Travel Insurance 2013: July 2014

Tuesday, July 29, 2014

Family Dollar/Dollar Tree Merger Announced

Discount store Family Dollar (FDO) has finally put itself up for sale after much pressure from billionaire investor Carl Icahn (Trades, Portfolio), who recently acquired a 9.4% stake in the company. Icahn reportedly sent a letter to Family Dollar's CEO demanding that the company offer itself for sale, which he believes would greatly improve the company's performance and bring the company up to speed with other big name rivals. The billionaire investor went as far as to threatening to disperse his demands and recommendations to the company's shareholders, and to make an attempt at pushing out the entire board of directors. Needless to say, Icahn firmly believed that Family Dollar's management team was not up to the task of managing the organization's operations. The discount chain obviously recognized problems within the business when it closed a large number of stores, and announced plans to close almost 400 more in the third and fourth quarter of 2014.

On July 28, Dollar Tree (DLTR) announced that it will be buying rival Family Dollar for a total of $9.2 billion (including debt). Icahn had originally suggested that Family Dollar be bought out by leader Dollar General, but shortly after stated that the recent announcement of the retirement of Dollar General's CEO would cause disruptions in his plan of merging the two companies. The announced deal gives Dollar Tree over 13,000 stores in the 48 states and Canada, as well as more than $18 billion in sales. This pushes Dollar Tree above and beyond major rival Dollar General, which last year had $17.5 billion in sales and 11,338 current locations. There has also been much talk about the impact this merger will have on the giant Wal-Mart (WMT), which generally focuses on low-income consumers by offering more items for under $1.

According to the agreement, Dollar Tree will be paying $74.50 in cash and stock for Family Dollar. Shareholders are set to receive $59.60 in cash, as well as $14.90 in Dollar Tree stock per share. The company is said to continue operating both the Dollar Tree and Family Dollar stores.

But will this merger be good for consumers? Experts have said that in general, mergers made by companies in the same consumer retail business are generally poor for the consumer. By having more rivals in the same business, competition arises which ultimately drives prices down. The low prices previously seen by Dollar Tree may not be as low as they once were after there are fewer competitors.

End Notes

Disclosure: No current position held at the time of writing.

Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.

About the author:David KerrPreviously licensed to sell securities, David now utilizes his knowledge and experience solely for the purpose of growing his own personal portfolio and educating those around him.

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3 Dividend Stocks Juicing Returns With Buybacks

Popular Posts: Apple’s So-So Quarter Could Kill AAPL’s MojoApple Earnings Set to Give AAPL Stock a Lift3 Global Food & Beverage Giants on the Ropes Recent Posts: Pfizer, Merck Stock – Same Ol’ Slumping Revenues, Same Mixed Prospects 3 Dividend Stocks Juicing Returns With Buybacks Dollar Tree Extends the M&A Branch to Family Dollar (DLTR, FDO) View All Posts 3 Dividend Stocks Juicing Returns With Buybacks

There will always be a debate over which is a better method for returning cash to shareholders — dividends or stock buybacks. Happily for income investors hunting for dividend stocks to buy, there are plenty of companies offering both.

Dividend185 3 Dividend Stocks Juicing Returns With Buybacks True, dividends have some advantages over stock buybacks. They’re supposed to be a permanent feature of those dividend stocks you care to buy, whereas buybacks can come and go. On the other hand, dividends suffer from being taxed twice — first as corporate earnings, and then again as dividend income.

Each has its pros and cons, but one thing is certain: Dividends and stock buybacks are both at record levels.

Indeed, buybacks and dividends combined hit a new record high of $241.2 billion in the first quarter (the latest available data), according to S&P Dow Jones Indices. The old record of $233.2 billion was set way back in the fourth quarter of 2007 — or right before the financial system started to melt down.

By taking shares out of circulation, buybacks make remaining shares more valuable. Earnings per share increase when there are fewer shares, which gives buybacks an accretive yield all their own. (An accretive yield of, say, 2% means the buyback will lift earnings per share by 2%, which – in theory – goes to shareholders.)

As long as price appreciation does its own part, dividend stocks benefiting from buybacks are almost turbocharged for total return.

The last week alone brought news of three notable dividends stocks initiating or adding to their stock buybacks. Here’s a look at them to help decide if they’re the right dividend stocks to buy:

Dividend Stocks with Buybacks: American Airlines Group (AAL)

American Airlines 185 3 Dividend Stocks Juicing Returns With Buybacks In the latest sign that the once-struggling airline industry is on solid financial footing, American Airlines (AAL) said it will buy back $1 billion of its own stock. AAL also said it will start paying a dividend for the first time since 1980. (AAL moved to match a buyback by rival United Continental Holdings (UAL), which isn’t among the dividend stocks in the industry.)

Eight months ago, AAL was in bankruptcy. Cut to today and the world’s largest airline is flying high, as stable fuel costs and higher fares led to a record for profitability in the most recent quarter.

The quarterly payout of 10 cents per share gives AAL stock a forward dividend yield of less than 1%. But before you scoff, consider that the share buyback has an accretive yield to EPS of 3.6%. Analysts’ average price target on AAL stock stands at $51.72. Add in the boost from the dividend and buyback, and AAL stock has an implied total return of almost 29%.

Dividend Stocks with Buybacks: Altria (MO)

altria 3 Dividend Stocks Juicing Returns With Buybacks As a tobacco company, Altria (MO) was already something of a dividend champion. (In fact, it has to be — it’s not like cigarettes are a growth industry.) But MO stock still stands out among large-cap dividends stocks. Few stocks with a market value of $85 billion have a dividend yield of 4.5%.

MO needs to throw off fat dividends to keep its income-investor base happy. It also needs to engage in stock buybacks to keep the bottom line in shape. Financial engineering isn’t an option when you’re in the tobacco business.

With only $53 million left in its current billion-dollar share repurchase program, MO announced another one to run through all of 2015. At the current stock price, the buyback has an accretive yield of less than 1%. Add that to the 4.5% dividend yield and you’ve got something. With an average target price of $43, MO stock has implied total return of nearly 9%. That’s not exactly a smoking hot stock, but it’s not too shabby for a dependable and generous dividend payer.

Dividend Stocks with Buybacks: Johnson & Johnson (JNJ)

jnj logo 3 Dividend Stocks Juicing Returns With Buybacks Johnson & Johnson (JNJ) posted Street-beating quarterly earnings, but a cautious forecast knocked 5 percentage points off JNJ stock over the next three sessions. JNJ’s new drug to treat hepatitis-C helped lift revenue by 9% in the most recent quarter, but JNJ warned that it expects the sales pace to cool off, among other downers.

JNJ stock is still up more than 12% for the year-to-date, but it the outlook sure spooked the Street. So, naturally, JNJ announced stock buybacks of $5 billion to run indefinitely. JNJ stock — with a market cap of $289 billion — popped more than 1% on the news. Such is the power of buybacks.

True, the buyback is accretive to earnings per share by about 1.6%. Add that to a “meh” dividend yield of 2.7%, however, and the income side of the equation looks a lot more competitive. Based on the $108 price target, the dividend and buyback give JNJ an implied total return of about 11% in the next 12 months or so.

