Emerging Stocks Advance as Rupee Gains Most in 27 Years

Emerging-market stocks rose as oil slumped on easing prospects for an imminent military attack on Syria. Indonesia's rupiah gained after a surprise interest-rate increase, while India's rupee jumped the most since 1986.

The MSCI Emerging Markets Index added 1.3 percent to 921.21 at 1:04 p.m. in New York, poised for the biggest advance in a month. Philippine stocks climbed from an eight-month low as economic growth beat estimates. HDFC Bank Ltd. (HDFCB) and Reliance Industries Ltd., owner of the world's largest refining complex, paced gains in Mumbai. The rupiah rebounded from a four-year low after Bank Indonesia raised its benchmark interest rate in an unscheduled move, while the rupee strengthened 3.4 percent.

Crude oil, which had jumped 4 percent in two days, slid as the U.K. and France said they favor waiting for the results of a United Nations investigation into Syria's alleged use of chemical weapons. The U.S. economy grew at a faster pace and jobless claims fell, dimming prospects for Federal Reserve bond purchases. The benchmark measure for developing nations has plunged 12 percent since May 22, when the Fed signaled stimulus could be trimmed if the economy showed sustained recovery.

"Risk in the emerging markets is trying to find a floor, and they finally caught a bid," Sean Lynch, the Omaha, Nebraska-based global investment strategist for Wells Fargo Private Bank, said in a telephone interview. His firm oversees about $170 billion. "You have some comments and actual policy maneuvers overnight and that maybe injected a little confidence into these markets."

Biggest Gains

All 10 groups in the MSCI Emerging Markets Index rose today, led by technology shares. The gauge of developing nations trimmed this year's plunge to 13 percent, compared with an 11 percent advance for a measure of developed markets.

The iShares MSCI Emerging Markets Index exchange-traded fund rose 1.2 percent to $37.89. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, retreated 1 percent to 27.93.

"This is a relief rally," Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, said by e-mail. "Oil prices are lower, which is an indicator of geopolitical tensions going down."

Brazil's Ibovespa advanced for the first time in four days as Rossi Residencial SA led homebuilders higher after a report eased concern that inflation will hurt the nation's recovery. Oil producer OGX Petroleo & Gas Participacoes SA tumbled 14 percent, extending a three-day plunge to 40 percent.

Russia, Turkey

The Micex Index added 0.2 percent in Moscow, after tumbling to the lowest level since Aug. 8 yesterday. OAO Rosneft climbed after Chief Executive Officer Igor Sechinraised his stake in the nation's biggest oil producer.

The Borsa Istanbul National 100 Index gained as Otokar Otomotiv ve Savunma Sanayi AS, a Turkish producer of civilian and military vehicles, jumped the most in more than two months after it won a defense contract. The lira rebounded from a record low. Benchmark gauges in the Czech Republic and Poland advanced, while Hungarian shares retreated.

India's S&P BSE Sensex (SENSEX) jumped as Reliance Industries Ltd., owner of the world's largest refining complex, increased the most in three months. The rupee rose as the central bank said it will sell dollars to the state oil importers after the currency sank the most in two decades yesterday.

Indonesia joined Brazil, Turkey and India in taking steps to support their currencies this month as the prospect of reduced U.S. monetary stimulus prompts investors to sell emerging-market assets. The rupiah advanced 0.1 percent, after reaching a four-year low yesterday.

SM Investments

The Philippine Stock Exchange Index climbed 3.6 percent, the most since June 26 and ending a two-day slump that sent the measure yesterday to the lowest since Dec. 18. SM Investments Corp., owner of the nation's top shopping mall operator, and International Container Terminal Services Inc., the country's biggest port operator, jumped more than 4 percent.

China's stocks fell for a second day, led by metal and energy companies, after the nation's biggest copper producer reported slumping profits and commodity prices dropped. Jiangxi Copper Co. slid for the first time in five days, losing 3.5 percent as UOB-Kay Hian Holdings Ltd. advised selling the shares. PetroChina Co. declined after senior managers were removed amid a government probe into corruption.

The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 357 basis points, according to JPMorgan Chase & Co.

Buy, Sell, or Hold: NVIDIA

The first half of 2013 has been relatively slow for NVIDIA  (NASDAQ: NVDA  ) , with shares mostly keeping pace with the broader market. This is expected, as the company made the conscious decision to delay the Tegra 4 time frame in order to focus on Tegra 4i. The graphics business continues to hold up admirably in the face of a slow PC market, as NVIDIA's target gamer market remains resilient.

NVIDIA is now entering the licensing business with its graphics architecture, which could translate into new opportunities in mobile. The company could now potentially earn wins at the top two smartphone vendors, Apple  (NASDAQ: AAPL  ) and Samsung, which aren't interested in using Tegra processors directly.

Top Insurance Companies To Buy Right Now

In the following video, Fool contributor Evan Niu, CFA, and Eric Bleeker, CFA, discuss NVIDIA at current prices.

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Nonprofit Sector Reacts to ‘Worst Charities’ Exposé

The nonprofit sector has responded with a mixture of both alarm and calls for action to the investigation that uncovered unsavory practices by the “50 worst” charities in America.

In the meantime, Oregon has become the first state to crack down on charities that fail to spend enough of their donors’ contributions on mission.

Last month, the Tampa Bay Times and The Center for Investigative Reporting published a report identifying 501(c)(3) charities around the country that gulled donors by adopting popular causes or calling themselves names similar to those of well-known charities.

“The nation’s 50 worst charities have paid their solicitors nearly $1 billion over the past 10 years that could have gone to charitable works,” the report said.

Last week, The Chronicle of Philanthropy reported that only one major nonprofit group, the Association of Fundraising Professionals, had issued a statement about the investigation, and it seemed more critical of the reporters than what they uncovered.

The association said the organizations named in the exposé “are such extreme cases that they are not representative of what a typical charity looks like or how it operates.”

The Chronicle reported that another organization, a startup called Charity Defense Council, had urged the investigative reporters “not to write a story based on overhead and fundraising ratios but to write a story based on impact.”

After the article appeared, the group dismissed it for “clearly using a headline to grab readers,” making it suspect from the start.

The Chronicle said several groups on the “50 worst” list had contested their rankings, while some not on the list had tried to put distance between themselves and the others.

On a more proactive note, Roger Craver, a direct-marketing expert, urged nonprofits to tackle the issue head on, according to the article. Remaining silent, he said, amounted to “nothing more—or less—than the collective turning of our backs on the donor.”

And Doug White, a Columbia University philanthropy-ethics expert, proposed establishing a committee of nonprofit experts to clamp down on unethical practices.

Oregon Cracks Down

The Chronicle article noted that the “50 worst” investigation had shone light on regulatory gaps at the state level that could enable unethical or fraudulent behavior by charitable groups.

Now, Oregon has cracked down on charities that spend too little of their money on the mission.

Last month, the governor signed a bill that will eliminate state and local tax subsidies for nonprofits that spend more than 70% of donations over a three-year period on management and fundraising rather than programs and services, according to the Statesman Journal.

Donors to those charities will not be able to claim a state tax deduction, and the organizations will lose their local property tax exemptions.

The article said that the Oregon Department of Justice has identified a top 20 list of the “worst of the worst.” These included a Michigan-based outfit that spent 2.7% on programs over the past three years.

“These organizations have found the business model of using a nonprofit as a cover for what’s basically a telemarketing for-profit firm,” the head of the Nonprofit Association of Oregon told the Statesman Journal.

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Check out 10 Worst Charities in America on AdvisorOne.

Top 10 Small Cap Stocks To Watch For 2014

Exchange-traded products have found their way into countless portfolios as investors of all walks have embraced these financial instruments for their ease-of-use, cost-efficiency, and unparalleled transparency.�Institutional and self-directed money managers alike have taken advantage of ETFs as they offer instant diversification along with the ability to easily tap into virtually any asset class around the globe; with over 1,400 products on the market, there is an ETF for almost everything imaginable, spanning from gold funds to emerging markets small caps to international bonds and everything in between .�

A recent WSJ article by Anna Prior highlights the sheer diversity among products in the ETF universe and how investors can actually build fairly complete portfolios with just a few funds. In the spirit of simplicity, below we outline 25 All-ETF portfolios, each comprised of just three funds in total; please note that investors should adjust the suggested allocations within each of the strategies to better suite their individual risk preferences and current income needs.

Top 10 Small Cap Stocks To Watch For 2014: Panera Bread Company(PNRA)

Panera Bread Company, together with its subsidiaries, owns, operates, and franchises retail bakery-cafes in the United States and Canada. Its bakery-cafes offer fresh baked goods, sandwiches, soups, salads, custom roasted coffees, and other complementary products, as well as provide catering services. The company also manufactures and supplies dough and other products to company-owned and franchise-operated bakery-cafes. As of March 29, 2011, it owned and franchised 1,467 bakery-cafes under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Cafe names. The company was founded in 1981 and is based in St. Louis, Missouri.

