Ego Could Destroy This Dividend Dynamo

Shares of my pick for 2012's dividend of the year Veolia Environnement (NYSE: VE  ) were hit hard on Tuesday. The waste and water specialist is rumored to be considering a shake-up in the executive suite, and as I'll show below, that's not good news for the company or its shareholders.

A little history
Former CEO Henri Proglio thought he was making a powerhouse of Veolia as he expanded the company's presence to over 70 countries while going on a spending binge as CEO from 2003 to 2009. There was a problem, though: the moves left the company struggling under a mountain of debt.

Current CEO Antoine Frerot has been tasked with righting the company's balance sheet. This has forced him to propose abandoning about half of the countries Veolia currently does business in, including many to which Proglio expanded. Frerot also wants to sell off the company's transport division in an effort to divest itself of around 5 billion euros in assets by 2014.

Though he apparently isn't making a bid to return to his former post, Proglio -- who still sits on Veolia's board -- is aiming to unseat Frerot at the company's Feb. 29 board meeting. A Paris-based banker who spoke with Reuters on the condition of anonymity summed up the situation succinctly: "It's unbelievable. The problems there are all related to Proglio being president. Proglio thought he had put a yes-man in his former job." Proglio may feel like his legacy is being attacked, and he's doing what he can to fix it.

Make no mistake about it, if these reports are confirmed and Frerot is ousted for his smart, practical, and necessary business moves, Proglio will have only saved his ego -- and it could have dire consequences for shareholders.

The danger of egos
A study by professors at Penn State made several conclusions about the alarming damage such executives have, but none more so than this: "Narcissistic CEOs tended to make more acquisitions at higher valuations than their not-so-narcissistic counterparts. Nothing can kill shareholder value quicker than using cash on hand (or going into debt) in order to purchase a company that -- 10 years down the road -- won't add an ounce of shareholder value."

In my original article on the matter, I explored how acquisition-happy companies Microsoft (Nasdaq: MSFT  ) and Hewlett-Packard (NYSE: HPQ  ) had ruined shareholder value over time. Both companies had shown a ridiculous lack of restraint, be it from Mr. Softy's spending $1.2 billion on a company that was later raided by the IRS on fraud charges, or HP's choice to spend cash equivalent to 20% of its market cap on a questionable acquisition.

I could just as easily have written about Proglio when he was at the helm of Veolia. And with yesterday's news, apparently we need to include "narcissistic ex-CEOs" to the list of villains.

What's an investor to do?
For the time being, I'll being holding my shares to see how things shake out at the Feb. 29 meeting. If Frerot remains in charge and his cost-cutting plans remain on track, I'd see no reason to sell. If things turn out that way, the company's 7.5% dividend yield looks like a great bonus (even after its proposed dividend cut).

But for investors looking for a little more safety within the sector, I think waste specialists Waste Management (NYSE: WM  ) and Republic Services (NYSE: RSG  ) are better bets. Remember, one of the most important things as an investor is to be comfortable with your investments. Though these two companies offer smaller dividends -- 3.9% and 3%, respectively -- they are solid businesses throwing off lots of free cash flow, which is then passed on to shareholders.

And if you're looking for a few more dividend ideas, I suggest you take a look at our special free report: "Secure Your Future With 11 Rock-Solid Dividends." Inside, you'll get the names, tickers, and stories behind all of these companies worthy of your consideration. Get your copy today, absolutely free!

Survey: Fuel prices slow rural growth

OMAHA, Neb.(AP)�Economic growth appears to be slowing in rural areas of 10 Midwest and Plains states because of higher fuel and energy prices, according to a new monthly survey released Thursday.

But the Rural Mainstreet survey still suggests the economy will grow because its overall economic index is well above 50. The April index declined to 57.1 from March's 59.8, but remains in positive territory.

"Higher energy and fuel prices are slowing growth for areas dependent on agriculture," Creighton University economist Ernie Goss said. "Furthermore, somewhat slower global growth has negatively affected some portions of the rural and agriculturally dependent economy."

The survey covers rural areas of Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. The survey focuses on 200 rural communities with an average population of 1,300.

The farmland price index slipped to 69.4 in April from March's 78.7, while the farm equipment sales index rose to 62.4 in April from 61.5.

Goss said it's clear investor interest in farmland is growing, and some land that wasn't being used for crops is being converted to farmland. The bankers surveyed estimated more than 20% of recent farmland sales in their area went to investors. Nearly one-third of the recent farmland sales were for cash.

The hiring index dipped to 59.3 in April from the previous month's 60, but Goss said job growth is now much stronger in urban areas of the region. The confidence index continues to reflect optimism, but it dipped to 60.6 in April from March's 63.

The home sales index increased to 60.8 in April from 60. But the retail index declined to 52.9 from March's 53.4.

The loan index climbed to 52.8 in April from March's 48.4 and February's 31.2 as farmers began to borrow more. And the checking deposit index grew to 72.6 in April from 69.4 while the savings index increased to 53.5 from March's 48.4.

3 Keys to Playing the Underground Small-cap Rally

It takes just ten minutes to prepare for a major market rally. By following my three simple steps, you can quickly find a handful of small-cap stocks that will outperform the market over the next 3 months.

But before I reveal my screen criteria, I want to show you why I believe we�re entering an important moment for small stock investors…

Right now, the market is beginning a powerful underground rally, boosting small-cap stocks close to their pre-correction highs. The Russell 2000 is up more than 11% year-to-date, easily topping large-caps in the S&P 500 and the Dow.

Small-caps are winning the race right now because they are the most potent stocks to own during the early stages of a rally. As you probably know, investors see small-caps as riskier investments. That�s why they are the first to be sold off after a long bull market.

But small-caps are also the first stocks to rise once the market has bottomed out. The rush to get back into smaller names pushes these same stocks up farther and faster than their larger counterparts.

Even though small-caps are outperforming the S&P 500 and the Dow so far this year, we haven�t seen a watershed buying moment just yet. That�s why I�m still calling this an �underground� rally. But with every passing day, I think we�re getting closer to that powerful breakout. All that�s left to do is to coax investors on the sidelines back into small stocks.

Retail investors have pulled almost $18 billion out of small-cap funds over the 36 of the last 39 weeks, according to data from J.P. Morgan. This shows us that a great deal of Main Street�s money is still in cash, waiting until the investing waters are declared safe before buying smaller stocks. All we need is volatility to remain low and the market to remain stable for these market watchers to dive back into stocks.

That�s where my 3-part screen comes into play. Follow these easy steps, and you will be able to track down the small stocks that are the best candidates to beat the market. If you do it today, you�ll even have the chance to get in on these names before the next leg of the rally begins to take off…

To begin, go to your favorite free financial website. Google Finance, Yahoo or any of the other major sites will do. If you want a more comprehensive list of screening tools, just search for �stock screeners� online. There are plenty of viable options out there. You don�t even need a subscription or any special software.

[Editor�s note: For a more in-depth piece on free stock screening sites, click here.]

Now you�re ready to begin your search.

1. First, drill down to the most viable sectors: Right now, the investing environment is most suited for consumer stocks, tech names, and pharmaceuticals. These are the types of small-cap stocks that are looking strong right now. Get rid of stocks in the utilities, energy and financial sectors. These are the names that aren�t showing strong earnings or growth at the moment. There�s no point in wasting your time sifting through stocks in a lagging sector. Cut them, and move on.

Setting up the screen is simple. Just adjust your market cap parameters to find stocks in the $300 million – $2 billion range. Then you can enter your sector of choice…

2. Find the profitable companies trading at a low price-to-earnings ratio: The next metric you need to add is price-to-earnings ratio. Investing in companies that are cheap compared to how much money they are earning is a great way to prepare for a rally. Filtering out stocks with P/E ratios higher than 15 is the perfect way to narrow your search. When stocks are moving higher, bargain hunters will swoop in and bid up these �cheap stocks� to more reasonable levels.

Now that you�ve added this second key metric, you can begin searching your selected sectors for cheap plays. Make a list of all the companies that interest you. Now you�re ready for the final step…

3. Finally, select the stocks with the most momentum potential: Your final step involves some quick chart analysis. But don�t worry�you do not have to be seasoned market technician to complete this task. Simply take your list and look at each company�s daily chart. Then ask yourself one simple question: What is the primary direction of this stock?

There are three answers to this question: up, down, and sideways. Get rid of any stock that looks like it is moving lower. That will leave you with names that have bottomed out and are moving sideways, and stocks that are moving higher. As you narrow your list, you can use these charts to separate your best ideas. If you have two stocks you really like, compare charts. Unless you have a compelling reason to pick one name over another, I would recommend going with the stock in an uptrend every time.

Here are a couple of examples I found after searching for only 10 minutes:

Iconix Brand Group Inc. (NASDAQ:ICON): Iconix owns a large portfolio of apparel brands. Its P/E comes in at about 13, and the company has proven it can steadily increase its sales and earnings. The stock has also moved steadily higher since it bottomed in early October.

Greatbatch Inc. (NYSE:GB): Greatbach is in the medical device sector. Its P/E comes in at 14. The stock is also only slightly above sales�another sign of a cheap name. GB is also recovering from last year�s slump. Shares are quickly approaching pre-correction highs.

Of course, this lightning-fast analysis just scratches the surface of these two companies. Still, you can see how a quick search yielded two strong possible investments.

