Demographics Bolster Canada’s Housing Market

An increasing number of economists, politicians and pundits have been sounding the alarm over Canada’s housing market. And while Canada’s financial system has a reputation for conservatism, we’ve been wondering ourselves how a nation of just 35 million can sustain an average home price of nearly CAD392,000 amid anemic economic growth.

Of course, homeowners have enjoyed an era of historically low interest rates, which has helped make higher prices more affordable, even if Finance Minister Jim Flaherty has tightened mortgage-lending regulations four times over the past several years.

Flaherty’s last change was in July 2012, when he shortened the amortization period on government-backed mortgages to 25 years from 30 years, while lowering the maximum amount homeowners can borrow against their homes to 80 percent from 85 percent. And he’s prepared to intervene again, if necessary.

Meanwhile, according to data from the Canadian Real Estate Association, the rise in residential real estate prices doesn’t even come close to the double-digit gains characteristic of the US housing market during its bubble earlier last decade. Indeed, as of October, home prices have climbed 8.5 percent over the past year and are up about 29 percent since early 2008.

As many observers note, a substantial portion of the increase in Canada’s average home price is derived from the overheated real estate markets in Toronto and Vancouver. Indeed, the average price for a single-family home in each of these metro areas is simply staggering, at more than CAD804,000 in Toronto and almost CAD923,000 in Vancouver.

But it’s difficult to dismiss this problem by saying it’s isolated to just two cities, when they collectively account for a sizable percentage of the country’s population. Based on 2011 data, the combined population of these cities’ metro areas added up to about 23 percent of Canada’s overall population.

At the same time, consumers are shouldering a considerable debt burden, with the average Canadian’s ratio of household debt to disposable income now at a record 163.4 percent, according to Statistics Canada. Fortunately, Canadians seem to be managing their debt burdens for now, as credit bureau TransUnion recently reported that delinquency levels for all forms of consumer credit remain low.

One area that hasn’t received much attention until recently is how immigration has affected new household formation. After all, if demographics is destiny, as the saying goes, then Canada’s rising immigrant population could bolster the country’s housing market, or at least provide sufficient demand to ensure a soft landing when prices finally decline.

A special report from the economists at National Bank Financial, published in early September, says that–thanks to immigration–growth in the key 20-to-44 age demographic in Canada has been substantially higher than other developed countries. In fact, during 2012, this segment of the population grew at the fastest pace in 20 years. This demographic is especially important for the housing market, as that age range encompasses the years during which new households typically form.

Although population growth for this group is projected to decelerate in the coming years, it’s still expected to outpace other developed economies, and National Bank’s economists believe that this cohort could help cushion the housing market. In 2012, for instance, the 20-to-44 demographic grew 1.1 percent in Canada in contrast to a 0.3 percent decline among its developed-world peers. While 2012 was likely the peak year for this segment’s population growth, it’s expected to continue growing, albeit at a slower rate, compared to further shrinking in other countries.

Of course, it seems unlikely that immigrants in this age group will be making offers for single-family homes in areas such as Toronto and Vancouver. But they could be helpful in supporting home prices in other more affordable metro areas and provinces if the real estate markets in these two cities suffer a hard landing.

As US investors analyzing Canada’s economic prospects, it’s difficult to avoid extrapolating what we experienced during our own housing bubble to our neighbors to the north. And as Canadians nervously assess their own housing market, they’re certainly mindful of what happened in the US.

But while the human propensity for boom-and-bust cycles is ineluctable, it can differ in degrees of magnitude. In the case of Canada, the fundamental and structural details are different than they were in the US. And that could make all the difference.

Treasurys fall for first session in three

NEW YORK (MarketWatch) — Treasury prices held losses Friday after a round of disappointing economic data, as the market took a breather following two days of gains.

The benchmark 10-year note (10_YEAR)  yield, which moves inversely to price, rose 2 basis points to 2.712%, after a two-session drop of 8.5 basis points.

The 30-year bond (30_YEAR)  yield rose 1 basis point to 3.800%, and the 5-year note (5_YEAR)  yield rose 2.5 basis points to 1.353%.

Stocks traded higher.

Getty Images Enlarge Image Janet Yellen testifies during her confirmation hearing Thursday.

"For the most part the market is still bullish over the remarks of Yellen. It's probably just a slight correction heading into the weekend," said David Coard, head of fixed-income sales and trading at Williams Capital Group.

The market continued to dig through the testimony from President Obama's nominee to lead the Federal Reserve. Janet Yellen, currently vice chair of the Fed, went before the Senate Banking Committee Thursday as she seeks confirmation to succeed Ben Bernanke as Fed chief.

Her comments raised expectations that the Fed is not in a hurry to scale back, or taper, its bond-buying program. "The probability of December tapering has shifted this week, from just under 2:1 earlier this week to more like 4:1 odds against tapering today," said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities, in a note.

The Wall Street Journal's Jon Hilsenrath, an influential Fed watcher, suggested Yellen was on board to begin scaling back the program "in the coming months," which was a less dovish assessment than the market interpreted, according to Gilhooly.

Click to Play CIA's financial spying bags data on Americans

The CIA is building a vast database that includes millions of Americans' financial and personal data, White House officials signaled an openness to further extension of old health plans, a look at the markets, and more. Photo: Getty Images.

Changes to monetary policy hinge upon improvement in economic data, and a series of indicators came in below expectations Friday. The Empire State index turned negative in November for the first time in six months, with a reading of minus 2.2. Economists polled by MarketWatch had expected a positive 5.5 reading on the business conditions indicator.

U.S. import prices fell by 0.7% in October due to a drop in fuel prices. That compares with expectations of a 0.4% drop. Prices were unchanged when fuel prices were stripped out.

Industrial production fell 0.1% in October, the first drop since July as mining and utilities activity dropped. Wholesale investors climbed 0.4% in September.

Auto Parts: You Must Own One Stock in This Sector

Popular Posts: 3 Best ETFs to Own Until You Die5 Safe Dividend Stocks Yielding North of 7%Auto Parts: You Must Own One Stock in This Sector Recent Posts: Auto Parts: You Must Own One Stock in This Sector 5 Safe Dividend Stocks Yielding North of 7% Time to Tune in to AMC Networks View All Posts

Plenty of sectors have at least one must-own long-term stock. With a little thought and research, they aren’t too hard to find. But in a few cases, little subsectors might contain companies that don’t get a lot of recognition despite their products being intrinsic to our everyday human experience.

Cars come to mind, and you could probably get away with owning a common car dealer like Toyota (TMC). The problem with this approach, though, is that auto manufacturers are economically sensitive and can have really bad years. That's why I go one level deeper to what I call "infrastructure" plays, which in this case means auto parts.