Advisors' Opinion:

• [By Roberto Pedone]

  One casual dining player that insiders are active in here is Panera Bread (PNRA), which is a national bakery-cafe concept with 1,652 company-owned and franchise-operated bakery-cafe locations in 44 states, the District of Columbia and Ontario, Canada. Insiders are buying this stock into modest strength, since shares are up 5.2% so far in 2013.

  Panera Bread has a market cap of $4.8 billion and an enterprise value of $4.5 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 26.28 and a forward price-to-earnings of 21.32. Its estimated growth rate for this year is 15.8%, and for next year it's pegged at 15.1%. This is a cash-rich company, since the total cash position on its balance sheet is $341.06 million and its total debt is zero.

  The CFO just bought 1,500 shares, or about $252,000 worth of stock, at $168.58 per share.

  From a technical perspective, PNRA is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down big from $187.50 to its low of $165.55 a share with heavy downside volume. That move has now pushed shares of PNRA into oversold territory, since its current relative strength index reading is 25.59. Oversold can always get more oversold, but it's also an area where a stock can experience a powerful rebound higher from.

  If you're bullish on PNRA, then look for long-biased trades as long as this stock is trending above some key near-term support at $165.55, and then once it breaks out above some near-term overhead resistance levels at its 200-day of $171.33 a share to more resistance at $172.50 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 439,019 shares. If that breakout triggers soon, then PNRA will set up to re-fill some of its previous gap down zone that started at $187.50 a share. Some possible upside targets if PNRA gets into that gap with volume are $175 to $180 a share.

• [By Fabian]  

  Most of you have probably eaten at one of these franchise bakery-cafes. If not I highly recommend it, as for the company itself they are exceptional. Profit soared 50% in the first quarter, operating margins rose several percentage points, and Panera is sitting on $300+ million of cash. Right now it’s at a 30% discount to its peer averages and the stock is very cheap when valued against future earnings. Strong buy expect it to rise to $105.

Top 10 Small Cap Stocks To Watch For 2014: OCZ Technology Group Inc(OCZ)

OCZ Technology Group, Inc. designs, develops, manufactures, and distributes computer components for computing devices and systems worldwide. It primarily offers solid state drives, flash memory storage, memory modules, thermal management solutions, AC/DC switching power supply units, and computer gaming solutions. The company?s products are used in industrial equipment and computer systems; computer and computer gaming solutions; mission critical servers and high end workstations; personal computer (PC) upgrades to extend the useable life of existing PCs; high performance computing and scientific computing; video and music editing; home theatre PCs and digital home convergence products; and digital photography and digital image manipulation computers. OCZ Technology Group, Inc. offers its products to retailers, on-line retailers, original equipment manufacturers, systems integrators, and distributors. The company was founded in 2002 and is headquartered in San Jose, Califo rnia.

Advisors' Opinion:

• [By Wyatt Research]

  The maker of solid state drives for computers reported revenue more than doubled and posted adjusted net income of 1 cent per share. It predicted a full-year revenue rise of at least 65 percent. The share price has jumped 210 percent in the past year.

Hot Undervalued Stocks To Own For 2014: Voyager Oil & Gas Inc.(VOG)

Voyager Oil & Gas, Inc. engages in the exploration and production of oil and gas in the United States. It primarily focuses on oil shale resource prospects in Montana, North Dakota, Colorado, and Wyoming. As of May 17, 2011, the company controlled approximately 141,500 net acres in the five primary prospect areas comprising 28,000 net acres targeting the Bakken/Three Forks in North Dakota and Montana; 14,200 net acres targeting the Niobrara formation in Colorado and Wyoming; 800 net acres targeting a Red River prospect in Montana; 33,500 net acres in a joint venture targeting the Heath Shale formation in Musselshell, Petroleum, Garfield, and Fergus counties of Montana; and 65,000 net acres in a joint venture in the Tiger Ridge gas field in Blaine, Hill, and Chouteau counties of Montana. It supplies energy and fuel for industrial, commercial, and individual consumers. The company is based in Billings, Montana.

Advisors' Opinion:

• [By SmallCap Investor]

  Shares of this explorer, which has operations in the Western U.S., crossed back above $3 and have risen 40 percent in the past month, amid increasing investor interest in companies drilling in the Bakken region.

Top 10 Small Cap Stocks To Watch For 2014: Rackspace Hosting Inc(RAX)

Rackspace Hosting, Inc. operates in the hosting and cloud computing industry. It provides information technology (IT) as a service, managing Web-based IT systems for small and medium-sized businesses, as well as large enterprises worldwide. The company?s service suite includes dedicated hosting comprising customer management portal and other management tools that manage data center, network, hardware devices, and operating system software; and cloud computing that enables customers to provide and manage a pool of computing resources, as well as delivery of computing resources to business when they need them. It offers cloud servers, cloud files, and cloud sites, as well as cloud applications, such as email, collaboration, and file back-ups; and hybrid hosting that provides a combination of dedicated hosting and cloud computing services. The company also offers customer support services. It sells its service suite through direct sales teams, third-party channel partners, an d online ordering. The company was formerly known as Rackspace.com, Inc. and changed its name to Rackspace Hosting, Inc. in June 2008. Rackspace Hosting, Inc. was founded in 1998 and is headquartered in San Antonio, Texas.

Advisors' Opinion:

• [By Sherry Jim]  

  This computing specialist that provides web-based IT systems has soared 60%+ in the past year.  With a P/S above 3 and Price to Cash of 10 this stock is poised to continue to soar and outperform it’s peers. $25 in a year is a realistic bet.

Top 10 Small Cap Stocks To Watch For 2014: OmniVision Technologies Inc.(OVTI)

OmniVision Technologies, Inc. designs, develops, and markets semiconductor image-sensor devices. The company offers CameraChip image sensors, which are single-chip solutions that integrate various functions, such as image capture, image processing, color processing, signal conversion, and output of a processed image or video stream for use in various consumer and commercial mass-market applications; and CameraCube imaging devices that are image sensors with integrated wafer-level optics. It also provides companion chips used to connect its image sensors to various interfaces, including the universal serial bus and other industry standard interfaces; and companion digital signal processors that perform compression in standardized still photo and digital video formats. In addition, the company designs and develops software drivers for Linux, Mac OS, and Microsoft Windows, as well as for embedded operating systems, such as Blackberry OS, Palm OS, Symbian, Windows CE, Windows Embedded, and Windows Mobile. Its products are used in mobile phones, notebooks, Webcams, digital still and video cameras, commercial and security and surveillance, and automotive and medical applications, as well as in entertainment devices. The company sells its products directly to original equipment manufacturers and value added resellers, as well as indirectly through distributors worldwide. OmniVision Technologies, Inc. was founded in 1995 and is based in Santa Clara, California.

Advisors' Opinion:

• [By Karim]  

  They make the 5-megapixel sensors in the camera of every iPhone. Along with this they carry a strong balance sheet and upbeat earnings expectations boding well for future growth.

Top 10 Small Cap Stocks To Watch For 2014: KongZhong Corporation(KONG)

KongZhong Corporation, together with its subsidiaries, provides wireless interactive entertainment, media, and community services to mobile phone users in the People's Republic of China. It also involves in the development, distribution, and marketing of consumer wireless value-added services, including wireless application protocol, multimedia messaging services, short messaging services, interactive voice response services, and color ring back tones. In addition, it offers interactive entertainment services, such as mobile games, pictures, karaoke, electronic books, mobile phone personalization features, entertainment news, chat, and message boards; and through Kong.net offer news, community services, games, and other interactive media and entertainment services; and sells advertising space in the form of text-link, banner, and button advertisements. Further, the company develops and publishes mobile games, including downloadable mobile games and online mobile games cons isting of action, role-playing, and leisure games. As of December 31, 2009, it had a library of approximately 300 internally developed mobile games. Additionally, it develops online games; and provides consulting and technology services, as well as media and net book services. The company was formerly known as Communication Over The Air Inc. and changed its name to KongZhong Corporation in March 2004. KongZhong Corporation was founded in 2002 and is headquartered in Beijing, the People?s Republic of China

Advisors' Opinion:

• [By Wyatt Research Staff]

  As a Chinese ADR, KONG is the leading provider of 2.5G wireless interactive entertainment, media and community services in terms of revenue to customers of company China Mobile. Institutions snatched up shares at an alarming rate with an increase of 26.7% in institutional ownership over the past three months.

  A consensus of analysts expect earnings to increase by 16.9% in 2011 and 19.6% in 2012. Company earnings are estimated to increase by 62.1% this year.

