Saturday, July 7, 2012

Best Home Gardens

Different people have different kinds of hobbies. There are people who love gardening and can spend a whole day with their garden. Having a small garden in your house can really make your house look beautiful. Creating an attractive home garden is a dream for many.

People who love flowers and plants always want to utilize a little space in and outside their house for planting the tress. If you are interested in making the best home gardens then you should follow certain tips. These tips can surely be beneficial to you.

The first thing that you need to do is choose the right place for the garden. It can either b in the front yard or can even be in the back yard. Choose the place which gets equal amount of sunlight as well as shade because both are important.

After choosing the place you need to choose the home garden designs. The design must suit the area and the space provided for the garden. If you have a small area then you should choose a design that is appropriate for the small space.

You need to decide about the kind of plants that you want to include in your garden. The design that you choose for your garden must match and reflect the style of your building. The design must be chosen perfectly for each and every part of the garden.

Garden can actually be of different types. Some people choose similar kinds of plants to create the garden while others choose from a wide range of plants to make the garden. If you are unable to select the right design for the garden you can surely take the help of the professionals.

They can surely help you select the best design. The garden must have plants, water features and walkways. Home garden plants should include both the native plants as well as the imported ones. The gap between each of the plants is very much necessary.

Different home garden plants usually require different amount of space to grow. You should calculate the space and keep proper distance between each of them. You can check out some of the perfect home garden pictures to find out the kind of look a garden must have.

If you fail to choose the proper style then you cannot build the best home gardens. Once you build the best home gardens it will become one of the major attractions of your house. Your neighbors and guests will surely praise your choice and your style.

If you are interested in fruit trees then it is important to choose the best home garden fruits. Some of the fruits require lots of space which might not be available in the home gardens.

Other than this, the growth of the plants also depends on the weather and the soil conditions. Before you create the best home gardens you need to find out details about the kind of plants you want to grow in your dream garden.

I have worked in both government and private establishments for the past 40 years and is making my retirement plans end of this year. Jennifer Ow Yeong Visit my website today – http://besthomegardens.net to know what better way to relax than to come home to your own Garden of Eden!

Ctrip Plunges; Reports 3 China Airlines Cutting Commision Rates

Ctrip (CTRP) shares are down sharply on a Sina.com report that the 3 leading domestic airlines in China – China Eastern, China Southern and Air China – have cut the commission rates paid to travel agencies for certain domestic flights. The cuts reportedly affect flights from Shanghai and Beijing.

Goldman Sachs analyst Kathy Chen writes in a research note that “it appears airlines are taking steps to reduce the commissions they are paying to travel agents as they are also increasing their own direct sales efforts.”

Piper Jaffray analyst Michael Olson notes that commission rates could fall by up to 50%, from 3%-4% now, to 1.5%-2%.; he notes that air ticket commissions account for 43% of projected 2010 revenues.� Olson says a partial offset is that the company will likely gain market share from weaker lower-volume travel agents. He thinks the worst case revenue impact is a 5%-10% hit to 2011 results.

Several weeks ago, Ctrip shares tumbled on a similar move to cut commissions by international carriers.

CTRP is down $5.69, or 15%, to $32.38.

Intel: Barclays Cuts to Hold, Sees ‘Pause’ in Shares

I noted earlier some upbeat responses to SIA November chip date, but one analyst had a more extreme reaction.

Barclays Capital’s CJ Muse today cut his rating on Intel (INTC) shares to Equal Weight from Overweight in response to the data.

Chip revenue may not rise at all in 2012, or it could be up as much as 4%, which is worse than Muse’s prior view for a 2% to 5% rise this year.

He thinks overall that 2012 will be okay, with recovery in the latter part of the year:

We maintain our 1-Positive rating on the semiconductor industry, with the vision that the recovery will be more of a 2H12 story, led by a trough in 1Q12 and depleted inventories (we believe semis will be under-shipping end demand throughout 4Q and into 1Q) that will lead to outperformance in topline growth relative to end market customers beginning in the 2Q/3Q timeframe.

Muse thinks “stock selection” will be key. His top large cap picks for this year are Qualcomm (QCOM), Broadcom (BRCM), and Altera (ALTR), with Micron Technology (MU) and Skyworks Solutions (SWKS) and Atmel (ATML) his top mid-caps. His thinking is that “advanced logic and NAND flash” memory chips will lead the rise in orders in the latter part of the year.

As regards Intel, Muse is generally upbeat about the company’s prospects for its “Romley” server chip, for the “ultrabook” laptop program the company is promoting, and for Intel’s prospects for mobility. But The hard-disk drive issue will continue to weigh on the shares, causing a “pause” in the stock, he thinks.”

We are moving to the sidelines on Intel, as we see potential headwinds in the company�s core PC business in 1H12. With HDD shortages likely impacting 1H12 PC demand, coupled with expectations that we could see a slip in consumer end demand into Win 8 launch in 3Q/4Q12, we think Intel will probably need to lower its utilization rates in 1H12, thereby likely weighing on GM and EPS estimates and thus driving below-consensus results. [We remain] remain firm in our belief that Intel is the best at chip manufacturing in the world and that this gives the company a shot at some success in mobility starting in 2013.

Muse cut his estimate for Intel’s 2012 revenue to $54.07 billion from a prior $55.22 billion, while cutting his EPS estimate to $2.32 per share from $2.45 previously.

Intel shares today are up 44 cents, almost 2%, at $24.69.

7 Covered Call Option Strategies For 2012

With the European problems still lingering into year 2012, the market has been discounting solid companies with robust earnings growth. If one wholeheartedly believes in a particular company's fundamentals and growth prospects, then covered call option strategies could help one weather the volatility storm caused by Portugal, Italy, Ireland, Greece and Spain. The following are some discounted value stocks and an ETF that have upside potential in the next year: Haliburton (HAL), Home Depot (HD), General Motors (GM), United States Oil (USO), Amgen Inc. (AMGN), Vodafone Group Plc. (VOD) and Wynn Resorts Limited (WYNN). Before you dive into the options chart below, there are few important items that should be stressed.

  • It is imperative when comparing option premiums to realize that on a per-day basis, the shorter term options are more expensive despite the fact that the nominal dollar amount is lower. This is not always the case, due to theoretical pricing and implied volatility is constantly changing.
  • Even though shorter term maturities are often picked by option sellers so there will be less time to be wrong, at times, it is also warranted to pick longer term maturities as well.

Disclosure: I am long USO.

