Thursday, February 28, 2013

Limited Brands in Fashion This Afternoon

Retailer Limited Brands (LTD) is up 2.5% today on mixed results after presenting a strong fiscal fourth quarter alongside a weaker-than-expected forecast for the first quarter.

For the period ended Feb. 2, Limited Brands, which oversees retail chains including Bath and Body Works and Victoria�s Secret, reported fiscal fourth quarter profit of $411.4 million, or $1.39 a share, up from $359 million, or $1.17 a share, a year prior. Net sales rose to $3.8 billion in the quarter compared to $3.5 billion a year ago while gross margin rose 130 basis points.

For its fiscal first quarter, Limited Brands projected earnings-per-share of $2.92-$3.12, which came in below estimates made by analysts polled by Thompson Reuters of $3.24, while the company�s earnings-per-share estimate of 40 cents-45 cents came in below analysts� estimates of 51 cents.

The anticipated first quarter woes were not lost on Canaccord Genuity analyst Laura Champine, who maintained the company at Hold but slashed the price target to $42 from $49 in a note today and added, �The company continues to miss the opportunity to monetize the global brand equity of Victoria�s Secret in our view.�

Google Launches Virtual Tours of Indian Small Businesses

Google's� (NASDAQ: GOOG  ) Indian customers can now take an inside,�interactive, 360-degree, virtual tour of thousands of small businesses.�

Under Google India's new Google Business Photos program, businesses can tap Google's Street View technology to help create these tours, and add the imagery to their listings on Google Search, Google Maps, and Google+ Local Pages.

Businesses can hire Trusted Agency Photographers through Google to�help business owners capture the interiors of their business. Beyond pictures of the storefront and merchandise, the photographers can also help small businesses snap displays of business hours, rating details, accepted credit cards, and posted menus. Alternatively, business owners can also upload their own photos and videos and any other information onto a local Google+ page.�

Before officially launching this program, Google India worked closely with thousands of businesses in Mumbai, New Delhi, Hyderabad, Bengaluru, Pune, Ahmedabad, Kolkatta and Chennai to pilot this program.

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This Midstream Player Is Thinking Ahead

As earnings season comes to a close, we are left to process an awful lot of information. The midstream industry has been particularly interesting to watch, given the state of oil and gas production in North America. Its boom time now, but I can't help but wonder which companies will continue to find success when the boom goes bust. Enbridge (NYSE: ENB  ) is one company that stands out in my mind as being incredibly forward thinking. Today I'll look at three areas where Enbridge is taking the long view: safety, renewables, and international operations.

1. Safety
Safety is number one at Enbridge now, so that's where we'll start. Earlier this year, I spent a fair bit of ink covering the fallout from the National Transportation Safety Board's highly critical report of Enbridge's embarrassing failure that led to a devastating oil spill in the Kalamazoo River in Michigan in 2010. The problem wasn't that an Enbridge pipeline leaked, that will happen, but rather that warnings went unheeded, and Enbridge employees seemed at best incredibly unprepared to execute the appropriate response.

But Enbridge's reaction to the spill on a companywide level will serve it well in the future. Since 2011, the company has been conducting arguably the most thorough integrity management program in the industry. It has carried out 4,300 digs to make inspections. Enbridge has gone as far as using medical imaging technology to take a closer look at its buried assets.

More importantly, Enbridge has started up a new control center and made "significant organizational enhancements," a crucial development given that the excessive volume of the Kalamazoo spill can be attributed to employee's ineptitude in the control room.

Only time will tell how effective Enbridge's new commitment to safety and integrity will be, but at the very least the company is finally giving the subject the attention it deserves. It was one of the few companies to spend any significant time on the topic on its earnings call. As citizen opposition to pipeline projects continues to increase, it will never hurt to be best in class in this area.

2. Renewables
It is easy to see the importance for big oil to diversify assets to include renewable energy sources, but big pipe is getting in on the action as well. For example, Kinder Morgan Energy Partners (NYSE: KMP  ) increased volumes of transported biofuels by 22% last quarter. Enbridge has thrown its hat in the ring, and it has a significant renewable presence.

Believe it or not, Enbridge is actually the largest solar power generator, and the second-largest wind power generator, in Canada. The company owns nine wind farms and four solar farms.

Developing renewable assets is important. As CEO Al Monaco noted in the fourth-quarter earnings release: "We see renewable energy playing an important role in our longer-term strategy of developing a more diversified asset base as we move toward a future energy economy with lower reliance on hydrocarbons."

Our energy future will likely include a variety of sources, and it will be important for midstream companies to diversify operations outside of hydrocarbons. Enbridge is proving it can be done now, and profitably.

3. International operations
In the world of North American pipeline companies, an international presence more or less means operations in the U.S. and Canada. TransCanada (NYSE: TRP  ) does a little work in Mexico, and Kinder Morgan (NYSE: KMI  ) has a few connections at the Mexican border, but that's about it.

Enbridge is one of the few midstream players with true international experience; that is, outside of North America. The company has had operating or ownership projects in Spain, Oman, Venezuela, and Colombia. Though those past projects haven't always gone well in the past, and operating with foreign governments is sometimes easier said than done, there are some excellent opportunities out there and Enbridge is looking to develop that presence once again.

On Enbridge's fourth-quarter conference call, Monaco spoke to the company's vision for international development, highlighting opportunities in Australia, Peru, and Colombia as the most likely places where projects will come to fruition. Monaco stressed that Enbridge will not enter into any project just for the sake of international business, but that it has to be the right project for the company�:

So if we're talking about, obviously, crude oil or gas pipeline, then we would be a strong player. Colombia is probably one where that fits exactly right, good volume growth profile there for oil. And certainly, we have a good opportunity, in that there's a lack of infrastructure, generally, in terms of connecting that crude supply with markets.

That last comment is significant. We have seen in the U.S. just how important pipelines are to domestic oil markets. A lack of infrastructure can wreak havoc on oil prices. As shale oil production increases worldwide, it will be important -- especially in countries that rely heavily on oil to generate money for government operations -- to have sufficient takeaway capacity. That reality provides an excellent opportunity for Enbridge to do business abroad.

Foolish takeaway
I have been very critical of Enbridge in the past, but it is hard to ignore the progress the company is making, particularly with its safety and integrity program, and how it is setting itself up for success in the years to come.

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NVIDIA Wants to Power Your Camera, Too

Thanks to NVIDIA's (NASDAQ: NVDA  ) press release Tuesday, in which it announced its first fully integrated 4G LTE mobile processor, the investing world is abuzz with renewed excitement for the company's prospects in the fast-growing smartphone market -- and rightly so.

As I noted at the time of the announcement, Stuart Robinson at Strategy Analytics wasted no time voicing his approval, saying, "On paper at least, the Tegra 4i out-performs Qualcomm's (NASDAQ: QCOM  ) latest industry-leading chips in most apps processor measurements but, most importantly for NVIDIA, it also benefits from an integrated 'soft-modem' that can be reprogrammed over-the-air to support new frequencies and new air interfaces; something that most other modem vendors can currently only dream of."

Even still, while Qualcomm management can't be particularly pleased with the news, it's a safe bet that NVIDIA will be fighting an uphill battle with its well-established competitor.�

Capturing the world of photography
However, buried in the Tegra 4i news was another juicy nugget from NVIDIA. Just minutes before its Tegra 4i press release, the graphics specialist announced what it calls the "world's first mobile computational photography architecture."

Dubbed "Chimera," the architecture was technically unveiled more than a month ago at CES along with the initial announcement of NVIDIA's Tegra 4 processor. At the time, the company showcased Chimera's ability to maintain always-on HDR photos and videos to allow users to "instantly capture high-quality HDR images similar to how the human eye sees the world." For instance, our eyes are able to focus on both well-lit and shaded areas at the same time, which is a notoriously difficult task for traditional camera lenses. Apparently, Chimera goes a long way toward bridging this gap.

With this in mind, Tuesday's announcement gave algorithmic imagery nerds like myself even more to digest. Now, Chimera also incorporates new HDR panoramic functionality, allowing users to take wide-angle shots by capturing "a scene while the camera moves -- from side to side, up and down�or�diagonally -- effectively "painting" a panorama in real time from many angles and in any order the user wants."