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

Wednesday, July 23, 2014

Rising Food Prices Give Shoppers Indigestion

Butcher reaching for chops, low angle view Alamy This is prime barbecue season, and most of the main ingredients for a backyard banquet are soaring in price. Beef, ribs and chicken -- as well as the lettuce, tomato and other secondary goodies that make the meal -- all cost a lot more than they did last summer. And don't forget dessert. Prices for that wonderful fruit salad and the Hershey (HSY) bars for s'mores are going up, too. Blame Mother Nature for a lot of those price hikes. Droughts continue to worsen in many prime growing areas in the U.S. An unusual pig virus has pork prices sizzling, and of course, good old supply and demand is always a factor. When you visit the grocery, you'll find the biggest price hikes along the periphery of the store -- the fruit and veggies along one of the far walls, dairy products at the other end and the meats along the back wall. Statistics Back Up Rising Costs You've Been Seeing The government reported Tuesday that the Consumer Price Index rose in June by 0.3 percent, and food costs edged up by just 0.1 percent, after a 0.5 percent increase in May. There's always the disclaimer that food and energy prices are volatile, and you shouldn't look at just one month's data. So we'll look at the longer trend. While prices are spiking in some areas of the supermarket, the overall increases are in line with historical norms. The Agriculture Department expects food prices to increase in the 2½ percent to 3½ percent range this year, not far from the 20-year average of 2.8 percent per year. But there are some trends down on the farm that make it tough for supermarket shoppers. Smallest Number of Cattle Since '51 The first has to do with the extensive and long-lasting drought that has ravaged California and big sections of the Midwest. Farmers have had to significantly reduce the size of their herds as the drought raised the cost of animal feed and put severe stress on livestock. These problems are now in their third year, so herds are thinning out, and the impact is beginning to pile up. The Agriculture Department says herd sizes are the smallest they've been since 1951. And because of the long incubation period for cattle and the time it takes to fatten them up, beef prices aren't likely to come down any time soon. "It's too early to tell the extent of the problem or how long it will last," Agriculture Department economist Annemarie Kuhns said. "There's still too much uncertainty." The Agriculture Department expects meat prices overall to increase by about 5½ percent this year. Beef and veal will be a little bit more than that, while pork will be a little bit less. Droughts Wallop California, Southwest, Great Plains Fresh fruits and eggs are also expected to increase in the 5 percent to 6 percent range. Fruits and veggies are mainly effected by the weather. The drought in California, the Southwest and the Great Plains is now in its third year, with no signs of letting up. California growers account for about half of the nation's fruits and veggies, but water is so scarce that some farmers have decided not to plant all or part of their crops this year. In addition, Florida orange growers have suffered from a withering disease that has cut the size of this year's harvest -- and the size of the fruit itself. Consumer experts say shoppers don't have as many options to substitute an alternative food (pork for beef, for example) for one that's rising in price. But there are some tactics to trim the grocery bill. Maura White, a frugal living expert from Rochester, New York, suggests using cheaper cuts of meat and making friends with the store butcher. White, who runs the Happy Deal, Happy Day website, says smart shoppers should "ask the butcher about sale prices, usually mid-week or late in the day." As for fruits and veggies, White urges consumers to take advantage of farmers' markets and locally grown produce. She's also a big advocate of coupons and shopper apps. Among her favorites, in addition to her own site, are: i-bought-it.com, checkout51.com and the price comparison app Favado. More from Drew Trachtenberg
•Moms and Dads Attaching More Strings to Paying for College •The Art of Letting Go: Trend Sets Paintings Free, Randomly •Proof That Past Performance Really Doesn't Predict Future Results

Wednesday, July 16, 2014

5 Breakout Stocks for a Market Near All-Time Highs

BALTIMORE (Stockpickr) -- Stocks are looking springy to start this week following a less-than-inspiring performance for the first full week of July trading. After correcting 0.9% in the previous five trading sessions, the big indices turned bullish and took back half of that loss in yesterday's session alone.

>>5 Toxic Stocks You Need to Sell in July

That doesn't mean that investors should start indiscriminately buying. The S&P 500 is pressing up against the top of its multi-year price range this month. As the broad market sits within grabbing distance of all-time highs once again, it makes sense to turn your attention to the names that look the most likely to make moves in July.

That's why we're taking a closer technical look at five charts that look buyable this week.

For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.

>>5 Stocks Ready for Breakouts

Without further ado, let's take a look at five technical setups worth trading now.

Royal Caribbean Cruises

Up first is Royal Caribbean Cruises (RCL), a name that's seen smooth sailing all year long. Since the start of 2014, Royal Caribbean has climbed more than 16% higher, nearly quadrupling the S&P's performance over that same stretch. From here, shares look primed to keep up their outperformance thanks to a textbook bullish price setup that started forming in RCL back in April.

>>3 Big-Volume Stocks to Trade for Breakouts

Royal Caribbean is forming an ascending triangle pattern, a price setup that's formed by horizontal resistance above shares (in this case at $57) and uptrending support to the downside. Basically, as RCL bounces in between those two technically significant price levels, it's getting squeezed closer and closer to a breakout above that $57 price ceiling. When that happens, we've got a buy signal in shares.

Relative strength adds some serious backup to Royal Caribbean's breakout potential right now: this stock's relative strength line has been making higher lows for the past year or so, a signal that's statistically linked to outperformance on a rolling three-to-10-month window.

As long as that uptrend in relative strength stays intact, this name should keep outperforming the S&P 500.

Unilever

We're seeing the exact same setup in shares of UK-based consumer products giant Unilever (UL) this week. Like Royal Caribbean, Unilever is forming an ascending triangle pattern, in this case with resistance up at $46. A breakout above $46 is the trigger to buy shares.

>>5 Hated Earnings Stocks You Should Love

Why all the significance at $46? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Unilever's stock.

The $46 resistance level is a price where there has been an excess of supply of shares. In other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $46 so significant -- it means that buyers are finally strong enough to absorb all of the excess supply above that price level.

Wait for that breakout before you buy.

Akamai Technologies

Content delivery network Akamai Technologies (AKAM) is another breakout trade to keep an eye on this week. Akamai has been a big mover in 2014, climbing 28% since the calendar flipped to January -- but most of the move came from an earnings-driven pop at the beginning of the year, and shares have failed to do much since then.

>>4 Big Stocks to Trade on M&A News

That could be about to change.

Akamai is currently forming a "rounding bottom" pattern, a price setup that indicates a gradual transition in control from sellers to buyers. The pattern's name is a pretty good description of how it looks on a chart. Even though AKAM's rounding bottom formed at the top of its recent price range (not the bottom), the trading implications are just the same: The buy signal triggered on a move through resistance at $63.

Looking long-term, the 200-day moving average has been a good proxy for support on the way up. That makes it a logical place to keep a protective stop if you decide to jump in on the breakout.

Coca-Cola FEMSA

Mexican Coke bottler and distributor Coca-Cola FEMSA (KOF) has fared less impressively in 2014: year-to-date, shares are down around 5%. Zoom out to a full 12 months, and KOF's performance drops to 18% in the red. But after getting sold off hard for the last year, Coca-Cola FEMSA is starting to look "bottomy."