See, cars are always going to be on the roads all over the world. They will always be sold because all cars eventually die. And along the way, no matter how well-engineered they are, they will need parts and require maintenance. That's why you should own a stock in the auto parts sector for the long term. The challenge is in picking the right one.  Here's a quick look at your options:

AutoZone (AZO) is a $15 billion company with 5,109 stores in the US and Mexico. It holds $4 billion in debt and $133 million in cash and generates very reliable free cash flow of $800 million to $900 million annually. AZO has a projected long term-growth rate of 14.8%, and trades at a FY13 P/E of just 14. That’s a lot of debt for the company, but it’s cheap at just under 5%, and very manageable.

Genuine Parts Company (GPC) is a $12 billion company with 1,100 Napa Auto Parts stores in the US, Canada, and Mexico. It holds $250 million in debt and $197 million in cash.  Free cash flow improved to $800 million in FY12 from $600 million in FY11. GPC has a projected long term-growth rate of 10%, and trades at a FY13 P/E of 19, so I consider it vastly overvalued.

Advance Auto Parts (AAP) is a $7.4 billion company with 4,000 stores in the US, Canada, and Mexico. It’s $604 million in debt is almost entirely offset by its $520 million in cash.  Free cash flow is a bit inconsistent, swinging up and down over the years, but presently at a very solid $410 million. AAP has a projected long-term growth rate of 13.5%, and trades at a FY13 P/E of 18, so it is also overvalued.

O'Reilly Automotive (ORLY) is also a $15 billion company with 4,000 stores in the US alone. It holds $1.4 billion in debt and $366 million in cash, and generates strongly increasing levels of free cash flow — from $350 million in FY10 to $800 million in FY11, up to $950 million in FY12. It has a projected long-term growth rate of 17.3%, and trades at a FY13 P/E of 18.5. The stock is a bit pricey, but the fantastic cash flow trend, and 3% interest on debt makes it a compelling consideration.

Pep Boys (PBY) is a $690 million company with 750 stores in the US. It holds only $197 million in debt and $65 million in cash. Its free cash flow situation is less compelling, with only $34 million in FY12, coming after a breakeven FY11 — that's what you get with a smaller company trying to expand its footprint. It's a bit slower growing at 14% long-term, and trades at a current year P/E of 13, so it is arguably a tiny bit undervalued. Buying here means you are betting they will win market share in a very crowded field.

Motorcar Parts of America (MPAA) is the tiniest entry at only a $208 million market cap. It's a bit more specialized, focusing more on alternators, starters and wheel hub assemblies. It also distributes only through the DIY stores. MPAA sits on $100 million in debt and $16 million in cash. It’s cash flow negative and trades at a P/E of 14 on long term growth of 15%. I'd stay away from this one, given the cash flow situation.

In conclusion, I think you want to be with AutoZone or O'Reilly here. The latter is on a stronger cash flow trend, but both appear to be slightly undervalued, and very good stocks to own.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets @ichabodscranium.

4 Biotech Stocks Under $10 to Watch

DELAFIELD, Wis. (Stockpickr) -- At Stockpickr, we track daily portfolios of stocks that are the biggest percentage gainers and the biggest percentage losers.

>>5 Stocks Set to Soar on Bullish Earnings

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.

>>5 Breakout Trades to Take Ahead of the Fed

With that in mind, let's take a closer look at a several stocks under $10 that are making large moves to the upside today.

Ziopharm Oncology

Ziopharm Oncology (ZIOP) is a biopharmaceutical company engaged in the development and commercialization of small molecule and synthetic biology approaches to new cancer therapies. This stock closed up 2.8% to $3.23 in Tuesday's trading session.

Tuesday's Range: $3.11-$3.26

52-Week Range: $1.49-$6.02

Thursday's Volume: 460,000

Three-Month Average Volume: 910,536

>>5 Stocks Rising on Big Volume

From a technical perspective, ZIOP bounced notably higher here right off its 200-day moving average at $3.17 with lighter-than-average volume. This stock has been uptrending strong for the last six months, with shares moving higher from its low of $1.49 to its recent high of $3.50. During that move, shares of ZIOP have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ZIOP within range of triggering a major breakout trade. That trade will hit if ZIOP manages to take out some near-term overhead resistance levels at $3.44 to $3.50 with high volume.

Traders should now look for long-biased trades in ZIOP as long as it's trending above its 50-day at $3.01 or above more near-term support at $2.75 and then once it sustains a move or close above those breakout levels with volume that hits near or above 910,536 shares. If that breakout triggers soon, then ZIOP will set up to re-fill some of its previous gap down zone from March that started at $5.

Spectrum Pharmaceuticals

Spectrum Pharmaceuticals (SPPI) is a commercial stage biotechnology company integrated in commercial and drug development operations and primarily in oncology and hematology. This stock closed up 4.7% to $8.42 in Tuesday's trading session.

Tuesday's Range: $8.04-$8.43

52-Week Range: $6.92-$13.52

Tuesday's Volume: 898,000

Three-Month Average Volume: 992,453

>>5 Rocket Stocks to Buy as Mr. Market Climbs

From a technical perspective, SPPI spiked sharply higher here right off its 50-day moving average of $8.08 and into breakout territory above $8.32 with decent upside volume. This move is quickly pushing shares of SPPI within range of triggering another big breakout trade. That trade will hit if SPPI manages to take out Tuesday's high of $8.43 and then once it clears more resistance at $8.54 with high volume.

Traders should now look for long-biased trades in SPPI as long as it's trending above its 50-day at $8.08 or above more support at $7.83 and then once it sustains a move or close above those breakout levels with volume that hits near or above 992,453 shares. If that breakout hits soon, then SPPI will set up to re-test or possibly take out its next major overhead resistance level at $9.21. Any high-volume move above $9.21 will then give SPPI a chance to re-fill some of its previous gap down zone from March that started at $12.47.

ChemoCentryx

ChemoCentryx (CCXI) is a biopharmaceutical company engaged in discovering, developing and commercializing orally administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer. This stock closed up 7.1% to $6.42 in Tuesday's trading session.

Tuesday's Range: $5.85-$6.45

52-Week Range: $5.28-$14.96

Tuesday's Volume: 813,000

Three-Month Average Volume: 329,620

>>5 Stocks Ready for Breakouts

From a technical perspective, CCXI spiked sharply higher here with above-average volume. This stock has been downtrending badly for the last month and change, with shares moving lower from its high of $14.75 to its recent low of $5.28. During that move, shares of CCXI have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of CCXI are now starting to bounce off those recent lows and the stock is moving within range of triggering a near-term breakout trade. That trade will hit if CCXI manages to take out its recent gap down day high of $6.78 with high volume.