In addition, Chimera now boasts "persistent tap-to-track technology," letting users touch the image of any object to set it as a static focal point for the resulting image. Translation? Whether you have to reposition the camera or little Jimmy just won't stop wiggling, NVIDIA's Chimera will make sure the picture stays in focus with its exposure intact.

Naturally, Chimera is integrated into both the Tegra 4 and Tegra 4i processors, so device makers can incorporate the technology in their Tegra-powered devices as they see fit. Going even further, according to the announcement both Sony�and Micron's�Aptina unit have already added support for Chimera in their sensors, "with others to be announced."

A sticky solution
As an investor, I love that NVIDIA is increasingly building on its gaming roots to become a one-stop shop for all things graphics and image processing.

Don't get me wrong. The Tegra 4i is huge news for NVIDIA and could be just what the doctor ordered to snap its shares out of their recent streak of prolonged underperformance. In the end, the Chimera architecture simply hasn't gotten the attention it deserves and makes NVIDIA's comprehensive solution that much harder to refuse.

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Health Insurance Innovations Slips Post-IPO

NEW YORK�Investors appeared hesitant to bet on big gains for low-cost insurance provider Health Insurance Innovations Inc. Its shares slid in their public trading debut.

The company's stock opened at $14.12 on the Nasdaq Stock Market on Friday, slightly above its $14 offer price, but slumped to $13.70, off 2.1%.

The Tampa, Fla., company sells short-term health insurance plans online using health questionnaires that allow it to make immediate acceptance and rejection decisions.

In the stock offering, it sold 4.6 million shares at the low end of the expected price range of between $14 to $16, valuing the deal at $64.4 million.

Health Insurance Innovations' focus is fixed-term, 12- or six-month medical-insurance plans, lower-cost alternatives to traditional insurance plans, which are renewable. Its products are underwritten by insurance carriers including Cigna Corp., among others, according to filings with the Securities and Exchange Commission.

The company's customer base is the uninsured�about 50 million people in the U.S. in 2010, according to the census bureau�as well as those that require stopgap insurance options, such as new graduates or the recently divorced.

The company says regulatory changes affecting the health insurance industry will spur its growth in the years ahead. For instance, the Patient Protection and Affordable Care Act, passed in 2010, includes a mandate expanding requirements that people carry health insurance.

The insurance market is highly competitive, and the company states that the implementation of provisions in the recent health-care law could hamper its business. For instance, it states in its prospectus that partial or complete repeal of the laws could shift the pricing and provider landscape.

The company's sales rose to $30.1 million in the nine months ended in September, up 38% from a year earlier. Over the same period, the company's net income increased 50% to $2.76 million.

Health Insurance Innovations said it plans to use proceeds to repay its $3.49 million in total debt, with the remainder to be used for general corporate purposes.

Credit Suisse Group AG, Citigroup Inc. and Bank of America Corp. served as lead underwriters.

Write to Chris Dieterich at chris.dieterich@dowjones.com

Separating the Offshore Wheat From the Chaff

This past year wasn't too kind to the onshore businesses of oil-field service companies. Falling rig counts and oversupplied markets affected North American earnings. Offshore, however, was a different story, with these same companies reporting robust results. Unfortunately, the same can't be said�for investors in Diamond Offshore� (NYSE: DO  ) .

The company�underperformed compared to 2011, with revenue dropping to $2.9 billion from $3.3 billion and its earnings sliding to $5.18 a share from the prior year's $6.92. The company noted cost inflation pressure in its industry as being one of the culprits. The only problem is that pretty much every other company operating offshore had great things to say about 2012 with an even brighter future outlook.�

Take the comments from National Oilwell Varco� (NYSE: NOV  ) �Chief Operating Officer Clay Williams:

Offshore drilling contractors steadily committed capital through 2012 to expand our deepwater fleets and we believe that this will continue through 2013. Our outlook for continued strong deepwater orders is a view that appears to be out of step with Wall Street's conventional wisdom, which seems likely to have convinced itself that deepwater rig ordering will slow. Candidly, we do not understand why.�

These sentiments were echoed by Halliburton� (NYSE: HAL  ) �CEO David Lesar in the company's fourth-quarter conference call:

In the deepwater area, we are seeing the payoff of our recent infrastructure investments with key contract wins and market share gains ...�Our value proposition for deep water remains focused at improving reliability and integrity in well construction and completion activities and helping our customers reduce uncertainty. We believe our deep water technology portfolio, expanding market position and service quality reputation will benefit us as new build deepwater rigs live in the market.�

Even Schlumberger� (NYSE: SLB  ) �had great things to say,�especially�in the Gulf of Mexico. Specifically the company noted that "continued weakening of North America land margins was more than offset by strong activity and excellent performance in the Gulf of Mexico, where deepwater drilling activity reached pre-Macondo levels, as expected." Of course, the strength experienced by oil-field services and equipment makers could have played a factor in weaker margins for Diamond's contract drilling business.�

Investors really do need to know where and how a company makes its money because it can underperform both peers and suppliers if it's not as well-positioned. That's one reason why investors should take note of Diamond's new deal with Royal Dutch Shell�for its�Ocean Patriot�rig. That rig will be repositioned into the North Sea from its current location in Southeast Asia.

The rig still needs to undergo upgrades after it comes off of its current contract in Southeast Asia. The company will be spending $120 million to upgrade and modernize the rig before it begins operations in the North Sea in the second quarter of 2014. The company was able to secure a three-year contract worth nearly $439 million. Signing a long-term contract at an attractive rate with a world-class operator is something for Diamond Offshore investors to cheer.

The turbulent seas can be both friend and foe to deepwater operations. While this past year wasn't exactly kind to Diamond Offshore, it wasn't a total washout for the company. Its future looks solid as it's beginning to see some more�visibility�into 2014 and beyond. This is good news for investors, even if 2012 wasn't a year for the record books.

Halliburton, however, is living it up in the deepwater market
The oil and gas service industry has certainly faced its share of challenges as business overall has taken a hit due to a slowdown in the natural gas drilling boom of the last couple of years. As this market looks to rebound, investors would be wise to consider Halliburton, one of the top companies in the business and one of those most in tune with the domestic market. To access The Motley Fool's new premium research report on this industry stalwart, simply click here now and learn everything you need to know about how Halliburton is positioning itself both at home and abroad.

Wednesday, February 27, 2013

When It Comes to Online Travel, Buy American

A couple of years ago it seemed as if overseas speedsters were the smart bets for growth investors playing the online travel revolution.

China's Ctrip.com (NASDAQ: CTRP  ) and India's MakeMyTrip (NASDAQ: MMYT  ) were posting explosive results, tantalizing the market with the opportunity to ride the inevitable economic bursts of the world's two most populous nations.

It didn't matter that both companies still did a lot of business the old-fashioned -- you know, offline -- way. It didn't matter that they commanded lofty valuations. As China and India blossom as economic hubs, this would be the place to be.

Well, both of the stocks are trading in the teens these days, just as priceline.com (NASDAQ: PCLN  ) soars today after another market-thumping report.

Yes, the "name your own price" portal is still rocking. Revenue climbed 20% in its latest quarter as gross bookings soared 33%. Priceline's adjusted profit of $6.77 a share blew past the $6.53 a share that Wall Street was targeting.

The near-term outlook is solid. Priceline's aiming for 30% to 37% in gross travel bookings during the current quarter.

How are Ctrip and MakeMyTrip holding up in comparison? Well, Ctrip just tapped a new CEO last week, and analysts see profitability declining for all of 2013.

MakeMyTrip is faring even worse. It posted quarterly results earlier this month, and it wasn't pretty. Reported revenue and bookings may have grown sharply, but revenue after service costs actually declined on a year-over-year basis. MakeMyTrip also posted a quarterly loss, reversing a year-ago profit.

The good news for investors is that they don't need Ctrip or MakeMyTrip for some skin overseas. Priceline is a global juggernaut. A whopping $5.5 billion of Priceline's $6.6 billion in gross bookings during this past quarter were international.