Top 10 Small Cap Stocks To Watch For 2014: bebe stores inc.(BEBE)

bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at bebe.com in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.

Advisors' Opinion:

• [By CRWE]

  bebe stores, inc. (Nasdaq:BEBE) reported that its Board of Directors declared bebe�� quarterly cash dividend of $0.025 per share. The dividend is payable on December 4, 2012 to shareholders of record at the close of business on November 20, 2012

• [By Wyatt Research]

  The women's apparel retailer reported fiscal fourth-quarter sales and same-store sales both rose 7 percent. The stock is up 30 percent year-to-date.

Top 10 Small Cap Stocks To Watch For 2014: China Metro-Rural Holdings Limited(CNR)

China Metro-Rural Holdings Limited, through its subsidiaries, primarily engages in the development and operation of agricultural logistics and trade centers in northeast China. It also involves in purchasing, processing, assembling, merchandising, and distributing pearls and jewelry products. The company markets its pearls and jewelry products to wholesale distributors and mass merchandisers in Europe, the United States, Hong Kong, and other parts of Asia. In addition, it develops, sells, and leases residential and commercial properties in Hong Kong and the People?s Republic of China. The company is based in Tsimshatsui, Hong Kong.

Advisors' Opinion:

• [By Wyatt Research Staff]

  The stock moved significantly higher in mid-January and traded in a fairly tight range ever since. However, that could change soon. China's agricultural exports to Japan will grow if radiation continues to seep into the food chain.

  China exported $593 million worth of agricultural goods to Japan last year.

Top 10 Small Cap Stocks To Watch For 2014: Sify Technologies Limited(SIFY)

Sify Technologies Limited provides enterprise and consumer Internet services primarily in India. The company offers various corporate network/data services comprising e-commerce and network connectivity solutions, such as end-to-end services network, application, and security services; voice origination and termination services; co-location and managed hosting services; and system integration services for data centre build, hardware distribution, security solutions, and turnkey projects. It also provides application services, including SLEMS and Microsoft Exchange messaging platforms; I-test for online assessment and LiveWire, which enable management of training processes across the organization; document management system for the management of documents electronically; and Forum, a forward supply chain solution. In addition, the company operates e-Ports that offer browsing, chat, email, gaming, utility bill payment, travel ticketing, hotel booking, mobile recharge, Intern et telephony, and online share trading services; and portals, which provide news, views, reviews, interactions, and services in the areas of movies, sports, finance, food, videos, astrology, online games, shopping, and travel, as well as offers content offerings and broadband services. Further, it provides infrastructure management services, such as network management, datacenter and helpdesk outsourcing, desktop and storage outsourcing, IT security outsourcing, LAN and WAN outsourcing, database and telecom outsourcing, and application monitoring and management services to automotive, chemical, media, and financial enterprises; and virtualization design, integration, and deployment services for servers, storage, networks, and end user clients. Sify has approximately 1,278 e-Ports in 200 towns and cities; and serves 1,06,000 broadband subscribers through 1500 cable TV Operators. The company, formerly known as Sify Limited, was founded in 1995 and is based in Chennai, India. Advisors' Opinion:

• [By Wyatt Research Staff]

  Shares of SIFY skyrocketed last week after the company announced a new partnership with Saudi telecom. SIFY will provide ICT services to the Middle East's largest telecom carrier.

  Shares of the Indian-based internet and network services have doubled over the past four months.

Top 10 Small Cap Stocks To Watch For 2014: FuelCell Energy Inc.(FCEL)

FuelCell Energy, Inc., together with its subsidiaries, engages in the development, manufacturing, and sale of high temperature fuel cells for clean electric power generation primarily in South Korea, the United States, Germany, Canada, and Japan. The company offers proprietary carbonate Direct FuelCell Power Plants that electrochemically produce electricity from hydrocarbon fuels, such as natural gas and biogas. Its fuel cells operate on a range of hydrocarbon fuels, including natural gas, renewable biogas, propane, methanol, coal gas, and coal mine methane. The company also develops carbonate fuel cells, planar solid oxide fuel cell technology, and other fuel cell technologies. It provides its products to universities; manufacturers; mission critical institutions, such as correction facilities and government installations; hotels; and natural gas letdown stations, as well as to customers who use renewable biogas for fuel, including municipal water treatment facilities, br eweries, and food processors. The company was founded in 1969 and is headquartered in Danbury, Connecticut.

Advisors' Opinion:

• [By SmallCap Investor]

  The developer of stationary fuel cells used by commercial and government customers might be headed for a rebound from a pullback that began this spring - which has left the stock down 39 percent year-to-date.

• [By Roberto Pedone]

   Fuelcell Energy (FCEL) designs, manufactures, sells, installs and services ultra-clean, highly efficient stationary fuel cell power plants for distributed baseload power generation. This stock is trading up 7.2% to $1.01 in recent trading.

  Today’s Range: $0.94-$1.01

  52-Week Range: $0.83-$1.95

  Volume: 1.27 million

  Three-Month Average Volume: 1.04 million

  From a technical perspective, FCEL is ripping higher here right above its 50-day moving average of 92 cents per share with above-average volume. This move is quickly pushing shares of FCEL within range of triggering a near-term breakout trade. That trade will hit if FCEL manages to take out its 200-day moving average at $1.05 and then once it takes out more overhead resistance at $1.06 with high volume.

  Traders should now look for long-biased trades in FCEL as long as it’s trending above its 50-day at 92 cents per share, and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.04 million shares. If that breakout hits soon, then FCEL will set up to re-test or possibly take out its next major overhead resistance level at $1.18. Any high-volume move above $1.18 will then put $1.39 into range for shares of FCEL.

Investment limit raised for retail investors in REC bonds

This follows the tweaking of the definition of retail investors by the Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) on March 6, the day the bonds opened for subscription.

The GoI notification said that any individual investor investing up to Rs 5 lakh shall be treated as retail investor and any individual investor investing more than Rs 5 lakh shall be treated as High Networth Individual.

The raising of the limit would probably help the chances of investors being allotted more bonds in proportion to their investment in case of very heavy subscription. The company had proposed to raise Rs 1,500 crore through the public issue of tax-free secured redeemable non-convertible bonds of face value of Rs 1,000 each, in the nature of debentures, during FY 2011-12.

It had the option to retain oversubscription of up to an aggregate Rs 3,000 crore. The REC tax-free bond Issue will close on March 12 and the minimum application amount is Rs 5,000. The retail coupon rate is 8.13 per cent for 10-year bond and 8.32 per cent for 15-year bond. The bonds are proposed to be listed on the BSE and there is no lock-in period.

Cepheid Posts Prelim 2Q13 Results - Analyst Blog

Cepheid (CPHD) disclosed preliminary results for the second quarter of 2013 based on current projections. The molecular diagnostic company is slated to release exhaustive second-quarter results on Jul 18.

A Look at Elementary Results for 2Q13

For the second quarter, Cepheid estimates adjusted earnings per share of 2 cents compared with adjusted earnings of 11 cents in the year-ago quarter. However, this excludes stock-based compensation of about $6.5 million in the quarter. Including the stock-based compensation, the current Zacks Consensus Estimate is pegged at loss of 2 cents per share.

On a reported basis, the company estimates net loss of $6.6 million or 10 cents per share in the quarter under review, worse than the net income of $1.1 million or 2 cents per share in the prior-year quarter.

The company expects revenues of about $96 million, a record high for Cepheid. This is substantially higher than the year-ago revenues of $81 million and the current Zacks Consensus Estimate of $92 million. Growth was led by higher-than-expected revenues from High Burden Developing Countries (HBDC) and robust growth in overseas commercial clinical business.

Among the segments, Cepheid envisages commercial clinical revenues to be around $70 million and revenues from non-clinical franchise to be $9 million. Revenues from HBDC are estimated at $17 million for the second quarter, another new peak for the company.

Commercial clinical revenues were primarily driven by higher sales of reagents (up 17% year over year to $60 million) on the back of stronger Xpert growth (up 22% year over year). As per management, North American commercial clinical revenues came in at the lower end of Cepheid's expectations.

On a sequential basis, commercial clinical reagents revenues were flat. Growth (up $4 million) was negated by an expected decline in Xpert Flu sales (down $3 million) due to seasonality of flu and lower revenues from non-Xpert test. Moreover, placements ! of 53 commercial systems in North America and 156 systems in the overseas market are expected in the quarter under review accounting for $10 million of commercial clinical system revenues. System placements were aided by three consecutive quarters of backorders due to supply lag on account of manufacturing disruption for most of the second half of 2012.

Our View

The sales growth reflects a favorable amalgamation of Cepheid's effort to return to normal manufacturing operations and solid demand in end-markets. The ongoing efforts on capacity expansion should enable the company to meet the currently assessed soaring market demand for its offerings.