>>5 Stocks Hedge Funds Love This Summer

KOF is forming an inverse head and shoulders pattern, a classic technical setup that indicates exhaustion among sellers. The pattern is formed by two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern's "neckline" level, currently right at $122 resistance.

Momentum, measured by 14-day RSI, is the confirming indicator to look at in this stock. Our momentum gauge has been making higher lows since last September, making its way higher in a shallow uptrend. Since momentum is a leading indicator of price, it adds some confidence to an upcoming breakout in KOF. When $122 gets taken out, it becomes a high-probability buy signal.

American Electric Power

Last up is American Electric Power (AEP), a $26 billion utility name that's been showing investors some solid performance for the better part of the last year. You don't need to be an expert technical trader to see why AEP looks attractive here; a look at the uptrend in the chart tells you pretty much everything you need to know.

AEP is a "buy-the-dips stock" this summer -- and we're coming on a dip this week.

The uptrending channel in AEP has provided traders with a high probability range for shares to trade within, and it's remained inviolate since last September. Each of those last nine tests of trend line support has provided a very opportune time to buy AEP -- and we're coming up on test number 10. But when it comes to uptrending channels, you don't just want to buy near trend line support. Instead, it's key to actually wait for a bounce higher off of the bottom of the trend line.

Waiting for a bounce off of trend line support is a key risk management strategy for AEP buyers for two big reasons: it's the spot where shares have the furthest to move up before they hit resistance, and it's also the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring American Electric Power can actually still catch a bid along that line before you put your money on shares.

To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

Tuesday, July 15, 2014

Mondelez International Readies for Another Spinoff?

Source: Wikimedia Commons.

Fresh from calving off its coffee business, global snack-foods giant Mondelez International (NASDAQ: MDLZ ) appears ready to slice up its operations once again. The Oreo cookies maker is separating its cheese and grocery units in Europe, allegedly preparing to ready them for a sale or spinoff as a freestanding company, obviously a result of the influence being exerted by billionaire shareholder Nelson Peltz.

The activist investor has maintained steadfast conviction that snack foods are the growth industry of the future. Last year he took a sizable position in PepsiCo to advocate for a major shakeup of the soda company. He wanted the beverage giant to spin off or sell its soda division and use the proceeds from it to acquire Mondelez, which would then be melded with Pepsi's Frito-Lay. Management and the board resisted his overtures, though, and he subsequently gave up the acquisition aspects of his plan after he gained a seat on Mondelez's board of directors.

He's used that position as a bully pulpit to transform the company into a snack-foods pure play, and it was his fingerprints that were on the company's spinoff of its coffee business. In May, Mondelez announced that it was combining its coffee business with that of D.E. Master Blenders to create a new global pure-play coffee giant housing brands including Gevalia, Tassimo, Senseo, and the international business of Maxwell House. Now he's apparently readying the next stage of the transformation with the cheese and grocery realignment.

Mondelez has the international business of Philadephia brand cream cheese that it received as a result of its spinoff from Kraft Foods two years ago, as well as Cheez Whiz, Miracle Whip, and Kraft Cheddar Cheese. The cheese and grocery division accounted for 8.5% of Mondelez's first-quarter revenues of $8.6 billion, while the European unit accounted for nearly half of it, or 4%.

Even though Mondelez's gum business continues to struggle, it comprises 13% of total revenues and is much closer to the sort of snack business Peltz and fellow activist investor Ralph Whitworth envision as the ideal composition for the company.

Still, not all analysts are convinced there will be a spinoff anytime soon, believing the snack-food company already has a lot of moving parts so that divesting the unit at this time will divert management's attention. The company itself says making the businesses separate units was decided upon back when it began the process of calving off coffee into the new Jacobs Douwe Egberts, but whether that means it plans on spinning off cheese and grocery, too, it doesn't say, preferring not to comment on speculation.

When the coffee sale was announced, Mondelez International's stock jumped, pushing it to new record levels. I thought investors would be best served waiting until all the activity settled down before taking a stake, because it was going for a premium valuation. I think that still holds true despite the latest speculation, and the market seems to agree, as the initial spike it registered following publication of the report has calmed down and the stock remains about where it was beforehand.

While snack food itself is a growth opportunity, consumers are looking for more than just junk food to nosh on. Better-for-you snack foods is where the real opportunity lies, and Mondelez International could be a stock that's worth snacking on if it seizes it.

Apple is ready to take more than just a nibble with its next smart device
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Select Comfort Corp (SCSS) Earnings Report: Will Investors Sleep Well? MFRM & TPX

The Q2 2014 earnings report for mattress stock Select Comfort Corp (NASDAQ: SCSS), a potential peer or competitor of other mattress players like Mattress Firm Holding Corp (NASDAQ: MFRM) and Tempur Sealy International Inc (NYSE: TPX), is due out on Wednesday after the market closes. Aside from the Select Comfort Corp earnings report, it should be said that the estimated release date for the Mattress Firm Holding Corp Q2 2014 earnings report is the the week of September 4th while the estimated date for the Tempur Sealy International Inc Q2 2014 earnings report is the week of July 21st. And while the last earnings report from Select Comfort Corp did not cause shares to move much, shares plunged 19% in January as preliminary fourth quarter results reignited concerns over growth going forward. This came after a 25% plunge after an October earnings report badly missed expectations.

What Should You Watch Out for With the Select Comfort Corp Earnings Report?

First, here is a quick recap of Select Comfort Corp's recent earnings history from Yahoo! Finance:

Earnings HistoryJun 13Sep 13Dec 13Mar 14

EPS Est	0.24	0.43	0.15	0.32
EPS Actual	0.18	0.36	0.12	0.31
Difference	-0.06	-0.07	-0.03	-0.01
Surprise %	-25.00%	-16.30%	-20.00%	-3.10%

Back in mid April, Select Comfort Corp reported a 7% first quarter net sales increase to $276 million, operating income decreased to $25.8 million from $35.2 million in the first quarter of 2013 and earnings per diluted share of $0.31 verses $0.41 on an as-adjusted basis (excluding CEO transition benefit). Select Comfort Corp was also expecting full-year 2014 earnings per diluted share to approximate full-year 2013 adjusted earnings per diluted share of $1.07 with this outlook assuming mid- to high-single-digit total revenue growth and the addition of 20 to 30 net new stores during the year.

This time around and according to the Yahoo! Finance analyst estimates page, the consensus expects revenue of $223.74M and EPS of $0.14 - down from EPS of $0.16 expected ninety days ago.

On the news front and in late May, Piper Jaffray said April sales for the mattresses industry increased 3% year-over-year according to ISPA. They see these numbers as in-line to slightly better than anticipated but they continue to favor Mattress Firm Holding Corp and Tempur Sealy International Inc in the mattress space.

What do the Select Comfort Corp Charts Say?

The latest technical chart for Select Comfort Corp shows that after taking two big hits late last year, the stock has slowly clawed back to higher levels:

However and since the end of the recession, Select Comfort Corp has been a real outperformer plus Mattress Firm Holding Corp and Tempur Sealy International Inc have also put in respectable performances:

The technical charts for Mattress Firm Holding Corp and Tempur Sealy International Inc also show uptrends albeit the latter has produced a multiple top:

What Should Be Your Next Move?