Larger rival Expedia (NASDAQ: EXPE  ) isn't the same kind of globetrotter, but a healthy $3.3 billion of its $7.5 billion gross travel bookings in its latest quarter originated internationally.

It would seem that investors can get the best of both worlds by buying into Priceline or Expedia, shaving the risks of country-specific exposure while still grabbing fast-growing companies.

Investors can also choose for smarter country-specific plays. India is still too early in its online migration for investors to cash in, but there's an interesting online travel play in China through Baidu (NASDAQ: BIDU  ) .

China's leading search engine also happens to own Qunar, the travel website that surpassed Ctrip late last year to become the country's largest online retailer of airline tickets. Qunar is more Web-centric than Ctrip, which still relies on old-school call centers for a sizable chunk of its bookings.

Unlike Ctrip, Baidu is expected to grow its bottom line at a healthy double-digit clip this year.

There's a world of opportunities for investors in online travel; you just need to know where to look.

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AES Outruns Estimates Again

AES (NYSE: AES  ) reported earnings on Feb. 27. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), AES crushed expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew. Non-GAAP earnings per share grew significantly. GAAP earnings per share increased.

Gross margins shrank, operating margins dropped, net margins grew.

Revenue details
AES reported revenue of $4.64 billion. The two analysts polled by S&P Capital IQ foresaw revenue of $3.86 billion on the same basis. GAAP reported sales were 11% higher than the prior-year quarter's $4.16 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.32. The seven earnings estimates compiled by S&P Capital IQ forecast $0.31 per share. Non-GAAP EPS of $0.32 for Q4 were 39% higher than the prior-year quarter's $0.23 per share. (The prior-year quarter included -$0.49 per share in earnings from discontinued operations.) GAAP EPS were $0.24 for Q4 against -$0.27 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 18.3%, 890 basis points worse than the prior-year quarter. Operating margin was 16.6%, 800 basis points worse than the prior-year quarter. Net margin was 3.8%, 880 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $5.23 billion. On the bottom line, the average EPS estimate is $0.35.

Next year's average estimate for revenue is $18.54 billion. The average EPS estimate is $1.28.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 503 members out of 535 rating the stock outperform, and 32 members rating it underperform. Among 120 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 116 give AES a green thumbs-up, and four give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on AES is outperform, with an average price target of $13.06.

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Investing in a Private Mortgage Fund: Attractive Returns & Passive Income

Sophisticated investors are always looking for ways to diversify their portfolios. An increasingly popular option for these investors is private mortgage funds. Private mortgage funds are so attractive to investors seeking diversification because they are able to generate investment income that isn’t subject to the volatility of traditional stock or bond markets. The premise for choosing to invest in a private mortgage fund is often a combination of the limited downside risk of capital invested, an attractive return and trusting experienced professionals to manage the fund according to the prescribed investment criteria.

Many individual investors have had success with real estate investments in some form or fashion throughout their lifetime. Making real estate investment loans available to borrowers via a private mortgage fund is simply a variation of generating profit from investment real estate. Instead of receiving equity from the sale of an investment property, the private mortgage fund simply collects interest from the borrower in exchange for loaning a percentage of the value of the property. The leverage provided on a real estate investment loan can vary, but typically doesn’t exceed 65% of the property’s value. There are additional items to be reviewed and considered aside from just the amount of leverage placed on the property. These include: the experience level of the borrower, their liquidity position, the amount of any improvements required for the property, their repayment ability, and the exit strategy for repayment of the loan.

The premise of making money from buying real estate, holding it, possibly improving it, and then reselling it for a profit is not a foreign concept to many investors. Real estate investment loans allow the borrower who purchased the property to actively utilize some of their capital, expertise, and active management to generate a profit on the real estate, while the passive mortgage holder receives interest income from the loan. Of course, holding a lien on the property is good security in the event of a loan default, but typically obtaining the property back through foreclosure isn’t the goal for most private mortgage funds.

The collateral position of the loan, commonly referred to as the loan-to-value ratio (LTV) is one component of the real estate investment loan equation. This ratio is calculated in two ways. It can be calculated based upon the as-is or after repair value of the property compared to the loan amount. This option looks at the loan amount strictly based upon the as-is or after repair value, but usually the purchase price paid by the buyer is also considered when determining a loan amount. The private mortgage fund may look at the loan to cost ratio (LTC). This is the percentage of the lender's cash compared to the buyer's cash placed into the transaction. To highlight the distinction between the two ratios, let’s consider the following example:

An investor puts a single family home under contract for $80,000 and the home requires $40,000 of improvements, which once completed will make the home worth $160,000.

For XYZ Private Mortgage Fund, they allow 60% of the after-improved value for a loan amount which would be:

                $160,000 x 60% = $96,000 max loan amount

For funds like the one I manage, we allow up to 60% of the total project costs to be financed:

                $80,000 + $40,000 = $120,000 Total project cost x 60% = $72,000 max loan amount

As the above two formulas illustrate, there are variations of how private mortgage funds look at the value and analyze the risk of exposure for a real estate investment loan. While knowing the collateral position is certainly important, the liquidity of the borrower is equally important to ensure against a loan default. Borrower liquidity level requirements can vary between lenders, however for a fix and flip type loan, the monthly interest, an overage amount for the improvement budget, and holding costs should at minimum be verified by the lender.

The author Oscar Wilde famously stated, “Experience is one thing you can’t get for nothing”. This sentiment translates very well as it pertains to real estate investing. While not a requirement for many real estate investment loans, it is something we look very closely at in our fund. We feel that private real estate investment loans should not be the borrowers first “go round” for making money in real estate. Often Murphy’s law of, anything that can go wrong will go wrong, can at times, apply to real estate investments. Because of the complexities and unknown factors involved with real estate investments, there can be a significant learning curve. Having previous experience to deal with setbacks, in my opinion, make for a more resilient borrower when difficulties come up, and ultimately assists in reducing the risk of a loan default.

Intel Helps Put the Dow Back in Black

Stock markets got a boost today from stronger-than-expected data about the economy. On the housing side, the Federal Housing Finance Agency said home prices rose 0.6% in December, while the S&P/Case-Shiller index rose 0.2%. Further, the Department of Commerce said new-home sales rose 15.6% in January to an annual rate of 437,000, a rate not seen since July 2008. Consumer confidence also rose in February, according to the Conference Board, whose index rose to 69.6 from 58.4 in January, surpassing the estimate of 62.3. Add all of this up, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 0.8% as of 3:25 p.m. EST, while the S&P 500 (SNPINDEX: ^GSPC  ) is climbing 0.53%.

Home Depot (NYSE: HD  ) has led the 30 Dow components, rising 5.2% on the strong housing data and better-than-expected earnings. Earnings jumped 32% to $0.68 per share, which was $0.04 better than estimates. The company also increased its quarterly dividend to $0.39 per share and announced a $17 billion share repurchase program. This is a hugely bullish bet by Home Depot on the long-term recovery in housing, and it should be an indicator of stability in that market going forward.

Tech stocks Hewlett-Packard (NYSE: HPQ  ) and Intel (NASDAQ: INTC  ) are also moving the Dow higher, climbing 3.4% and 1.8%, respectively. HP announced a deal to sell the webOS mobile operating system to LG Electronics, ending the company's failed attempts to revive the mobile platform. The company will go with the Android operating system for new tablets, which it hopes can help bolster sales.

Intel's shares rose after the company announced an agreement to develop chips for Altera's semiconductors. The deal will use Intel's 14-nanometer tri-gate transistor technology and reportedly comes with margins in excess of 50%. Intel needs all the good news it can get as its traditional PC business slowly fades, so investors cheered the news today.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, Intel must find new avenues for growth. In this�premium research report on Intel, our analyst runs through all of the key topics investors�should understand�about�the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.

Sempra Energy Beats on Both Top and Bottom Lines

Sempra Energy (NYSE: SRE  ) reported earnings on Feb. 26. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Sempra Energy beat slightly on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew slightly. Non-GAAP earnings per share shrank. GAAP earnings per share dropped slightly.

Margins shrank across the board.