Traders should now look for long-biased trades in CCXI as long as it's trending above Tuesday's low of $5.85 or that recent low of $5.28 and then once it sustains a move or close above $6.78 with volume that hits near or above 329,620 shares. If that breakout triggers soon, then CCXI will set up to re-fill some of its previous gap down zone that started near $8.40. If that gap gets filled with volume, then CCXI could even tag $10 in the short-term.

iBio

iBio (IBIO) is a biotechnology company focused on developing vaccines and therapeutic proteins based upon its proprietary plant-based iBioLaunch Platform Technology. This stock closed up 6.5% to 48 cents per share in Tuesday's trading session.

Tuesday's Range: $0.46-$0.48

52-Week Range: $0.33-$1.24

Tuesday's Volume: 308,000

Three-Month Average Volume: 273,839

From a technical perspective, IBIO bounced sharply higher here right above some near-term support at 45 cents per share with above-average volume. This move is quickly pushing shares of IBIO within range of triggering a near-term breakout trade. That trade will hit if IBIO manages to take out some near-term overhead resistance levels at its 50-day moving average of 0.485 and then above more resistance at 50 cents per share with high volume.

Traders should now look for long-biased trades in IBIO as long as it's trending above some key near-term support at 44 cents per share and then once it sustains a move or close above those breakout levels with volume that hits near or above 273,839 shares. If that breakout triggers soon, then IBIO will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of 55 cents per share to more resistance at 65 cents per share.

To see more stocks that are making notable moves higher today, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>Why Wall Street Got Apple Wrong

>>5 Stocks With Big Insider Buying

>>5 REITs That Call Bernanke's Bluff

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

Mortgage Loan Rates Keep Lid on Home Refinancing

The Mortgage Bankers Association (MBA) released its weekly report on mortgage applications this morning, noting a slight increase of 0.2% in the group's seasonally adjusted composite index following a drop of 3.7% for the previous week. Mortgage loan rates showed little change last week.

The seasonally adjusted purchase index increased by 1% from the last report. On an unadjusted basis, the composite index was unchanged week-over-week. The unadjusted purchase index also increased by 1% for the week, and is up about 8% year-over-year.

The MBA's refinance index was unchanged after sliding 1% in the previous week.

The share of refinancings remained unchanged again at 63%, its lowest level in more than two years. Adjustable rate mortgage loans account for 6% of all applications, flat with the prior week.

The average mortgage loan rate for a conforming 30-year fixed-rate mortgage remained increased from 4.58% to 4.61%. The rate for a jumbo 30-year fixed-rate mortgage was unchanged at 4.64%. The average interest rate for a 15-year fixed-rate mortgage fell from 3.67% to 3.66%.

The contract interest rate for a 5/1 adjustable rate mortgage loan remained unchanged at 3.39%.

With so little change from a week ago, it is only worth noting that refinancings continue at low levels when compared with the past two years. Unless interest rates make an unlikely move lower, refinancings should remain soft.

Anadarko Petroleum Falls as Earnings Disappoint, Gas Trumps Oil

Anadarko Petroleum’s (APC) profits surged but that wasn’t good enough for investors.

Benjamin Rasmussen

MarketWatch has the details:

Overall, Anadarko posted a profit of $182 million, or 36 cents a share, up from a profit of $121 million, or 24 cents a share, a year ago. The latest quarter included $389 million in impairments and other items on an after-tax basis that reduced income by 77 cents a share, while the prior-year period included $301 million in derivative losses and other items, contributing 60 cents to per-share earnings.

Revenue rose 16% to $3.85 billion.

Analysts polled by Thomson Reuters were expecting per-share earnings of $1.16 a share on revenue of $3.82 billion.

Sure, Anadarko’s shares are falling, but RBC Capital Market’s Scott Hanold is not worried. He writes:

Production guidance volumes remained unchanged at 281–284 MMboe, which accounts for the reduced Wattenberg production related to flooding. However, expected oil volumes dropped 3.7–3.8 MMboe, which was offset by natural gas and NGLs. The reductions occurred in every region and were caused by infrastructure, downtime (Jubilee), and delayed ramp and reduced liftings (Algeria)…

Guidance volumes stayed mostly unchanged but the production mix was more gassy, which could weigh on APC shares a bit. However, we think many of the “issues” are temporary and should be resolved by early 2014.

Shares of Anadarko have dropped 2.8% to $93.22 at 11:30 a.m. today, a bigger loss than those experienced by others in the sector. Chevron (CVX) has fallen 0.2% to $117.90, for instance, Devon Energy (DVN) has declined 0.7% to $63.98 and ConocoPhillips (COP) has 0.8% to $72.76.

Why Life Time Fitness's Earnings May Not Be So Hot

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Life Time Fitness (NYSE: LTM  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Life Time Fitness generated $13.2 million cash while it booked net income of $114.0 million. That means it turned 1.1% of its revenue into FCF. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Life Time Fitness look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only 1.9% of operating cash flow, Life Time Fitness's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 3.3% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 94.9% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Looking for alternatives to Life Time Fitness? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Life Time Fitness to My Watchlist.

Don't Get Too Worked Up Over Industrias Bachoco's Earnings

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Industrias Bachoco (NYSE: IBA  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Industrias Bachoco generated $48.9 million cash while it booked net income of $172.5 million. That means it turned 1.5% of its revenue into FCF. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Industrias Bachoco look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 45.6% of operating cash flow coming from questionable sources, Industrias Bachoco investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 31.4% of cash flow from operations. Overall, the biggest drag on FCF also came from changes in taxes payable, which represented 61.6% of cash from operations. Industrias Bachoco investors may also want to keep an eye on accounts receivable, because the TTM change is 2.9 times greater than the average swing over the past 5 fiscal years.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

The rich are different than you and me: They might not notice the moneymaking stories right under our noses. In our new report, "Middle-Class Millionaire-Makers: 3 Stocks Wall Street's Too Rich to Notice," we give you three Peter Lynch-inspired buy-what-you-know stocks for the 99%. Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Industrias Bachoco to My Watchlist.

2 New Melanoma Drugs and 1 Vaccine Acquisition

Like all big pharmas reinventing themselves post patent cliff, GlaxoSmithKline is staying busy. It just received FDA approval for two new melanoma drugs and snatched up a Swiss vaccine company for roughly $325 million.

In this video, health-care analyst David Williamson discusses what these two big pieces of news mean for Glaxo investors and also for its competitors.

Another topic health-care investors need to keep up on is Obamacare, as the law will undoubtedly have far-reaching effects. The Motley Fool's new free report, "Everything You Need to Know About Obamacare," lets you know how your health insurance, your taxes, and your portfolio will be affected. Click here to read more. 

Chrysler to recall 1.2 million Ram trucks

DETROIT (AP) — Chrysler is recalling about 1.2 million Ram trucks to fix front-end problems that could lead to steering troubles.

The company announced three recalls on Friday. It wants to inspect the trucks and says only 453,000 will likely need repairs.