Investors might want to review what happened last October and again at the beginning of this year to see whether they will sleep comfortably going into another Select Comfort Corp earnings report. Then again, perhaps the worst is over and there could be some upside if there is a positive surprise.

Monday, July 14, 2014

Why Tim Cook Is Trying to Change Apple’s Board

If you’re an Apple (AAPL) shareholder, you might be growing weary of seeing nothing from the company besides updated versions of existing products. But we might be on the verge of seeing some serious changes.

Source: Wikipedia

In a recent commentary penned for The Wall Street Journal, reporter Daisuke Wakabayashi notes that after nearly three years on the job, Apple CEO Tim Cook is finally ready to shake things up in a major way. One of the first rumored overhauls Cook is seeking – allegedly — is the placement of new board members, which would mean the replacement of at least some of the old ones. And truth be told, it might just be what the doctor ordered for Apple stock.

Why is He on the Apple Board of Directors?

Let’s call a spade a spade. Most of the time, nobody cares who’s on a company’s board of directors. The majority of board members were voted into that position simply as a favor, or to open new doors of opportunity, or both. The days of a board actually holding a company’s management team accountable are largely a relic.

Yet, every now and then, the relationship between a board and a management team can become so fruitless, it’s clear something has to be disrupted just to avoid stagnation. Kudos to Tim Cook for recognizing that before it takes a toll on the value of Apple stock.

The problem isn’t the caliber of people who call themselves Apple directors. Indeed, Apple’s Board of Directors reads like a list of the business world’s most influential movers and shakers. That, however, may be the core of the problem — most of Apple’s directors have a great deal of experience and a great deal of interest in areas other than consumer electronics. Take a look at the current board, and their other obligations:

Arthur Levinson — Apple’s Chairman of the Board, Chairman and former CEO of Genentech Bill Campbell — Chairman and former CEO of Intuit Corp. Tim Cook — Current CEO of Apple Millard Drexler — Chairman and CEO of J. Crew Albert Gore Jr. — Former Vice President of the United States Robert Iger — Chairman and CEO of The Walt Disney Company Andrea Jung — President and CEO of Grameen America, Inc. Ronald Sugar — Former Chairman and CEO of Northrop Grumman

This isn’t to say that every single board member is required to be an ex-CEO of a consumer electronics firm, nor is to say no director should be actively involved in the leadership of another corporation. On the other hand, how much contribution can the former CEO of a defense contractor and the current CEO of a clothing retailer be making?

One could argue these folks bring broad business management experience to the table, and may offer expertise in areas like inventory management or sales. Yet, Apple has grown itself into one of the biggest and most complex companies in the world, and it’s being led by Tim Cook, who is often hailed as an operational genius. There’s probably not a lot of insight left for Apple to glean from its Board of Directors.

Too Many Tim Cooks Spoil the Broth

While the experience and insight Apple’s Board of Directors brings to the table may be in question, perhaps even more alarming is the demographic breakdown Tim Cook sees when he sits down to have a pow-wow with the board. Six of the seven non-Apple-employee board members are 63 or older, while Tim Cook isn’t exactly young at 53. Six of the seven outside directors are also men. It’s a cross section of consumers that looks nothing like Apple’s target market.

For perspective, half of iPhone owners are women, and the age groups buying the most iPhones are the 18-24 and the 25-34 brackets. Tablet ownership, regardless of brand, is most concentrated in the 35-44 age bracket, and again, it’s an even mix of men and women. At some point in time, the group of mostly older gentlemen guiding the ship — with Tim Cook at the helm — is going to miss something critical about who is buying its product.

The bottom line is, Apple stock owners should embrace the possibility that Tim Cook is looking to shake things up, no matter how he intends to do it. An overhaul of the Board of Directors isn’t the only task that needs to be completed in order to reinvent the company, but it’s a great first step.

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

Saturday, July 12, 2014

Canâ€™t Afford Beef? Buy a TV!

We’ve often written about how the government's favored method of measuring inflation, the Consumer Price Index (CPI), is deliberately skewed to keep the official measure of inflation low. By underweighting components such as food and housing or using the substitution method – swapping out higher priced items for lower priced ones on the assumption that consumers will switch themselves – bureaucrats can say, with a straight face, "what inflation?"

Interestingly though, if you dig into the components of the CPI you'll likely be left wondering what most of the components actually have to do with daily life. Even if you're in perfect health, it is likely that you'll go to a doctor, dentist or ophthalmologist in almost any given month. And if you're like the average American, you probably have at least one prescription filled. For most of the men out there, at least if you're as vain as I am, you probably also get at least one haircut a month. Given the average frequency of consumption, including those services in the CPI makes perfect sense.

But how often do you purchase a new car? In 1995 the average age of cars and trucks in America was 8.4 years but, as of last year, the average age had risen to 11.4 years. American's clearly aren't buying new vehicles as often as they once did if for no other reason than the lingering effects of the recession. Over that same period, the average hourly worker's wage rose by more than 75 percent while the average cost of a new car rose by just 4.4 percent. Despite the fact that most of us aren't buying new cars every year, much less every month, the average cost of a new car continues to influence the government's reading on inflation.

Some other interesting items that you'll find in the government's basket of goods and services includes televisions, major appliances such as clothes dryers and refrigerators, video rentals (who still! does that?), photographic equipment and living room furniture. While it is true that most of us purchase those types of items at some point in our lives, they hardly impact our day-to-day cost of living. At the same time, the average cost of most of those goods has been steadily falling thanks to increasingly automated manufacturing processes, improving technology and the influence of cheaper imported products.

While the price of any one of those items has any significant impact on the overall inflation measure, in all, about half of the 175 items included in the government's basket are things which you most likely rarely actually buy. I'm not saying that the prices of those things aren't important in determining the level of inflation in the economy, but how is the cost of typewriter repair in any way relevant to how much cash I have in my wallet to spend?

The very composition of the CPI is why the government can tell us that there's really no such thing as inflation today, with it running at just 2.2 percent. And they can say it is just 2.2 percent despite the fact that their own data shows that the average cost of a gallon of gasoline is up by more than 5 percent compared to last year, the price of eggs is up by more than 7 percent, beef prices are up by nearly 10 percent and pork is up by almost 13 percent.

Can't afford that porterhouse steak? Go buy yourself a dining room table, the average price is down by nearly 14 percent over the past three years. Yet another reason why the CPI is a poor representation of real inflation.

Friday, July 11, 2014

Why Airlines Should Be Worried About JetBlue's Mint Business Class

It's no secret that airline profit margins are low -- around 2.4% worldwide -- or that first-class and business-class fares are where the airlines actually make money. That's why formerly all-egalitarian value carrier JetBlue (NASDAQ: JBLU ) rolled out Mint, its version of premium class, in mid-June. The airline was very selective about deploying Mint. It's currently available only on two planes that fly the country's most popular air route, JFK-LAX. That route also happens to be the biggest revenue generator for the domestic airline industry, bringing in $701 million in 2013, according to Quartz and PlaneStats.

So far, the reaction from travelers has been good, said JetBlue public relations manager Anders Lindstrom. Lindstrom didn't share booking numbers but described the early response as "beyond expectations." If Mint really takes off -- there are expansion plans on the calendar -- it could poach business passengers from carriers that have had a lock on first-class transcontinental travel.