Revenue details
Sempra Energy reported revenue of $2.67 billion. The one analyst polled by S&P Capital IQ looked for a top line of $2.63 billion on the same basis. GAAP reported sales were the same as the prior-year quarter's.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $1.08. The nine earnings estimates compiled by S&P Capital IQ averaged $0.98 per share. Non-GAAP EPS of $1.08 for Q4 were 11% lower than the prior-year quarter's $1.21 per share. GAAP EPS of $1.18 for Q4 were 2.5% lower than the prior-year quarter's $1.21 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 27.7%, 610 basis points worse than the prior-year quarter. Operating margin was 13.5%, 460 basis points worse than the prior-year quarter. Net margin was 11.0%, 20 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $2.44 billion. On the bottom line, the average EPS estimate is $0.99.

Next year's average estimate for revenue is $10.28 billion. The average EPS estimate is $4.40.

Investor sentiment

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Sempra Energy is outperform, with an average price target of $71.73.

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Dow Climbs Higher With Help From These Stocks

Wonderful housing numbers, strong consumer confidence, and perhaps even a few positive words from Ben Bernanke gave investors enough courage to pour cash back into the markets after yesterday's big late-day decline. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) added 115 points or 0.84% today and now sits at 13,900. The S&P 500 and the Nasdaq both also closed in positive territory, though still slightly lower than the Dow. The S&P 500 gained 0.61%, while the Nasdaq rose by 0.43%. Six of the Dow's 30 stocks ended the session in the red, but eight closed up after gaining more than 1%, and nine others were up more than 0.8% for the day. So let's look at a few of the big winners during today's bullish rally.�

After the positive housing numbers this morning, it was a given that Home Depot (NYSE: HD  ) would be up today. But housing numbers alone wouldn't push shares higher by 5.69%. The company released earnings yesterday after the market closed in which EPS of $0.68 crushed last year's performance by 32% and topped analysts' estimates of $0.64 per share. Revenue performed similarly, as it was expected to hit just $17.7 billion and came in at $18.25 billion, an increase of 14% over the same quarter last year. �

Shares of Hewlett-Packard (NYSE: HPQ  ) were soaring high again today as well. The stock popped 3.78% during the regular trading session after CEO Meg Whitman said management will look into selling business units or projects that don't fit into management's plans, but that it will keep the major operating units. Just yesterday, HP announced that it was selling its WebOS operating system and its accompanying engineering staff. HP will now use the Android operating system for its new devices. �

Finally, shares of Intel (NASDAQ: INTC  ) rose by 1.73% today. Investors pushed the stock price higher after it was announced late yesterday that the company will develop chips for Altera. My Fool colleague Anders Bylund noted that it wasn't known how large of an order was placed, but Altera is a decent-sized company, and because of slowing demand for Intel's PC chips, any additional revenue the company can get right now is a good thing.�

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this�premium research report on Intel, our analyst runs through all of the key topics investors�should understand�about�the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.

Tuesday, February 26, 2013

United States Cellular Goes Negative

United States Cellular (NYSE: USM  ) reported earnings on Feb. 26. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), United States Cellular met expectations on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue grew slightly. Non-GAAP earnings per share dropped to a loss. GAAP earnings per share shrank to a loss.

Margins dropped across the board.

Revenue details
United States Cellular notched revenue of $1.12 billion. The five analysts polled by S&P Capital IQ anticipated a top line of $1.13 billion on the same basis. GAAP reported sales were the same as the prior-year quarter's.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at -$0.27. The eight earnings estimates compiled by S&P Capital IQ forecast $0.00 per share. Non-GAAP EPS were -$0.27 for Q4 against $0.04 per share for the prior-year quarter. GAAP EPS were -$0.47 for Q4 against $0.03 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 52.4%, 500 basis points worse than the prior-year quarter. Operating margin was -3.0%, 480 basis points worse than the prior-year quarter. Net margin was -3.6%, 390 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $1.11 billion. On the bottom line, the average EPS estimate is $0.46.

Next year's average estimate for revenue is $4.11 billion. The average EPS estimate is $1.73.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 37 members out of 59 rating the stock outperform, and 22 members rating it underperform. Among 15 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 10 give United States Cellular a green thumbs-up, and five give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on United States Cellular is hold, with an average price target of $38.43.

Is United States Cellular the best telecom bet for you? Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks," including one above-average telecom company. Click here for instant access to this free report.

  • Add United States Cellular to My Watchlist.

Priceline Beats on Q1 EPS, Revenue Guidance

Priceline.com (NASDAQ: PCLN  ) has reported increases in revenue and net profit in its fiscal Q4 and 2012 results. For the quarter, revenues totaled $1.19 billion, for a 20% jump on a year-over-year basis. Non-GAAP net income was $349 million ($6.77 per diluted share), 26% higher than the $277 million ($5.37) recorded in Q4 2011.

On average, analysts were expecting revenues of $1.19 billion and an EPS of $6.53.

The top line for fiscal 2012 totaled $3.1 billion, a 34% increase over 2011's result. Net income amounted to $1.6 billion ($31.28 diluted EPS), or 33% above the previous year's $1.2 billion ($23.45).

Priceline.com also surprised on the upside with guidance for its current quarter. The company believes its revenue will grow to $1.21 billion-$1.25 billion for the period , and non-GAAP net income will come in at $4.90-$5.30 per share. Analysts had been anticipating $1.24 billion and $5.17, respectively.

Does The Street Have Kellogg Figured Out?

Kellogg (NYSE: K  ) is expected to report Q4 earnings on Feb. 5. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Kellogg's revenues will increase 14.1% and EPS will expand 3.1%.

The average estimate for revenue is $3.44 billion. On the bottom line, the average EPS estimate is $0.66.

Revenue details
Last quarter, Kellogg booked revenue of $3.72 billion. GAAP reported sales were 12% higher than the prior-year quarter's $3.31 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, non-GAAP EPS came in at $0.86. GAAP EPS of $0.82 for Q3 were 2.5% higher than the prior-year quarter's $0.80 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 38.8%, 200 basis points worse than the prior-year quarter. Operating margin was 13.4%, 60 basis points worse than the prior-year quarter. Net margin was 8.0%, 80 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $14.08 billion. The average EPS estimate is $3.39.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 877 members out of 962 rating the stock outperform, and 85 members rating it underperform. Among 300 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 282 give Kellogg a green thumbs-up, and 18 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Kellogg is hold, with an average price target of $52.60.

Can your portfolio provide you with enough income to last through retirement? You'll need more than Kellogg. Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks." Click here for instant access to this free report.

  • Add Kellogg to My Watchlist.

TheStreet in Tie-Up With Philadelphia Inquirer

On Thursday, financial advisory website TheStreet (NASDAQ: TST  ) announced that it has formed a "strategic alliance" with Philadelphia Inquirer website Philly.com. Going forward, TheStreet will be providing personal finance content as "integrated content for business news offered on Philly.com." Other TheStreet content will be "featured" in the Inquirer itself.

No financial terms of the relationship were disclosed in today's announcement -- and there may be none to disclose. According to TheStreet's press release, in exchange for receiving content for its website, Philly.com will pepper its "5 million unique readers" with "exclusive offers to purchase TheStreet's premium services, including Action Alerts PLUS, Options Profit and Real Money."

Taxpayers Giving Biggest Banks $83 Billion Per Year


How fortunate that banks like JPMorgan have all of us generous taxpayers giving such lavish gifts each year!

Did you know that taxpayers like you and me are obliged to give approximately $83 million to the big banks every year?

According to Bloomberg, CEOs of these banks have told the public that this money allows them to “lower costs and vie customers on an international scale.” Cutting back on these “taxpayer donations” would hurt their profits and weaken the country's dominant position in to international financial realms – or so they say... 

Well of course, they have to validate receiving all that money from us by saying it's good for something. Meanwhile, skeptics assert that the “largest” banks in our country aren't necessarily the most profitable at all. The billions of dollars given to their shareholders each year is scarcely money those banks have “earned”; it is almost entirely comprised of taxpayer money.

This problem alone poses a serious threat on our economy – not just America's economy, but the whole world's economy. But the greedy bankers have little incentive to do anything about this dilemma, so long as the money keeps flowing their way.

However, if this situation isn't soon remedied, superbanks could require future bailouts that exceed the government's resources. Sound familiar?