Chain Restaurant Disclosure and Analysis Can Improve

In April, we had several chain restaurants report: McDonald’s (MCD), Chipotle (CMG), Starbucks (SBUX) Brinker (EAT), Burger King (BKC), Panera (PNRA), Buffalo Wild Wings (BWLD) and others. And despite the “open efficient market knowledge and sophistication”, we are still talking about bad weather as a driving influence for some (BKC, for one).

While all businesses are sensitive to incremental revenue and operating leverage, restaurants are more so, as somewhere between 35 to 50% of incremental sales should drop through to the bottom line. When you hear some restaurant analysts talk (see Brad Ludington, KeyBanc CNBC interviews in April), every other word is same store sales.

Based on how quickly these stocks can move (think BWLD down $10 in a week) and hinge on a single number, some reforms are needed in the disclosure.

52 versus 53 weeks can distort: when 53 week years mean 13 week quarters, some chains don’t adjust for this and report in uneven quarters (comparing 13 week quarters to 12 week quarters, and vice versa, thereby getting a lift or a decrement). This could all be solved by reporting comps on an average weekly basis for the quarter. I asked Brinker if there was some concern on this point, recently.

Compound sales growth versus year ago: the investment community focuses on near term trends of one quarter or two quarter same store sales (sss) trends versus a year ago. But, the results are different if you flex off a compound growth calculation. Hint: McDonald’s still looks strong either way.

Stock Repos distort: last week, Panera estimated that analysts had $.09 of share repo effect in their projections. EPS, the second most visible item, could be calculated on a before and after stock repurchase effect as a memorandum line. Check out Darden’s numbers either way.

Franchisee Results Disclosure: as the QSR chains work to refranchise even more stores (YUM hopes to get its KFC brand in the US down to 5% company owned), the health of the franchisees becomes even more important. You’d be surprised how many earnings calls are almost totally silent on franchisee matters, usually only prompted when royalty and bad debt expense goes up and affects G&A.

At a minimum, franchisee same store sales trends could be revealed (even when disclosure isn’t consistent) and the number of openings and closings can be reported.

Variance to Budget: while there’s plenty of discussion on what happened last year that mucks up the comparison, what about how the company did versus a more important metric: the budget? That’s where the debt, CAPEX and incentive plan decisions come.

Disclosure: No stock positions

3 Ways to Profit From Falling Oil Prices

"There's no question that the earth is going to run out of oil within the next 10 years", read the Peak Oil investment pitch that came across my desk. Citing a variety of scientists and academics, it appeared that these guys really did their homework when preparing the presentation.  It painted a downright frightening picture of a world without oil and, frankly, was quite compelling. The fund was promoting a strategy of buying oil call options that were expected to make investors wealthy with just a small investment -- that is, if the Peak Oil premise was correct. 

  The claims seemed outrageous to me, but I decided to take a closer look at the concept before dismissing these guys as kooks. 

Here's what I discovered... 

Very few commodities engender such radically different opinions than oil. On one hand, there are the Peak Oil bulls and on the other, those who believe the earth itself is continually manufacturing oil in an endless cycle of supply. Peak Oil is the theory that the earth will soon run out of oil, pushing prices into the stratosphere, while the other side believes oil is a renewable resource that can never deplete.  

Obviously, neither one of these extreme views is completely correct. As in most things, the truth lies somewhere in the middle. 

My thoughts are, while oil supplies are not infinite, there is plenty to go around for the foreseeable future. And even better news, there are still ways for investors to profit. 

Technology evolves, enabling oil to flow from the most unexpected places. Witness the current boom in North American production as an example. Taking the very long term view as an investment strategy is a fool's game. Oil is a commodity that is meant to be traded in the relative short term. In other words, go with the trend and don't cling to any one opinion.  

Right now, oil's trend is down. Prices have plunged 25% since May 1, with benchmark West Texas Intermediate Crude dipping below $80 a barrel. 

The downtrend was triggered by the global economic slowdown, particularly in the euro zone. The slowdown combined with increased North American production, Saudi Arabia countering every Iranian manipulation ploy, and the shift to greener energy sources should continue to depress prices.  

What is the best way to play the downtrend in oil? I am partial to three exchange-traded funds (ETFs) that short oil.

1. ProShares UltraShort Oil & Gas (NYSE: DUG)
This inverse ETF's goal is to mimic twice the inverse performance of the Oil & Gas Index by investing in derivatives the manager believes will provide this kind of correlation. It is up about 12.4% for the year and boasts assets of over $68 million.

2. iShares Dow Jones Transportation Average (NYSE: IYT)
It makes sense that transportation stocks will benefit from dropping oil prices, as they are a major cost for trucking firms and the like. This ETF is designed to profit from a rising transportation index. It is up about 5% for the year and holds more than $560 million in assets.

3. ProShares Short Oil & Gas (NYSE: DDG)
This ETF is similar to DUG, but without as much risk. Its performance is designed to be inverse to the Oil & Gas Index without the benefits and dangers of leverage. The ETF is higher by about 6.4% for the year and holds $8.37 million in assets.

Risks to Consider: Oil is a commodity, like any other. It can and does have sharp counter-trend moves that can be dangerous to your portfolio if you are over-leveraged. Be particularly cautious holding DUG, as the double leverage may cut both ways. Position sizing rules and stop losses are even more critical when trading commodities, so use caution.

Coca-Cola FEMSA: The real thing

For our latest new recommendation, we�re taking a walk on the softer side of refreshment, featuring Coca-Cola FEMSA (KOF), a Mexico-based producer and distributor of non-alcoholic beverages.

The company has an extensive product lineup that includes Coke, Ciel, Crystal and Dasani waters, and Del Valle, a $1 billion brand with Hi-C, Minute Maid, Nestea, Sprite and many regional brands.

The company operates 37 bottling facilities in Central and South America and distributes through a network of 1.8 million retailers across the region.

The company is the largest Coca-Cola franchise bottler in the world, and is selling more soft drinks than ever. Its 2010 volume was 2.44 billion unit cases, while trailing year volume hit 2.75 billion unit cases in Q1. (Unit case = 24 servings of 8 ounces each.)
In revenue terms, sales have enjoyed double-digit increases in eight of the last nine years. (The exception was 2010, when revenues expanded �only� 9%; growth rebounded to 12% in 2011.) Q1 results included a 30% increase in revenue and a 21% jump in earnings.

There aren�t any big secrets to the Coca-Cola FEMSA story. The company is growing organically as per capita consumption of its beverages increases, as well as consolidating regional bottling businesses via acquisition.

KOF is actually a growth and income stock, one that�s bought for long-term appreciation and dividends. The stock has appreciated steadily from its low of 26 in early 2009 to its recent price near 125. The stock also pays a dividend, with a forward annual yield of 1.6%.

Most of that time has featured moderate rallies punctuated by consolidations or mild corrections. But trading volume in KOF exploded on May 31, and the stock has been on a much higher trajectory since then, roaring to 125 on increased volume.

This indicates higher institutional buying. KOF paused in June, consolidating its gains before taking off again.

We see the possibility of another consolidation or correction soon. As such, you can either follow our buy recommendation immediately or wait for a pullback of a few points as an entry opportunity.



Related articles:

• Bank on Banco Bradesco
• LAN Airlines: Flying high on Chile
• Canadian value: 3 Ben Graham buys

The Benefits Of Upgrading From A Standard Hosting To Dedicated Server Hosting

The choice between shared hosting and dedicated servers is a crucial one that most people can’t make. The website and the web server hosting company play huge roles in the success of the business, online and locally. There is just one server distributed among users under shared web hosting.

The sharing entails the speed, the memory, the bandwidth and such. On the other hand, dedicated web hosting implies that, your web is dedicated and serviced by a single server. This means the bandwidth, speed, memory, and other functions are exclusive for your use. This kind of freedom is enjoyed by those who opt to go with for example a Windows 2003 dedicated server rather than have a sharing of the resources. Obviously, such a great service from dedicated servers will come at a price. But the added cost can be more than worth it when you consider the number of benefits you can get with a dedicated hosting server.

Shared hosting is the more popular option since it’s so cheap. However, it is problematic in some aspects. For one the various websites normally share the same ip address. IP addresses are ways to track online users down, and sharing your IP address could mean that you can be held liable for someon else’s liabilities. You can get blacklisted if your IP address is shared with a guy doing illegal acts prior.

Most applications are faster and have a shorter response time. The influx of data could meet a bottleneck if the connection is slow and unreliable. Because of this fact the shared webhost provider can get delayed responses. You can get faster connection with dedicated hosting since you won’t need to share any of your resources with other users. This means the system will respond after a particular period of time. Also, your server can crash as a result of an overload in the processes. In the dedicated web hosting, everyone seems to be in a world if their own without any congestions or delays. This especially should make many choose to have dedicated web hosting g rather than the shared one. Any application or script can be installed without any restriction since you are the boss.

There is no limitation in the usage of the bandwidth. The dedicated web hosting is normally more secure than thee shared web hosting. The general performance is far much better and fast. These reasons are more than enough to make one shift from the shared web hosting to the dedicated one.

On Principal Reduction and Social Acrimony

We often like to talk about "benefit-benefit" analysis versus "cost-benefit" analysis. On Wall Street, it's almost always benefit-benefit because almost every "solution" the US has come up with in the past few years to this economic disaster has pulled in benefits with the costs pushed out (onto the public at large) to a future date. So we do not "feel" the negatives now, and only enjoy the positives. Bailouts, handouts, subsidization, easy money, the whole cadre of "good times."

