Maffei has stated that he thought the stock of Sirius was expensive. These comments were made at a time when the prices were far lower than they are today. He has also stated that he thinks that Sirius will grow into that valuation.

I also believe that Liberty wants to acquire the entire company. Liberty sees the same potential in Sirius that Sirius common stock investors see - the only difference is that Liberty wants all of that potential for itself. The free cash flow. The NOLs. And Malone & Maffei want to realize that potential in a tax advantaged transaction.

Originally, I thought there would be a two phase takeover, using cash to get to a majority stake followed by a share exchange using Liberty shares. Based on some additional recent comments by Maffei, it seems that the use of Liberty shares is unlikely. During the recent Liberty conference call, Maffei was asked by Barton Crockett of Lazard Capital Management about the method for monetizing the company's stake in Sirius using a Liberty share exchange to take control. Maffei replied that it was unlikely because the belief is that Liberty shares are trading at a discount. He also stated that if a takeover was the route the company were to take, it was more likely that Liberty would use cash to take control.

Summary and More Speculation
Speculation about a Sirius takeover by Liberty will continue as long as Liberty maintains a 40% equity stake in Sirius and as long as Liberty's shares continue to trade at a discount to its underlying assets. Also, the possibility of a share buyback - dependent entirely on what Liberty decides to permit - is unlikely to quietly fade into the background. Everything is up to Liberty.

And as long as this article started with "speculation," here is my speculation about events that could occur. Sirius will continue to build up cash and debt will be refinanced at lower rates, further building up cash. Eventually, when Liberty decides the price of Sirius is attractive, Liberty will use its cash and credit to buy a majority position in Sirius. When that is completed, Liberty will use the cash and credit of Sirius to fund the completion of the takeover.

There is a saying in the stock market. Sell in May, and go away. It is not unusual for market weakness to occur during the summer. This summer should be no different. Rising gas prices, polarization in Washington, tension in the Middle East over the threat of a nuclear Iran... These factors could all contribute to a weak stock market and present a buying opportunity for Liberty.

Disclosure: I am long SIRI.