You'd think that the financial meltdown of 2008 and the bailouts that soon ensued would have taught the banks a critical lesson in finance. Unfortunately, many are too self-absorbed to think of the long-term consequences of such reckless behavior.

From Bloomberg:

Regulators can change the game by paring down the subsidy. One option is to make banks fund their activities with more equity from shareholders, a measure that would make them less likely to need bailouts (we recommend $1 of equity for each $5 of assets, far more than the 1-to-33 ratio that new global rules require). Another idea is to shock creditors out of complacency by making some of them take losses when banks run into trouble. A third is to prevent banks from using the subsidy to finance speculative trading, the aim of the Volcker rule in the U.S. and financial ring-fencing in the U.K.

Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better. This could entail anything from cutting pay packages to breaking down financial juggernauts into more manageable units. The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.

 

Regional bank stocks now present opportunity

Portfolio manager Andy Schornack, a regional bank VP himself, sees ongoing opportunity among regional bank stocks.

� Five signs this rally is on hold.

� The strong run in private equity stocks like Blackstone (BX) and Apollo (APO).

� James Surowiecki on Apple's "wobble in flight."

� Look how much Google (GOOG) spends on lobbying Washington.

� Two concerns for Facebook (FB) shareholders: ongoing privacy/personal misrepresentation qualms, and WeChat coming to America.

� Oaktree Capital's Howard Marks on the stretched high yield bond market.

� The case for "undervalued gem" New York & Co. (NWY).

� Gregor MacDonald on the "nasty reality" for Japan: "its cost of inputs are rising at the same time demand for its goods continues to soften"

� There's an intriguing value investing subreddit.

This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Consolidated Tomoka L Beats on the Top Line

Consolidated Tomoka L (AMEX: CTO) reported earnings on Feb. 25. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Consolidated Tomoka L beat expectations on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded. Non-GAAP loss per share contracted. GAAP earnings per share grew.

Margins grew across the board.

Revenue details
Consolidated Tomoka L tallied revenue of $4.3 million. The one analyst polled by S&P Capital IQ expected to see revenue of $4.0 million on the same basis. GAAP reported sales were 14% higher than the prior-year quarter's $3.8 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at -$0.01. The one earnings estimate compiled by S&P Capital IQ anticipated $0.05 per share. Non-GAAP EPS were -$0.01 for Q4 versus -$0.12 per share for the prior-year quarter. GAAP EPS were $0.01 for Q4 compared to -$0.10 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 64.7%, much better than the prior-year quarter. Operating margin was 13.5%, much better than the prior-year quarter. Net margin was 1.4%, much better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $4.3 million. On the bottom line, the average EPS estimate is $0.09.

Next year's average estimate for revenue is $17.2 million. The average EPS estimate is $0.36.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 49 members out of 73 rating the stock outperform, and 24 members rating it underperform. Among 25 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 19 give Consolidated Tomoka L a green thumbs-up, and six give it a red thumbs-down.

  • Add Consolidated Tomoka L to My Watchlist.

White House Details Budget Cut Fallout State By State

By JULIE PACE and PHILIP ELLIOTT

WASHINGTON (AP) - Facing an end of the week deadline, President Barack Obama said Monday that Congress can avert sweeping across-the-board cuts with "just a little bit of compromise," as he sought to stick lawmakers with the blame if the budget ax falls.

Speaking to the nation's governors, Obama acknowledged that the impact of the $85 billion in cuts may not be felt immediately. But he also said the uncertainty already is impacting the economy, as the Pentagon and other agencies get ready to furlough employees.

"At some point we've got to do some governing," Obama said. "And certainly what we can't do is keep careening from manufactured crisis to manufactured crisis."

Despite Obama's urgent rhetoric, there is no indication that the White House and Congress were negotiating a deal to avoid cuts by Friday's deadline. White House press secretary Jay Carney said he had no new telephone calls to announce since the president's conversations with Republican congressional leaders last week. "We will continue to engage with Congress this week," Carney said.

Obama wants to offset the so-called sequester through a combination of targeted spending cuts and revenue increases, but Republicans oppose any plan that would include tax hikes.

Emerging from a closed-door meeting with Obama, governors said the president had assured the administration is pursuing solutions, but didn't offer assurances that officials would find a way ahead out ahead of the deadline.

The $85 billion budget-cutting mechanism could affect everything from commercial flights to classrooms to meat inspections. Domestic and defense spending alike would be trimmed, leading to furloughs for hundreds of thousands of government workers and contractors.

Defense Secretary Leon Panetta has said the cuts would harm the readiness of U.S. fighting forces. Transportation Secretary Ray LaHood said travelers could see delayed flights. Education Secretary Arne Duncan said 70,000 fewer children from low-income families would have access to Head Start programs. And furloughed meat inspectors could leave plants idled.

The White House continued laying out in stark terms what the cuts would mean for government services, dispatching Homeland Security Secretary Janet Napolitano to warn of the implications for critical security functions.

"I don't think we can maintain the same level of security at all places around the country with sequester as without sequester," said Napolitano, adding that the impact would be "'like a rolling ball. It will keep growing."

Despite the Friday deadline, there are no serious negotiations happening between the White House and Congress. Obama is focused instead are trying to rally public support for his stance in the debate by warning Americans of the dire consequences of the across-the-board cuts.

The president told the governors that cuts would "''slow our economy, eliminate good jobs, and leave a lot of folks who are already pretty thinly stretched scrambling to figure out what to do."

The spending cuts have frustrated governors attending the National Governors Association meeting in Washington. They contend it has created widespread uncertainty in the economy and hampered economic recovery in their states.

"The president needs to show leadership," said Louisiana Gov. Bobby Jindal, a Republican considered a potential 2016 presidential contender, outside the West Wing. "The reality is it can be done. This administration has an insatiable appetite for new revenue."

Democratic governors, meanwhile, laid responsibility squarely at the feet of Congress, but called on lawmakers from both parties to compromise.

"They need to get out of that box that sits under the dome and understand that this has real implications in people's lives," said Connecticut Gov. Dannel Malloy. "Work with the president, find a way to get it done - or if you want, just turn it over to us governors, and we'll negotiate."

The White House, seeking to ratchet up pressure on congressional lawmakers, gave the governors state-by-state reports on the impact of the cuts on their constituencies.

White House officials pointed to Ohio - home of House Speaker John Boehner - as one state that would be hit hard: $25.1 million in education spending and another $22 million for students with disabilities. Some 2,500 children from low-income families would also be removed from Head Start programs.

Officials said their analysis showed Kentucky would lose $93,000 in federal funding for a domestic abuse program, meaning 400 fewer victims being served in Senate Minority Leader Mitch McConnell's home state. Georgia, meanwhile, would face a $286,000 budget cut to its children's health programs, meaning almost 4,200 fewer children would receive vaccinations against measles and whooping cough.

The White House compiled its state-by-state reports from federal agencies and its own budget office. The numbers reflect the impact of the cuts this year. Unless Congress acts by Friday, $85 billion in cuts are set to take effect from March to September.

As to whether states could move money around to cover shortfalls, the White House said that depends on state budget structures and the specific programs. The White House did not have a list of which states or programs might have flexibility.

Republican leaders were not impressed by the state-by-state reports.

"It's time for the White House to stop spending all its time campaigning, and start finding smarter ways to reduce the deficit," said McConnell.

___

Associated Press writers Ken Thomas and Josh Lederman contributed to this report.

----

To read the White House reports on how the March 1 sequester will impact each state (and Washington, D.C.), click on the links below:

1. Alabama

2. Alaska

3. Arizona

4. Arkansas

5. California

6. Colorado

7. Connecticut

8. Delaware

9. District of Columbia

10. Florida

11. Georgia

12. Hawaii

13. Idaho

14. Illinois

15. Indiana

16. Iowa

17. Kansas

18. Kentucky

19. Louisiana

20. Maine

21. Maryland

22. Massachusetts

23. Michigan

24. Minnesota

25. Mississippi

26. Missouri

27. Montana

28. Nebraska

29. Nevada

30. New Hampshire

31. New Jersey

32. New Mexico

33. New York

34. North Carolina

35. North Dakota

36. Ohio

37. Oklahoma

38. Oregon

39. Pennsylvania

40. Rhode Island

41. South Carolina

42. South Dakota

43. Tennessee

44. Texas

45. Utah

46. Vermont

47. Virginia

48. Washington

49. West Virginia

50. Wisconsin

51. Wyoming


Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Monday, February 25, 2013

Advisers want Washington to let the budget ax fall

Looming automatic federal spending cuts might deal the nascent economic recovery a short-term setback, but investment advisers say the medicine is necessary to start curing the nation's long-term fiscal ills.