Chrysler said Friday in a statement that it knows of six crashes and two injuries involving the 2008 to 2012 Ram 2500 and 3500 trucks that are being recalled, and one crash with no injuries from the other recalled models.

The trucks are being recalled because tie-rod ends in the steering system may have been installed improperly, which Chrysler says stemmed from technicians misinterpreting instructions. Those tie-rods could be out of alignment, which Chrysler says can lead to steering failures.

The company has since updated the instructions and the parts involved.

The first case covers 842,400 Ram 2500 and 3500 trucks from 2003 through 2008. Chrysler says 116,000 were repaired with tie-rods in the steering system that could be out of alignment.

The other two involve trucks with tie-rod assemblies that were replaced in previous recalls. They cover 294,000 Ram 2500 and 3500 trucks from the 2008 through 2012 model years, and 2008 Ram 1500 four-by-four mega cabs. Also included are 43,000 Ram 4500 and 5500 four-by-four chassis cabs from 2008 through 2012.

Customers will be notified by letter in December, and work could begin in January, the company said. Owners of Ram 4500 and 5500 models can take their trucks to dealers for interim repairs because parts may not be available until late next year, the statement said. The interim service would involve realignment of the front ends.

Chrysler said about 968,000 of the affected trucks are in the U.S., with another 157,000 in Canada, 37,100 in Mexico and 18,000 from other countries.

Owners with questions can call (800) 853-1403.

3 Ways Microsoft Can Save Windows 8

By now you should've heard that PC sales haven't exactly been booming. In the first quarter, IDC estimated that PC shipments fell 13.9% year over year, marking the worst quarterly decline ever for the PC industry. Between tablets that are cannibalizing the low-end notebook and the lackluster reaction to Microsoft's (NASDAQ: MSFT  ) Windows 8, it's not surprising to hear that the PC has seen better days. Despite Microsoft's efforts to expand its reach in mobile, the health of the PC industry remains central to the company's overall profitability and growth prospects.

With Windows 8, Microsoft attempted to reorient the PC experience to embrace an increasingly mobile and touch-friendly world. However, the sales pace of Windows 8 hasn't exactly been stellar. Thus far, Windows 8 is shaping up to be one of Microsoft's biggest flops, surpassing Windows Vista in the process. In other words, Microsoft needs to find a way to reverse the trend and get users to wholeheartedly embrace the modernized Windows experience.

Here's how Microsoft could prevent Windows 8 from being an epic failure.

Kill Windows RT
Windows RT has been a nightmare since the beginning. It has utterly confused consumers since there are inherent differences between the full version of Windows 8 and Windows RT. For one, Windows RT devices are powered by ARM Holdings (NASDAQ: ARMH  ) designs, which to the consumer means that legacy Windows applications are not compatible. However, devices powered by ARM offer the promise of smaller form factors and improved battery life over Intel (NASDAQ: INTC  ) -powered designs.

Microsoft has done a poor job relaying these and other subtleties between Windows 8 and Windows RT to consumers. The Verge investigated the topic and found that Microsoft failed to properly educate its employees, which naturally damaged consumer perceptions about the product. As a result of this confusion, Samsung decided not to launch any Windows RT devices in the U.S. and stopped RT sales in Germany. Acer has delayed introducing any Windows RT devices in the U.S. until it had a better sense of how Microsoft Surface RT sales fared. When major OEM partners don't even want to embrace Windows RT, how can Microsoft really make it a success story?

If only Microsoft would have just stuck with Intel's x86 architecture the whole time ...

Introduce a $200 Windows 8 tablet
Not only would a $200 Windows 8-powered tablet do wonders for Microsoft's mobile prospects, but it would also probably give Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOG  ) a run for their money in the tablet space. Both Apple's and Google's tablet experience lack the level of productivity that that would be possible on a Windows 8 tablet powered by Intel's upcoming Bay Trail processor. With a few added peripherals, such a device could become an impromptu, yet highly capable, PC in a pinch.

Speaking of Bay Trail, the future of the PC also hinges on Intel's ability to introduce technology that enables a compelling computing experience and form factor. Bay Trail-powered devices aren't expected to hit the shelves until the holiday season this year, but when they do, I expect the prospect of a $200 Windows 8 tablet to be within striking distance.

Bring back the Start menu
Perhaps the biggest gripe users have with Windows 8 is that the Start menu no longer exists after a 17-year run on the Windows ecosystem. When something's been around longer than most teenagers, it's only natural for users to associate the Windows experience with the Start menu. Take that experience away, and it's easy to see why millions yearn for the past.

Still, this outcry hasn't been enough for Microsoft to break down and give users exactly what they want. According to The Verge, Microsoft's upcoming Windows version 8.1 will be splitting the difference with users by giving them a Start button that routes back to the "Metro" interface. In other words, users still demanding a familiar Start menu experience will be sorely disappointed.

Above all else
Windows 8 isn't necessarily a terrible operating system, as sales would suggest. It's merely a strong divergence from previous Windows versions. To compensate, Microsoft needs to properly educate the public by improving the marketing message surrounding Windows 8. In short, Microsoft should better explain what makes Windows 8 different, why it's better, and how users can benefit from it.

If Microsoft can improve Windows 8's marketing message, consumer confusion is likely to take a back seat to improved reception.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Markets Mostly Lower As Americans Head To Vote, Oil Continues To Tumble

Related AGN Judge: Allergan Can't Block Proxy Battle Allergan Offers Comment Related to California Federal Court Ruling in Insider Trading Suit Against Valeant, Pershing Square Deal Frenzy: 2014 Sees Record M&A Volume (Fox Business)

U.S. stocks mostly closed slightly lower a day after major indices hit record all-time highs.

Americans are heading to the ballots today in a congressional election. The Republican party is expected to increase the number of seats it controls in the House and Senate.

The CBOE Volatility Index rose 3.7 percent to 15.26 as Brent crude continued to trade lower after Saudi Arabia lowered lowered the price of oil to the U.S. while increasing the price of oil it sells to Asia and Europe.

In economic news, the European Union issued light guidance for Eurozone growth through 2016 while the U.S. trade gap expanded in September.

The Dow gained 0.10 percent, closing at 17,383.84. The S&P 500 lost 0.28 percent, closing at 2,012.10. The Nasdaq lost 0.33 percent, closing at 4,623.64. Gold lost 0.25 percent, trading at $1,166.90 an ounce. Oil lost 2.02 percent, trading at $77.19 a barrel. Silver lost 1.15 percent, trading at $16.01 an ounce. News Of Note

ICSC Retail Store Sales rose 1.8 percent year over year after rising 2.8 percent last week.

September Trade Balance fell to -$43 billion (versus expectations of -$40.7 billion) from -$40.0 billion in August. Imports totaled $238.6 billion while Exports totaled $195.6 billion.

Redbook Chain Store Sales rose 3.9 percent year over year after rising 4.4 percent last week.