Luring business-class flyers with perks and privacy
Mint raises the question of how a budget airline can compete on luxury against carriers like American (NASDAQ: AAL ) , Delta (NYSE: DAL ) , and United (NYSE: UAL ) . It looks like the answer is by going over the top on amenities and getting flyers hooked with low introductory rates. The market's longest fully flat seats, 15-inch flat-screen monitors, DirecTV (NASDAQ: DTV ) , Sirius XM radio, tapas platters, and curated grooming product assortments from Birchbox are all part of the Mint package.

Mint suite. JetBlue

The truly unique selling point, though, is the private suites. Each Mint flight has four single-seat suites with doors that close -- an amenity many travelers would love to have at the office, let alone in the air when they want to nap or avoid making small talk. JetBlue is the only domestic airline with this feature, and Lindstrom said "the ultimate private experience" has been "extremely popular among travelers flying on their own."

Hitting the competition on price
JetBlue is also competing hard on fares. At the lowest Mint price each way, a JFK-LAX round trip would cost $1,200, as much as $900 less than competitors' business-class fares. Lindstrom acknowledged that the introductory rates won't last indefinitely, but said prices will be competitive going forward.

"JetBlue always focuses on overpriced markets," Lindstrom said. "And with the majority of markets we enter or operate, we have brought average fares down significantly."

That's great for business travelers and a potential issue for American, United, and other carriers who count on transcontinental first-class fares for big revenue. A recent search showed JFK-LAX business class round-trip fares hovering at or above $2,000 -- without a door.

If those carriers are forced to drop their rates or upgrade their offerings on the New York-to-L.A. route, their strongest revenue source will take a hit. According to David Yanofsky at Quartz, 30% of the revenue American and United made last year on the New York-to-L.A. route came from those $2,000 fares.

Right now, JetBlue only has two Mint planes -- new, custom-configured Airbus A321s -- flying New York to Los Angeles. But all the airline's JFK-LAX flights will offer Mint seating by Aug. 3, and JetBlue plans to add Mint service on its New York-to-San Francisco flights beginning Oct. 26. There may be additional Mint routes to come.

"We see future opportunities from Boston, which has a major business travel focus for JetBlue," Lindstrom said.

For business travelers, Mint looks like a sweet deal, especially with the low intro rates. Even a few thrifty coach flyers might be tempted to shell out a couple hundred extra bucks for the privilege of privacy and legroom on such a long flight. Time will tell if Mint is a moneymaker for JetBlue and whether American, Delta, and United will have to accept lower business-class margins on the most profitable route in response.

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These Signs of Market Trouble Are Looming

"Markets are priced to perfection.

Signs of late-cycle behavior and thinking are abundant.

The latest example came from BMO's strategist Brian Belski, who published a report arguing that the bull market in stocks will continue for another ten years with annual gains of 10.5%.

This is the type of report that appears at market peaks. Despite the fact that it was dressed up in statistics and produced by a respectable brokerage house, this isn't a serious piece of research; it is nonsense and anyone who takes it seriously and invests based on its conclusions deserves the losses that will follow."

The above is excerpted from a recent report I produced for my Credit Strategist readers. I wanted to share with you some of my thinking on rapidly coalescing signs that point to growing cracks in the façade of a healthy market...

Be Wary of "Growth" in These Propped-Up Indices

Too much of today's market forecasting is focused on the wrong data, and even more is just outright bad analysis as we saw above with Mr. Belski's report.

We may not be looking at a nominal-value market bubble, but there are signs valuations are out of touch with realities in the credit markets and relative to our managed interest rate environment. The combination spells losses for investors who don't, or won't, prepare for changes ahead.

Here is why I'm concerned about the "everything is rosy" scenario, and what I want you to do to protect yourself when the music stops.

Still, the epic stock market rally continues to churn. Year to date...the S&P 500 is up over 7% ...the Nasdaq Composite Index is up 6.3% and the small cap Russell 2000 index is ahead, despite some serious noise around the rally:

The situation in Iraq and Syria continues to deteriorate, yet investors remain squarely focused on supportive monetary policies around the world. Investors believe inflation is not going to be a problem even though it already is in the real world outside official government statistics, and that corporate earnings will continue to rise on the back of low borrowing cost, low effective tax rates, weak wage growth and stock buybacks, and other non-organic factors.

Stocks remain, on the face of it, far more attractive than other asset classes such as bonds, but relative value does not equate to absolute value.

How Will Your Investments Respond to "Normalizing" Interest Rates?

The first half of 2014 has seen a historic rally across all asset classes. Six important gauges of world stock, bond, and commodity performance are headed for gains for this period, the first time that has happened since 1993. Through July 8, gold was up 8.8%, the Dow Jones UBS Commodity Index 5.5%, the MSCI World Index of developed world shares 4.8%, and the MSCI Emerging Markets Index just over 3%.

Not every market in the world is up - the Japanese stock market is down a few percent. But for the most part all asset classes have rallied as a result of unprecedented stimulus efforts by global central banks.

The question, of course, is how long those efforts will continue and what happens when they stop. So what's the catalyst for a change?

Recently, Bank of England head Mark Carney signaled that his bank may raise rates sooner than expected in order to stem a sharp rise in British housing prices.

Meanwhile, Chinese authorities have been taking steps to deal with a housing bubble as well.

In contrast, European and Japanese central bankers have been doubling down on efforts to stimulate their economies.

The Big Kahuna, of course, is the U.S. Federal Reserve, which is reaching the end of its tapering of bond purchases and will be out of the market by November. The Fed, however, has made it clear that it will not be raising rates for the foreseeable future although markets reacted badly when St. Louis Fed President James Bullard (a non-voting member of the Federal Reserve's Open Market Committee this year) warned that rates could be raised sooner than expected.

The Fed faces the dilemma that the benchmarks it has set for raising rates - a 6.5% unemployment rate and 2.0% inflation - have either already been breached (unemployment) or are about to be breached (inflation). At the same time, it realizes that heavily indebted private and public sectors would react badly to any normalization of interest rates.

As a result, the Fed is going to face a test of its credibility as it fights to keep interest rates low in the face of evidence that the rationale for doing so is wavering.

Investors should be preparing for the day when rates rise, which could come sooner than expected. Now, not later, is the time to prepare.

Bolster Your Portfolio... with This in Mind

Even if it doesn't come as early as 2015, which is not priced into the market, investors should focus their investments on those that will be able to withstand a gradual rise in rates. This will include value as well as growth stocks, event-driven, floating rate and short duration (rather than traditional and long duration) fixed income investments, and gold.

Trees don't grow to the sky and neither do stocks. At the very least, investors should avail themselves of the low cost of insurance and Money Morning's oft-recommended trailing stops to protect the gains that they have enjoyed during this epic five-year bull market run.

Wednesday, July 9, 2014

5 Newly Profitable Stocks to Buy – Screen of the Week

With earnings season just getting started, now is a great time to take a look at my “First Profit stock screen. The idea is to find companies that have not shown a profit for at least the previous four quarters, but have just recently produced their first profit this past quarter.

I run this screen after every earnings season, and often find great stocks to buy. And here we are again.