Specific to the housing market, we have seen a litany of solutions which, frankly, are unfair to the "responsible" and reward the not so responsible*. Thus far the argument to those people has been "if we don't do this, then housing values for everyone will fall." The reality is that housing values still fell, and many of those who made the worst choices are being rewarded. I won't rehash the progression, we probably have 50 different posts on various programs, handouts, giveaways - ironically a lot of these are as much backdoor bailouts for the banking system as they are benefits for the homeowner.

The ultimate step in the housing "solution" has been principal reduction. Different from interest rate reductions or mortgage term extensions, this is probably the most "in your face" unfair change. Do the wrong thing... get your principal reduced. Play by the rules? No soup for you! It has to be even more egregious to watch, because certainly many of those who played by the rules shook their head as they watched their neighbors do the annual "cash out refinance" to pay off credit cards, take the vacation, buy that SUV, or install the granite countertop. Their thoughts were "one day they will get their comeuppance." But instead, almost all American resources have been devoted to rewarding this group*. Bank of America (BAC) introduced a pilot program yesterday, and I expect the Treasury Department to roll out something similar in the next few quarters as well, as has been rumored for quite a few months.

*note - of course some proportion of homeowners receiving benefit today are victims of circumstance, i.e. job losses, and did abide by 'the rules'.

Ironically, the BAC program is going to be devoted mostly to helping those who took the most insane loans - the option ARMs. [Aug 13, 2008: Option ARMs- Who Thought Up these Time Bombs?] You remember the ones: where not only do you pay no principal but more principal is tacked onto your mortgage each month because you could not even qualify for an interest only mortgage, i.e. a benefit to the people who truly were not home owners in any way, shape, or form other than on paper.

Turning back to our "cost-benefit" analysis, I do believe there are many NON financial costs created by the solutions we have taken. A basic sense of fairness and equity is generally what holds a society together, especially in America. Play by the rules, work hard, get ahead. I believe this faith has slowly but surely been lost over the past few years. Not just in how corporations - especially of the financial kind - have been treated and protected, nor how savers have been sacrificed so that debtors can benefit, nor how tax monies are used to protect public workers while private sector employees are subject to "the free market," nor how homeowners are catered to while renters are 2nd class citizens - but simply citizen versus citizen. Social acrimony is on the rise. I have no way to quantify it, and I don't know all the implications, but this is one of the reasons I believe the outrage the incumbant politicians are going to see this fall will be massive. [Mar 17, 2010: 17% Approval Rating for Congress, More than Half of Americans Would Vote Every Member Out] I do believe the "responsible" people are fed up.... many people are beginning to believe there is no reason to play by the rules, because that places you in the 'sucker' category in America. What that sort of lost faith in the system does to the long term trajectory of a society I simply do not know as there is no template to work off of.

Here is a sampling of some 500+ comments from USA Today on the Bank of America pilot program (not the "rich people's paper" like the WSJ or the "liberal" NYT, but the common guy's paper) and I think it reflects the loss of faith in the system and doing the "right" thing. Which is why this rally, these paper gains, the "recovery" bought and paid for by government spending, a Fed back into full bubble creation mode, a bevy of home "owners" no longer paying mortgages but instead shopping and the like.... is in many ways so short sighted. Because the true costs (outside of the financial) associated with it on the citizens who have been chugging along, struggling, play by the rules - are not being discussed.

#1

Lets go to court! I have a B of A loan and my house has decreased in value by 30% but I don't owe more than it's worth because of a 40% down payment. So I should get a 30% reduction in my loan amount.

Lets just abuse working America and pander to the banks, politicians, wall street and the folks who made mistakes in borrowing.

Idiots!

#2

No need for responsibility anymore folks. A lot of people working two or three minimum wage jobs, just to make ends meet, have got to really be wondering if it's worth it. The parasites and losers who squandered their resources are getting all their needs met. While those out busting their butts are getting the shaft.

#3

I'm starting to realize there is no upside to doing what is right, being responsible to your fellow Americans, etc.

Some folks run up outrageous credit card debt, purchase homes they can't afford, etc. And their penalty? They have their debt principals reduced, their rates reset to lower rates, they qualify for debt consolidation and other government programs.

And all that is at the expense of those of us that are responsible. We pay higher rates and more fees than we otherwise would to compensate for these folks. We pay higher taxes to fund the government programs that these folks use.

#4

Thank you, again we look like fools for actually buying a home we could afford & making the payments while the people who jumped in over their heads and mismanaged their budgets are REWARDED...

#5

Really? So, maybe as a responsible citizen who bought within my means and worked hard to get my mortgage paid down - I get no reward? But those who "bit off more than they could possibly chew" get rewarded? Who's going to pay for that???

"Fair" is apparently only fair when it benefits the irresponsible!
Irresponsibility has become an enterprise in this nation - it gives a whole new meaning to "free enterprise".

#6

So let me get this right. If I would have just made some bad decisions and taken out some home equity loans in a time of economic downturn, I could have had the gov't give me up to 30% of that money for free. That sounds great. I mean after all they're going to take it from the ones who made good decisions and give it to the ones who made bad decisions. Doesn't that reward bad decisions? Isn't that Marxism? And can people honestly argue that this administration isn't socialist?

#7

Hey Bank of America, I’m not stupid enough to take on an adjustable rate mortgage that I won’t be able to pay off once the loan resets, and I’m responsible enough to do the math, figure out what I can afford, and live within my means. I even saved up a rainy day fund to handle unforeseen emergencies before I ever borrowed to buy a house.

Seriously BOA, it is unfair these stupid and irresponsible morons who bought more house than they could afford with creative financing schemes like interest only loans, negative amortization loans, and balloon payment loans get principal reductions while their smarter and more responsible neighbors get NOTHING. Actually it is worse than getting nothing. Their smarter and more responsible neighbors are paying for it in the form of higher taxes and losses in their retirement accounts because their retirement accounts may have held bank stocks either directly or indirectly through mutual funds. The bank stocks cut their dividends and the stock prices dropped because the deadbeats didn’t pay their mortgages like they agreed to do when they signed on the dotted line.

#8

I am an idiot. I have a BOA mortgage and paid my mortgage. I didn't buy a boat or a camper or a Harley, I still drive two vehicles that are paid for. I don't fly when I go on vacation. I live within my means. If I was smart 10 years ago, I would have bought a Harley, a big boat and a nice shiny new truck to haul everything and let my mortgage go. I would have all my toys and the bank forgiving 30% of my debt. Oh well, live and learn.

#9

In other words, everyone who worked hard and saved a down payment is getting the shaft. If two people bought a house for 300k, one with 0 down and one with 60k down, the one with no down payment now owes less than the one who shelled 60k out of their own pocket. ...... I guess this is why we have govt., to offset the rewards of responsibility and hard work that the natural world provides. Thanks Obama! I don't really see any pt in going to work anymore.

#10

So let's reward the numbnuts who bought a house they couldn't afford while those of us that are financially responsible keep paying what we owe. Just another example of how personal responsibility is no longer important to many people...

#11

BofA will probably make up the difference by sucking the money out of its responsible borrowers and other account holders by socking them with more hidden fees.

#12

Absolute nonsense... Look under virtually any of these problems and you'll find overspending, equity loans that went to vacations, unneeded luxuries, expensive cars, and other assorted junk. i.e. mismanagement of money.

Had these people lived within their means, didn't over buy, buy McMansions, and spent responsibly they wouldn't need a bail-out at, what will eventually be, our expense..

This is pure BS...

#13

This country is no longer about being a land of opportunity, it is about taking from the responsible to give to the irresponsible. I am underwater because of all the foreclosures in the area I live. Many have just decided to stop making the payments and bank what would have been their mortgage payments. With a lawyer you can stay in your house for free for 3 years or more. Yet there are those like myself who do the responsible thing and continue to make mortgage payments. But no one cares about us. Maybe we should just all stop making our mortgage payments and expect Obama to bail us all out.

#14

Only in America in 2010. If you were prudent and decided to forgo the mcmansion you couldn't afford and paid your monthly payment faithfully on the home you could afford you now find yourself subsidizing the deadbeats and would be Donald Trumps who acted irresponsibly and got in way over their heads. How stupid can the banks and govt be. They are encouraging more of the same behavior in the future.

Ain't no free lunch folks, someone (meaning you and me) will pay to clean this mess up.

#15

What about us? The people that live within their means, pay their mortgage and bills on time. We do it right and get the shaft...nothing for us... I can't stand it any more.

Sowing the seeds...

Original article

India Bars Chinese Telecom Hardware On Security Concerns

Somewhere, Eric Schmidt is smiling.

According to Bloomberg, India is blocking the sale of networking equipment to domestic carriers in the country by China-based telecom hardware makers Huawei and ZTE due to security concerns.

The story says at least four phone companies have been denied clearance from the Indian government to buy equipment from the two companies. India is the world’s second largest mobile phone market, trailing only China in number of users. The piece says the country is “stepping up scrutiny of imported switches and routers as phone operators plan to roll-out high speed services later this year.”

Bloomberg notes that the carriers have been denied approval to purchase hardware from a number of additional Chinese companies, including Lenovo.