Although HBDC revenues improved in the quarter, we are wary about the impact of this low-margin business on the gross margin. Moreover, Cepheid posted loss after two successive quarters of profitable growth.

The company expects to launch a gamut of tests in the U.S. as well as the overseas market in 2013. In our opinion, test menu expansion is a significant growth catalyst for this molecular diagnostic company. We believe that Cepheid's valuation will be boosted by its healthy pipeline and periodic product launches going forward.

The stock carries a Zacks Rank #2 (Buy). Other Zacks Rank #2 stocks such as Edwards Lifesciences Corp. (EW) and MAKO Surgical Corp. (MAKO) are likely to do well. ResMed Inc. (RMD), carrying a Zacks Rank #1 (Strong Buy) also warrants a look.

Is It Finally Time To Sell Airline Stocks?

For nearly two years, investors have had to climb a wall of worry with regards to airline stocks.

Back then, I suggested that my favorite industry operator, Delta Airlines (NYSE: DAL) was poised to double and the subsequent 145% gain has led a group that has fared quite well.

Simply put, investors were ignoring the too-low price-to-earnings ratios, and instead focused on the trauma that airline stocks had induced in the past as they shifted in and out of bankruptcy. These carriers' financial position is so much stronger than in the past that AMR may well be the last industry bankruptcy we see for a very long time.

Just four months ago, I reiterated my ardor for Delta, and the carrier subsequently raised June quarter guidance in mid-June, thanks to falling jet fuel prices. But quite suddenly, Delta and its peers look a lot less enticing. This chart should tell you why.

A nearly $20 spike in crude oil in the past three months is bound to wreak havoc on profits in coming quarters, and you'll be hearing a lot more about it as the major carriers deliver second-quarter results over the next two weeks.

The Impact On Jet Fuel
Just a month ago, industry analysts had been using the current spot price of jet fuel (roughly $2.74) per gallon, and though there is a lag time between crude oil price moves and jet fuel prices, the price for jet fuel is now on the rise. According to the International Air Transport Association (IATA), jet fuel prices have risen 5.7% in the past month (to a recent $2.94 a gallon), and appear headed for $3 a gallon by the time the major carriers start to report results next week. Note that crude oil prices have risen more than 10% in the past month, so jet fuel has more room to move to adjust to the higher input price.

As long as crude oil prices remain above $100 a barrel, the airline industry will be dealing with higher jet f! uel costs -- its largest expense after personnel -- which will make year-over-year profit comparisons challenged in coming quarters. That's not a concern for the second quarter, as the table below notes.

The real concern regards third-quarter forecasts as $3 jet fuel is bound to lead analysts to dial back their expectations. Compounding that concern, the economic troubles in China are leading to a slowdown in Asian travel, among both consumers and business travelers. That's an especially big concern for Delta and United Continental (NYSE: UAL), which have a relatively larger presence in the Pacific travel market.

On a purely technical basis, the airline stocks already appear to be hitting resistance. A key airline index has made repeated runs toward the upper 50s and has failed to follow through. It's hard to know of the global economic turmoil (in emerging markets) or rising fuel prices, but it's clear that the mood has begun to shift.

Risks to Consider: As an upside risk, accelerating growth in the U.S. economy could offset air travel weakness elsewhere. Moreover, oil prices may cool off in coming weeks if China continues to give off signs of a slowing economy.

Action to Take --> If you have profited from the great run in airline stocks, it's might be time to book profits. Yet this is a sector you need to keep monitoring. When investors shed their exposure to this industry, they tend to overdo it. Falling profit forecasts invariably lead to fresh concerns about industry balance sheets, though as noted earlier, those concerns are really misplaced. When the major carriers fall out of favor, compelling bargains are bound to re-emerge.

4 benefits of intelligent asset allocation

Top 10 Penny Stocks For 2014

Modern Portfolio Theory contains within it a very simple yet very powerful concept, known as the Efficient Frontier.

Wikipedia states it succinctly, as:
"A combination of assets, i.e. a portfolio, is referred to as "efficient" if it has the best possible expected level of return for its level of risk (usually proxied by the standard deviation of the portfolio's return).

Every possible combination of risky assets, without including the risk-free asset, can be plotted in Risk -Expected Return space, and the collection of all such possible portfolios defines a region in this space. The upward-sloped (positively-sloped) part of the left boundary of this region is called the "efficient frontier". The efficient frontier is then the portion of the opportunity set that offers the highest expected return for a given level of risk."

The simpler explanation, for those not statistically inclined, is this:

Consider the universe of investments, or assets.
Each asset carries with it a certain level of risk and expected return.

For example, within the debt / fixed income space , a Government bond would be low to no risk, and hence low return, compared to say a bank FD, which is not completely secured (bank FDs are secured to the extent of Rs. 1 lakh by the Deposit Insurance and Credit Guarantee Corporation - DICGC), and hence slightly higher risk, with slightly higher return, compared to say a completely unsecured corporate bond, which is significantly higher risk and therefore has to offer commensurately higher return.

Not all assets will reward higher risk with equally high return. Those that do not offer enough expected return for a high level of risk are considered 'inefficient'.

Those that do offer the highest expected return for a given level of risk form a sub-universe called the Efficient Frontier in Modern Portfolio Theory.
These are the most rewarding investments to make, for their level of risk.

How does this affect you?
Let's see.

Consider the case of our favourite fictional character, Mr. Shah.

Mr. Shah is about 40 years old, has 2 kids, and has been making investments for the last 15 years. His portfolio is fairly well diversified. It comprises equity and debt mutual funds, stocks, some corporate deposits, bank deposits, his EPF and PPF, tax saving infrastructure bonds, and he holds cash in his bank accounts and has liquid funds, for use in case of emergencies.

When he makes investments, it is largely the result of advice he receives from his financial planner, in line with his life goals. But what goes into the research and planning behind his financial planner's unbiased advice?

Asset Allocation.

Asset allocation is essentially an investment strategy that balances your portfolio's risk and reward, keeping in mind your risk tolerance and appetite, your life goals i.e. your financial requirements, and your investment time horizon.

The importance of asset allocation lies in the overall risk-return performance of your portfolio.

Both asset allocation and rebalancing your portfolio when required, play an important part in having a well diversified and a disciplined portfolio. The number of benefits provided by these 2 relatively straightforward investment strategies is immense and Mr. Shah's Financial Planner knows this.

1. Lower investment risk

A diversified portfolio will be exposed to lower investment risk, because the growth prospects are not limited to one risky security, but rather a basket of both risky and non-risky securities, across equity, debt, gold and real estate.

2. Low dependence on a single asset for returns within an asset class

Not all assets within a single asset class e.g. equity, perform well at the same time. This is what makes it important to choose different stocks and different categories of mutual funds, e.g. large cap, value style and so forth, and allocate funds efficiently even within the same category.

3. Protection from Market Turbulence

Anybody who has lived and invested though the sub-prime mortgage crisis knows that when equity caused the ground to fall out from under our feet, debt and gold kept investors' heads above water. For those who had pure equity portfolios, it was a mistake they will likely never make again. A well diversified i.e. a well allocated portfolio will afford you protection and offer you growth even during times of volatility.

4. Freedom from timing the market

Consider timing a single asset class's market. Those investors who try to actively time the equity markets can testify to its volatility. Now imagine timing the performance and market movement across different asset classes. Investing without stress is not hard to achieve, if you remove timing the market, or markets, and implement a disciplined strategy.

Asset Allocation is also different for investors with different goal time horizons.
For somebody with a short term investment horizon i.e. 3 - 5 years or less, it is advisable to allocate more funds towards fixed income, and allocate fewer funds in your portfolio to riskier assets such as gold or equity.

For a medium term investment horizon i.e. more than 5 years, your allocation to riskier asset classes can increase, to take advantage of the higher risk-reward ratio that these classes offer. However, maintain a healthy allocation to fixed income with low risk to balance your portfolio as your investment horizon reduces.

For a longer term investment horizon i.e. closer to 10 years, you can allocate a higher proportion of your funds to riskier asset classes, to take advantage of the power of compounding in your longer time horizon. Maintain some exposure, if not too high, to fixed income and gold to provide safe, fixed returns and to hedge against the risks of equity and inflation.

These horizons might seem conservative, but consider this. In 2008, we fell from 21,000 to 8,000 on the Sensex. We are now in September 2012 and have still not recovered. Conservative is good.

At PersonalFN, we believe so strongly in the importance of asset allocation and rebalancing, that we have asked our founder, Ajit Dayal, to be the guest speaker at our first WebSummit "An Ideal Asset Allocation In Current Market Conditions". You can Register Here to view the PersonalFN's WebSummit 2012 , its Free.