Sales and Profits Rise at Procter & Gamble, Colgate-Palmolive (PG, CL)

Procter & Gamble (PG) reported a 6% gain to $21.03 billion in sales for its second fiscal quarter. Diluted net EPS reached $1.49, lower than the year-ago EPS of $1.58 but higher than average estimates of $1.42. Analysts were expecting sales of $21.07 billion, so PG missed that by a bit.

Colgate-Palmolive (CL) also beat EPS estimates of $1.18, hitting $1.21 with revenue right on estimates of $4.08 billion. Both Procter and Colgate reported higher volume. Foreign exchange rates on the weaker U.S. dollar also contributed 2% to P&G’s organic growth and 5% to Colgate’s sales improvement.

Both companies increased quarterly selling, general and administrative expenses by about 12%. Most of that was spent on advertising, and the push appears to have paid off.

That is the strength of brands, especially in the consumer products market. Procter and Colgate both own brands that are household names, not only in the U.S., but everywhere in the world. People have used these brands for years, and even if they change brands momentarily due to a poor economy, given the right incentives they always come back.

So, does this mean that a jump in sales of Colgate toothpaste or Charmin toilet paper signals a warm feeling about economic recovery among the middle class?

P&G lowered prices on a significant portion of its products in a drive to boost revenue. Colgate raised prices by about 1% in Latin America, where it does about 30% of its business. The increase was attributed to exchange rates, and it didn’t slow down Latin American consumers who purchased 23% more of Colgate’s products and generated a 27% increase in operating profit.

Looking just at the U.S. middle class, P&G’s actions point toward a continuing concern over the slumping economy. Consumers are still looking for bargains, and P&G offered some. That the company was able to steal sales for no-name or off-brands should be no surprise.

Colgate actually lost 1.5% on North American sales after coupons and other incentives were added in. More evidence that U.S. consumers are still looking for value.

When P&G and Colgate are able to raise prices and boost sales at the same time, then the US middle class will have recovered. That time is still some ways off.

The last quarter of 2009 was a good one for consumer brands, but it came at a cost. Both P&G and Colgate can afford to market heavily with gross margins above 50% and operating margins around 22%. Marketing savvy and money will keep these consumer products giants going for the coming year.

Tell us what you think here.

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Clean Fracking, Solid History Makes Halliburton a Must-Buy

Halliburton (NYSE:HAL) is an oil services company that has, for years, provided technology that enabled oil and gas exploration companies to find new fields and make the most of their existing properties. It is becoming more of a play on natural gas because it has recently developed promising �green� technologies that could reduce or even eliminate some of the big controversies surrounding the fracking process.

Halliburton is a big global company operating in 80 countries, but nearly half of its revenue (46%) comes from the U.S. The company provides a variety of products and services related to the exploration, drilling and development of both oil and natural gas, and its customers include major international and independent oil companies.

I�m impressed with how strongly committed HAL is to developing new technologies. It has technology centers in Belgium, Canada, India, Singapore, the U.K. and the U.S., and the company has certainly been an innovator in both horizontal drilling and hydraulic fracking.

The latest innovation is what Halliburton calls its �CleanSuite� Technologies, through which the company is endeavoring to make fracking safer. Among the products is the CleanStim Formulation — the cocktail used in the fracking process. According to the company, it uses the same acids and enzymes present in fruits and vegetables, making it one of the most environmentally safe fracture solutions.

In fact, to demonstrate its safety, a Halliburton executive took a drink of it last summer. Some dismissed it as a publicity stunt, and maybe it was a little over the top. Still, environmental groups also gave the company credit for its efforts to make the process safer and more environmentally friendly. Another criticism of fracking is the amount of water required in the process. However, through what they call the �CleanWave� treatment system, water generated as a part of the fracturing process can be treated and reused.

Poised to Grow

The long-term outlook for U.S. natural gas activity is quite bright. Gas is very attractively priced relative to oil, and we will continue to see the transition to more natural gas fleet vehicles — and perhaps even passenger cars — should the government back an effort to increase natural gas storage and fueling stations. International demand for natural gas liquids also will be robust for a long time as the middle class expands internationally.

I like HAL�s growth potential and view it as a solid play on this trend because of its exposure to fracking and natural gas drilling rigs, its efforts to develop clean fracking solutions and the stock is attractively valued.

Just last week, Halliburton reported Q4 and full-year results for 2010. For the quarter, HAL earned $1 a share (before unusual items), up from 94 cents in Q3 and 68 cents the year before. For all of 2011, earnings grew 65% to $3.26 (from $1.97) in 2010. The gains were driven by increased horizontal oil drilling in the U.S., where the oil rig count was up 8%, along with increased activity in the Gulf of Mexico. Internationally, the company benefited from increased drilling in the Middle East and Asia, which offset a politically related slowdown in Africa.

Management also is optimistic about 2012, but the company is moving away from one part of the natural gas industry and toward another.

Let me explain that a bit.

It�s a case of too much of a good thing. Halliburton has considerable earnings leverage to natural gas land drilling activity and pressure pumping activity, and the recent increased drilling activity has created a short-term oversupply, one reason that gas prices are so low. In its earnings report, HAL noted that its natural gas rig count in Q4 declined 2% from the Q3. You may also have heard on that U.S. natural gas giant Chesapeake Energy (NYSE:CHK) will reduce its natural gas rig count by a startling 50%.

I expect we�ll see some additional declines in HAL�s natural gas rig counts in the coming months, but here�s what�s important:

Halliburton is shifting resources from dry natural gas to liquefied natural gas, which remains strong due to high global demand. The transition requires some adjustment, which is what we�re seeing now. Still, management believes that revenue growth in 2012 will outpace rig growth, and it expects higher sales and income from its North American operations. With international markets still firm, earnings of $3.60 a share look very reasonable.

That would be 10% growth in earnings, which is much slower than in 2011, but the market is already pricing this in and views the shift to LNG favorably. In addition, gas prices are expected to stabilize and possibly increase as the year progresses with companies cutting back on production in the short term. OPEC has been doing this for years with oil, and we�ll see the back-and-forth in natural gas production, too. As we�ve talked about, however, longer-term the trends are unmistakable, which is one reason now is a good time to buy HAL.