The Financial Times reported yesterday that the country’s Telecommunications Department informed the office of Prime Minister Manmohan Singh that requests for importing Chinese manufactured hardware where being turned down on security grounds:

“Proposals for procurement of equipment from Chinese original equipment manufacturing vendors have not been recommended due to security concerns,” the Department of Telecommunications wrote this week in correspondence to the prime minister�s Office, seen by the Financial Times. “Therefore, the proposals from the service providers for purchase of Chinese equipment is turned down.”

The Bloomberg piece notes that there have been reports that hackers traced back to China have infiltrated Indian government computers.

Elbit Systems Goes Red

Elbit Systems (Nasdaq: ESLT  ) reported earnings on March 14. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Elbit Systems beat expectations on revenue and whiffed on earnings per share.

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

Margins dropped across the board.

Revenue details
Elbit Systems booked revenue of $841.9 million. The two analysts polled by S&P Capital IQ wanted to see revenue of $753.7 million on the same basis. GAAP reported sales were 5.4% higher than the prior-year quarter's $798.7 million.

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

EPS details
Non-GAAP EPS came in at $1.08. The one earnings estimate compiled by S&P Capital IQ predicted $1.34 per share on the same basis. GAAP EPS were -$0.31 for Q4 against $1.02 per share for the prior-year quarter.

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

Margin details
For the quarter, gross margin was 16.8%, 1,380 basis points worse than the prior-year quarter. Operating margin was -4.1%, 1,220 basis points worse than the prior-year quarter. Net margin was -1.5%, 700 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $679.5 million. On the bottom line, the average EPS estimate is $1.21.

Next year's average estimate for revenue is $2.91 billion. The average EPS estimate is $4.96.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 241 members out of 242 rating the stock outperform, and one member rating it underperform. Among 56 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), all 56 give Elbit Systems a green thumbs-up.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Elbit Systems is hold, with an average price target of $58.00.

• Add Elbit Systems to My Watchlist.

Sirius XM and the Law of Large Numbers

I have to admit I'm a bit blown away today. As long as I've been covering Sirius XM Radio (SIRI), I've never felt a need to rewrite that, which at some point in the past, I had already explained. Sirius XM's ascent from penny-stock status however, has brought with it a new breed of investors, some of whom frankly have little to no understanding of how Sirius XM's subscription model works.

Unbelievably, a commenter took a single line item from Sirius XM's balance sheet and attempted to put a negative spin on the data. The focal point is the number of deactivations reported by Sirius XM each quarter, which is a metric known as "churn." All subscription businesses experience churn, including my own. Sirius XM has one of, if not the, lowest churn rates in the industry, at less than 2%. With a subscriber base of 20 million-plus, however, the number of deactivations can be presented as misleadingly high, especially without considering how that number compares to the overall growth rate.

As noted here:

The Law of Large Numbers says that in repeated, independent trials with the same probability of success in each trial, the percentage of successes is increasingly likely to be close to the chance of success as the number of trials increases.

To assume that every person exposed to Satellite Radio will immediately subscribe to the service is never to be expected. Over time, however, as the service grows in popularity, there is a snowball effect in which even many of those who resisted subscribing initially will eventually subscribe. As an example, I personally resisted buying a smart phone, CD player or laptop initially. As these devices grew more popular, however, I succumbed to the law of large numbers.

People with sales backgrounds know the law of large numbers well, having been trained in many cases to understand the sales funnel. Early in my brokerage career, I would make up to 400 phone calls a day, out of which I would make appoximately 50 contacts. Forty of those would hang up before I could finish my first sentence; 10 would have a conversation with me. The net result was a goal of a single new client for the day's work. [Click image to enlarge]

These principals are what all businesses are based upon. The goal of any business is to increase its conversion from prospective customer to satisfied customer. Sirius XM is no different in this, and the conversion rate from trials to self-paying subscribers demonstrated surprising increases in 2010. This increase came as auto sales lagged, consumer credit was sketchy at best, the threat of a double dip recession loomed and unemployment rose to levels not seen since World War II.

The top part of the funnel represents leads, which in Sirius XM's case are trial subscriptions that in some cases are paid for by auto manufacturers; in others, they are offered without payment. Leads create sales opportunities. Without these leads, opportunities for growth disappear. The number of subscribers in paid promotional trials through the first three quarters of 2010 increased each quarter. These are in addition to the trials that are offered free, such as is the case with Honda (HMC) and Toyota (TM).

[Click to enlarge]

Sirius XM began 2010 with 18,772,758 subscribers, and we know that the company has surpassed the 20 million mark in the previous quarter, perhaps by a large amount. Deactivations have declined, as has the percentage of deactivations. In other words, the law of large numbers is taking hold. As long as the number of gross additions exceeds the number of deactivations, Sirius XM will continue to grow.

The law of large numbers: Never bet against it.

Disclosure: I am long SIRI.

Nike Reports Strong Quarter as It Gains Market Share

Nike Inc. (NKE) reported strong fiscal 2010 third quarter results with a net income of $496 million or $1.01 per share compared to $244 million or $0.50 in the year-earlier quarter. The earnings also surpassed the Zacks Consensus Estimate of $0.89.

Despite a challenging macroeconomic environment, total revenues increased 7% during the quarter to $4.7 billion, compared to $4.4 billion in the year-ago period. Nike has consistently focused on innovative products that provide a competitive edge over its rivals.

Revenue increased across most of the geographic regions, except Central and Eastern Europe and Japan, where revenue decreased 8% and 7% year-over-year, respectively.

Gross margin during the quarter improved to 46.9% from 43.9% in the year-ago quarter. The increase in gross margins was primarily due to improved in-line product margins, reduction in discounted close-out sales and favorable changes in product mix. Global inventories declined 13% year-over-year to $2.2 billion due to prudent inventory management policies and alignment of merchandise mix in accordance with sales trends.

During the quarter, Nike repurchased over 5.1 million shares for approximately $329 million, which concluded its four-year $3 billion share repurchase program announced in 2006. Nike had repurchased 53.9 million shares under this program.

About 3.7 million shares repurchased during the quarter (for approximately $239 million) were part of a four-year $5 billion share repurchase program approved in Sept 2008. Cash and short-term investments totaled $4 billion at quarter end – about 55% higher than the year-earlier quarter.

Nike reported an increase in future orders scheduled for delivery from March through July 2010, which improved 9% year-over-year to $7.1 billion. Future orders measure customer orders scheduled for delivery in the coming season and are a widely used metric to gauge the performance of retailers.

Nike remained upbeat about its performance in the coming quarters with the World Cup soccer around the corner. The company stressed that it was gradually gaining market share across all the product categories. The strong quarterly results further boosted Nike’s shares by approximately 3.5% to $73.35 in after-hours trading after closing at $70.88 on the New York Stock Exchange.

Generac Holdings Outruns Estimates Again

Generac Holdings (NYSE: GNRC  ) reported earnings on Feb. 14. Here are the numbers you need to know.

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

Compared to the prior-year quarter, revenue expanded significantly and GAAP earnings per share improved significantly.

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

Revenue details
Generac Holdings reported revenue of $267.3 million. The seven analysts polled by S&P Capital IQ foresaw revenue of $227.8 million on the same basis. GAAP reported sales were 66% higher than the prior-year quarter's $161.0 million.

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

EPS details
Non-GAAP EPS came in at $0.58. The three earnings estimates compiled by S&P Capital IQ predicted $0.41 per share on the same basis. GAAP EPS of $3.91 for Q4 were much higher than the prior-year quarter's $0.28 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 36.8%, 280 basis points worse than the prior-year quarter. Operating margin was 16.9%, 60 basis points better than the prior-year quarter. Net margin was 99.9%, 8,830 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $211.0 million.

Next year's average estimate for revenue is $858.1 million. The average EPS estimate is $1.18.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 38 members out of 42 rating the stock outperform, and four members rating it underperform. Among nine CAPS All-Star picks (recommendations by the highest-ranked CAPS members), nine give Generac Holdings a green thumbs-up, and none give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Generac Holdings is outperform, with an average price target of $25.50.

Over the decades, small-cap stocks, like Generac Holdings have provided market-beating returns, provided they're value priced and have solid businesses. Read about a pair of companies with a lock on their markets in "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Click here for instant access to this free report.

• Add Generac Holdings to My Watchlist.

Fortune Brands: Overvalued Company with High Expectations for Sales Growth

The Applied Finance Group’s (AFG’s) valuation techniques help investors identify and take advantage of mispriced securities in the market. One way investors can identify over or undervalued stocks is by using AFG’s Intrinsic Value Chart, which displays a company’s intrinsic value relative to its trading range and helps identify entry/exit points.

This easy-to-read chart identifies how far a stock’s trading range deviates from its intrinsic value (target price assuming immediate decay), which helps you recognize potentially mispriced stocks and pursue long and short opportunities. AFG’s Intrinsic Value Chart also contains a company’s Value Score (ranked valuation attractiveness), Economic Margin Change (expected improvement of economic profitability), and Accuracy (how well AFG’s default valuationhas tracked the company). AFG’s valuation framework estimates a company’s equity value by subtracting debt and other liabilities from the total enterprise value. The total enterprise value is estimated by discounting projected future cash flows, utilizing analyst consensus, Economic Margin methodology, and the Decay concept which addresses the perpetuity bias in the traditional DCF model.