And remember, keep your asset allocation in mind and rebalance your portfolio as per your financial plan, and 90% of the job of achieving your life goals is done.

PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm

A Case Study in Market Inefficiency

"I'd be a bum on the street with a tin cup if the markets were always efficient"

- Warren Buffett (BRK.B)

For anybody who has had the joy of learning about finance at a university in the past forty years, you are likely all too familiar with the efficient market hypothesis (EMH). As summarized by Investopedia, EMH is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information (just to be clear, financial theory as taught at colleges around the world is still based on this idea). According to this theory, anybody reading this article or anything else written on GuruFocus is simply wasting their time; as such, I like to take the time every once in a while to show the utter ridiculousness of this theory – this article is a case study into the recent price movement of J.C. Penney's (JCP) stock.

In October 2010, Bill Ackman of Pershing Square filed a 13D with the SEC indicating that his firm had taken a 16.8% stake in Penney's, causing the stock to move up nearly 5% and to a price nearly 60% higher than where it had traded just a month earlier. After that time, the stock was relatively range bound, and traded at a price between $30 and $40 per share until mid-2011.

On June 14th, the retail world was enamored with the announcement of former Apple (AAPL) retail head Ron Johnson as Penney's new CEO, with the stock shooting up nearly 20% in the trading session. Yet for some reason (there was no material news announced), the obsession with Mr. Johnson faded and the fear of a euro crisis continued to circle the market (where Penney's doesn't have a single store), resulting in a share price declined of one-third in the next sixty days.

As Mr. Johnson began building a management team with former Target co-workers (namely Michael Francis) and speculation began to swirl about his transformation plans, the market got interested in JCP aga! in, with the stock working its way back to $35 by late January.

On the 25th of that month, JCP's management team hosted an event to outline the company's transformation plans; looking at how the stock reacted, you would of thought that Mr. Johnson announced that Penney's had attained exclusive rights to distribute Apple products – the stock shot up nearly 20% again, the second time in less than six months that a press release had caused the company to add more than $1 billion in "value".

The stock peaked around $43 over the next two weeks, and has been on the decline ever since; today, it sits at a shade under $35, nearly identical to the price that the stock had hit upon the announcement of Mr. Johnson's hiring.

In the past ten months, very little has changed at J.C. Penney's; the company is in the early stages of a transformation that will take years to complete. While the market likely reflects all "relevant information", as termed by the efficient market hypothesis, there are two real issues with this idea.

First, human beings are not machines, and 99.99% don't use Markowitz Optimization when building their portfolio (Harry Markowitz, after which the practice is named, noted that even he didn't use this methodology when constructing his personal portfolio); secondly, and most importantly, all "relevant information" doesn't mean much of anything when it comes to future events that will determine cash flows in perpetuity, a necessary component for determining the "right" price.

And you know what I have to say about that? FANTASTIC! The intelligent investor can use what they know with certainty (namely historical information in the form of financials) to make intelligent and conservative estimates about what they can't and don't know; while I can't tell you exactly what J.C. Penney's is worth, I know with a fair amount of certainty that it falls into a determinable range – and with the stock moving between $23 and $43 ove! r the cou! rse of just a year, that means with a bit of patience that I can be relatively sure that I'm making an intelligent allocation of capital.

Luckily, the world is full of people that fall onto the opposite ends of the spectrum: those who think that trying is a waste of time (EMH proponents), and those that think every single data point (the OBSESSION with monthly sales data is the clearest example of this) is a reason to buy or sell. For the intelligent investor, the sweet spot is a balance between the two: focusing on the essential information (like sustainable competitive advantages) and acting in size periodically when the manic depressive Mr. Market thinks the sky is falling.

The longer I invest, the clearer it becomes: a clear understanding of business, competitive advantages and valuation, mixed with a heavy dose of patience, is a sure fire way to attain long term success; let the continued volatility work to your advantage by standing apart from the herd and developing the necessary toolkit to capitalize upon the market's bouts of inefficiency.

Tom Russo Interview with GuruFocus at the 10th Annual Value Investor Conference

This interview took place on May 2, before Tom Russo gave his presentation to the 10th Annual Value Investor Conference in Omaha. Russo is a partner at Gardner Russo & Gardner, a firm with over $5 billion under management. He was previously at the Sequoia Fund, and has degrees from Dartmouth and Stanford. Last year, his partnership returned 22%.

Holly LaFon: Every time your portfolio comes out, I want to know if you bought a new stock, and every time the answer is no, you haven't bought anything new.

Tom Russo: Since June. Of '10. But we're all in suspense.

HL: Are you ever going to buy anything new?

TR: Definitely. The most likely places that they'll probably pop up are counterparts to the same businesses that we already own because the economics are good for Richemont (XSWX:CFR). They sell precious jewelry and luxury goods and watches to aspirational consumers around the world. The same economics drive Swatch. I don't own Swatch, in big measure. I own it for a handful of clients. But that's kind of the natural sourcing ground for me. I don't own Compari. I do own Pernod Ricard (PDRDF), Diageo (DEO), Brown Forman (BF.B). Compari's a great company. They have different brands and strengths in different categories than the three companies that we already own. I could own Compari.

Likely what would cause the moment that something would change is somebody will report numbers that disappoint and the stock will unwind because there'll be a lot of panic and we'll have an opportunity to rethink a position. What happened in 2010 why Anheuser Busch and InBev and Mastercard came in was that the things that were disturbing to the market were things with which I was very comfortable. And so the extra discount to which the shares traded provided an opportunity to buy what I would have liked to buy already, on sale, for reasons that I thought were passing and unimportant.

HL: I was going to ask you about Richemont because I've heard you talk about ! luxury goods and it seems like you've research that a lot, but I don't see a lot of it in your top holdings. It seems like those were more skewed toward –

TR: It's a one-off isn't it? That's why we said – what could be the source of new ideas? We've got Richemont, you have Louis Vuitton Moët Hennessy (LVMH).

HL: Okay. So you still think the luxury goods sector is a good one?

TR: Yeah, and what's going on today there's a lot of confusion and hand wringing over whether that's true.

HL: What's your perspective?

TR: The questions are: Is it still true if China imprisons people who wear watches that cost more than $50,000, will you get thrown in prison? We don't know whether that will get so severely restricted, and if so whether it will be enforced, but that's concerning the market obviously. The market will key off on the news.

Just to give you a sense of how volatile the market is, you just have to look back to the start of last week when gold did a free fall. Gold! Of all things. It did a complete free fall. It's because the market doesn't quite know what to do with slowing down China. So it took the news about China's slower, somewhat softer economy and it's extrapolated out into commodities generally speaking and into gold particularly. But that shows you the kind of reference that we live in. And yet it's the kind of things that can make for a fairly rich opportunity.

If a 7.7% Chinese GDP is the signal that we're about to go into global recession, I'd say that the signal's being misread, and I will use that chaos that ensues to hopefully find some opportunities. That's how I look at it.

That sets the tone. I have no real opinion about gold, at all. But what I'm impressed with is how you can see the kind of swings that you saw about news that requires extrapolation. You have to take the news and work with it and come up with all sorts of other reasons, and suddenly you can become nervous and u! nsettled.!

HL: I know you're a big fan of Berkshire Hathaway (BRK.A)(BRK.B) – that's a large holding. Do you like the new portfolio managers? Do you think that they're going to help your returns?

TR: Yeah, very much so.

HL: They're obviously really good, right?

TR: Warren said something about them in the annual report two years ago, which is he gave them credit for having the capacity for knowing what is knowable and important. He often says investing is about knowing what's knowable and important, and he gave them praise for having that skill. More recently he's not only given them high praise but also substantially increased amounts of money to manage. And in addition, he credits them for increasing contribution across the organization into other areas of responsibility. So I would think that even though it would not end up to his portfolio credit, that Ted would have been very involved in the acquisition of ResCap. And I think the investment of ResCap is probably better off because of his ability to handle it. And I suspect that Todd may have had some contribution to Bank of America (BAC), which is a very important investment that Berkshire made, and for IBM (IBM), which was a big investment.

HL: He had to do with IBM?

TR: I only surmise he could have because in the past he's been known as an investor who has done an enormous amount of work with mortgage pools. The biggest risk with BofA is what's going to happen with the mortgage risks. So, if he arrived with a strong capacity to understand that, I just can't help but think that must not surface in the conversation. And IBM he once owned IBM in size at his partnership and I'm sure he must have owned it for the same thesis which drove Warren to it, which would be something along the lines of a deep business moat because of the high switching costs.

HL: I wanted to ask you about your return in 2012. It was so good. What happened that year?