If Congress and President Barack Obama can't agree on legislation to avert the reductions this week, the $85 billion sequestration will go into effect Friday. After that date, federal agencies would have until Sept. 30 to implement a 5% across-the-board cut — 8% for defense programs.

“Is it going to be painful? Absolutely,” said Michael Masiello, president and owner of Masiello Retirement Solutions. “I hate the concept of doing it now. It's not a pleasant pill. But the American people need to swallow it — and hold the politicians accountable.”

Indeed, an In-vest-mentNews survey last week found that 66% of the more than 200 re-spon-dents support se-questration.

Among the re-spondents, 74% said the spending cuts would hurt the economy. Of those who felt that way, 73% said the short-term pain would be worth the long-term gain.

“If sequestration takes effect, it will certainly weaken the economy,” said Neal Solomon, managing director of WealthPro LLC. “The question is: Is that better or worse than continuing on a path of not addressing the problem? This problem needs to be addressed.”

The Congressional Budget Office has estimated that sequestration, combined with the tax increases that hit this year as part of the fiscal cliff deal, would reduce economic activity by 1.5 percentage points, cutting estimated 2013 GDP growth in half to 1.5%. Job losses related to sequestration have been estimated at between 1 million and 2 million, while government cutbacks could affect everything from food inspection to transportation security.

GETTING READY

Agencies such as the Securities and Exchange Commission are bracing for cuts. The SEC, which might have to trim its budget by more than $100 million, has not provided any details on how it would deal with a funding reduction, but SEC spokes-man John Nester said that no staff furloughs or layoffs would result from sequestration.

Chairman Elisse Walter told reporters Feb. 14 that in the event of sequestration, it wouldn't be able to hire all the people it needed. “We won't be able to do all the things we plan to do, but we are prepared,” she said.

“Essentially, they have to operate with both hands tied behind their back and walking on crutches,” said Marilyn Mohrman-Gillis, managing director of public policy and communication at the Certified Financial Planner Board of Standards Inc.

Kevin Berenzweig, a retirement adviser at Retirement Strategies Group, has mixed feelings about the impending budget cuts. He said that although federal spending must be reined in, sequestration is a blunt instrument that would harm a fragile economy.

“It's going to have a negative psychological effect on consumer spending,” he said.

Mr. Berenzweig may see the impact of sequestration directly in San Diego, where he is based. The city is home to substantial U.S. Navy operations.

“It's definitely a concern,” Mr. Berenzweig said.

The tussle over sequestration is one of a lineup of fiscal battles in Washington. On Jan. 1, lawmakers and Mr. Obama narrowly averted automatic tax increases and spending cuts with the so-called fiscal cliff bill.

NEW DEADLINES

After sequestration, if Congress can't agree on a new federal budget — or extend the current one — by March 27, the government will shut down. And the federal debt limit ceiling is scheduled to expire in August.

Sequestration is the most easily survivable clash on the fight card, according to Barry Glassman, president of Glassman Wealth Services LLC.

“It's the least evil of the four,” Mr. Glassman said.

Sequestration was set in motion last year as an element of the plan to extend the debt limit ceiling, although both Democrats and Republicans had expected to come up with another budgetary blueprint that would not impose such across-the-board cuts. Neither side, however, has shown any willingness to compromise before the deadline. Still, it's unclear how long sequestration might last.

Even in his home region — Washington, D.C. — Mr. Glassman doesn't foresee a big sequestration impact if it doesn't last for more than a year.

“I don't think it's going to affect home prices, consumer spending and overall economic activity throughout the D.C. area,” said Mr. Glassman, who does not have any federal-employee clients.

Mr. Obama is calling on Congress to enact a package of spending cuts and tax reform, such as closing some deductions and loopholes, to stave off sequestration until lawmakers can agree to a long-term budget. Republicans counter that the fiscal cliff bill already provided tax increases on the wealthy and that Mr. Obama must offer more on the spending side.

There is some wiggle room. Under federal rules, agency employees must be given at least 30 days' notice before being furloughed — providing time for lawmakers to undo the cuts.

mschoeff@investmentnews.com Twitter: @markschoeff

Retiree Sues Wells Fargo for Mishandling IRA

A retiree in Florida has sued Wells Fargo after her broker allegedly mishandled IRA assets, despite having already suffered losses with the same broker, according to a statement released Tuesday by the woman's lawyer.

The retiree gave her broker a chance to "do a better job" with her IRA, after suffering losses and moving her investments to another broker-dealer. The woman returned to her initial broker after he said he would watch her IRA and "do a better job."

The claim filed by Florida-based securities fraud attorney Mark Tepper alleges that Wells Fargo "breached its duty to make suitable recommendations; mis-marked her investment objective and risk tolerance; and engaged in short term trading and speculating on Latin America and China mutual funds, and on 'ultra bull' leveraged exchange traded funds."

Instead of developing an "accurate customer profile" in order to make suitable recommendations, the claim alleges "key forms" used by the broker included contradictory and false information about the client.

The claim also accuses the broker of "excessive trading" and generating "an annual turnover rate of more than 17 times the average monthly equity" in the woman's IRA.

A spokesperson for Wells Fargo said that they had not yet seen the complaint, but that they typically did not comment on ongoing litigation.

What Are the Great Opportunities for Activision Blizzard In 2013?

The world's largest home entertainment software maker, Activision Blizzard (NASDAQ: ATVI  ) , has seen its fair share of bullishness lately. Indeed, it finds its shares up nearly 40% since the beginning of 2013 after posting better-than-expected fourth-quarter and full-year results in early February. Going beyond that, the company has another exciting year in store for it.

How will Activision keep up the positive momentum for its shareholders? To answer the question, the Fool compiled a research report to break down the each critical facet of the Activision investment thesis. We've included an excerpt from one section below for our readers. Enjoy!

The opportunity
Activision Blizzard tends to find itself at the right place at the right time.

When massive multiplayer online role-playing games were taking off, Activision Blizzard was there with the World of Warcraft franchise. When music timing games were all the rave, the company was leading the way by arming air guitar strummers with the now defunct Guitar Hero games.

Combat games are still popular now, and Activision Blizzard rules the roost with Call of Duty.

The Skylanders aren't falling
Another example of Activision Blizzard being in the right place at the right time is the Skylanders franchise.

Skylanders Spyro's Adventures was the industry's biggest seller through the first half of 2012. It's a welcome surprise. The game -- combining action figures with traditional video game battles -- gives Activision Blizzard a way to reach out to players beyond the initial sale.

There are now dozens of available action figures that enter the game as they're placed in the console-agnostic portal. The starter pack comes with three action figures, and the young gamers are encouraged to purchase more since each Skylander has unique powers, personalities, and tendencies.

Let's call it Pokemon of Yu-Gi-Oh! for the next generation. Perhaps more importantly, it's winning over young gamers that will eventually move on to play Activision Blizzard's other games.

Surprising consistency
Despite the general malaise surrounding the gaming industry, Activision Blizzard has been able to grow its adjusted profitability year after year.

  • 2009: $0.69 a share in adjusted earnings
  • 2010: $0.79 a share in adjusted earnings
  • 2011: $0.93 a share in adjusted earnings
  • 2012: $1.10 a share in adjusted earnings guidance

Things may not be pretty, but Activision Blizzard has managed to top $1 billion in operating cash flow in each of the past three years.

In November 2012, Activision Blizzard even raised its guidance for all of 2012.

Stay tuned�
Check back for more excerpts from our report on Activision Blizzard, and Fool on!

U.K. ratings downgrade to weigh on pound

SAN FRANCISCO (MarketWatch) � The British pound will face continued pressure in the coming weeks as confidence erodes in the United Kingdom�s recovery efforts following the loss of the country�s triple-A rating, according to analysts.