The example we have provided is Fortune Brands (NYSE:FO), a company that currently looks overvalued according to AFG’s default valuation model. An important fact to note is that AFG has shown it tracks Fortune Brands well (high accuracy score of 86). Also, Fortune Brands has a current AFG Value Score of 14, meaning the company ranks in the bottom 14th percentile of companies in the AFG universe in valuation attractiveness.

AFG’s Intrinsic Value Chart:

• Identifies entry/exit points

• Shows how well AFG has tracked the company (accuracy)

• Displays the trading range of the company each year through time (blue bars)

• Displays the end of year closing price (dash on blue bar)

• Displays AFG’s default intrinsic value (red dotted line)

How to Read this chart:

• The Blue Bars represent the high and low trading range for a stock for each calendar year.

• The red dotted line represents Applied Finance Group’s (AFG’s) historical Intrinsic Value through time.

• When the red line (Intrinsic Value) is above the blue bars (trading range) the company looks to be undervalued.

• When the red line (Intrinsic Value) is below the blue bars (trading range) the company looks to be overvalued.

Below is an example of AFG’s Intrinsic Value Chart and the important things to look for within the chart as well as two examples of undervalued companies according to AFG’s Intrinsic Value Chart as well as two overvalued and two fairly valued examples to provide a better understanding of what to look for when analyzing AFG’s Intrinsic Value Chart.

To stay updated on companies AFG believes are attractive investment opportunities register here.

Disclosure: none

Today In Commodities: To The Rescue

Energy: Today marks the third consecutive positive session in crude oil as prices are currently $4 off lows from earlier this week. My take is an interim low is in place and we grind back to $90/91 in the coming weeks ... trade accordingly. RBOB is nearly 4% off its lows from Monday and with a trade above the 8 day MA. Today's high we should be off to the races. I am expecting confirmation this week. Heating oil has gained just over 5% in that time frame. I see a reversal in this distillate as well. Natural gas is having trouble clearing the 8 day MA ... this pivot point was serious support for much of May now the roles have reversed and support has become resistance. To reiterate my recent posts I expect a trade higher and have advised the sidelines.

Stock Indices: A rally is underway as stocks roared higher today gaining 2.25-2.5% lifting prices just shy of their 20 day MAs. I expect more to come and as prices get through this pivot point I see the next resistance level at the 9 day MA - in the Dow at 12,775 and in the S&P at 1,355. I'm not interested in buying but selling at those levels if we reach them sounds appealing to me ... stay tuned.

Metals: Gold settled above the 50 day MA for the first time since mid-March when prices were approximately 5% higher than current levels. A 38.2% Fibonacci retracement is compete and investors that listened to my recent buy recommendations should be satisfied with this leg. This in my eyes is just the beginning as I think we see $50-70/ounce more relatively quickly. Hi ho silver as prices were higher by nearly 4% today lifting prices in silver near one month highs. I see $29 as support with $30.50/31 as an upside target. These moves will not be straight up so make sure you monitor your positions and manage the trades. Platinum has advanced 6% in the last week and this could be just the beginning in my opinion. Even copper has joined the party trading positive for the first time in six sessions. I anticipate a bounce into next week. My targets in July are $3.45 followed by $3.55.

Softs: Cocoa is on the move as prices have appreciated just as forecast ... see previous posts. The action in the pound and dollar support a further appreciation. I expect 4-6% further in the coming weeks. Sugar recouped two weeks of losses on today's gain with a close of 3-4.4% depending on the contract. Buy dips as an interim low was likely made. A 38.2% Fib retracement puts July futures over 21 cents. After a near 30% decline in the month of May alone cotton was due for a rally and today may be day one. Not taking a buy signal but rather let's see how much of a bounce the market can deliver so we can sell from higher levels.

Treasuries: Treasuries were clipped today with 30-year bonds and 10-year notes getting hit hard today. Both contracts closed under their 9 day MAs which for me is confirmation of an interim top and reason to gain bearish exposure. This is expected to be a bumpy road but I think we see this complex under pressure in the immediate future. My target in 10-year notes is 131'00 and in 30-year bonds 144'00. Refrain from Euro-dollar exposure as I view the long end of the curve as a better shorting opportunity than the short end as of right now.

Livestock: Walk away from any trades in live cattle until there is a clearer picture. If feeder cattle close under 159.00 I would say prices are headed south again. My target if we see that play out would be 156.00 in the September contract. Lean hogs are overbought and due for a correction in my estimation. I'm more interested in buying a break than gaining bearish exposure ... stay tuned. A trade under 81.00 in October would have longs back on my radar.

Grains: Grain traders could be probing longs in maize but let's jump out to the December contract and trade new crop. As long as $5 holds on a closing basis in this contract I'm friendly. Not sure if it's a bottom but I'm sure it is support as wheat has failed to breach $6.10 on the July contract on multiple attempts. As a trade buy close to that level with a stop just under. Great risk to reward as we could see a 20-30 cent bounce relatively easily in my opinion. Soybeans could bounce with the whole complex but I like soybean oil more than soybeans even though a rising tide will likely lift all boats in ag. Those willing to be long July beans should be supported at $13.40. Soybean oil is a buy as of this post prices are back over their 9 day MA. I'm expecting a sharp 5% appreciation from current levels and though we're not timing the bottom we are close enough in my estimation. Stay long if July remains above 48.00.

Currencies: The dollar lost 0.64% today dragging prices to one week lows. This is the beginning of the leg lower I forecast in recent posts, in my opinion. A 38.2% Fibonacci retracement puts the June contract back at 81.40. The yen remains a sale as the 20 day MA was breached in overnight trading for the first time in two weeks. Expect lower trade as commodities and equities appreciate near term.The commodity currencies and European currencies should see higher ground near term. Those late to the party my favored play is the loonie as it remains very sensitive to energies and metals and I expect a solid appreciation near term ... trade accordingly.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

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

Apple: Foxconn Reportedly To Ship 24M iPhone 4G Units In 2010

Foxconn will ship 24 million Apple (AAPL) iPhone 4G phones starting in June, according to DigiTimes, which cites sources from Taiwan-based component makers.

The piece says Foxconn will ship 4.5 million in the first half and 19.5 million in units in the rest of 2010. Apple is expected to launch the new phone on June 7 at the Apple Worldwide Developers Conference.

The report says the new phone will use “fringe-field switching” technology to provider a wider viewing angle and clearer visual quality in sunlight, and will have 960×640 resolution. The phone will reportedly use the ARM Cortex A8 processor with a 512MB memory module, twice the capacity in iPhone 3GS.

Why We Shorted SL Green

We have recently put on a short on SL Green (SLG). The REIT’s stock has run up almost 700% from its March 2009 lows but the fundamentals for the company have never been worse. A look back at several years of 10k's shows that SL Green has grown its commercial real estate holdings on its balance sheet from $2 Billion at the end of 2005 to $7.5 Billion at the end 2009 with almost all of the increase occurring in 2007 at absolute peak prices. During that time period the following table shows what has happened to Occupancy rates:

		Percent of Manhattan Portfolio Leased(1)			Occupancy Rate of Class A Office Properties In The Midtown Markets(2)(3)			Occupancy Rate of Class B Office Properties in the Midtown Markets(2)(3)
December 31, 2009			95.0	%		86.8	%		90.3	%
December 31, 2008			96.7	%		90.8	%		92.1	%
December 31, 2007			96.6	%		94.1	%		93.5	%
December 31, 2006			97.0	%		95.7	%		93.7	%
December 31, 2005			96.7	%		94.4	%		92.5	%

Occupancy fell to more new lows in the recently announced Q1 2010 results despite SL Green dropping starting rents by 5.1% in Manhattan and 10.9% in its Suburban portfolio.

We conservatively estimate that the $5.5 Billion spent to purchase and fix up office buildings during this time period has fallen in value by 25%, wiping out $1.375 billion in value of the assets that the company has yet to write off; putting the company and of course its shareholders in severe peril longer term.

Management missed the opportunity to raise more equity probably because they were too nervous about dilution to FFO and the already ridiculously low 0.6% yield; that opportunity may no longer be available to the company with the recent turmoil in equity markets around the world. Management bet the future of the company on a rebound in Manhattan commercial real estate. Not only have they refused to raise more equity to reduce the risk but they are also using revolving credit lines to make high-risk loans to other commercial real estate investors. The company currently has $900 mm drawn down on its revolving credit facility and has structured finance investments of $786 mm. We feel that this is a disaster waiting to happen.

The stock is currently trading at an implied cap rate of just over 5%. We feel that this is extremely over valued and that the shares most likely will drop at least 50% in the next 6 months. Even at those prices the yield will still be too low to compensate investors for the extreme risk inherent in SL Green's portfolio.

Disclosure: Short SLG.

Trading Basics We Are Quick to Forget

A novice trader seems to have some advantage over an old timer: no pre-conceived ideas! If you have been trading for a while and it could have worked better for you it’s time to go back to the basics and review your assumptions.

The tug of war between advocates of fundamental and technical analysis has had its run – but why not use both? You don’t know how long a trade is going to take to bring the expected profit. In case you get saddled with a horse for a long trip why not make sure it has a good pedigree? We are all impatient and greedy. In case things don’t exactly pan out as expected it is comforting to know later that you did indeed do your homework on that stock and it was a sound investment then. Do it at least as a favour to yourself. As the vicissitudes of the market unfold you need the confidence that you entered a sound situation.