Some of these companies will be relatively new, and this recent profit may be the only profit in the company’s history so far. Other companies may have a long history of profitability, but for whatever reason haven’t seen a profit in a while — but have finally returned to profitability.

I like this concept because, if the trend has been one of improvement, there’s a good chance the trend will continue. This is true whether you’ve been profitable or are just getting profitable.

But some people (like myself for example) dislike buying companies that cannot show a profit. And there are many others who won’t even consider a stock unless it's making money.

Losing less than the previous quarter is indeed an improvement — they’re growing less unprofitable. And it's even better if the losses are less and less in each sequential quarter.

But there’s something entirely different about growth AND being profitable. And those are the stocks that will likely see the best new demand from new investors; people who are now, all of a sudden, willing to take notice of, and pay attention to, the stock.

And that's what we're screening for today:

EPS for the previous 4 quarters less than or equal to 0 EPS for the recently reported quarter greater than 0 Current price greater than or equal to 5

I prefer to only look at companies over $5. But if you drop this item from the screen, it’ll currently produce three times as many stocks coming through the screen.

The screen is pretty simple yet pretty powerful.

Here are five stocks that made it through this week's screen:

Pozen (POZN) Xcerra (XCRA) Navios Maritime (NM) Kemet Corp. (KEM) Horizon Pharma (HZNP)

Get the rest of the stocks on this list and start looking for the newest companies that fit this criteria. It’s easy to do. And it could help you find your next ‘best’ stock. Start screening for these companies today with a free trial to the Research Wizard.

Click here for your 2-week free trial to the Research Wizard.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Buy S&P 500, Avoid Nasdaq

Earnings season is still in its early phases, but there are already reasons to believe that the current environment favors the S&P 500 over the NASDAQ. Oddly enough, some of the evidence for this can be found in the tech portion of the S&P 500 itself, as critical earnings misses from several large cap companies point to some discouraging trends for the sector as a whole. From at least a short-term perspective, this should light warning signals for those holding the PowerShares QQQ Trust ETF (QQQ) as it makes sense to consider removing exposure from assets that track the NASDAQ in favor of those that track the S&P 500, such as the SPDR S&P 500 ETF Trust (SPY). On the whole, earnings reports have held up, but the total performances seen at the sector level put the benchmark technology index in a less positive light, as broader trends are favoring other areas of the market.

Most of the evidence supporting positions in SPY over QQQ can be seen in the earnings performance so far this season. In the S&P as a whole, roughly 3/4 of the reporting companies have posted results that are better than analyst estimates. When looking at revenues in isolation, slightly more than half of those companies have passed market projections. But these numbers would be much improved without the major earnings misses that have been seen in the large-cap tech space. Examples seen so far include Intel Corp.(INTL), Advanced Micro Devices (AMD), and, more recently, Google(GOOG), and Microsoft (MSFT).

So far this year, the tech portion of the S&P 500 has posted cumulative gains of just 8.5%. This is much lower than the 18.6% gains that have been seen in the index as a whole. The tech portion of the S&P is one of only four sectors that is expected to see declining earnings growth for the second quarter, and this indicates alarming trends for assets with significant exposure to the space, such as QQQ. Events last week show a key example of these trends, with earnings at General Electric (GE) helping support price activity in SPY on a record order backlogs, and major improvements in demand for the company's jet engines and drilling equipment. At the same time, Google's stock is meeting sellers as average advertising prices are being limited by consumer shifts to mobile devices. Cost-per-click for Google offerings fell by 6% in the second quarter, largely a result of these demographic changes. To make matters worse, Microsoft posted its largest earnings miss in 10 years, as well-documented declines in PC sales and a tepid response to the Windows 8 offering erode the company's revenue prospects.

When viewed in conjunction with the earlier tech misses at AMD and INTL, a disappointing picture emerges, and this removes a good portion of the argument behind bullish tech positions in coming months. These large-cap disappointments suggest that SPY is likely to outperform relative to QQQ, given the broader trends that are seen in these weakening sectors. To date, 17 tech companies have released second quarter earnings, coming in 3.6% weaker than analyst estimates, on average. In the S&P as a whole, companies have beaten analyst estimates by 2.4%. Tech companies are expected to see profit declines of 8% for the quarter, and this trend weighs on the prospects for QQQ going forward.

Chart Perspective

2218401-13743842711483757-Richard-Cox.pn

Relative performance in SPY and QQQ favors non-tech companies, and the price perspective supports this trend as well. In SPY, prices are still pressuring their all-time highs with little in the way of corrective pullbacks to the downside. At this stage, it makes sense to wait for some bearish retracement before getting long again in SPY, first support buy zone can be found at 165.80.

In QQQ, prices have gapped lower after last week's big earnings misses. The bounces out of "resistance turned support" at 74.40 have been limited, however, so it is still likely we will see additional declines before real bounces can be expected. Watch support at 73.70, as this is an initial buy zone as long as support holds at those levels.

Tuesday, July 8, 2014

Newmont-Indonesia Spat Getting Ugly; Are Gold Miner Reserves Too High?

Last week, Newmont Mining (NEM) filed for arbitration against the Indonesian government over export taxes, a move that didn’t make the government happy to say the least. Cowen’s Adam Graf and Misha Levental explain:

REUTERS

Press reports out of the Indonesian press quote Indonesian government officials requesting that Newmont Mining withdraw its filing for international arbitration against the government. The filing was in response to newly imposed export bans, taxes, and fees to be imposed on Newmont Mining’s subsidiary, on exports of copper concentrate. Due to this, Newmont has not exported copper concentrate since January, has declared force majeure, and has idled activity at its Batu Hijau mine.

Both the Economic Affairs Minister and the Energy Minister have been quoted. They ask for Newmont Mining to withdraw its filing and return to the negotiation table, otherwise they will be no longer considered “good partners.” Newmont and the government had been in negotiations for 6 months without reaching a resolution. Newmont’s Contract of Work (COW) reportedly precludes new taxes or fees, and ensures the ability to export concentrate. The same contract reportedly provides that disputes between parties can be subject to international arbitration.

Ironically, not that long ago, the Indonesian government filed for international arbitration against Newmont Mining regarding the COW sell-down provision.

Barclay’s Farooq Hamed and Adam Fenech argue that reserve-to-resource production ratios at North American gold miners are overstated. They explain why:

In response to a lower gold price and rising development costs most North American gold producers have shelved development projects with 2014 being the last year of significant investment in growth. Despite the deferral or suspension of development spending beyond 2014, the reserves and resources associated with shelved projects remain on company statements effectively over estimating the remaining reserve/resource lives for gold companies. Adjusting reserve and resource
estimates for shelved products and divestitures, we estimate the adjusted weighted average remaining production life for the North American senior and mid-tier gold companies is ~14 years for proven and probable (2P) reserves and ~22 years when including Measured and Indicated (M&I) resources…

On an adjusted basis, Eldorado Gold (EGO) has the longest reserve/resource life amongst our coverage companies (39 years) with Goldcorp (GG) having the longest reserve/resource life (23 years) amongst the senior producers versus the group average of 22 years. Kinross Gold (KGC) and Iamgold (IAG) have the shortest adjusted reserve/resource lives amongst the senior and mid-tier producers (18 and 14 years respectively). On a percentage basis, the companies most affected by the adjustment are New Gold (NGD) and Iamgold which both saw reserve/resource lives fall by 47% however, we note that despite the adjustment, New Gold still has the second longest reserve/resource life in our group (37 years). Newmont Mining was the least affected by the adjustments with reserve/resource life declining by only 12% to 22 years from 25 years.