TR: I think it was Berkshire generated! a return! , which it hadn't for a while, in part responding to its large share buyback, and the reaction that the market had to the implied higher intrinsic value represented by the fact that they were prepared to pay a higher premium over book value. So, that was a component. The international companies which were under such investor concerns because of Europe being slow and because of China being weak. The companies delivered good results and the market's fears lifted, and so businesses like Nestle and Heineken and Richemont, the ones that were somewhat stalled because of those investor fears, as those fears lifted with performance underlying the business, the shares reacted positively. With the concentration of 70% of the money in the top 10 holdings, if a couple of those get it right there's a big portfolio affect.

HL: You mentioned share buybacks, and I noticed that Nestle was going to cease them in 2011. So are those just not important to you, or what are your thoughts?

TR: Well, I think share repurchases are fabulous, at the right time for the right reasons. And I think dividends are fine at the right time for the right reason. But nothing is right at all times, especially for the wrong reasons. The problems with companies is that they take as Warren says a good idea to the extreme on Wall Street, and that's usually the source of trouble. And so, if our businesses traded at discount to intrinsic value and we redeployed all the capital we can to grow the business and we're still left with excess. Then a buyback's good, and that's what Warren did last year.

I thought Warren's buyback was particularly valuable because his successors, whoever they are, even thought Warren has said that he's a fan of buybacks, his successors would have always struggled if they had tried to implement it a buyback with the argument that Warren doesn't do that, why do you? And now they don't have that problem because they put $1 billion dollars and a half to work in buybacks already.
HL! : They think of everything.

TR: Yeah. It certainly means that when the time comes that a buyback may be the right thing, they won't have to face the threshold question, well, why didn't Warren do it when he ran the place.

HL: And you've held Nestle (NSRGY) for a long time.

TR: I first bought Nestle in 1987, and it was at that time it was very difficult to buy, and it's probably compounded at close to 15% every year since then, total return. And it's partly because it was so unloved at the start that the returns have been so strong. But I've held it for 30 years, and it's grown in large measure because of that capacity to reinvest, and we have this beautiful portfolio of brands. And they have the capacity to suffer. So for example they had global leadership in coffee, in Nescafe. On top of that they identified the single-serve coffee business as very on-trend because of the increasing number of people who live alone and who also want to have choice and variety. So it's no longer enough to brew a pot of Maxwell House for 10 people because you have a big family. You're living alone you want to have variety, you want to have just enough so you don't waste. Single serve plays a big role in that. And they were willing to invest so heavily behind the development of Nespresso that they didn't break even for 15 years. So I admired them. They have great domain expertise in coffee. And they have the capacity to suffer, through 15 years of not breaking even, to perfect the product so that by the time it came out it was a true winner. And so with that careful background, today the business does close to $5 billion. And it's a very solid important franchise. That culture, of being able to take your domain expertise and move from one product to the next and then invest behind it to try to get it right, without rushing to try to show early profits, is at the heart of what I've learned from these businesses that do it right, as things required to have permanent excellence! .
HL: That seems like what they're doing now with their nutrition business? That is really interesting because my friends all care about nutrition, health, everyone talks about food.

TR: The question is, can Nestle capture your interest? For example, one of the great misses of our generation would be Chobani, Greek yogurt. You think about Greek yogurt from a business standpoint, and the number one company in the business, Yoplait, completely took a pass at it, when it was just starting out. It's more nutritious, it's better –

HL: Yeah, all my friends love it.

TR: Yeah. And yet, the traditional people didn't define that value strongly enough, and the outsider now owns the category. Greek yogurt is now a safe 50% of yogurt and Chobani is 16% of that category. So out of zero, they now have a 30% share of domestic yogurt. And they never should have let that happen. That's a really damning outcome.

HL: I didn't know Yoplait didn't own Greek yogurt. That's what I think of when I think of yogurt.

TR: No. And now Greek yogurt brands like Chobani and La Flag, or something, all of those today have dominance in the domain. And so if Yoplait tried to bring the brand over, people would say that's not Greek yogurt, that's old stuff.

HL: Yeah, the other stuff seems fancier, and from another country, and so on. Do you have any thoughts on market valuations?

TR: Higher! Than they've been.

HL: Yeah! Why is that?

TR: And that's too bad. And you understand that in my own world, I actually think ours might be a little less high than they look, and a lot of companies may be higher than they seem, because I think lots of business take steps to overstate their current results and sort of let the future be as it is because they're not going to be around.

Our family-controlled companies I think are more inclined to take steps that burden the near term because they're really trying to build for the next generations. And so, i! f our com! panies trade for 14-16x earnings, I recognize that that's higher than 10, and yet I also believe that the current results are partly depressed, and that they will deliver future results. And so I expect that those multiples will go down.

HL: I thought that was a weird question to ask you because you keep things for so long and it's not like you're out hunting for the lowest valuation.

TR: Yes, but I do also rebalance. So if something becomes a much higher percentage, I will sell. Because that means it is less undervalued and it's taking up more of the portfolio. So I will rebalance, and the money will go into the opposite, which is a business that I still think is attractive, whose price is lower and hence it has a smaller weight. It's more undervalued and a smaller weight and that rebalancing attempts to rectify those two conditions. We're giving the more underweight undervalued extra cash and bringing the more overweight, less undervalued positions down a bit.

HL: And we just had a few reader questions from people who wanted advice. One person is younger and is managing a portfolio that is $8 million –

TR: First of all, I'd say lucky them! But go ahead.

HL: But they don't seem to think it's good enough. They want to know how they can get more assets under management.

TR: The good fortune is that they get to manage other people's money rather than the $8 million being their own. I believe that the best source of new business is from your existing business. To the extent that they feel you're offering them an honest and an understandable service that they'll be willing to invite others to consider you. And that's been the best source of growth.

HL: The other person wants to know how many hours you spend making your initial purchase whether it's within or beyond your circle of competence, and how do you know you have enough information to make a purchase?

TR: That's a great question. I think it's a question abou! t judgmen! t versus information. The information hunt never stops. But the decision about whether you can trust someone on the most important decision, which is reallocating the investment capital of the company, I think has to happen fairly early on. That decision is about character, and incentives, and an expression of how they view their job as the manager of public assets which you entrust ot them. So that comes from spending time with the CEO and the chairman and the very most senior management.

HL: You spend a lot of time visiting managers and such, right?

TR: Yeah. But it doesn't take a lot of time, it just takes time. Because that's going to be a question of the character of those people. And you'll kind of get a sense for that.

HL: And whenever your companies reinvest, you talk about profit margin decline. Do you think that the profit margins recover gradually or do you just expect them to remain depressed for the foreseeable future?

TR: Well, I think it depends on how long-lasting the investment phase is. Like in Nestle's case, they could invest a certain amount, 10 years ago it was $1 billion a year in development and emerging markets. They're now investing $2.5 billion per year. So the original billion that they invested bought businesses that today 10 years later are generating a lot of profits. But the $2.5 billion that they're investing today puts extra burden on that reported profit flow. I believe it's a net benefit because that $2.5 will in turn yield its own results down the road 10 years later on top of the results that the first billion a year generated. But 2.5 is a big burden over the 1, and it will continue to weigh on returns. But a business that wants to have a strong franchise in the future has to be willing to spend in the present and that will continue to burden profits.

See Tom Russo's portfolio here.

Related links:Tom RussoHere

The Case That Could Cost Citigroup $8.3 Billion

News broke on Friday that Citigroup (NYSE: C  ) may have to go back into court to refight a case that could cost it $8.3 billion. As expected, the market is showing its displeasure, with shares of the superbank opening tentatively in the green today, but now decidedly into the red.

Back on Terra Firma, unfortunately
The case involves the 2007 purchase of recording and publishing giant EMI by British financier Guy Hands and his private equity fund, Terra Firma Capital. Citi was Terra Firma's banker for the $6.8 billion transaction.

In his $8.3 billion suit, Hands alleged that a Citi investment banker lied about another bidder, which resulted in Terra Firma grossly overpaying for EMI. The case went to court, and Citi won, but now a federal appeals judge has overturned the jury verdict, citing that "improper jury instructions from the [original] trial court judge required a reversal," according to The New York Times. 

Look ma, no financial crisis!
This potential payout is unusual in at least one regard -- it's not related to the financial crisis. Whether it's Citigroup, Bank of America, JPMorgan Chase, or Wells Fargo, when you hear about a multi-billion dollar payout anymore, you automatically assume it relates back to the financial crisis. And 99 times out of 100, you're right.

So, at least this isn't another soured-securities case, but a potential $8.3 billion payout isn't a jolly proposition, whatever its origin.

There is the chance this could be settled out of court, which could be a good thing, because if it doesn't, the case would end up in Judge Jed S. Rakoff's court. Rakoff, who sits on the U.S. District Court in the Southern District of New York, has gotten a reputation as a "hanging judge," though he's been as tough on regulators as he has been on Wall Street.