The European Union Commission expects the Eurozone's economy to expand 0.8 percent in 2014, 1.1 percent in 2015 and 1.7 percent in 2016.

Equities News Of Note

Analysts at Sterne Agee initiated coverage on Wal-Mart (NYSE: WMT) with a Neutral rating and $70 price target. Shares gained 1.28 percent, closing at $77.26.

Alibaba (NYSE: BABA) reported its third quarter results this morning. The company earned $2.79 per share, beating the consensus estimate of $2.74. Revenue of $2.74 billion beat the consensus estimate of $2.64 billion. Shares hit new 52-week highs of $106.36 before closing the day at $106.07, up 4.19 percent.

CVS (NYSE: CVS) reported its third quarter results this morning. The company earned $1.15 per share, beating the consensus estimate of $1.13. Revenue of $35.02 billion beat the consensus estimate of $34.73 billion. Shares lost 0.75 percent, closing at $85.47.

Priceline Group (NASDAQ: PCLN) reported its third quarter results this morning. The company earned $22.16 per share, beating the consensus estimate of $21.14. Revenue of $2.84 billion beat the consensus estimate of $2.83 billion. Shares lost 8.41 percent, closing the day at $1,097.70 after the company issued light fourth quarter guidance.

The NHTSA announced it will investigate Honda Motors (NYSE: HMC) over its 7.8-million vehicle recall last month. Shares lost 4.24 percent, closing at $31.02.

SandRidge Energy (NYSE: SD) disclosed that the company may need to restate nearly two years of quarterly results following an SEC inquiry. Shares hit new 52-week lows of $3.50 before closing the day at $3.56, down 6.56 percent.

Recommended: Deloitte: Holiday Sales Will Rise As Much As 4.5%, Shopping Malls Still Relevant

Foot Locker's (NYSE: FL) CEO Ken Hicks says he plans to retire and leave the company on December 1. Shares lost 4.52 percent, closing at $53.63.

Microsoft (NASDAQ: MSFT) announced a partnership with Dropbox to integrate Office's PC, mobile and cloud apps within Dropbox's platform. Shares hit new 52-week highs of $47.73 before closing the day at $47.57, up 0.27 percent.

A U.S. District Court ruled that Valeant Pharmaceuticals (NYSE: VRX) and Bill Ackman's Pershing Square could vote at Allergan's (NYSE: AGN) special shareholder meeting on December 18. Shares of Valeant gained 0.57 percent, closing at $133.61 while shares of Allergan hit new 52-week highs of $196.54 before closing the day at $195.12, up 1.03 percent.

Amgen (NASDAQ: AMGN) disclosed its TRINOVA-1 ovarian cancer drug failed to meet primary endpoints in a Phase 3 trial. Shares lost 0.71 percent, closing at $160.41.

Google (NASDAQ: GOOG) announced in a blog post further price cuts for its cloud infrastructure lineup. Shares lost 0.20 percent, closing at $554.11.

Quote of the Day

"Nobody will ever deprive the American people of the right to vote except the American people themselves and the only way they could do this is by not voting." - Franklin D. Roosevelt, 32nd U.S. President

Posted-In: Alibaba AllerganNews Econ #s Economics After-Hours Center Markets Movers Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Related Articles (AMGN + AGN) Markets Mostly Lower As Americans Head To Vote, Oil Continues To Tumble Judge: Allergan Can't Block Proxy Battle Allergan Offers Comment Related to California Federal Court Ruling in Insider Trading Suit Against Valeant, Pershing Square UPDATE: Release from Valeant Shows Co., Ackman's Pershing Can Vote at Special Meeting Benzinga's M&A Chatter for Monday November 3, 2014 Markets Mixed As Oil Continues To Drop Around the Web, We're Loving... World Cup Championship of Binary Options!

Markets Mostly Lower As Americans Head To Vote, Oil Continues To Tumble

Related AGN Judge: Allergan Can't Block Proxy Battle Allergan Offers Comment Related to California Federal Court Ruling in Insider Trading Suit Against Valeant, Pershing Square Deal Frenzy: 2014 Sees Record M&A Volume (Fox Business)

U.S. stocks mostly closed slightly lower a day after major indices hit record all-time highs.

Americans are heading to the ballots today in a congressional election. The Republican party is expected to increase the number of seats it controls in the House and Senate.

The CBOE Volatility Index rose 3.7 percent to 15.26 as Brent crude continued to trade lower after Saudi Arabia lowered lowered the price of oil to the U.S. while increasing the price of oil it sells to Asia and Europe.

In economic news, the European Union issued light guidance for Eurozone growth through 2016 while the U.S. trade gap expanded in September.

The Dow gained 0.10 percent, closing at 17,383.84. The S&P 500 lost 0.28 percent, closing at 2,012.10. The Nasdaq lost 0.33 percent, closing at 4,623.64. Gold lost 0.25 percent, trading at $1,166.90 an ounce. Oil lost 2.02 percent, trading at $77.19 a barrel. Silver lost 1.15 percent, trading at $16.01 an ounce. News Of Note

ICSC Retail Store Sales rose 1.8 percent year over year after rising 2.8 percent last week.

September Trade Balance fell to -$43 billion (versus expectations of -$40.7 billion) from -$40.0 billion in August. Imports totaled $238.6 billion while Exports totaled $195.6 billion.

Redbook Chain Store Sales rose 3.9 percent year over year after rising 4.4 percent last week.

The European Union Commission expects the Eurozone's economy to expand 0.8 percent in 2014, 1.1 percent in 2015 and 1.7 percent in 2016.

Equities News Of Note

Analysts at Sterne Agee initiated coverage on Wal-Mart (NYSE: WMT) with a Neutral rating and $70 price target. Shares gained 1.28 percent, closing at $77.26.

Alibaba (NYSE: BABA) reported its third quarter results this morning. The company earned $2.79 per share, beating the consensus estimate of $2.74. Revenue of $2.74 billion beat the consensus estimate of $2.64 billion. Shares hit new 52-week highs of $106.36 before closing the day at $106.07, up 4.19 percent.

CVS (NYSE: CVS) reported its third quarter results this morning. The company earned $1.15 per share, beating the consensus estimate of $1.13. Revenue of $35.02 billion beat the consensus estimate of $34.73 billion. Shares lost 0.75 percent, closing at $85.47.

Priceline Group (NASDAQ: PCLN) reported its third quarter results this morning. The company earned $22.16 per share, beating the consensus estimate of $21.14. Revenue of $2.84 billion beat the consensus estimate of $2.83 billion. Shares lost 8.41 percent, closing the day at $1,097.70 after the company issued light fourth quarter guidance.

The NHTSA announced it will investigate Honda Motors (NYSE: HMC) over its 7.8-million vehicle recall last month. Shares lost 4.24 percent, closing at $31.02.