HAL is off to a decent start to the year, up about 6% so far, slightly ahead of the S&P. The stock moved higher earlier this week after an important ruling in a legal case that has kept a lid on it. BP (NYSE:BP) has sued Halliburton for the 2010 oil spill in the Gulf, claiming it should be responsible for all costs related to the disaster. (There have been claims that Halliburton�s cementing of the well was faulty, and thus the company should bear some of the legal liabilities.) Halliburton believes the terms of the contract with BP indemnifies it from legal liabilities, and that�s basically what a judge ruled recently. It wasn�t a complete victory, however, as HAL could still face punitive damages and/or civil fines.

Conclusion

The legal wrangling could go on for a while, but this week�s ruling was major and, in the end, I don�t see Halliburton taking a significant loss. BP clearly has high legal hurdles to clear and it�s also possible HAL will try to settle and move on. Even an offer as high as $1 billion would amount to just over $1 a share. And I think this would be cheered by the market.

This is a company has a solid long-term history, underappreciated fundamentals, and a favorable valuation at 10 times estimated earnings. Stabilizing natural gas and oil prices (with recent news about the global economy being mostly positive), the shifting of resources to liquefied natural gas and the company�s leadership in moving toward clean fracking solutions should all help drive the stock higher. I�m targeting $55, which would be gains of just about 50% from current prices and would be a reason for 13 times estimated 2013 earnings of $4.20.

Great Western Minerals Group Valuation Is Not So Great

Great Western Minerals (GWMGF.PK) has gotten a lot of discussion on the internet, but we do not think Great Western Minerals should be in investor portfolios at this time. This will not be a popular opinion, so offer us this opportunity to explain why we have this view.

1) Neo Material Technologies (NEMFF.PK) is a global competitor that has the lead in the "value added" (metals/magnets/alloys) portion of the rare earth industry.

Neo Materials has a global platform including current operations in China plus Molycorp (MCP) and Neo Materials have signed a letter of intent to work cooperatively in the "value added" portion of the rare earth industry indicating that Molycorp has chosen which of these two companies it would prefer to do business with and potentially integrate into its business.

2) The Steenkampskraal mine in South Africa is not NI 43-101 compliant and the historical resource estimate is unimpressive in our opinion.

Based on the project page on the Great Western Minerals website, the Steenkampskraal mine is not NI 43-101 complaint and thus the company is operating off a historical resource estimate. This is the mine that one well known expert has said will be first source of commercially produced Dysprosium outside China, and based on the historical resource estimate it has only 196 tones (or less than 1 years worth of Dysprosium from either Nechalacho or Strange Lake).

3) A feasibility study has not yet been completed, as such we do not have an idea as to the economics of the property.

Without a feasibility study, it is not realistic for us to project the economics of the project and this is on top of the lack of a compliant resource estimate.

4) Great Western’s claim that this mine in South Africa can supply their subsidiaries with a decade worth of supply is not really impressive.

This mine currently is estimated to have in cerium what Mountain Pass will produce in less than two years of production. Not very indicative of substantial upside from current levels.

Bottom Line: It appears Molycorp has chosen Neo Materials over Great Western based on the letter of intent. We at The Strategist do not think a 2,000 tons per annum rare earth mine is anything to be excited about at this point as there are far superior opportunities out there and in our Group 1 names we certainly prefer Neo Materials.

Valuation: Where is the Upside?

(Click to enlarge)

On an oxide basis, this annual production is worth only $369 million (we excluded Holmium and Erbium as we could not get spot prices). We built a DCF for just the rare earth oxides as proposed to come out of the South Africa mine project. We assumed full production in 2013 and $250 million CAPEX.

To be really generous to the Great Western bulls, we assumed the company had a cost of oxide production as low as Molycorp at Mountain Pass which is the lowest in the world.

Basically, we gave very generous assumptions and then assumed our base case pricing scenario which we applied to all our rare earth DCF’s. Here was our valuation at various discount rates:

If we assumed current spot prices for the entire 10 year mine life at Steenkampskraal then we would get a valuation of $1.29/share at a 15% discount rate. Here is a table of valuations given this best case pricing scenario:


In our worst case pricing scenario (2013:70% FOB Spot, 2014:50% FOB Spot, 2015-2022: 40% FOB Spot) we came up with the following table of valuations:


The end result of this best and worst case scenario to us is that we just do not think that this South African mine business idea to supply the Great Western Minerals value chain is a good risk/reward for investors.

We have also heard plenty of chatter about someone taking out Great Western, well let’s assume the buyer will demand a 40% IRR on their investment. In our best case, base case, and worst case scenario here is what the takeover price would be to purchase all the diluted shares and have the South Africa mine have a 40% IRR for the acquirer.

With this sobering reality, we went into the most recent financials (3Q10) available on the company website. We wanted to get a feel for this amazing "value added" infrastructure that Great Western already had in place and were floored to find that the manufacturing side of the business is barely profitable on a cash basis and is losing money on an accounting basis. As such we are not assigning value to it. We think those looking for value added exposure should take capital in Great Western Minerals and split it between Molycorp and Neo Materials Technologies (NEMFF).

GWMGF is already priced to perfection.

Disclosure: I am long MCP. The facts in this newsletter are believed by the Strategist to be accurate, but the Strategist cannot guarantee that they are. Nothing in this newsletter should be taken as a solicitation to purchase or sell securities. These are Mr. Evensen’s opinions and he may be wrong. Principals, Editors, Writers, and Associates of The Strategist may have positions in securities mentioned in this newsletter. You should take this into consideration before acting on any advice given in this newsletter. If this makes you uncomfortable, then do not listen our thoughts and opinions. The contents of this article, email, and/or newsletter issue do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Top picks 2012: Tata Motors


Tata Motors (TTM) is India�s dominant producer of commercial vehicles and controls 60 percent of the market.

The company is also a leading manufacturer of passenger cars in India and owns the Jaguar Land Rover brand of luxury cars and sport utility vehicles.

Although car sales in India have declined for months, they have recently started to turn around, increasing by 8 percent year-over-year in November, for the same month Tata Motors enjoyed a 41 percent growth in sales volumes.

The company sold 76,823 total units, of which its low-cost Nano passenger car accounted for 6,400 units.

The Nano, which was marketed as the world�s smallest and most affordable car, was greeted with great fanfare during its launch. The company spent about US $600 million to develop and manufacture the product but the returns on this investment have disappointed.

Tata Motors� Jaguar Land Rover division has meanwhile posted strong growth. Tata Motors acquired JLR from Ford in 2008 for about USD2.3 billion.
Although Tata Motors was criticized at the time for overpaying, Jaguar Land Rover has proved to be a good acquisition, as the company was coming out with new models that were received well by consumers.