Beware of wild random connections. The fact that your last two successful trades involved companies whose names start with letter “C” does not warrant trading more “C” stocks. Said like that it is tantamount to superstition but you would be surprised at the weird assumptions that mess up with your head when you are greedy or fearful – always trying to rationalise and find an explanation for everything…

Operate on several planes simultaneously and correlate what you see. How does your stock behave compared to its industry? How does your stock behave compared to the index? Do the daily, weekly and monthly charts tell the same story? Are we starting a short term retracement within a long term trend? When will you decide the long term trend is over and the correction wasn’t minor at all – you missed the top of the market by 2 months(!) Then answer to that can be found by checking the support and resistance levels in each timeframe. It is also safer to build up and unload a position gradually rather than all at once. You only keep in the market the number of shares your risk tolerance will allow.

Set your parameters before you enter a trade. Decide beforehand what your stop loss order will be and your limit target order will be. If you can’t be at the computer that day for whatever reasons you can rest assured that both your profit is protected and your loss will not grow bigger.

You have heard it all before but why do you keep breaking your own rules all the time? Discipline and a cool head do not come overnight but you will be all the wiser if you stick to it.

One thing you can do is to compare your performance with an automated trading system and see how you can improve your skills. For such a system check out http://TradingPal.net

For more articles like this check out the author’s website at BrunoDeshayes.com

Retired Clients Stress Over Social Security, Medicare Changes

It's one thing to worry that benefits from Social Security and Medicare will be unavailable when your clients need them; it's quite another to worry that those benefits will become unavailable when clients have already come to depend on them. A survey released Monday by LIMRA found more than half of retirees are afraid changes to Social Security and Medicare, as well as increases in taxes, will affect their plan for retirement.

“With so many lawmakers talking about cutting costs to reduce the growing deficit and the financial implications resulting from it, retirees who might have felt secure that their retirement savings would last their lifetime, now recognize the uncertainty of the times and how vulnerable they are,” Marie Rice, corporate vice president of LIMRA Retirement Research, said in a press release.

LIMRA studied income sources for retirees between ages 55 and 79, as well as how they spent their income, and found over 85% rely on Social Security. Three-quarters of respondents have a traditional pension, and 44% depend on investments and taxable savings. Other sources of retirement income like employee earnings, defined-contribution plans and IRAs fund retirement for about one-quarter of respondents.

Furthermore, respondents reported that more than half of their income goes to basic living expenses.

“A significant change in public policy like Social Security and Medicare benefits could be disastrous for many retirees – particularly those with lower income and asset levels,” noted Rice.

Rice added that with traditional pension plans falling out of favor, it will be important for future retirees to "increase their current savings patterns and think about retirement income solutions including guarantee investments that will adjust for inflation."

Rice pointed out that low-income retirees, "who can least absorb additional unexpected costs during retirement," will be most affected by policy changes.

Less than half of respondents have worked with a professional advisor to help them make investment decisions, and only 22% had a written plan.

Precious Metals Prices Kick It Up After Economic Reports

The market(s) reaction to Friday's economic numbers was amazing to watch. Gold and silver prices soared, treasury prices surged to new highs (new yield lows). Equity and options traders appeared to "jump ship" pushing the stocks and indices into strong oversold readings.

Could it have been the "perfect storm" of news creating a sense of doom that avalanched back down the mountain of worry? The Economist encapsulates the driving force as:

What preys on the minds of financial and business-world risk takers is not a single threat but a multitude of them, regurgitated in one big hairball of risk. And all are about policy.

I can understand the move in gold and silver and the equity markets. But treasuries getting pumped up reminded me of a spoiled child threatening to hold his breath until getting what he wants - QE III. Earlier in the cycle I would agree with the individual reactions but this within the current environment is somewhat of a quagmire. If the "flight to quality" lacks justification, which I strongly believe, treasury prices are headed lower (yields higher). The U.S. dollar will resume its advance with the equity markets more likely producing a lackluster rally attempt followed by additional downside. I am not advocating interest rates will rise across the board or that the Fed will begin a prolonged tightening process - not yet anyway.

Silver

Silver (SLV)

Technically, silver remains in a bearish pattern. Some analysts have laid claim to the "bottom" being in and while I support a bullish view on silver it seem prudent to leave open the potential for prices to wallow a bit longer and to drift back toward support at the 25.65 area. Longer term I remain bullish and continue to use weakness to add to long positions.

(click to enlarge)

Using the Revere Hierarchy I "drilled" down the following sector path Industrial and Materials > Materials >Mining> Metal Ore Mining > Precious Metals > Silver to find 79 companies of which 14 are focused (50% or more of revenue) within silver mining. Within this group of 14 there are 5five companies with a market cap of greater than $1 billion. They are Couer D"Alene Mines (CDE), First Majestic Silver (AG), Pan American Silver (PAAS) presented below and Hecla Mining (HL) and Silvercorp Metals (SVM) covered previously. See my SA article - 4 Mid to Long - Term Investment Opportunities.

Couer D'Alene Mines Corp (CDE)

CDE is a large primary silver producer with growing gold production and has assets located in the U.S., Mexico, Bolivia, Argentina and Australia. In the first quarter of 2012, CDE's total silver production increased 19% and sales of metal increased 2.5%, ($4.9 million). CDE's average realized silver and gold prices during the first quarter of 2012 were #32.61 per ounce and $1702 per ounce, respectively, (an increase of 4.3% and 23.9% versus the first quarter of 2011). Sales of silver contributed 68.1% of CDE's total metal sales for the first quarter of 2012 versus 56.4% for the same period of 2011.

(click to enlarge)

First Majestic Silver (AG)

Since inception, First Majestic has been in the business of the acquisition, exploration, development and production of mineral properties. During the fiscal year ended June 30, 2004, First Majestic started focusing on the acquisition, development and exploration of mineral properties in Mexico with an emphasis on silver projects. First Majestic is a primary silver producer with 96% of its revenue in 2011 coming from the production of silver. First Majestic is an intermediate producer that is aiming to become a senior producer. In the intermediate category are Silvercorp and in the senior category are Pan American Silver and Coeur d'Alene.

(click to enlarge)

Pan American Silver (PAAS)

Pan American Silver is principally involved in the operation and development of, and exploration for, silver producing properties and assets. PAAS's principal product is silver. gold, zinc, lead and copper are also produced and sold. Currently PAAS has mining operations in Mexico, Peru, Argentina and Bolivia as well as projects in development throughout the region. PAAS also controls non-producing silver assets in the U.S. as well as Central and South America.

PAAS reported consolidated cash costs to produce an ounce of silver of 2011 were approximately $9.44, net of any credits. Projected cash costs for the full year of 2012 are forecast at between $12.50 and $13.50 per ounce, net of any credits.

(click to enlarge)

Gold (GLD)

The World Gold Council in a May 2012 report stated:

• Central banks across the globe continued the now established trend of net purchasing with demand in Q1 2012 reaching 80.8t. Demand was driven by Eastern Europe with Russia and Kazakhstan adding to their holdings and accounting for a substantial amount of the purchasing. Mexico's central bank made the largest single purchase of 16.8t. The main driver for this demand by emerging market central banks is the need to diversify their holdings.
• First quarter demand for ETFs and similar products totaled 51.4t, equivalent to a value of US$2.8bn; in stark contrast to the first quarter of 2011, when the sector witnessed net outflows.
• China and India have seen continuing economic growth and whilst China's economy is expected to slow, it will nonetheless surpass the rates of growth in the West. As we previously forecast it is likely China will become the largest source of demand for gold in 2012.
• This growth story also extends to other emerging market economies and is reinforced by central banks' continued buying of gold, as a diversifier and a preserver of national wealth. The current picture of the gold market is diverse and not withstanding a flight into U.S. dollars and treasuries near term, we believe the fundamental reasons for investing in gold today remain very strong and compelling."

(click to enlarge)

Conclusion

At the risk of repeating myself - I am going to repeat myself and restate what I have previously discussed regarding silver's mid to long-term potential.

Silver still appears poised to lead the charge higher within the precious metals. Most chart patterns have followed the direction set by spot prices. As previously discussed, silver's chart reveals strong areas of what I'm calling "congestion and resistance." I don't foresee an easy rally taking hold and quickly whisking prices to new highs. I would expect volatility to get kicked up a few notches, which may add an adrenaline rush to trading. But once resistance is successfully conquered, look for upward acceleration to kick in.

With the silver mining sector taking a royal thrashing lately, I am leaning more toward this sector for trades. Near-term there may be additional downside across the board so working out entry strategies and stop levels remain important. Silver Wheaton remains the strongest prospect but I encourage performing due diligence before making any trade decisions.

From my SA article 4-mid-to-long-term-potential-investment-opportunities-in-silver-mining.

Disclosure: I am long SLV, HL, CDE, GLD.

Three ETFs To Watch This Week: FXI, NORW, USO

Last week saw a strong opening soured by economic data as the five-day trading string came to a close. Though unemployment dipped to 8.1%, hiring slowed more than expected in April, ultimately sending markets lower on the final day of the week. Earnings season is essentially over, so investors will have to focus on data on the home front and around the world. The coming week will be relatively quiet in comparison to weeks past, but that does not mean that traders will not have plenty of events and funds to focus on. Below, we outline three funds that are poised to have a big week as recent trends and global data put them in the limelight [see also 5 Market Experts You Need To Follow On Twitter].