The British pound GBPUSD �fell sharply to below $1.517 from around $1.525 late Friday following Moody�s U.K. ratings downgrade to Aa1 from Aaa. The pound had surged briefly past the $1.53 mark before the announcement on Friday from $1.515 on Thursday after touching an intraday high of $1.55 on Tuesday.

Click to Play Europe's week ahead: tense mix

A wide mix of events is likely to buffet markets, including Ben Bernanke's testimony that might clarify U.S. Fed policy, Italy's very uncertain elections and the appointment of a new Bank of Japan governor.

In its rationale for the downgrade, Moody�s said U.K. economic growth will remain �sluggish� over the next few years compared with past recoveries in the 70s, 80s, and 90s.

�The sluggish growth environment in turn poses an increasing challenge to the government�s fiscal consolidation efforts, which represents the second driver informing Moody�s one-notch downgrade of the U.K.�s sovereign rating,� Moody�s said in its note.

Expect the pound to trade in the $1.40 to $1.50 range over the next couple of months as the U.K.�s medium-term growth outlook remains weak, said Mansoor Mohi-uddin, head of foreign exchange strategy at UBS Macro Research, in a note.

�We think the pound is undergoing a similar devaluation to what the yen has experienced over the last few months,� Mohi-uddin said.

HSBC retained its 2013 year-end forecast of $1.48 for the pound. The British middle-ground plan of �[b]orrow initially to stimulate U.K. growth, providing the platform for the austerity programme thereafter� appears not to be working as the Moody�s downgrade suggests, HSBC said in a note.

�The markets will not enjoy the kind of clarity and comfort that policy provided in the past,� HSBC said. �Indeed, the proposed path of year after year of a sizeable fiscal drag, unprecedented in U.K. modern economic times, always looked challenging.�

Reuters George Osborne, Britain's chancellor of the exchequer.

U.K. Chancellor of the Exchequer George Osborne said the Moody�s downgrade will not deter the country�s current economic strategy as he faced criticism that he fell short of his 2010 vow to retain the country�s AAA rating. Read more on Osborne reaction to downgrade.

The Federation of European Employers was quick to point out that Osborne could have avoided the downgrade had he focused more on growing the economy by cutting corporate taxes to stimulate manufacturing.

�The downgrading of the U.K.�s credit status is a blow for the U.K. as a leading financial centre and the U.K. balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of Sterling and have a major impact on GDP,� said FedEE Secretary-General Robin Chater in a statement.

�Regaining international confidence by further government spending cuts is going to take far too long to affect the economic fundamentals and could harm public confidence if it reduced the quality of public services,� he said.

The pound also fell against other currencies. Against the euro GBPEUR , the pound was down to �1.147, compared with being just above �1.156 before the downgrade.

Against the yen GBPJPY , the pound traded at �141.66 compared with �142.48 before the downgrade.

3 Stocks the Bulls Left Behind Today

With the Dow Jones Industrial Average (DJINDICES: ^DJI  ) now just a little more than 100 points away from its all-time high, the threat of a pullback is growing in investors' minds. Any slightly negative news, or even just a stock that may be getting ahead of itself, could pull the index back down to the ground. The Dow's three biggest losers today all fit that mold perfectly. But let's take a look at where the major indexes stand before we get into specific stocks. As of 12:45 p.m. EST. the Dow is up 43 points, or 0.31%, to 14,025. The S&P 500 is up 0.47%, while the NASDAQ is up 0.33%.

So who's down and why?
Shares of Boeing (NYSE: BA  ) are down by 1% as the company's union workers vote on whether they will strike or not. The company, already reeling from the grounding of its 787 Dreamliner, would be in a world of hurt if workers went on strike. And just to add insult to injury, International Consolidated Airlines Group CEO Willie Walsh praised Airbus this morning for removing lithium-ion batteries from it's a A350 and instead using the traditional nickel-cadmium battery. The lithium-ion batteries are about 132 pounds lighter, but given the issues with the Dreamliner, they're clearly more dangerous at this time.

Shares of Alcoa (NYSE: AA  ) are down 1.9%, making it the worst-performing Dow component of the day. The stock ended last week up 4.3% after a joint venture partner sold 13% of its business to a Chinese state-owned enterprise. Essentially, through a middle man, Alcoa is a partner with the Chinese government. But today, investors may feel that relationship is not worth a 4%-plus stock price gain, as Alcoa has lost about half of that today.

Lastly, shares of UnitedHealth (NYSE: UNH  ) are down 1.7% after its competitor Humana announced that the company's profit would take a hit in 2014 if the government's proposed Medicare Advantage payment rates in that year were too low. While this will affect all insurance companies, UnitedHealth, being the country's biggest health-insurance provider, may take the biggest hit.

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Integrys Energy Group Earnings Up Next

Integrys Energy Group (NYSE: TEG  ) is expected to report Q4 earnings on Feb. 28. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Integrys Energy Group's revenues will decrease -7.2% and EPS will shrink -5.9%.

The average estimate for revenue is $1.05 billion. On the bottom line, the average EPS estimate is $0.95.

Revenue details
Last quarter, Integrys Energy Group reported revenue of $927.6 million. GAAP reported sales were 0.7% lower than the prior-year quarter's $934.4 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, non-GAAP EPS came in at $0.55. GAAP EPS of $0.83 for Q3 were 77% higher than the prior-year quarter's $0.47 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 21.1%, 440 basis points better than the prior-year quarter. Operating margin was 11.7%, 420 basis points better than the prior-year quarter. Net margin was 7.1%, 320 basis points better than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $4.16 billion. The average EPS estimate is $3.28.

Investor sentiment

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Integrys Energy Group is hold, with an average price target of $55.20.

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Why Gentex May Be About to Take Off

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 Gentex (Nasdaq: GNTX  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Gentex doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue increased 7.4%, and inventory decreased 15.3%. Comparing the latest quarter to the prior-year quarter, the story looks decent. Revenue grew 0.0%, and inventory shrank 15.3%. Over the sequential quarterly period, the trend looks healthy. Revenue dropped 2.9%, and inventory dropped 9.7%.

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 Gentex? 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, each segment of inventory decreased. On a sequential-quarter basis, each segment of inventory decreased. Gentex seems to be handling inventory well enough, but the individual segments don't provide a clear signal. Gentex may 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 great 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.

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Sunday, February 24, 2013

Ford Beats on Both Top and Bottom Lines

Ford (NYSE: F  ) reported earnings on Feb. 19. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Ford beat expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew. Non-GAAP earnings per share expanded significantly. GAAP earnings per share contracted significantly.

Gross margins were steady, operating margins contracted, net margins contracted.

Revenue details
Ford reported revenue of $34.50 billion. The 14 analysts polled by S&P Capital IQ expected a top line of $32.90 billion on the same basis. GAAP reported sales were 5.3% higher than the prior-year quarter's $34.58 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.31. The 20 earnings estimates compiled by S&P Capital IQ predicted $0.25 per share. Non-GAAP EPS of $0.31 for Q4 were 55% higher than the prior-year quarter's $0.20 per share. GAAP EPS of $0.40 for Q4 were 88% lower than the prior-year quarter's $3.37 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 11.9%, about the same as the prior-year quarter. Operating margin was 2.5%, 60 basis points worse than the prior-year quarter. Net margin was 4.4%, 3,500 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $33.72 billion. On the bottom line, the average EPS estimate is $0.40.

Next year's average estimate for revenue is $133.83 billion. The average EPS estimate is $1.42.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 9,696 members out of 12,097 rating the stock outperform, and 2,401 members rating it underperform. Among 1,943 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 1,564 give Ford a green thumbs-up, and 379 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Ford is outperform, with an average price target of $14.66.

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Cimarex Energy Beats on Both Top and Bottom Lines

Cimarex Energy (NYSE: XEC  ) reported earnings on Feb. 19. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Cimarex Energy beat expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded slightly. Non-GAAP earnings per share shrank. GAAP earnings per share dropped significantly.

Gross margins were steady, operating margins dropped, net margins dropped.