SandRidge Energy (NYSE: SD) disclosed that the company may need to restate nearly two years of quarterly results following an SEC inquiry. Shares hit new 52-week lows of $3.50 before closing the day at $3.56, down 6.56 percent.

Recommended: Deloitte: Holiday Sales Will Rise As Much As 4.5%, Shopping Malls Still Relevant

Foot Locker's (NYSE: FL) CEO Ken Hicks says he plans to retire and leave the company on December 1. Shares lost 4.52 percent, closing at $53.63.

Microsoft (NASDAQ: MSFT) announced a partnership with Dropbox to integrate Office's PC, mobile and cloud apps within Dropbox's platform. Shares hit new 52-week highs of $47.73 before closing the day at $47.57, up 0.27 percent.

A U.S. District Court ruled that Valeant Pharmaceuticals (NYSE: VRX) and Bill Ackman's Pershing Square could vote at Allergan's (NYSE: AGN) special shareholder meeting on December 18. Shares of Valeant gained 0.57 percent, closing at $133.61 while shares of Allergan hit new 52-week highs of $196.54 before closing the day at $195.12, up 1.03 percent.

Amgen (NASDAQ: AMGN) disclosed its TRINOVA-1 ovarian cancer drug failed to meet primary endpoints in a Phase 3 trial. Shares lost 0.71 percent, closing at $160.41.

Google (NASDAQ: GOOG) announced in a blog post further price cuts for its cloud infrastructure lineup. Shares lost 0.20 percent, closing at $554.11.

Quote of the Day

"Nobody will ever deprive the American people of the right to vote except the American people themselves and the only way they could do this is by not voting." - Franklin D. Roosevelt, 32nd U.S. President

Posted-In: Alibaba AllerganNews Econ #s Economics After-Hours Center Markets Movers Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Related Articles (AMGN + AGN) Markets Mostly Lower As Americans Head To Vote, Oil Continues To Tumble Judge: Allergan Can't Block Proxy Battle Allergan Offers Comment Related to California Federal Court Ruling in Insider Trading Suit Against Valeant, Pershing Square UPDATE: Release from Valeant Shows Co., Ackman's Pershing Can Vote at Special Meeting Benzinga's M&A Chatter for Monday November 3, 2014 Markets Mixed As Oil Continues To Drop Around the Web, We're Loving... World Cup Championship of Binary Options!

Ray Dalio Consistently Deliver Returns

In this article let's take a look at Ray Dalio (Trades, Portfolio), the founder and majority owner with a 84% stake in Bridgewater Associates Intermediate Holdings (BAIH), the hedge fund that manages $150 billion in assets under management. Bridgewater Associates operates as an international, employee-owned hedge fund manager. It provides its services to pension and profit sharing plans, pooled investment vehicles, corporations and governmental entities. Since its inception in 1975, Bridgewater has generated net gains of $35.8 billion and that success made this guru the 84th richest person in the world, according to Forbes.Industry ReturnThe $2.7 trillion hedge-fund industry posted gains of 1.1% in June. It was the biggest monthly advance in almost a year. In particular, the equity, multistrategy and macro hedge funds advanced in 2014. They performed returns of 2.5% for the first half of the year, according to the Bloomberg Global Aggregate Hedge Fund Index (an index weighted by market capitalization which tracks 2,269 funds).Dalio´s FundsBridgewater Associates charges clients a 3% management fee and collects 20% of the profits for its two primary funds, Pure Alpha I and II. Pure Alpha II rose 1.6% last month and 7.8% in the first six months of the year and last year the fund returned 5%.Further, it charges a maximum 0.5% management fee and 10% of profits for its two All Weather portfolios. The All Weather fund has returned 11.16% year-to-date, according to a report reviewed by Forbes. In the same time frame, the Standard & Poor's 500 index returned 6.1%. The fund is up 17.01% in the last 12 months.The All Weather fund consists of funds worth more than $70 billion in assets, with a strategy which leverages up bond investments in an attempt to balance out portfolios. As it names suggests, it is supposed to generate positive performance in every market environment. Nevertheless, last year the fund was down by about 4%.Other Hedge Funds´ ReturnsJohn Paulson (Trades, Portfolio)'s fund gained 6.! 3% in June and a year-to-date return of 11.4%. Dmitry Balyasny, who manages the $5.8 billion hedge-fund Balyasny Asset Management LP, posted a 1% June gain in its Atlas Global fund, and a 3.8% year-to-date. Paul Tudor Jones (Trades, Portfolio) registered a 0.3% gain in June in its BVI Global Fund and a 4.1% loss in the year. On the other hand, MKP Capital Management LLC, the fund managed by Patrick McMahon, registered a loss of 0.9% last month and 5.7% year-to-date.Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.Also check out: John Paulson Undervalued Stocks John Paulson Top Growth Companies John Paulson High Yield stocks, and Stocks that John Paulson keeps buying

FCC to investigate Netflix-Verizon spat

FCC chairman Tom Wheeler. NEW YORK (CNNMoney) Verizon and Netflix have been feuding in recent weeks over which company is to blame for slow streaming speeds. Now, government regulators are stepping in to figure out who's really at fault.

Federal Communications Commission chair Tom Wheeler said Friday that he had directed his staff to gather information on the dispute from Netflix (NFLX, Tech30) and broadband providers including Verizon (VZ, Tech30) to understand "precisely what is happening" and "whether consumers are being harmed."

"The bottom line is that consumers need to understand what is occurring when the Internet service they've paid for does not adequately deliver the content they desire, especially content they've also paid for," Wheeler said.

At this point, he added, the FCC is simply "collecting information, not regulating."

  If Netflix could've premiered any show ...

The dispute flared up a few weeks ago after Netflix began displaying messages for users whose videos are slow to load blaming Verizon and other ISPs for the problem. Verizon responded with a cease-and-desist letter demanding that Netflix stop displaying the message, calling it "deceptive" and threatening legal action.

Netflix said Friday that it welcomes the FCC's effort "to bring more transparency in this area," adding: "Americans deserve to get the speed and quality of Internet access they pay for."

Netflix has been complaining for months that some big broadband companies are allowing its streaming speeds to lag in order to compel it to pay them for a faster connection. Netflix reached paid connection deals earlier this year with Comcast (CMCSA) and Verizon, though it said it did so "reluctantly," accusing the Internet providers of abusing their market power to extract tolls.

The broadband providers counter that Netflix is generating ever-increasing amounts of data consumption on their networks without helping to pay for the infrastructure upgrades necessary to deliver that content.

Verizon said Friday Internet traffic exchange "has always been handled through commercial agreements," and that it's "hopeful that policy makers will recognize this fact."

Comcast said it hopes the FCC's review will bring "full transparency" to inter! connection issues and "enable full education as to how this market works."