FTSE China 25 Index Fund (FXI)

Why FXI Will Be In Focus: This ETF measures the Chinese stock market with a large cap spin, making it one of the more popular emerging market funds. FXI has over $6 billion in assets and an average daily volume topping 19 million and is easily the most popular fund dedicated to China. Its place in the spotlight will come towards the latter half of the week as China is set to release some important economic data. Friday will see both CPI results as well as new yuan loans, two reports that will have a big impact on this fund, especially given the fact that so many investors put heavy weight into China’s massive consumer segment [see also When Bigger Isn�t Better: Profiling ETF Alternatives To DJP, FXI, GLD].

FTSE Norway 30 ETF (NORW)

Why NORW Will Be In Focus: NORW is one of a select few ETFs to grant exposure to the Norwegian economy, but this fund has had some trouble getting going. The ETF currently has $53 million in assets despite its healthy daily volume of 38,000. This week will see earnings from Statoil ASA, one of the biggest oil producers in the world as well as the top holding of NORW. Thus far, NORW has held up well in 2012, but its outlook will rely heavily on the results of this major energy firm. If Statoil misses, look for NORW to take a big hit, but a positive report could send this ETF through the roof.

United States Oil Fund (USO)

Why USO Will Be In Focus: Crude oil has been in focus a lost as of late, as sour economic data has weighed on its prices. Friday saw the fossil fuel dip below $100 for the first time in recent memory. After several big trading days last week, crude futures will be a major point of contention with investors. This ETF tracks front-month WTI crude contracts and is one of the most popular commodity ETFs available. USO has lost over 4% in the last week and some traders may find its low price as a nice entry point [see also How To Profit From Rising Gasoline Prices].

Follow me on Twitter @Jared Cummans

Best Of TIPS ETFs: Expenses, Dividends, and Returns

As central banks around the world continue to plow money into the financial system, investors have been bracing for an eventual uptick in inflationary pressures. While reported inflation throughout the developed world has remained tame–most markets are well within their official “comfort zone”–anxiety over rising prices remains. When the global economy stabilizes and consumers become more able to bear price increases, many expect CPI to spike [see Black Swan Hyperinflation ETFdb Portfolio].

There are a number of different tools for combating inflation. Some swear by commodities, which logically tend to appreciate when inflation arrives. Others believe equities make for a good bet in inflationary environments. But perhaps the most common tool for “inflation-proofing” a portfolio are inflation-protected bonds, securities whose face value adjusts based on reported inflation metrics.

ETFs have become common vehicles for holding TIPS; the Inflation Protected Bonds ETFdb Category consists of more than a dozen�exchange-traded products, including domestic and international funds, with aggregate assets of almost $30 billion [see a list of all ETFdb Categories].

The Pro member download from the Inflation Protected Bonds ETFdb Category page can be used to highlight the funds with the lowest expenses, highest dividend yields, and best historical performance [see a sample Excel download here; Pro members can download more than 60 ETFdb Category pages and 200 ETFdb Types pages with a free 7-day trial].

TIPS ETFdb Category
Number of ETFs	13
ER Range	0.14% to 0.50%
Total Assets	$28.3 billion
As of June 6, 2012

Cheapest TIPS ETFs

There is a relatively wide range of expenses for TIPS ETFs; some funds charge as little as 14 basis points while others (WIP) have expense ratios of up to 0.50% annually.

The cheapest TIPS ETF is the U.S. TIPS ETF�(SCHP)�at 0.14%, followed by the SPDR Barclays Capital TIPS ETF�(IPE)�at 0.18%.

[Use the free ETF Screener to filter ETFs by sector and region exposure, as well as expenses and volume]

Commission Free TIPS ETFs

There are three ETFs in the TIPS ETFdb Category that are eligible for commission free trading, including:

• U.S. TIPS ETF�(SCHP): Charles Schwab
• Barclays TIPS Bond Fund�(TIP):�Fidelity, TD Ameritrade
• SPDR DB International Government Inflation-Protected Bond ETF�(WIP): TD Ameritrade

Most Heavily Traded TIPS ETF

On an average day, the ETFs in the TIPS ETFdb Category trade more than 1.7 million shares. The most heavily traded ETF in this category is the Barclays TIPS Bond Fund�(TIP), which has an average daily volume of about one million shares.

Realtime Ratings: TIPS ETFs
Metric	Top ETF	Rating
Liquidity	�Barclays TIPS Bond Fund�(TIP)	A+
Expenses	�U.S. TIPS ETF�(SCHP)	A+
Performance	�15+ Year U.S. TIPS Index Fund (LTPZ)	A+
Volatility	�Barclays 0-5 Year TIPS Bond Fund�(STIP)	A+
Dividend	�SPDR DB International Government Inflation-Protected Bond ETF�(WIP)	A+
Concentration	�International Inflation-Linked Bond Fund ETF�(ITIP)	A+

[Get access to Realtime Ratings for 1,400+ ETFs with a free 7-day trial to ETFdb Pro]

Best Performing TIPS ETFs

Though TIPS are generally through of as a very safe asset class that exhibits low risk and low return, some of these funds have delivered huge gains recently.�As of June 6, 2012, the best performing TIPS ETFs are as follows:

Best Performers
1 Year	15+ Year U.S. TIPS Index Fund (LTPZ)	+27.84%
3 Years	SPDR Barclays Capital TIPS ETF�(IPE)	+33.49%
5 Years	SPDR Barclays Capital TIPS ETF�(IPE)	+49.54%
As of 6/6/2012

Highest Yielding TIPS ETFs

TIPS ETFs aren’t generally known for high dividend payouts–the low risk involved generally translates into lower yields–but some products in this ETFdb Category have meaningful dividend yields (as of June 6, 2012):

• SPDR DB International Government Inflation-Protected Bond ETF�(WIP):�4.52%
• Barclays TIPS Bond Fund�(TIP):�2.98%

Most Balanced TIPS ETFs

When comparing potential ETF investments, it is important to evaluate how deep and balanced the underlying portfolios are. Depth refers to how many individual securities comprise an ETF, while balance refers to how “top heavy” a product is–what percentage of assets are concentrated in the ten largest individual positions.

• Deepest TIPS ETF: The International Inflation-Linked Bond Fund ETF�(ITIP) �has approximately 100 individual holdings. The 15+ Year U.S. TIPS Index Fund (LTPZ)�and�Barclays 0-5 Year TIPS Bond Fund�(STIP)�are the “shallowest” ETFs, with 10 and 14 individual holdings respectively.

• Most Balanced TIPS ETF: The International Inflation-Linked Bond Fund ETF�(ITIP)�has just 24.38% of its holdings in the top ten positions. At the other end of the spectrum, the 15+ Year U.S. TIPS Index Fund (LTPZ) has over 99% of assets in the top ten securities.

Book Review: Corporate Valuation for Portfolio Investment

Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, Cash Flow, Stock Price, Governance, and Special Situations (2010, Bloomberg Press), is an ambitious effort by coauthors Robert A.G. Monks, a renowned shareholder rights activist, and Alexandra Reed Lajoux, an M&A expert. They cover a lot of ground in around 540 pages, and state at the end of Chapter 1 that the book is intended primarily for institutional investors, adding that they would be honored if professors recommend their book along side other classics such as Security Analysis.

The book favors breadth over depth in many instances, but is rich in footnotes for further research. Students of finance and practitioners will find Corporate Valuation for Portfolio Investment a great book to read reference, while individual investors with no formal background in finance will in fact have much to gain from the chapters on financial statements, valuation methods, and the coauthors’ “philosophical framework” for valuation.

Contained within their introductions to, and descriptions of, effectively the A-to-Z of valuation, there are numerous comment boxes throughout that feature Monks at his best. Of the short and sweet variety:

Accounting Antiquity: One can understand financial statements only by imagining that the figures are in Roman numerals and the footnotes in classic Greek.

Inquisitive:

Cash Conundrum: I have long pondered the unresolved conundrum of the lack of value of cash in the largest companies. Focusing on importance of P/E (price-earnings ratio), what does $1 billion more or $1 billion less mean to Exxon’s market value? The Delaware Chancery Court in the Disney decision held that the $150 million payment to former CEO Michael Ovitz was not “material.” Could it be that in the largest companies, cash has no real value?

And:

In a letter dated April 14, 2010, that he wrote to Lloyd C. Blankfein, chairman and CEO, Goldman Sachs:

The marketplace is a Commons. The ancient need for all who use the Commons is to contribute to its upkeep and avoid its abuse. We are passing through a period of time in which the cost of the “bailout” of the Commons exceeds $3 trillion…. It now appears clear that many of the transactions accepted by banks had no commercial purpose beyond the generation of fees. These transactions created huge losses. Should the taxpayers be responsible entirely for these losses, or should the banks (and their principal officers) who collected fees for their origination and trading share in the loss?

There’s plenty to ruminate on in Corporate Valuation, from their discussion of valuing intangibles, IFRS, Ben Graham, Soros’ concept of reflexivity, Tobin’s Q, and building valuation models. In addition, Chapter 7 (Market Value Drivers of Public Corporations: Genius, Liberty, Law, Markets, Governance, and Values), is one that shareholder activists will appreciate. There is some excellent material discussing what is “good” corporate governance. Consider the following: “[...] good governance is not additive but essential.” Regarding disclosure, they say it is not only about what, but also how (information is disclosed), noting the dilutive effect of ever more disclosure and the cost (time) to companies.