Revenue details
Cimarex Energy tallied revenue of $440.9 million. The 11 analysts polled by S&P Capital IQ predicted net sales of $424.0 million on the same basis. GAAP reported sales were the same as the prior-year quarter's.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $1.21. The 22 earnings estimates compiled by S&P Capital IQ averaged $1.03 per share. Non-GAAP EPS of $1.21 for Q4 were 14% lower than the prior-year quarter's $1.40 per share. GAAP EPS of $1.14 for Q4 were 16% lower than the prior-year quarter's $1.36 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 79.9%, about the same as the prior-year quarter. Operating margin was 36.4%, 670 basis points worse than the prior-year quarter. Net margin was 22.5%, 470 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $437.6 million. On the bottom line, the average EPS estimate is $1.09.

Next year's average estimate for revenue is $1.87 billion. The average EPS estimate is $4.87.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 519 members out of 541 rating the stock outperform, and 22 members rating it underperform. Among 117 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 112 give Cimarex Energy a green thumbs-up, and five give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Cimarex Energy is outperform, with an average price target of $77.00.

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Forget What You Know: Bonds Are "Extremely Risky"


For the last couple generations, one of the most basic ideas of investing has held true: bonds are less risky than stocks. However, all things must change and investors must seriously reconsider the risk of low interest rates, a flood of money into bonds and the unprecedented market distortion of the Fed's quantitative easing policies.

Richard Saperstein, CIO of Treasury Partners cut straight to the heart of the matter in an interview with CNBC's “Squawk on the Street:”

"Bonds are an extremely risky investment right now, given where the economy is and the potential rise in rates...

"If we talk about the risk of stocks versus bonds, we have to calibrate it relative to historical averages," he said. Saperstein points out that for the last 50 years the 10-year Treasury has outperformed the S&P [500]. Today, this relationship is reversed.

"There's a real mismatch between where the valuations of equities and bond yields are. In the past 5 years $1.1 trillion has moved into bond mutual funds and $400 billion has moved out of equity mutual funds.”

As Wealth Daily editor Briton Ryle points out: "Most bond investors are too focused on the Fed's interest rates policies and not the tools it is using to suppress interest rates in the market."

While it appears that the Fed will be holding interest rates low until some time in 2014 when it hits a 6.5% unemployment rate target, it is the constant purchase of $80 billion of bonds per month that is holding rates in check.

If and when the quantitative easing stops, he predicts that interest rates could rise by 20% virtually overnight, wipe out and existing gains and lead to a loss.

The interview with Mr. Saperstein may be found below. To view Mr. Ryle's detailed analysis, please click here:


 

Why Hewlett-Packard Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of beaten-down tech leader Hewlett-Packard (NYSE: HPQ  ) have posted one of their largest gains in recent memory following a positive earnings report. Shares are up roughly 9% as of this writing.

So what: HP's fiscal first quarter came in with $28.4 billion in revenue and earnings of $0.82 per share. Although revenue was 6% lower than the year-ago quarter, it still handily beat Wall Street's lowball consensus of $27.8 billion. The $0.71 EPS consensus was soundly thrashed.

Looking ahead, HP now expects EPS in the $0.80 to $0.82 range for the second quarter and $3.40 to $3.60 for the full year. Both guidance ranges come in ahead of Wall Street's estimates, which sought $0.77 for the second quarter and $3.33 for the year.

Now what: The upper bound of HP's EPS guidance would bring the company roughly back to where it was after the awful year that was 2012, with its write-offs and writedowns and botched turnarounds and so forth. However, virtually every segment saw revenue decline year over year, with HP's financial services group the only one to show a top-line gain. A forward P/E of just 4.7 means that HP is undeniably cheap, and the stock offers a reasonable dividend as well. Gains from this point on may be driven more by a return to valuation means than by any fundamental improvements in HP's increasingly dated-looking business.

The massive wave of mobile computing has done much to unseat the major players in the PC market, including venerable technology names like Hewlett-Packard. However, HP's rapidly shifting its strategy under the new leadership of CEO Meg Whitman. But does this make HP one of the least-appreciated turnaround stories on the market, or is this a minor blip on its road to irrelevance? The Motley Fool's technology analyst details exactly what investors need to know about HP in our new premium research report. Just click here now to get your copy today.

2 Top Legal Battles in Technology

Currently there are legal battles under way involving two of the largest names in technology. Apple (NASDAQ: AAPL  ) got some bad news this week when the judge hearing the case brought by hedge fund star David Einhorn said the suit may succeed. On the slightly more esoteric, but arguably far more expensive, end of the spectrum, new privacy regulations have the potential to cost Google (NASDAQ: GOOG  ) up to $1 billion in fines. While neither legal dispute has concluded, shareholders and potential shareholders will do well to follow each of these stories.

Einhorn's mad for Apple's cash
In case you somehow missed it, Einhorn's Greenlight Capital recently filed suit against Apple in an effort to block the Feb. 27 shareholder vote that would potentially prevent the company from issuing preferred shares without shareholder approval. The suit is based on a securities law that prohibits bundling of different issues into a single proxy vote, which Apple did. Einhorn's motivation is to induce the company to return a larger portion of the $137 billion of cash it holds to investors.

U.S. District Judge Richard Sullivan made indications earlier this week that the hedge fund has a colorable claim: "Candidly I do think the likelihood of success is in favor for Greenlight." The remaining issue is for the judge to determine if the case involves the potential for "irreparable harm" to the plaintiff. If so, the shareholder vote scheduled for the end of this month will likely be stopped. While Apple continues to contend that it has not done anything wrong, the leanings of the judge do not bode well.

The absurdity of the entire exercise is that even if the case is successful, Apple will have the ability and the right to "unbundle" the various elements of Proposal 2 for a straight vote. There does not seem to be any clear sense that the majority of shareholders oppose the idea of the company being required to get approval before issuing preferred shares. While Einhorn contends that this requirement makes it unnecessarily hard for Apple to issue preferred shares, which he wants to see happen, even the ability to issue preferred shares does not mean it will happen.

Ultimately, the public perception loss on the matter, even if it has little practical impact, is the largest negative for the company. While I would not sell to avoid fallout, it would be reasonable to wait until the decision is rendered to buy new shares. The long-term prospects for Apple remain solid, but this is one more snafu it could have done without.

EU gives Google serious side-eye
Recently, the European Union commissioner for justice Vivian Reding said that new rules are being formulated that would give the power to fine U.S. companies across the entire EU to a single point of contact: "The one-stop-shop regulator could threaten a company which does not obey the rules with a fine of up to two percent of global turnover." In Google's case, that fine could amount to as much as $1 billion for violations of the EU policies. Reding explained that Google has been warned to change its policies, but that the complex, cross-border nature of the claims makes punishment difficult.

When this new structure goes into effect, this impediment will be eliminated and the fines could become stiff. The central issue at dispute is the practice by Google to aggregate user data across all of its services. Regulators claim this violates users' privacy, largely because European regulations require users to specifically opt into all data collection activities. Google maintains it is not in violation of any laws.

Leaving aside the fact that it seems unthinkable to suggest that aggregated user data is a violation of one's privacy, you must wonder what the real motivation of the EU commission might be. It could be argued that the policy is being crafted to perform a quick cash-grab on U.S. companies to help the struggling EU economy. Likewise, I believe there is an argument that by creating unduly restrictive regulation, the EU is trying to clear the way for its own domestic players to have a chance to compete.

I do wonder how the entirety of Europe would react if Google simply said, "No, thank you." What would the public backlash be if overreaching regulators drove Google out of Europe? This is not likely to ever happen as too significant a portion of Google's revenue comes from there, but it is a nice thought exercise. As the world continues to become increasingly subject to extra layers of burdensome and unneeded regulation, you must wonder when some major player will simply say, "Enough." If Google said that it declined to pay, what would happen? Does turning off Google in a major part of the world not cripple a critical piece of the Internet as a whole?

From an investment perspective, the new rule may have a limited short-term impact on the company as it is forced to adapt to the new regulation and protect itself. There is not likely to be a lasting impact unless battle lines are drawn. You should remain aware of what is going on, but don't fear that such events will be a significant negative catalyst for shares.

More expert advice on Apple
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.