Tata Motors also benefited from a recovery in emerging markets that began in 2008, and a strong 2009-10.

As a result, JLR now accounts for about 55 percent of Tata Motors� revenues and more than 60 percent of earnings before interest, tax, depreciation and amortization (EBITDA).

Currently Europe accounts for 42 percent of JLR�s sales volumes, the US for 22 percent and China about 11 percent of sales by volume.

China�s contribution to sales should increase to about 15 percent in a few years, which should offset expected declines in Europe and the US.� China currently contributes about 17 percent to JLR�s revenues, up from just 5 percent in 2009.

Profit margins are higher in China than they are in Europe or the US because there are fewer buyer incentives for mainland consumers.

Tata Motors� Indian business currently contributes about 40 percent to revenues and 28 percent to the company�s EBITDA.

Light commercial vehicles are Tata Motors� most profitable business line, and until recently the company had a near monopoly in small commercial vehicles. The company�s passenger cars division (21 percent of revenues) has traditionally been a drag on profits.

Although Tata Motors is the third-largest passenger-vehicle manufacturer in India, the division only contributes between 5 percent and 6 percent to the bottom line. �

Tata Motors� stock currently trades at levels more than 50 percent off its high at the end of 2010.

Although valuations are supportive, they�re not yet at rock bottom. Investors should purchase shares of Tata Motors at current levels, while recognizing that this is a high-growth, high-beta stock.


Safe 14% Upside For Marvell, Texas Instruments

Since I argued that Marvell (MRVL) was undervalued here, the stock appreciated by 12.2%. The semiconductor firm continues to be rated a "buy," and still has meaningful room for upside. Texas Instruments (TXN) has similar upside by my calculations, but is rated a "hold" on the Street.

From a multiples perspective, Marvell is the cheaper of the two. It trades at 13.6x past and forward earnings, while Texas Instruments trades at a respective 17.7x and 13.5x past and forward earnings. Marvell also has a free cash flow yield that is higher, at 9%. Extrapolating based off of these figures without getting aggressive over multiples expansion, I find that the upside is safe for both firms.

At the third quarter earnings call, Marvell's CEO, Sehat Sutardja, noted a commitment to returning free cash flow to shareholders:

Today, we reported third quarter revenues of approximately $950 million reflecting a 6% sequential increase from the prior quarter driven by our mobile and wireless end market. We delivered the following non-GAAP results: gross margin of 56.8%; operating margin of 25%; and earnings per share of $0.40. We generated free cash flow of approximately $239 million, equivalent to a 25% free cash flow margin. In addition and consistent with our plan to return value to our shareholders, we continue to repurchase our shares. In Q3, we repurchased about 50 million shares for a total of approximately $215 million.

Improving demand for TD-SCDMA smartphones and a shift of SSD controllers towards merchant solutions will be particularly beneficial for Marvell, as opposed to its competitors, due to its first mover advantage. The HDD business is also well positioned to recover and generate high risk-adjusted returns in the process. The adoption of 500G represents yet another major catalyst. In light of these strong opportunities and high free cash flow yield, it is encouraging how management is committed to buyback activity.

Consensus estimates for Marvell's EPS forecast that it will decline by 24.4% to $1.24 in 2012, decline by 5.6% in 2013, and then grow by 28.2% in 2014. Assuming a multiple of 16x and a conservative 2013 EPS of $1.14, the rough intrinsic value of the stock is $18.24, implying 13.6% upside.

Texas Instruments is trending towards meaningful gains in margins and market share. Its improvement in staff and capacity well positions the firm for penetration in analog, microcontrollers, and the realization of its 55% gross margin target. And on the macro side, it is possible that the industry is at a trough due to the fact that inventory conditions are similar to what we have seen during previous troughs. In any event, the integration of National Semiconductors is looking strong and will generate $100M worth of cost synergies this year alone.

Consensus estimates for Texas Instrument's EPS forecast that it will decline by 15.8% to $1.86 in 2012 and then grow by 32.8% and 21.5% in the following two years. Modeling a CAGR of 10.7% for EPS over the next three years and then discounting backwards by a WACC of 9% yields a fair value figure of $38.19, implying 14.5% upside.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in (TXN) over the next 72 hours.

Hartford Financial Services Shares Popped: What You Need to Know

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

What: Shares of insurance and financial services provider Hartford Financial Services (NYSE: HIG  ) are rallying 10% today following the company's fourth-quarter earnings report.

So what: Results for the fourth quarter highlighted an adjusted profit of $0.69, which handily surpassed Wall Street's expectations for a profit of $0.59. However, net income was down significantly over the year-ago period as Hartford was forced to shore up its loss reserves. On the bright side, pricing in its commercial property division is improving.

Now what: The real story here is that no one expected Hartford's results to be very good -- and they turned out to better than expected. While Hartford hasn't exactly inspired the bulls to buy en masse, at just six times forward earnings the stock merits further consideration. The entire insurance sector is beginning to pique my interest because of its cheap valuation, and we can easily add Hartford to that list.

Craving more input? Start by adding Hartford Financial Services to your free and personalized watchlist so you can keep track of the latest news with the company.

What Pitney Bowes Does With Its Cash

In the quest to find great investments, most investors focus on earnings to gauge a company's financial strength. This is a good start, but earnings can be misleading and incomplete. To get a clearer understanding of a company's ability to earn money and reward you, the shareholder, it's often better to focus on cash flow. In this series, we tear apart a company's cash flow statement to see how much money is truly being earned, and more importantly, what management is doing with that cash.

Step on up, Pitney Bowes (NYSE: PBI  ) .

The first step in analyzing cash flow is to look at net income. Pitney Bowes' net income over the last five years has been impressive:

2011*

2010

2009

2008

2007

Normalized Net Income $437 million $448 million $464 million $571 million $578 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

Next, we add back in a few noncash expenses like the depreciation of assets, and adjust net income for changes in inventory, accounts receivable, and accounts payable -- changes in cash levels that reflect a company either paying its bills, or being paid by customers. This yields a figure called cash from operating activities -- the amount of cash a company generates from doing everyday business.

From there, we subtract capital expenditures, or the amount a company spends acquiring or fixing physical assets. This yields one version of a figure called free cash flow, or the true amount of cash a company has left over for its investors after doing business:

2011*

2010

2009

2008

2007

Free Cash Flow $884 million $832 million $657 million $772 million $815 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

Now we know how much cash Pitney Bowes is really pulling in each year. Next question: What is it doing with that cash?