The FCC's review comes at a time when it is seeking public comment on its new open Internet rules. But the FCC's rules will only cover how broadband companies treat traffic on their own networks; they don't address the issue of connections between networks, which is at the heart of the Netflix dispute. Netflix also has called for the FCC to regulate those paid-connection deals. Broadband providers say that's not necessary, and that paid-connection deals have long been part of the way the Internet works.

Netflix isn't the first content provider to strike a paid-connection deal with a broadband company; other big tech companies like Microsoft (MSFT, Tech30), Google (GOOGL, Tech30) and Facebook (FB, Tech30) have similar agreements.

Debunking the Yahoo Tracking Stock Myth

Alibaba has now filed its F-1 document which is the precursor to an IPO probably later this summer.

Several talking heads on television and journalists in articles have declared that the fact that the Alibaba IPO is happening soon means that the honeymoon period for Yahoo Yahoo CEO Marissa Mayer is over.  Now, they say, Marissa and Yahoo's core business will have to stand on their own two feet.

There is a line of thought that Yahoo has merely been a tracking stock for Alibaba over the past 2 years. Now, with the IPO on the horizon, these people say, any investor who previously bought Yahoo stock just to own a piece of Alibaba will now sell that stock in order to free up capital to buy the newly public Alibaba stock directly.

So, let's address this issue with some data.  Although every case is different, a prior situation where a big tech company was seen as a tracking stock for another entity in which it held a large stake was EMC EMC back a few years when it owned VMWare VMWare.  It started trading as a separate company on August 14, 2007.  Prior to that, VMWare was owned entirely by EMC.

Marissa Mayer (Photo credit: Wikipedia)

 

If the pundits' thesis is correct, you should have seen selling in EMC shares leading up to the VMWare IPO as institutional investors looked to trade out of EMC stock so they could be at the ready to get their orders in to buy VMWare stock.

Let's go to the videotape.

It turns out that in the 3 months prior to the VMWare IPO, EMC's stock went up – and not just a little.  EMC's stock increase 15.6% in those 3 months.  During that same period, the Nasdaq composite was down 0.7%.

Perhaps once the VMWare stock started trading the IPO aftermarket, EMC's stock took a dive.  Not so.  In the three months after the VMWare IPO in 2007, EMC's stock increased another 12.4%.  And the Nasdaq again lagged, increasing only 3.2% over the same period.  However, VMware did do better than either.  Its stock popped 58% in the 3 months after the IPO.

So, EMC's stock certainly didn't see a trading out phenomenon, either in anticipation of the VMware IPO or afterwards.

How about a more recent example: the Facebook IPO from 2012.  In early February 2012, Facebook filed its S-1 to hold its IPO – one that was hotly anticipated by the market.  According to the view that you have to sell one stock in order to buy another way of thinking, you would expect to see Google's stock price flag in the weeks leading up to the Facebook IPO.  However, that didn't happen.

From early February 2012 until about mid-June – which was well after the mid-May Facebook IPO – Google's stock traded in line with the Nasdaq index.  It wasn't higher or lower.

Then, starting in mid-June, a month after Facebook had been trading (and trading badly), Google did experience a big upswing in pricing relative to both Facebook and Nasdaq.  It appears that people did pass judgment on Facebook's business that it wasn't quite as revolutionary as everyone first thought.  They seemed to then gravitate back to Google as the leader in the mobile and desktop ad space.  But Google never suffered in anticipation of the Facebook IPO.

The bottom line is that investors will judge Yahoo on its own merits before and after the Alibaba IPO.  And, contrary to a lot of commentary, Alibaba's valuation will continue to swing Yahoo's stock price quite a bit post-IPO.  That's because Yahoo will continue to own 14% of Alibaba.  If Alibaba's stock trades up to $260 billion in market cap as some sell-side analysts have suggested, Yahoo's stake will be worth $22.6 billion net of any future taxes Yahoo might have to pay – that's two-thirds of the current Yahoo valuation of $34 billion.

So you can expect to see Alibaba's valuation swing a big part of Yahoo's stock for the forseeable future even after the big IPO date comes.

[Long YHOO]

Stocks close mostly higher as Dow, S&P 500 rise

Stocks closed mostly higher Monday in a rocky session as the tech sector cut earlier losses but continued to lag.

The Dow Jones industrial average rose 87.28 points, or 0.5%, to 16,448.74 and the Standard & Poor's 500 index gained 6.03 points, or 0.3%, to 1,869.43. The Nasdaq composite index, which lagged behind for much of the day, pared earlier losses and closed 1.16 points lower, or 0.04% to 4,074.40.

In a potential blockbuster pharmaceutical deal, shares of AstraZeneca soared 12.2% to $77.01 after Pfizer renewed its push to buy the British drug company for $100 billion. Pfizer rose 4.2% to $32.04.

Bank stocks took a hit as Bank of America fell 6.3% to $14.95 after the company said it would suspend its stock buyback program and dividend increase. The bank discovered an error in how it calculates its capital ratio, a crucial measure of its strength. The Federal Reserve asked the bank to put its buyback and dividend increase on hold until the error was fixed.

Other banks also fell: Shares of Goldman Sachs dropped 1.1% to $156.54; Citigroup fell 0.9% to $47.30 and JPMorgan Chase declined 0.4% to $54.49.

Bond prices fell. The yield on the 10-year Treasury note rose to 2.70%, up from 2.67% Friday.

Tech stocks continued to struggle after Friday's deep losses. On Friday, the Nasdaq composite was pounded, ending down 1.75%, while the Dow Jones industrial average lost 0.85% — a 140-point drop — and the Standard & Poor's 500 shed 0.8%.

"The froth is finally burning off in some of these sectors like technology," said Quincy Krosby, a market strategist at Prudential Financial. "Investors want to rely more on fundamentals, and it's hard to justify some of these valuations."

PENDING HOME SALES: Contracts rise for first time since June

FRIDAY: Dow closes down 140 on Ukraine tension

Escalating tensions between Ukraine and Russia combined with some disappointing corporate earnings for last week's unhappy ending. President Obama promised furth! er sanctions against Russia during a press conference in the Philippines, Monday. The economic uncertainty such sanctions carry is unlikely to ease investors' concerns regarding the tumult in Eastern Europe.

"The Ukrainian tensions are once again mounting and the word coming from Capitol Hill and also Europe is that sanctions on Russian officials will be harder, more direct and onerous on President Putin's inner circle; this will disrupt normal trading conditions," Melbourne, Australia-based, IG market strategist Evan Lucas wrote.

Such concerns helped drive down Asian markets, Monday. Japan's Nikkei 225 index lost 141.03 points, or 1%, to 14,288.23. Hong Kong's Hang Seng index dropped 91 points, or 0.4%, to 22,132.53 and the Shanghai composite index fell 33.03 points, or 1.6%, to 22,132.53.