Closing out this review, let me say again that Corporate Valuation is an ambitious effort by the coauthors given the complexity of the subject. I think they did well given the ground they covered and valuable insight each added respectively from decades worth of hands-on experience. Intended for institutional investors, a lot of material is accessible to individual investors as well. While I was surprised to see typos and some errors appear throughout the book, I don’t think these are a deal breaker. I finish with their perspicacious conclusion:

There is therefore no absolute definition of valuation. Valuation exists to serve particular functions; it has validity at particular times and applies only to the dynamics of a specific situation.

Time to Buy This Beaten-Down Biotech Stock?

The following video is from today's MarketFoolery podcast, in which host Chris Hill, along with Charly Travers, Mike Olsen, and Joe Magyer, discuss the latest business news. After a federal court ruled in its favor, shares of Teva Pharmaceutical popped 6% on Monday while shares of Momenta Pharmaceuticals fell 20%. In this segment, Charly analyzes the competitive landscape in the biotech industry and shares why he believes Momenta is a company in great shape, despite having a bad day.

With shares up this week, dividend payer Teva Pharmaceutical isn't exactly trading at a bargain-basement price. To find stocks that are, check out The Motley Fool's free report "2 Dirt Cheap Stocks With HUGE Dividends." You can get analysis of a market leader in payment systems and a high-yielding energy company by accessing this report. It won't be available forever, so click here -- it's free.

Please enable Javascript to view this video.

Avnet: Raymond James Ups To Outperform; Sets $33 Target

Raymond James analyst Brian Alexander this morning raised his rating on Avnet (AVT) to Outperform from Market Perform, setting a $33 price target on the stock. He contends that recent sizable acquisitions by the electronics distribution giant, including the just-completed purchase of Bell Micro,� “will provide a needed cushion to estimates in the face of a cyclical slowdown,” and adds that historical evidence suggests the stock can outperform during periods of decelerating organic growth. He also notes that the stock has hit “near-trough valuation metrics.”

He notes that the stock trades for just 8x his estimate for next 12 months EPS, in line with the trough P/E of the last three cycles.

He says consensus EPS estimates likely need to come down to adjust for moderating demand in Europe, a lower Euro/dollar exchange rate and potential double ordering, but adds that those factors should be offset by accretion from recent acquisitions. “With investors seemingly bracing for estimate cuts across the tech supply chain, we believe Avnet�s estimates will hold up relatively well and attract shareholder interest,” he writes. “We also note that despite growing concerns about a semiconductor cycle correction, Avnet�s stock has historically outperformed peers and market indices in cyclical slowdowns, in part due to its diversified revenue mix and countercyclical cash flow characteristics.”

AVT is up 23 cents, or 0.9%, to $25.35.

Morgan Stanley Gives Advisors the OK for Twitter, LinkedIn

While rivals are working slowly behind the scenes, Morgan Stanley (MS) is moving publicly—and quickly—to embrace social media, experts say. On Monday, the Wall Street firm said it would allow its 17,000-plus advisors to use Twitter and LinkedIn with certain restrictions.

Morgan Stanley shared its social media push with the press and investors about a year ago. That’s when it let 600 or so advisors start a pilot program with Twitter and LinkedIn.

“We have a library of preapproved content,” said Lauren Boyman, director of social media at Morgan Stanley Smith Barney, in an interview with AdvisorOne. “We view the library as another distribution channel of the content that advisors send out to clients and prospects all the time.”

Some other wirehouse firms are, of course, also embracing social media—though not to the extent that MSSB is.

“Many firms are quietly working on these initiatives, but they are not disclosing” much about their social media efforts, said Chad Bockius, CEO of Socialware, Morgan Stanley’s tech partner, in an interview. “I can say that Morgan Stanley is, without a doubt, the furthest along. It’s been the most aggressive with its rollout and the associated steps that have to be taken with this.”

Morgan Stanley has “taken a leadership position in this market,” Bockius said. “I know that every wirehouse is doing something today [with social media], and it is a variance of what Morgan Stanley is doing. I expect others to have LinkedIn access and for the industry to have access to Twitter for branding and as a news source in the future. But the pace of its rollout, its cohesive strategy and the support it’s put behind this initiative have made Morgan Stanley far and away the leader.”

Such efforts could prove helpful to MSSB as it wraps up the tough task of integrating Morgan Stanley and Smith Barney advisors on a technology platform. It is also facing plenty of pressure from wirehouses and other broker-dealers on the recruiting and retention fronts.

Raymond James Financial (RFS), for instance, said Tuesday that it attracted four ex-MSSB advisors in Westlake, Ohio, to join its independent channel with about $400 million in client assets.

Preapproval Process

Financial materials sent online are tightly regulated, and this situation makes it important for Morgan Stanley to preapprove tweets and other online messages, says Boyman.

Plus, advisors are busy professionals, and it takes “a lot of work to come up with content” to push out via social media, she explains. That makes “turnkey”—or preapproved content—easy for advisors to use.  

“Advisors are constantly sending clients preapproved materials,” Boyman explained, and Twitter is another channel for them to do this and highlight such content in other contexts.”

When it comes to timely market content, for instance, that needs to get out during an event like the Flash Crash or a day with significant market movement, “We have Tweets available from our research group,” she said.

Also, Morgan Stanley does have a small pilot project for advisors involving social media and content that is not preapproved.

Lifestyle content—that has to do with topics like golf or cooking—is less stringently regulated and is a good way to connect with clients, Boyman adds.

In general, she explains, Morgan Stanley knows the importance of getting advisors to connect more with current and prospective investors online. “For the next generation that is looking for an advisor, the expectation is there: They will find that person on LinkedIn and will find out who that person is linked to as part of the background they’re searching for.”

In its pilot program over the past year, most Morgan Stanley advisors using social media on a daily basis found that they were able to attract new clients with $1 million and more in assets. In other words, the time spent online translated into business results, the firm says.

Get Paid 36% To Buy Nvidia At A Steep Discount

Nvidia (NVDA) is a leading designer of graphics chips used in PC's, smartphones, tablets, and gaming consoles. Advanced Micro Devices (AMD) is the main competitor in the PC space, with companies like Intel (INTC), Qualcomm (QCOM), and Texas Instruments (TXN) competitors in the mobile space.

(click to enlarge)

NVDA data by YCharts

Nvidia currently trades at $12.59 per share. I recently wrote an article on Nvidia where I performed a discounted cash flow (DCF) analysis and concluded that Nvidia is undervalued. I estimated a fair value range of $16.89 - $21.16. The current stock price gives about a 25% margin of safety below the lower bound of my fair value range. Looking at the recent stock performance, shares of Nvidia have briefly dipped below $12 per share on a few occasions over the last year. Given that $12 represents a 29% margin of safety to my fair value range, this price seems like a natural entry point for this undervalued stock. But instead of simply waiting for the price to drop below this level, an alternative is to be paid to wait for the stock to drop below this level by selling puts.

Selling Puts

An option has three components: A strike price, a premium, and an expiration date. By selling a put option you are giving the buyer of that option the right to sell you the underlying stock at the strike price on or before the expiration date. The buyer pays you the premium in exchange for this right. You keep this premium no matter what happens, but are required to buy the stock if the option is exercised.

Selling a cash-covered put option can end in one of two ways. If the stock never dips below $12 per share before the expiration date the option will expire worthless, you will not be required to buy any shares, and you're free to write another put. If, however, the stock does go below $12 per share and the option is exercised, you are required to buy the stock at $12 per share, which will be higher than the current market value.

Let's take a look at the different put options available to sell at a $12 strike price:

Expiration Date (Days until expiration)	Strike Price	Premium (Last Trade)	Annualized Return
Jul 2012 (25)	$12	$0.30	36.5%
Aug 2012 (53)	$12	$0.59	33.9%
Sep 2012 (88)	$12	$0.80	27.7%
Dec 2012 (179)	$12	$1.32	22.4%
Jan 2014 (571)	$12	$2.51	13.4%

*Data as of June 25

The July 2012 expiration date provides the largest annualized return, receiving a $0.30 premium on a $12 investment, resulting in an annualized return of 36.5% (2.5% in 25 days) . So if you sell a July 2012 $12 put option you immediately receive a premium of $30 (all options are in blocks of 100 shares) and you have $1200 tied up for 25 days. If the option expires worthless you can then write another put and collect another premium. If the option is exercised you will buy 100 shares Nvidia for $12 per share, a price which you have already determined is a comfortable entry point.

The downside to this strategy is that if Nvidia tanks, say to $10 per share, you are forced to pay $12 per share and suffer an immediate "on paper" loss. Of course, had you simply bought shares at the current price or even waited for the price to reach $12 and then bought shares, you would have suffered the same fate. But by selling puts you are able to offset this "on paper" loss with premiums.

If you think that the stock will drop significantly below $12 per share, or if by the time this article is published the stock already has, another option is to sell a put with an $11 strike price instead. The August 2012 $11 put offers a premium of $0.30, yielding an annualized return of 18.8% (2.72% in 53 days), and the premium will only increase as the stock price decreases.

Conclusion

Nvidia is a seriously undervalued company, and selling puts at strike prices which offer a substantial margin of safety to fair value allows for an annualized return of up to 36.5%. The worst thing that can happen with this strategy is that you end up with shares of Nvidia for a price which you're happy with. Sounds pretty good to me.

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