There are two ways a company can use free cash flow to directly reward shareholders: dividends and share repurchases. Cash not returned to shareholders can be stashed in the bank, used to invest in other companies, or to pay off debt.

Here's how much Pitney Bowes has returned to shareholders in recent years:

2011*

2010

2009

2008

2007

Dividends $300 million $301 million $298 million $292 million $289 million
Share Repurchases $100 million $100 million -- $333 million $400 million
Total Returned to Shareholders $400 million $401 million $298 million $625 million $689 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

As you can see, the company has repurchased a decent amount of its own stock. That's caused shares outstanding to fall:

2011*

2010

2009

2008

2007

Shares Outstanding (millions) 203 206 207 208 218

Source: S&P Capital IQ. *12 months ended Sept. 30.

Now, companies tend to be fairly poor at repurchasing their own shares, buying feverishly when shares are expensive and backing away when they're cheap. Does Pitney Bowes fall into this trap? Let's take a look:

Source: S&P Capital IQ.

Sure enough, Pitney bought back a lot of stock in 2007 and 2008 when shares were fairly high, none in 2009 when the stock plunged, and very little ever since as shares continued getting cheaper. Whether this was a prudent way to save cash as it looked like the economy was about to implode, or a classic example of buying high and panicking low, is up for debate. In general, it doesn't appear management has been the most astute buyer of its own stock.

Finally, I like to look at how dividends have added to total shareholder returns:

Source: S&P Capital IQ.

Shares returned -49% over the last five years, which is admittedly awful performance. But without dividends, that figure would drop to -61%.

To gauge how well a company is doing, keep an eye on the cash. How much a company earns is not as important as how much cash is actually coming in the door, and how much cash is coming in the door isn't as important as what management actually does with that cash. Remember, you, the shareholder, own the company. Are you happy with the way management has used Pitney Bowes' cash? Sound off in the comments section below.

  • Add Pitney Bowes to�My Watchlist.

Polycom shares tank on weak outlook

SAN FRANCISCO (MarketWatch) � Shares of Polycom Inc. fell sharply on Thursday after the maker of videoconferencing systems posted a sales and earnings outlook that fell below Wall Street expectations.

/quotes/zigman/60019/quotes/nls/plcm PLCM 9.87, -0.96, -8.86% /quotes/zigman/3870025 SPX 1,354.68, -12.90, -0.94%

Polycom�s stock PLCM �fell 20% to close at $14.56 after the Pleasanton, Calif.-based company reported that it expects an adjusted first-quarter profit of 21 cents to 23 cents a share, and revenue in the range of $364 million to $370 million. Analysts were expecting a profit of 30 cents a share, on revenue of $397 million, according to a consensus survey by FactSet Research.

The drop put the shares at a new 52-week low. The stock has shed more than 30% since mid-February.

In a statement, Chief Executive Andrew Miller said the company grew slower than expected, �driven primarily by shortfalls in Asia Pacific and North America.�

The company is scheduled to report first-quarter financials on April 18.

Click to Play Google�s new glasses?

Google announced an augmented reality project where glasses are used as a pop-up display on which common smartphone applications are run. WSJ's Neil McIntosh discusses whether Google really will give us a different view of the world.

BMO Capital analyst Tim Long cut Polycom�s rating to market perform from outperform, citing �a pretty big miss� for the March quarter.

�Our checks had been mixed, but this is still worse than expected,� Long said in a note. �We believe a combination of a more aggressive Cisco and the realignment of the sales force is likely to blame for the shortfall. The company has now missed two of the last three quarters.�

Cisco Systems Inc. has been aggressively taking aim at the videoconferencing market, an effort that got a boost with its 2010 acquisition of Tandberg. Shares of Cisco CSCO �were trading down 1% at $20.12.

7 Reasons To Buy This Fast Growing Specialty Chemical Maker

After a challenging two months in the Energy & Materials sectors there are numerous bargains in the space. One fast growing firm with low valuations worth serious consideration is Ashland (ASH).

Ashland - "Ashland Inc. operates as a specialty chemicals company in the United States and internationally. It operates through four segments: Specialty Ingredients, Water Technologies, Performance Materials, and Consumer Markets. (Business description from Yahoo Finance)

7 reasons ASH is a solid bargain at under $62 a share:

 

  • One of the few stocks in the Energy & Material space that has seen a substantial increase in consensus earnings estimates for FY2012 and FY2013 over the past three months.
  • The company is expected significant EPS growth over the next few years. After making $3.58 a share in FY2011, analysts expect $5.84 in earnings for FY2012 and $7.21 in FY2013.
  • The stock is cheap at just 15% over book value and sells at 65% of annual revenues.
  • The company has easily beat earnings estimates over the past six quarters. The average beat over consensus during the last four quarters has been north of 12%.
  • ASH goes for a forward PE of 8.5, a discount to its five year average (12.3). The company recently raised its dividend by 29% and now yields around 1.5%.
  • 75% of the company's earnings come from high margin, less cyclical specialty material products
  • The stock is significantly below analysts' price targets. The 9 analysts that cover the stock have a median price target of $80 a share on Ashland.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ASH over the next 72 hours.

Coming Up With A Theme For Your Restaurant

It is essential for a restaurant to have the proper ambiance in order for it to prosper. This is dependent on how the interior dcor of the place is done. This is the reason why it is important to hire the proper expert for these things, that is, an architect that specializes in restaurants or an interior designer.

Lighting has a lot to do with ambiance. Try making use of dim lighting on a room and focus a spotlight on the tabletop to create a dramatic effect. Use a droplight so that the light is concentrated on the table but directed away from the eyes of the diners. You can also use pastel-colored lights to match the color accent of the room. Pin lights are also a creative way of focusing light on a limited area.

Ask the designer to come up with a color combination that you would like. If you want something elegant, use the combination of lavender and silver. The designer could come up with a mixture of contrasting colors like red and green, this is a fitting combination for an Italian restaurant. Perhaps you can go for a monochromatic combination which is different shades of a single color. Or you can opt for combinations wherein the colors compliment each other. You can also try to use pastel colors. Make sure that it is consistent in every aspect of the restaurant, that is, from the wallpaper to the table setting.