Shares of Newmont Mining have fallen 1.6% to $24.78 at 2:07 p.m. today, while New Gold has dipped 0.4% to $6.26, Iamgold has dropped 2.7% to $3.96, Kinross Gold has declined 1.5% to $4.18, Eldorado Gold has slipped 2.1% to $7.38 and Goldcorp is off 0.9% at $27.43.

Isis mobile wallet rebrands to avoid confusion with Isis terrorist group

Where ISIS gets its funding NEW YORK (CNNMoney) Isis, the mobile wallet service founded by AT&T, Verizon and T-Mobile, has a branding problem.

Isis CEO Michael Abbott said Monday that the firm is changing its name to avoid association with the Islamic State of Iraq and Syria, the terror group frequently referred to by the acronym ISIS.

"However coincidental, we have no interest in sharing a name with a group whose name has become synonymous with violence and our hearts go out to those who are suffering," Abbott said in a statement.

The new name has yet to be announced.

ISIS the militant group is responsible for the conflict that's spilled over from the civil war in Syria to plunge Iraq into unrest. ISIS fighters took control of Mosul, Iraq's second largest city, in early June following a quick campaign that saw Iraqi security forces quickly fold under their assault.

As for Isis the mobile wallet, a forced rebranding might not be such a bad thing.

AT&T (T, Tech30), Verizon (VZ, Tech30) and T-Mobile (TMUS) founded it in 2010 with the goal of developing a smartphone-based service to store payment cards, loyalty programs and merchant offers.

Despite gaining powerful backers like American Express (AXP) and JPMorgan (JPM), the service has failed to catch on, and it faces competition from the likes of Google Wallet, PayPal, Square, Venmo and many others.

It's not the only "Isis" that isn't enjoying the name confusion. One of the world's leading centers for physics and life sciences research is located in the U.K. and also called Isis. It hasn't announced a rebranding yet, but it has made the British press.

Monday, July 7, 2014

The No. 1 Tip to Accelerate Your Financial Independence Day

We all share the dream of financial independence. By reaching the point at which our assets generate enough to cover our expenses for the remainder of our lives, we gain the freedom to focus all of our time on the things that really matter.

In honor of our nation's Independence Day this Fourth of July, the slideshow below shares the No. 1 tip to help you more quickly reach your own Financial Independence Day. Along with that tip, it also includes a brief discussion of how to think about money in terms of time, as well as priorities to make it easier to make the tough decisions that will help you attain financial independence sooner.

How to get even more income during retirement
Social Security plays a key role in your financial security by reducing the amount you need to save on your own to cover your retirement expenses. Still, it's not the only tool to boost your retirement income and help you reach your financial independence day sooner. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Saturday, July 5, 2014

Good value in VOXX International

DISCLOSURE:

I am long this stock. I am not employed by or consult with the issuer of this security.

Recommendation VOXX International's current share price represents a short term buying opportunity due to an overreaction in the stock market as a result of its FY 2013 goodwill impairment. A conservative DCF indicates an intrinsic value of $11.82 per share. The bulk of the goodwill & intangible asset impairment have been accounted for now according to management. BUSINESS OVERVIEW

VOXX is a manufacturer and distributor in the automotive, premium audio and consumer accessories industries. The company has 30 global brands divided into three segments:

Automotive: The Automotive segment focuses on in car entertainment, security amongst other items. This segment represents 51% of FY 2013 gross margin. Premium Audio: focuses on home theatre and other entertainment products. This segment represents 26% of FY 2013 gross margin. Consumer accessories: focuses on remote controls; battery packs; amongst other items. This segment represents 22% of FY 2013 gross margin.

The gross margin of the company has been steady ranging from 28.3% to 28.7% in the last three years. Revenue & gross margin contracted in FY 2013 by about 2.78%. This was due to weakness in both the Premium Audio & Consumer Accessories segments as a result of poor weather conditions in the US along with slow European sales.

In addition to the above, the following should be noted

The company's balance sheet has a positive current ratio and long term ratio. A continued focus on increasing margins has been emphasised by the management in a June 19th 2014 presentation, however this will likely take over a year to impact the financials. The management is aiming for 29% gross margins. John J. Shalam, founded Audiovox Corporation (now VOXX International Corp) in 1965 and is Chairman of the Board since May 2005. He was the President and CEO from 1960 through May 2005. John owns about 55% of the combined voting power of both classes of common stock. Management has the authority to buy back 1.7MM shares. The debt/equity is 0.25. VOXX SHARE PRICE & 2013 IMPAIREMENT CHARGE

FY 2013 saw a sharp decline in income due to a $57.5MM impairment charge to goodwill, amortizing & non-amortizing assets. This was done due to poor performance in product lines in their consumer electronics & premium audio product lines.

As a result of the impairment, the share price fell precipitously on May 31st 2014 from a price of $13.91 to a low of $7.87.

According to a presentation by the management in a presentation on June 19 2014, there are no other significant impairments expected.

VALUATION

A conservative approach should be used to value VOXX in order to make sure there is an adequate margin of safety if any investment is taken. As a result the following inputs were used:

An 11% discount rate. Assumed no growth in free cash flows from the company in the next 10 years or in perpetuity. Have not included the value of the $11MM in cash the company holds on the balance sheet. The free cash flow number used for Year 1 is the average of the last 5 years of FCF (that average is $31.2MM).

The results of this DCF calculation analysis leads to an intrinsic value of $11.82 per share.

On the left is a table showing the quarterly results of VOXX by year. It is important to note that the adjusted EBITDA for FY 2014 is projected by VOXX to be $54MM while FY 2013 adj EBITDA was $46.5MM and FY 2012 was $67.4 MM. Analysts estimates for FY 2014 are on average $0.75 per share which is roughly in line with VOXX's projections based on forecasted adj EBITDA.

At the current price level and the projected $0.75 per share for FY 2014, the PE is 11.88. This is noteworthy due to the fact that the peak PE in 2013 was 13.9 and in 2012 was 14.6. As a result 'once the dust settles' from the recent impairment in good will one could see multiple expansion.

SUMMARY VOXX International is undervalued given a conservative DCF valuation. Management is clearly taking initiative to improve margins including entering growing markets such as the 'Action Camera' space to compete with GoPro ROE & ROIC are on the low end for this company which is not positive. Management has advised that they take into account past years of poor performance in a product lines before taking a write down on the balance sheet on their good will and intangible asset account and as a result are confident that the bulk of the write downs of these assets are behind them. Q3 & Q4 could be catalysts as they are typically the strongest due to the seasonality of the business, these quarters are reported in November & February. DISCLAIMER: THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE SEEN AS INVESTMENT ADVICE. NOTHING WRITTEN IN THIS REPORT SHOULD BE CONSIDERED TO BE A SOLICITATION, RECOMMENDATION OR ENDORSEMENT TO BUY ANY SECURITY. THE INFORMATION IN THIS REPORT WAS CURRENT WHEN THE REPORT WAS WRITTEN BUT MAY BE OUTDATED WHEN BEING REVIEWED. ANY INDIVIDUAL OR FIRM SHOULD CONSULT A PROFESSIONAL OR DO THEIR OWN RESEARCH BEFORE MAKING ANY INVESTMENTS. AUTHOR IS NOT RESPONSIBLE OR LIABLE FOR THE SUCCESS OR FAILURE OF THIS INVESTMENT AND EVERYONE MUST DO THEIR OWN RESEARCH.