Regardless of how the case eventually turns out, the reopened wound is almost undoubtedly unsettling investors today. Of course, a look around the sector also shows the rest of the Big Four down in the mouth, which is likely affecting Citi's performance, too.

Because it's so difficult to ascertain exactly what makes a stock move on a day-to-day basis, here at The Motley Fool, we stress a long-term approach to investing. Tune out the market noise and tune into the fundamentals of the companies you're invested in. And leave the daily ticker checks to the day traders: Your broker won't thank you, but your portfolio will. 

Looking for in-depth analysis on Citi?
Then look no further than our new premium report. Inside, Motley Fool senior banking analyst Matt Koppenheffer cracks the superbank's code, telling you how it works, how it makes money, and what areas investors need to watch going forward. He'll also give you three reasons to buy and three reasons to sell. And with quarterly updates included, this premium report could quite literally be the last source of investment research you'll ever need on Citigroup. For immediate access, simply click here now.

Stalled Progress in the Fight Against HIV?

Has a stalemate been reached in the fight against HIV? After years of significant progress, a recent development could give the impression that progress might be stalled.

In late April, the largest active study of an HIV vaccine was halted by the National Institutes of Health. Only a month after the full enrollment of more than 2,500 patients was completed, the decision was made to pull the plug on the study. Preliminary findings showed that the vaccine simply wasn't working.

While this setback was certainly discouraging, one piece of bad news doesn't necessarily mean that progress has stopped altogether. The larger picture of where we are in the fight against HIV provides more reasons for cautious optimism.

Where things stand
First, let's look at some good news. The rate of growth in numbers of individuals across the world with HIV is definitely slowing.

Top Canadian Companies To Buy Right Now

Source: Avert. 

In the U.S., the outlook for HIV and AIDS looks quite encouraging. Both diagnoses of HIV and death rates have fallen significantly

Source: Centers for Disease Prevention and Control. 

A major factor in the improvement in reducing deaths associated with HIV has been the ongoing development of antiretroviral drugs. Gilead Sciences (NASDAQ: GILD  ) stands as the leader in this market. Its Atripla, a combination of three Gilead HIV drugs, generated nearly $3.6 billion in sales last year. One of Atripla's component drugs, Viread, made more than $848,000 in 2012.

Merck (NYSE: MRK  ) also ranks as a significant developer of HIV drugs. In 2007, Isentress became the first integrase inhibitor to be approved by the Food and Drug Administration for treating HIV. The drug brought in more than $1.5 billion in revenue last year.

While the recent vaccine effort failed, some successes have been achieved in preventing people from acquiring HIV. Gilead received FDA approval last July for Truvada, the first HIV prevention drug. Clinical studies found that Truvada significantly reduced the likelihood of acquiring HIV infections.The drug was already approved as a treatment for HIV and generated nearly $3.2 billion in revenue during 2012.

Progress has also been made on the diagnostic front. The FDA approved OraSure Technologies' (NASDAQ: OSUR  ) OraQuick home HIV test in July 2012. OraQuick allows an individual to use a mouth swab and find out the results within 40 minutes. The test hasn't exactly leaped off store shelves as of yet, though. OraSure reported only $1.5 million in gross sales for the OraQuick home test during the most recent quarter.

Moving forward
Antiretroviral drugs continue to improve. Gilead launched its integrase inhibitor, Stribild, in the latter part of 2012. Stribild is similar to Atripla, but it reduces some side effects, and clinical studies found it to be a little more effective than its predecessor.

ViiV Healthcare, a collaboration between GlaxoSmithKline (NYSE: GSK  ) , Pfizer (NYSE: PFE  ) , and Japanese drugmaker Shionogi, could soon have another powerful HIV drug to market. The FDA granted priority review status for dolutegravir in February. A decision on ultimate approval of the drug is expected in August. Glaxo is the majority owner in Viiv with a 76.5% stake, with Pfizer holding a 13.5% share.

Higher adoption rates of home testing could also help. The CDC estimates that almost one in five people with HIV don't know that they have the virus. Use of home tests should enable more individuals with HIV to begin taking appropriate treatments and take actions to reduce the spread of the virus.

There's still hope that an effective vaccine can be developed. A 2009 late-stage study in Thailand found modest results in preventing HIV. The 31% reduction in HIV infection rates obtained by that vaccine wasn't enough to warrant a public rollout, but it did show promise. Just this week, the Makerere University Walter Reed Project in Uganda announced plans to launch another HIV vaccine effort in July.

More disappointments are likely to come, of course. Progress often comes in fits and starts. However, what looks like a stall at first could really just be the beginning of the next big breakthrough.

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Why Accuray's Earnings May Be Less Than Awesome

It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Accuray (Nasdaq: ARAY  ) .

Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Accuray for the trailing 12 months is 183.4.

For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

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

Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Accuray, consult the quarterly-period chart below.

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

On a 12-month basis, the trend at Accuray looks less than great. At 183.4 days, it is 54.5 days worse than the five-year average of 128.9 days. The biggest contributor to that degradation was DIO, which worsened 31.9 days when compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at Accuray looks OK. At 206.5 days, it is 41.8 days worse than the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With both 12-month and quarterly CCC running worse than average, Accuray gets low marks in this cash-conversion checkup.

Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding underappreciated home run stocks.

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Golf Clap for CME Group

CME Group (Nasdaq: CME  ) reported earnings on May 2. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), CME Group met expectations on revenues and met expectations on earnings per share.

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

Margins dropped across the board.

Revenue details
CME Group logged revenue of $718.6 million. The 16 analysts polled by S&P Capital IQ expected to see a top line of $712.3 million on the same basis. GAAP reported sales were 7.2% lower than the prior-year quarter's $774.6 million.

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

EPS details
EPS came in at $0.73. The 18 earnings estimates compiled by S&P Capital IQ anticipated $0.73 per share. Non-GAAP EPS of $0.73 for Q1 were 8.8% lower than the prior-year quarter's $0.80 per share. GAAP EPS of $0.71 for Q1 were 11% lower than the prior-year quarter's $0.80 per share.

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

Margin details
For the quarter, gross margin was 97.0%, 30 basis points worse than the prior-year quarter. Operating margin was 56.4%, 180 basis points worse than the prior-year quarter. Net margin was 32.8%, 160 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

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Looking ahead
Next quarter's average estimate for revenue is $756.9 million. On the bottom line, the average EPS estimate is $0.81.

Next year's average estimate for revenue is $2.95 billion. The average EPS estimate is $3.12.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 755 members out of 805 rating the stock outperform, and 50 members rating it underperform. Among 204 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 194 give CME Group a green thumbs-up, and 10 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on CME Group is outperform, with an average price target of $59.28.

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J.C. Penney Promotes a New EVP of Human Resources

J.C. Penney  (NYSE: JCP  ) has promoted Brynn Evanson to executive vice president of human resources. In her new role, she will report to the recently reappointed CEO Mike Ullman.

As part of the executive team, Evanson will lead all HR functions across stores, supply chain, and the company's home office. She will also be responsible for team relations, recruiting, learning and development, compensation and benefits, and talent operations. 

Evanson has more than 20 years of experience in the retail industry. Starting at Marshall Field's, she worked her way through positions in stores, finance, HR, and merchandising. In 2000, she took up HR roles at Target, eventually becoming the director of executive compensation and retirement plans. In 2009, she joined J.C. Penney and most recently served as vice president of compensation, benefits, and talent operations.

"Brynn is a proven leader with a deep understanding of the employee culture at jcpenney," said Ullman. "With nearly 120,000 team members across the country, her knowledge and expertise will be instrumental to our success as we move the Company forward." 

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Hot Growth Companies To Own In Right Now

Since reporting earnings Wednesday morning, Bank of America (NYSE: BAC  ) lost 6.5% through trading yesterday.�The initial response to B of A's earnings was largely negative due to reported revenue that missed expectations -- even though continued improvements in the bank's operations resulted in quadrupled earnings. The bank opened 1% higher this morning, giving some hope to the possibility of regaining some of the traction it's lost in the past two days, but quickly fell within minutes of the opening bell. As of 10:15 a.m. EDT, Bank of America is sitting at a 0.8% gain.

Earnings disappointments continue
This earnings season hasn't been very favorable for the big four banks, with many investors being disappointed in underlying data points that caused improvements in earnings to be largely set aside. This was the case last week for both JPMorgan Chase� (NYSE: JPM  ) and Wells Fargo (NYSE: WFC  ) , which both reported record first-quarter earnings. However, both banks reported softening in the mortgage market, leaving investors with doubts about revenue growth for future quarters.