Of course, your furniture. The furniture must match the theme of the restaurant. Pick tables and chairs that have simple design, usually black lacquer on wood if you have agreed to be on the minimalist side. But if you agreed upon a classic design, pick ornate tables and chairs. You have a choice of wood with carved frames. See to it that the type of material on the seats would match the color theme although you could opt for seat covers on the seats. Yu could pick wicker furniture if you agreed on a country design.

Use wrought-iron tables and chairs with a lot of terra cotta for the floor and walls if you restaurants theme is the outdoor look. If you go for a commercial design, you can use plastic furniture. Just make sure you pick the ones with a sturdy design because plastic tends to deteriorate with time and becomes brittle.

Tell us the theme of your restaurant and we’ll tell you the furniture that you need. We at American Trading Company have a wide variety of furniture such as restaurant tables and chairs and unique restaurant table tops.

Biotech Clinical Trials Update

This is one in a series of articles that highlight recent clinical trial updates for new drugs in the FDA approval process. A brief overview of the FDA approval process can be found here.

United Therapeutics Corporation (UTHR) reported the completion of its FREEDOM-C(2) Phase 3 trial of a sustained release formula of treprostinil in patients with pulmonary hypertension. The primary endpoint, a six-minute walk distance at week 16 was not reached. Despite this result, UTHR President and COO Roger Jeffs said that they still believe an NDA filing is warranted in treatment naive patients based on the previously announced FREEDOM-M study. UTHR traded down nearly 20% on the news despite the positive comments by Jeffs. As of the end of July, UTHR had nearly 5.5 million shares sold short, or just over 6 days to cover. UTHR has a $2.8 billion market cap.

Impax Laboratories, Inc. (IPXL) and GlaxoSmithKline (GSK) announced top-line results of the ASCEND-PD Phase 3 trial of their compound IPX066 in patients with advanced Parkinson's disease. IPX066 is under investigation for treatment of the motor symptoms of Parkinson's. The primary endpoint was a measure of "off time," or time during waking hours in which the patient suffered motor symptoms. There was a 33.5% reduction in "off time" for the treated patients leading to a greatly improved quality of life. IPXL plans to file its NDA in the fourth quarter of 2011 with the FDA.

These clinical updates are short summaries and should be used as a basis for further research. You should always perform your own due diligence. Many factors can determine whether a particular drug candidate will ever come to market or be profitable and biotech investing should be considered high risk.

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

A Quick Introduction To Foreign Exchange And Forex Trading

Thanks to the continued growth of the world wide web and hence the now enormous widespread access of electronic dealing networks, dealing on the currency exchanges is right now much more accessible than ever. the foreign exchange current market, or forex continues to be the the domain of govt and banking institutions, not forgetting hedge funds and massive international companies. At first the presence of such heavyweights may perhaps appear rather challenging to the personal investor. However as you will see it can work in your favour.

Forex offers trading 24-hours each day, five days a week the quantities (in the trillions !) make it the largest and most liquid market in the world..

Plenty Of Trading Options

Because a lot of currencies are traded there can be a high level of volatility on a day-to-day basis. There will usually be currencies which might be moving rapidly up or down, offering Opportunities for profit to knowledgeable dealers. Like the equity markets forex offers instruments in order to mitigate risk and will allow you to profit in both rising and falling markets. forex also allows extremely leveraged trading using low margin requirements relative to its equity counterparts. and whats really excellent is that you will find zero dealing commissions!

For those who have traded the equity markets you’ll be well-versed in terms such as futures, options, spread betting, CFDs that all apply to forex. Since you can get great minimum trade sizes using margin is vital to the trader.

Buying and Selling currencies

Regarding Buying and Selling on forex, it is important to note that currencies are always priced in pairs. all trades result in the simultaneous purchase of 1 currency and the sale of another.. You trade whenever you anticipate the currency you’re Buying to increase in value relative towards one you’re Selling. If the currency you’re Buying does increase in value, you must sell the other currency back so that you can lock in a profit. An open trade (or open position), as a result, is a trade in which a trader has bought or sold a specific currency pair and has not yet sold or bought back the equivalent amount to close the position.

Quotes and base currency

Currencies are quoted as follows. The first currency in the pair is considered the base currency; plus the second is the counter or quote currency. Most of the time, U.S. dollar is considered the base currency, and Quotes are expressed in units of US$1 per counter currency (for example, USD/JPY). Except for the euro, the pound sterling plus the Australian dollar – these three are quoted as dollars per foreign currency.

As with equities the forex Quotes always consist of a bid and An ask price. the bid is the price at which market maker is willing to buy the base currency in exchange for the counter currency. the ask price is the price at which the market maker is willing to sell the base currency in exchange for the counter currency. the difference between the bid and the ask prices is referred to as the spread.

The price of establishing a position is determined by the spread, and prices are always quoted with the final digit being referred to as a point|or a pip. for example, if USD/JPY was quoted with a bid of 124.55 and An ask of 124.60, the five-pip spread is the price for trading this position. From the very start as a result, the trader must recover the five-pip cost from his or her profits, necessitating a favorable move in the position in order simply to break even.

Margin

Margin on forex is a deposit in the trader’s account that will cover against any currency-trading losses in the future.. Currency trading systems will allow for a high degree of leverage in its margin requirements, up to 100:1. the system calculates the funds necessary for present positions and checks for the related level of margin before allowing the trade

With strong trends and lots of volatility you’ll find endless Possibilities for large profits But obviously with such high levels of margin risk management is important.

If you really are struggling to make money look at this automated FX currency trading system. Low monthly cost. A system created by a Forex expert and live data proves it’s performance. 60 day unconditional money back guarantee. Visit http://bestfxcurrencytrading.com for videos and more information.

Friday, July 6, 2012

Giving Appreciated Stock To Charity

I know I should have written this a month or more ago, but since one can contribute appreciated securities any time of the year, better late than never is okay.

We contribute appreciated securities because tax law allows us to avoid the deferred tax on the unrealized gain. If we sold the security and contributed cash we wouldn't. The usual procedure is to select an appreciated stock one wants to unload. This, however, might not be the lowest cost-basis position in the portfolio.

Here is an easy procedure I have used for 25 years: First sell something you do want to get rid of, perhaps with a loss, or at least with little gain, to raise cash approximating the amount you want to contribute. Then contribute your lowest cost-basis stock and repurchase a like number of shares. The net effect of these trades is to bump up the cost basis of what you want to retain to market, while avoiding the maximum unrealized gain in your portfolio. Of course, if you have cash sitting around exceeding the amount you wish to contribute, you can skip the first step.