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Dr. Paul Price premium member

- 3 hours ago

You speak about the 'current price level' a few times but never indicated what it is.

Why not include that important fact?

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Stoxx 600 takes a breather as Erste Bank drops in Europe

LONDON (MarketWatch) — Austria's benchmark equity index slid by the most in four months on Friday, hit hard after market heavyweight Erste Group Bank AG warned of a hefty annual loss.

Erste Group Bank (AT:EBS) tumbled 16% to 19.48 euros ($26.49) after it said it expects to post a net loss of €1.4 billion to €1.6 billion for 2014 as a result of higher provisions for its units in Hungary and Romania. Annual risk costs will be pushed up to €2.4 billion from the previously expected €1.7 billion, said Erste.

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Fourth of July for the snobs

This Fourth of July, a number of Americans will be doing their partying VIP-style. That's right, even this most fair-minded and fun of holidays has gone glam. MarketWatch's Charles Passy takes a look at some deals on Lunch Break with Tanya Rivero. Photo: Getty

In Hungary, the government is aiming to cut charges by banks on foreign currency mortgages to aid homeowners struggling in the wake of a weakening in the Hungarian forint. Meanwhile, the Romanian National Bank is working to reduce nonperforming loans before an asset-quality review by the European Central Bank.

Barclays cut its rating on Erste to underweight from equalweight. With Erste the most heavily weighed on Austria's ATX, the stock index was pulled down by 3% to 2,460.31.

Erste was also the biggest decliner on the Stoxx Europe 600 index (XX:SXXP) , which shed 0.3% at 347.95. The index had finished the past three sessions with gains.

Trading volume was lower than usual in Europe on Friday as Wall Street closed for the July 4th holiday. The S&P 500 index (SPX) and the Dow Jones Industrial Average (DJIA) ended Thursday at record highs , with the Dow industrials closing above the 17,000 level in the wake of a stronger-than-expected U.S. June jobs reports.

In Paris on Friday, the CAC 40 equity index (FR:PX1) fell 0.5% to 4,468.98, and Germany's DAX 30 (DX:DAX) gave up 0.2% to 10,009.08.

But seeing gains Friday were shares of EasyJet PLC (UK:EZJ) , higher by 1% after the British budget airline said the number of passengers it carried in June rose 10.1% to 6.1 million, compared with the year-ago period.

EasyJet nearly topped advancers on the U.K.'s FTSE 100 (UK:UKX) . The index overall edged up less than 1 point to close at 6,866.05.

Meanwhile, British government-services provider Serco Group PLC (UK:SRP) said Friday it lost a rebid to operate the Docklands Light Railway in London. Its shares declined 0.3%. Serco will continue to service the line through Dec. 7. The DLR franchise generated revenue of about 90 million pounds ($ 154.3 million), or 2% of Serco's overall revenue, at a margin that was well below the average Serco logs on its contracts, it said.

Elsewhere in Europe, shares of Let's Gowex SA (ES:GOW) remained suspended for a second day in Madrid . The shares tumbled more than 70% on Tuesday and Wednesday combined after short seller Gotham City Research LLC said it believes that more than 90% of revenue reported by the free public Wi-Fi provider "does not exist." Gotham City "does not trust Gowex's reported revenues, and believes Gowex is too good to be true," it said, adding that it estimates actual revenue to be less than €10 million.

Gotham City's claims are "unfounded and defamatory," Gowex said in a Thursday statement, and said it's preparing a report of relevant facts to clarify the company's position.

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Tuesday, July 1, 2014

Why is Avago Technologies a Valuable Buy?

Avago Technologies (AVGO) looked like a promising investment at the end of last year, and the company has delivered on it so far in 2014. Since the beginning of 2014, the stock has surged nearly 38% on the back of growing smartphone markets. But this stellar performance has made Avago shares expensive at 29 times trailing earnings, while the dividend yield has come down to 1.70%.

Moreover, the stock is trading close to its 52-week high, and Avago investors might be wondering if the stock is worth holding on to anymore. Well, the answer is that it is. Avago's key clients Apple (AAPL) and Samsung (SSNLF) are going to take the smartphone war to the next level this year. Since Avago plays from both sides, there's a high probability that it will see solid revenue and earnings growth this fiscal year as well.

Smarter phones for smart people

Since Avago's wireless communications business accounts for half of its top line, the boost that it is supposed to receive from Apple and Samsung will play a big role in its financial performance. In fact, in the previous quarter, despite subdued production of Apple's iPhones, Avago managed to increase its wireless revenue, year over year. This was down to "sustained demand from a large OEM customer," which could be Samsung as it is ramping up production and sale of the Galaxy S5.

Apple is expected to come into play later this year when it launches bigger iPhones. With the rumors around the launch of iPhone 6 gaining strength with every passing day, it is expected that the next iPhone product from Apple will include revolutionary features and break company's previous sales records. Apple was a 10%-plus customer of Avago last fiscal year as the company gained content in the iPhone.

Now, we could be looking at a bump in the addressable market for Apple this year as it introduces bigger-sized iPhones. Additionally, Avago also supplies content for iPads and hence, it could see more Apple goodness later this year with the new iPad cycle.

Beyond Apple and Samsung

It is never a good idea to keep your eggs in one basket, so Avago decided to diversify and land a few design wins in China. The deployment of TD-LTE in China has created demand for LTE-enabled smartphones, and Avago management says that the company has won meaningful content in Chinese smartphones for the first time.

This is a significant opportunity for Avago, since 4G smartphone shipments in China are expected to rise to 72.6 million this year from 4.6 million units last year. By 2017, iSuppli expects that there will be 300 million 4G handsets in the Middle Kingdom. So, Avago has made a smart move by moving into this market.

Besides, Avago is enjoying solid growth in its wired infrastructure business, which was up almost 60% in the last quarter. The long-term outlook for this business looks bright, since Cisco is another 10%-plus customer of Avago. The proliferation of connectivity around the globe with different applications in the Internet of Things and the Industrial Internet will lead to demand for data-center equipment and faster connectivity equipment going forward.

Avago is looking to make full use of this opportunity through its product development moves. It recently launched its latest solutions -- MicroPOD and MiniPOD -- in association with Corning that enable data centers and enterprise networks to switch from 10G to 100G Ethernet.

Takeaway

Avago has appreciated strongly this year and the stock isn't as cheap as it was in December last year. However, it is still cheap -- at less than 30 times earnings -- when compared to the industry average P/E of 43.As such, it is still a good idea to hold this stock, especially considering the catalysts that it has in store.

About the author:Riddhi KharkiaA practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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