Hot Growth Companies To Own In Right Now: Nordstrom Inc.(JWN)

Nordstrom, Inc., a fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. It offers a selection of brand name and private label merchandise. The company sells its products through various channels, including Nordstrom full-line stores, off-price Nordstrom Rack stores, Jeffrey? boutiques, treasure & bond, and Last Chance clearance stores; and its online store, nordstrom.com, as well as through catalog. Nordstrom also provides a private label card, two Nordstrom VISA credit cards, and a debit card for Nordstrom purchases. The company?s credit and debit cards feature a shopping-based loyalty program. As of September 30, 2011, it operated 222 stores, including 117 full-line stores, 101 Nordstrom Racks, 2 Jeffrey boutiques, 1 treasure & bond store, and 1 clearance store in 30 states. The company was founded in 1901 and is based in Seattle, Washington.

Advisors' Opinion:

• [By Kevin1977]

  Director of Nordstrom Inc., Felicia D Thornton, bought 1,140 shares on 9/09/2011 at an average price of $47.89. Nordstrom, Inc. is one of the nation's fashion specialty retailers, with stores located in a number of states, including full-line stores, Nordstrom Racks, Faconnable boutiques, and free-standing shoe stores. Nordstrom Inc. has a market cap of $10.44 billion; its shares were traded at around $47.89 with a P/E ratio of 15.7 and P/S ratio of 1.1. The dividend yield of Nordstrom Inc. stocks is 2% Nordstrom Inc. had an annual average earnings growth of 27.3% over the past 10 years. GuruFocus rated Nordstrom Inc. the business predictability rank of 3.5-star.
  
  On August 11, Nordstrom Inc. reported net earnings of $175 million, or $0.80 per diluted share, for the second quarter ended July 30, 2011. This represented an increase of 20 percent compared with net earnings of $146 million, or $0.66 per diluted share, for the same quarter last year.Second quarter same-store sales increased 7.3 percent compared with the same period in fiscal 2010. Net sales in the second quarter were $2.72 billion, an increase of 12.4 percent compared with net sales of $2.42 billion during the same period in fiscal 2010.
  
  Last week, Director Felicia D Thornton bought 1,140 shares of JWN stock.
  
  Executive Vice President Ken Worzel and Director Philip G Satre bought shares in August.

Hot Growth Companies To Own In Right Now: Buffalo Wild Wings Inc.(BWLD)

Buffalo Wild Wings, Inc. engages in the ownership, operation, and franchise of restaurants in the United States. The company provides quick casual and casual dining services, as well as serves bottled beers, wines, and liquor. As of July 26, 2011, it had 773 Buffalo Wild Wings locations in 45 states in the United States, as well as in Canada. The company was founded in 1982 and is headquartered in Minneapolis, Minnesota.

Advisors' Opinion:

• [By Fabian]  

  While Chipotle has captured most of the attention among the restaurant stocks, Buffalo Wild Wings (BWLD: 56.62 0.00%) could be 2011’s big winner. Wall Street is expecting 19% earnings growth from Buffalo Wild Wings in 2011 which is only slightly lower than Chipotle’s 20% growth rate. However, BWLD trades at only 18x consensus 2011 estimates while CMG trades at a pricey 40x. On an EBITDA basis, Chipotle trades at over 20x, while Buffalo Wild Wings trades at less than 9x.

Best Warren Buffett Stocks To Own For 2014: Checkpoint Systms Inc.(CKP)

Checkpoint Systems, Inc. manufactures and markets identification, tracking, security, and merchandising solutions for the retail and apparel industry worldwide. The company operates in three segments: Shrink Management Solutions, Apparel Labeling Solutions, and Retail Merchandising Solutions. The Shrink Management Solutions segment provides shrink management and merchandise visibility solutions. It offers electronic article surveillance systems, such as EVOLVE, a suite of RF and RFID-enabled products that act as a deterrent to prevent merchandise theft in retail stores; and electronic article surveillance consumables, including EAS-RF and EAS-EM labels that work in combination with EAS systems to reduce merchandise theft in retail stores. This segment also provides keepers, spider wraps, bottle security, and hard tags, as well as Showsafe, a line alarm system for protecting display merchandise. In addition, it offers physical and electronic store monitoring solutions, incl uding fire alarms, intrusion alarms, and digital video recording systems for retail environments; and RFID tags and labels. The Apparel Labeling Solutions segment provides apparel labeling solutions to apparel retailers, brand owners, and manufacturers. It has Web-enabled apparel labeling solutions platform and network of 28 service bureaus located in 22 countries that supplies customers with customized apparel tags and labels. The Retail Merchandising Solutions segment offers hand-held label applicators and tags, promotional displays, and queuing systems. The company serves retailers in the supermarket, drug store, hypermarket, and mass merchandiser markets through direct distribution and reseller channels. Checkpoint Systems was founded in 1969 and is based in Thorofare, New Jersey.

Advisors' Opinion:

• [By Michael]

  OK, so Checkpoint (CKP: 13.80 0.00%) probably isn’t going to see its stock price double in 2011. However, the stock gained 35% in 2010 with earnings expected to climb 13%. Next year, Wall Street sees earnings growth accelerating to 25%. Despite the impressive growth rate, the stock trades at only 16x next year’s earnings estimates and analysts have a $25 price target for CKP.

Hot Growth Companies To Own In Right Now: Waste Management Inc.(WM)

Waste Management, Inc., through its subsidiaries, provides waste management services to residential, commercial, industrial, and municipal customers in North America. It offers collection, transfer, recycling, and disposal services. The company also owns, develops, and operates waste-to-energy and landfill gas-to-energy facilities in the United States. Its collection services involves in picking up and transporting waste and recyclable materials from where it was generated to a transfer station, material recovery facility, or disposal site; and recycling operations include collection and materials processing, plastics materials recycling, and commodities recycling. In addition, it provides recycling brokerage, which includes managing the marketing of recyclable materials for third parties; and electronic recycling services, such as collection, sorting, and disassembling of discarded computers, communications equipment, and other electronic equipment. Further, the company e ngages in renting and servicing portable restroom facilities to municipalities and commercial customers under the Port-o-Let name; and involves in landfill gas-to-energy operations comprising recovering and processing the methane gas produced naturally by landfills into a renewable energy source, as well as provides street and parking lot sweeping services. Additionally, it offers portable self-storage, fluorescent lamp recycling, and medical waste services for healthcare facilities, pharmacies, and individuals, as well as provides services on behalf of third parties to construct waste facilities. The company was formerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc. in 1998. Waste Management, Inc. was incorporated in 1987 and is based in Houston, Texas.

Advisors' Opinion:

• [By Tom Konrad]

  The only household name in this year's list, Waste Management is coming back for an encore performance in 2013.  WM is the North American leader in recycling and renewable biogas among waste and environmental services companies.  The industry has been in a cyclical downturn, and WM's well-covered 4.2% dividend makes it a solid anchor for this portfolio of small and micro-cap clean energy stocks.

• [By Sam Collins]

  Houston-based Waste Management Inc. (NYSE: WM) is the largest trash hauling/disposal company in the United States. This company is a model for steady growth with earnings increasing steadily over many years.?

  S&P has a “four-star buy” on WM with a 12-month target of $42. WM pays an annual dividend of $1.36 for a yield of 3.7%.?

  Technically, the stock is in a powerful bull channel with support at $36 and resistance at $39. Buy WM as a long-term growth opportunity.

Hot Growth Companies To Own In Right Now: MEDIFAST INC(MED)

Medifast, Inc., through its subsidiaries, engages in the production, distribution, and sale of weight management and disease management products, and other consumable health and diet products in the United States. The company?s product lines include weight and disease management, meal replacement, and vitamins. It also operates weight control centers that offer Medifast programs for weight loss and maintenance, customized patient counseling, and inbody composition analysis. The company markets its products under the Medifast and Essential brand names, including shakes, appetite suppression shakes, women?s health shakes, diabetics shakes, joint health shakes, coronary health shakes, calorie burn drinks, calorie burn flavor infusers, antioxidant shakes, antioxidant flavor infusers, bars, crunch bars, soups, chili, oatmeal, pudding, scrambled eggs, hot cocoa, cappuccino, chai latte, iced teas, fruit drinks, pretzels, puffs, brownie, pancakes, soy crisps, crackers, and omega 3 and digestive health products. Medifast Inc. sells its products through various channels of distribution comprising Web, call center, independent health advisors, medical professionals, weight loss clinics, and direct consumer marketing supported via the phone and the Web; Take Shape for Life, a physician led network of independent health coaches; and weight control centers. The company was founded in 1980 and is headquartered in Owings Mills, Maryland.

Advisors' Opinion:

• [By Mark]

  Revenues are expected to grow 27% next year and yet MEDIFAST (MED: 15.68 0.00%) trades at only 16x consensus 2011 earnings. The company continues to gain market share in the competitive weight management sector and provides investors with the double benefit of both a growth stock and a potential acquisition target.