There are several benefits to this procedure:

  • As noted, it enables you to avoid the maximum unrealized gain.
  • It separates investment from charitable decisions.
  • Price determines the size of the gift; it also sets the new cost basis; beyond that it isn't an issue.
  • And, it gives you more flexibility.
  • Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    GTSI: A Stock With Nearly 75% Upside

    GTSI Corp. (GTSI) is primarily a Value Add Reseller of IT and solutions to departments and agencies of the U.S. federal government, as well as to state and local governments, and prime contractors. The company resells products from technology companies such as Cisco (CSCO), Microsoft (MSFT), Oracle (ORCL), Hewlett Packard (HPQ), Panasonic (PC), Net App (NTAP), Dell (DELL), Citrix and Hitachi (HIT).

    The performance of the company has been weak. The company has been able to generate income from operations just twice in the past six fiscal years and the stock reflects that. Margin compression in the hardware business has been the key factor driving profitability lower. The Oracle buyout of Sun Microsystems made matters worse as Sun had a big presence in the government. Oracle has a large sales force and that has limited the selling opportunities for GTSI.

    Value


    The valuation here is pretty straight forward, right out of Graham and Dodd’s manual. I valued deferred costs, other current assets, and other assets at zero because I don’t think they would have any value in an event of liquidation. I didn’t include any value for depreciable assets because it is harder to value them but they should have some value. Accounts receivable are going to be worth near what they are on the books because nearly all of them are amounts collectible from the U.S. federal, state and local governments and prime contractors that are working directly on government contracts. In the company’s 10-K, GTSI noted that credit losses have been insignificant.

    The investment in EyakTek provides the upside to this valuation (see below for spreadsheet). GTSI owns 37% of EyakTek and records the value of the company on its balance sheet using the equity method. The net income for EyakTek for the past 3 fiscal years was $21.4 million, $21.7 million, and $13.0 million. Note, the income isn’t taxed because EyakTek is a partnership and the income is taxed on owners’ tax returns. If EyakTek were a corporation, I assume that it would be taxed at the standard 40% corporate tax rate. For the ongoing earnings, I decided to take the average earnings of the past five fiscal years because it is a relatively brand new firm and there is some uncertainty regarding earnings after it exited the Small Business Administration’s section 8A program. I decided to use an earnings multiple of 8 to be conservative.



    EyakTek

    The company has been an above average performer since the start of its operations. It also has generated a significant amount of cash. Free cash flow has been higher than net income the past 3 fiscal years. Part of the reason the company has been able to generate such growth is because it has a more even split between the service and product businesses compared to GTSI.

    The company has benefitted from its status as an Alaskan Native organization until recently. This had allowed it to take part in the SBA’s Section 8a program. This program gives minority-owned firms preferential treatment on government business. However, in May 2010, the company graduated from the SBA’s development program. It has yet to be seen what kind of impact this will have on results. So far though, there has been no material impact as EyakTek but Net income did fall from 2009 to 2010. But that may also have been due to the change of mix of business as the product business had revenue growth of 50% while the service business stumbled and revenues fell by more than 20%.

    There currently is ongoing litigation between EyakTek and GTSI as GTSI wants more of an influence on GTSI’s business due to its large stake in the company.

    Q1 Results

    In May, GTSI reported Q1 results that were weak but they did show some positive signs. Revenues fell over 30% year-over-year (y/y), the EPS loss, however, shrunk to $0.28 from $0.48 a year ago. More importantly, gross margin rose to 18.5% from 13.3% a year ago driven by improved margin on software sales and financing transactions. EyakTek’s performance also suffered as its revenues fell nearly 30% y/y and net income fell 25% to $3.0 million. On the bright side, the subsidiary also showed improvement in gross margin as that metric rose to 12.8% from 9.7% a year ago.

    Athough the NCAV fell quarter/quarter, this is to be expected with a non-profitable company. On a positive note, the quality of its assets increased as the company now has much more cash on the books than before as you can see below - (click to enlarge).



    Conclusion

    There does not seem to be anything in the near future that will significantly improve the company’s performance however, the value here is too much to ignore. Any small improvement in the company’s operations or management’s move to unlock value should help propel shares higher. As of close Monday, the upside to a $9.33 target was nearly 75%.

    Disclosure: I am long GTSI.

    Asia Stocks to Watch: Taiwan elections have markets on edge

    HONG KONG (MarketWatch) � Taiwan�s too-close-to-call election this weekend could be a rewarding one for investors who gauge the market correctly.

    Citi analyst Peter Kurtz said in a research note earlier this week that the island�s smaller-capitalized stocks, which have been poor performers of late, could benefit in the event of a victory by the ruling Kuomintang party.

    The small-cap stocks have performed poorly because of declining volume and a risk-adverse mood among investors over the last two years, with the segment trailing the main Taiwan stock index, the Taiex, by 17% in 2011 and 12% in 2010.

    Reuters Taiwan's President Ma Ying-jeou at a campaign rally.

    Taiwanese equities in general have underperformed regional Asian markets by 9% over the past three months, according to Credit Suisse research released earlier this month.

    The weakness set in around the time polls indicated a narrowing gap between President Ma Ying-jeou and rival candidate Tsai Ing-wen, resulting in a drop in market turnover as investors moved to the sidelines, the investment bank said.

    In the final polling allowed before a pre-election ban on voter surveys, Ma was ahead of Tsai by three percentage points, equivalent to the margin of error, according to Agence France-Presse.

    Many analysts view a victory by the Ma�s Kuomintang (KMT), seen as more open to economic and other ties with mainland China, as more positive for the equity market than a victory by Tsai�s opposition Democratic Progressive Party (DPP).

    Reuters Taiwan's Democratic Progressive Party presidential candidate Tsai Ing-wen waves to her supporters.

    Credit Suisse even described the election as �a risk� for the Taiwanese share market in its 2012 outlook, as fears of a deterioration in relations with Beijing, perceived as likely in the event a DPP victory, would weigh negatively on retail investors� mood.

    Weakness in Taiwan shares in the months leading up to Saturday�s election was the market�s way of discounting an �adverse� outcome, the investment bank said, adding that shares would likely rise �if the election result is a status quo� win for Ma�s KMT.

    Nomura also viewed a KMT victory as economically beneficial, saying it would bolster relations between Taipei and Beijing, even helping speed up a fiscal stimulus package seen as necessary at a time when Taiwan�s economy is forecast to contract modestly in the first quarter on an annual basis.