But European benchmarks closed higher. Britain's FTSE 100 climbed 0.2% to 6,700.16, Germany's DAX finished up 0.5% to 9,446.36 and France's CAC-40 gained 0.4% to 4,460.53.

Contributing: The Associated Press.

GNC: A Dose of Profits

Right now, there seem to be two schools of thought on General Nutrition Centers, the health and wellness retailer. CNBC's Jim "Mad Money" Cramer came out this week with a strong "buy" signal on GNC (NYSE: GNC). "The stock is down big and I think business is about to turn," said Cramer. "I’m a buyer."

But last Monday, Credit Suisse stepped in and slashed its call on GNC from "outperform" to "neutral." Retail analyst Gary Balter cited "low visibility" on the company's same-store sales for the reminder of 2014. Calling the stock "sluggish", he downgraded GNC's target price to $51 per share.

I'm with Cramer, but more on that in a minute. According to the company's web site, GNC Holdings, Inc. operates as a specialty retailer of health and wellness products. The firm operates through three segments: retail, franchise, and manufacturing/wholesale. Its products include vitamins, minerals and herbal supplements, sports nutrition products, diet products, and other wellness products, and offers its own line of health and nutrition products, including Mega Men, Ultra Mega, Total Lean, Pro Performance, Pro Performance AMP, and Beyond Raw. GNC has 8,500 locations operating in the United States and internationally.

GNC's stock currently trades at $45 per share, but its share price has declined by $7 in the past two months, mostly on profit concerns. So why do I see GNC as a buy? I just don't see profits as a problem with GNC. Revenues are strong, earnings per share is healthy, net income is rising, and franchise owners are clamoring to get their name on another GNC store.

Revenues were up 8.6% in the last quarter (at $613 million), on a year-to-year comparison basis, and that figure clocks in well ahead of the industry average of 7.3%. Earnings per share is also well up on a year-to-year basis, with earnings at $2.72 prior to $2.29. The company estimates e! arnings to rise to $3.23 in 2014.

In the fourth quarter, same store sales rose 5.0% in U.S.-based company-owned stores (including website sales.) That's GNC's 34th consecutive quarter of positive same store sales growth.  Touching on what Credit Suisse views as a weak point, domestic franchise locations, same-store sales increased 3.3%.

Overseas, GNC has solidified its presence in the potentially lucrative Russian market, with a new deal with Rusvit, whose chief executive officer, Alex Kovaler, also engineered the entry of big brands like Wendy's, Nathan's, and RC Cola into the country. Those are all good reasons why GNC's own CEO, Joe Fortunato, sees clear skies ahead for his company.

"Despite the challenging retail environment, our business performed well, generating solid top and bottom line growth in the quarter," Fortunato said after the Q4 earnings were released. "This culminated in a strong year where we delivered a 22.3% increase in adjusted earnings per share and returned more than $350 million to shareholders, all the while making significant investments in the business which allows us to maintain growth momentum and to capitalize on our industry growth, optimize our customer base, and position the company for new growth opportunities.”

Looking ahead, GNC sees consolidated earnings per diluted share of about $3.18-$3.24 for the full year 2014, a 12-14% increase over 2013 adjusted EPS of $2.85. The firm also calls for a high single digit increase in consolidated revenue for 2014, with a flat January and February (which has been acknowledged by Wall Street with a declining stock price,) before picking up steam, revenue-wise, in the spring months, with rising revenues for the remainder of 2014.

The company is also bullish on opening new store locations – 200, in all, will be newly opened in the U.S. this year, with 225 more opening overseas.

There's also some good news on the marketing front for GNC. Franchise Direct just named ! GNC as th! e top health and beauty franchise in the world, and it's ranked 7th overall on the top 100 global franchises list. I don't tend to go overboard on public relations pitches, or "best of" lists, but anytime you're mentioned by franchising experts in the same breath as McDonalds, Wyndham Hotels and Dunkin Donuts, you're doing something right.

My takeaway on GNC? I view the "February slide" on GNC's stock as an aberration – a sign of weak store sales growth in a harsh winter across most of the U.S., when most people didn't want to leave their couches and fireplaces, let alone go out and buy wellness products.

This is a undervalued stock, and could easily shoot to $55 per share. So don't be a dumbbell and get physical with GNC's stock – it could be just the medicine your portfolio is looking for in 2014.

Brian O'Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.

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Mortgage Applications Slip in Latest Week

Daniel Acker/Bloomberg via Getty Images NEW YORK -- Applications for U.S. home mortgages fell in the latest week as interest rates edged higher, an industry group said Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.1 percent to 373.3 in the week ended March 7. The index hit its lowest level since December 2000 at the end of last year, soon after the U.S. Federal Reserve announced it would start reducing its $85 billion per month bond-buying program as the economy grows strong enough to stand on its own. The interest rate on fixed 30-year mortgages averaged 4.52 percent last week, up 5 basis points from the previous week. The MBA's seasonally adjusted index of refinancing applications fell 3.1 percent. The gauge of loan requests for home purchases, a leading indicator of home sales, fell 0.5 percent. The survey covers more than 75 percent of U.S. retail residential mortgage applications, according to MBA.

Panic proves fleeting in February as stocks, bonds climb

For all the talk of a crisis at the start of the month, February ended up being the best period for global markets since July.

Stocks, bonds and commodities rose together in February for the first time in seven months, reversing January's losses in equities and raw materials. The S&P 500 Index has closed at a record for two straight days, erasing losses from January spurred by concern economic turmoil would spread from emerging markets as the Federal Reserve began reducing stimulus efforts.

(See also: Advisers must answer for emerging-markets rout as U.S. stocks rally)

Commodities climbed the most since July as a drought in Brazil triggered rallies in coffee and sugar. Leaders of the world's major economies pledged to maintain accommodative policies even as S&P 500 companies the biggest gain in quarterly earnings since 2011.

(See where investors are putting their money now.)

“Corporate America is having a little more confidence in the trajectory of the economy,” Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said. “We still like equities relative to other asset classes.”

The benchmark gauge for American equities advanced 4.3% in February to 1,859.45, reversing its 3.6% loss from the previous month. Stocks around the world slid between Jan. 15 and Feb. 4 after Argentina unexpectedly devalued the peso, Turkey doubled interest rates and manufacturing growth slowed in China,

'A MISSION'

U.S. consumer confidence improved last month and orders for durable goods fell less than forecast in January, a sign manufacturing was beginning to emerge from the harsh winter. Other reports showed that the economy grew at a slower pace in the fourth quarter than previously estimated.

“Equities appear to be on a mission to trend higher and forge through concerns of negative economic readings,” Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $115 billion, said. “Like in 2013, the markets are proving to be remarkably resilient and look to continue in 2014.”

Stocks gained last week as investors speculated the Fed may change its strategy should the economy weaken and data showed improving consumer confidence. Retailers led the advance with a