    Citi�s Kurtz didn�t offer any forecasts on how the small caps, dominated by retail and industrial companies, would perform in the event of Ma�s reelection, saying that any gains were unlikely to be significant in 2012. But he did hint at better things to come.

    Click to Play China looms over Taiwan vote

    Campaigning goes into high gear for Taiwan's presidential election, with China relations weighing heavily on this week's vote.

    If past performance is any guide, a second term for Ma and the KMT should spark a modest rise in Taiwan�s small caps, followed by a pause lasting up to a few months, then further gains in 2013, Kurtz said.

    Small stocks rose during the five months that followed the KMT�s 2008 victory over incumbent president Chen Shui-bian of the DPP.

    The gains ran out of steam around the middle of that year, but an even larger advance was seen in 2009 as Taiwanese retail investors took an interest.

    Thursday, July 5, 2012

    Inflating Government Bubble Can Only Lead to a Major Financial Hangover

    During the 1990s, the inflationary policy of the U.S. Federal Reserve fueled a tech-stock bubble. When that bubble burst, the Fed inflated a larger one in real estate. Now that the real estate bubble has burst, the Fed is inflating the biggest bubble of them all - a bubble in government.

    While the earlier booms provided at least the illusion of prosperity - as well as some fun while they lasted - the government bubble will cripple the economy and deliver widespread misery to the vast majority of Americans.

    Of course, there will be winners in the government bubble - at least for a while. As was the case with the stock and real-estate bubbles, plenty of money will be made by the well-connected and parasitic classes. Government employees will continue to enjoy pay raises at our expense, as will anyone benefiting from the new wave of subsidies, such as Wall Street investment bankers, financial speculators, and those working in healthcare or education.

    These gains will come at the expense of the taxpayers who foot the bill and the consumers who face higher prices. As government grows, it "crowds out" the private sector, depriving it of the resources it needs to survive and grow. 

    The result is a lower overall standard of living.

    Not only are government jobs less productive than private sector jobs, but bureaucratic interference actually makes the remaining private sector jobs less efficient, as well.
     
    Our economy is being transformed from a mostly capitalistic one to a mostly socialistic one. More decisions are being made by politicians and lawyers in Washington and fewer by entrepreneurs. The motivation behind this shift is the mistaken belief that the financial crisis of 2008 was caused by too much capitalism and a lack of proper government oversight. 

    This conclusion is self-serving for those in power, and couldn't be more economically misguided.

    Through corruption or just plain ignorance, Congress and the Obama administration have embraced an ideology that has failed every time it has been tried.
     
    Take the recent student loan reforms that were slipped into the healthcare bill. U.S. President Barack Obama wants to reduce the cost of providing student loans by taking the profits out of the industry. According to President Obama, student loans are too expensive because banks profit from making them. If the government nationalizes the function, we would apparently bring down costs by eliminating those pesky profits.
     
    This is a Marxist argument, pure and simple. If true, it would apply to all industries, not just banking. States like Cuba and North Korea would be the envy of the world, as they prohibit profits across the board. The truth is that profits - earned from free-market competition - keep cost down. By taking the profits out and putting the bureaucrats in, any incentive to provide better service or lower costs is eliminated. It's not hard to predict that student-loan costs will now rise faster than ever.
     
    That is clearly not the result we want. To solve the problem, people must understand that college tuitions are so expensive specifically because the government has guaranteed student loans. Guaranteed loans don't mean more access to education, but rather that universities are free to charge more per pupil than if their customers were paying out-of-pocket.
     
    President Obama's plan only serves to remove more market forces and creates an even bigger moral hazard.  Under the new rules, students will be required to repay a much smaller portion of what they borrow. As a result, students will be willing to borrow even greater amounts of cash to pay inflated tuitions, making it that much easier for colleges and universities to raise them.

    Also, since the government will actually be loaning the money directly - rather than simply guaranteeing private-sector loans - the U.S. Treasury will actually have to borrow the money itself before it can re-lend it to students. I suppose the irony of going into debt to loan money never registers in Washington. Further, as this bill will cause tuitions to rise even faster, it will necessitate even larger loans that will produce even greater taxpayer losses when the loans end in default or forbearance.
     
    Whether it is in education, housing, healthcare, automobiles, insurance, or banking, greater government involvement in the economy means higher prices, lower productivity, more bailouts, bigger deficits, increased taxes, diminished industrial capacity, fewer private-sector jobs, less freedom, and a falling standard of living. 
     
    In the end, when runaway inflation and skyrocketing interest rates burst the government bubble, there will be no more bubbles to replace it - just one hell of a hangover.

    [Editor's Note: Peter D. Schiff, Euro Pacific Capital Inc.'s president and chief global strategist, is a well-known author and commentator, and is a periodic contributor to Money Morning. Schiff is the author of two New York Times best sellers: "Crash Proof: How to Profit from the Coming Economic Collapse," as well as "The Little Book of Bull Moves in Bear Markets." His latest book is "Crash Proof 2.0: How to Profit from the Economic Collapse." Schiff also publishes The Global Investor newsletter. For more information on that newsletter, please click here.]

    Barclays plans no major layoffs: CEO Diamond

    LONDON (MarketWatch) � Barclays PLC Chief Executive Bob Diamond said Friday that the U.K. bank didn�t expect to launch any major drive to cut jobs in 2012.

    �There is no plan as such,� Bob Diamond said. Barclays BCS � is looking to cut EUR2 billion in costs by 2012, as it strives to boost profitability.

    The London-based bank said earlier that net profit for 2011 fell 8% to GBP3 billion. Adjusted return on equity, a closely watched metric among investors and analysts, fell to 6.6% from 6.8% a year earlier, well below the bank�s 2013 target of 13%.

    Deutsche Bank Likes Tower Companies On Pullback

    Shares of the three major cell tower providers — American Tower (AMT), Crown Castle (CCI) and SBA Communications (SBAC) — are trailing the S&P 500 this year. In a note today, Deutsche Bank analyst Brett Feldman writes that the three companies represent an “attractive balance of growth and safety in this volatile environment.” Demand remains strong, he says, and the companies have no exposure to Europe or the Euro.

    Feldman reiterated a Buy rating on all three names, pointing out that free cash flow valuation are below historical averages — despite near historical highs for tower demand.

    He has a price target of $53 for American Tower, $50 for Crown Castle and $43 for SBA.

    In today’s session:

    • Shares of American Tower closed up $1.33, or 3.4%, to $40.38
    • Crown Castle gained $1.21, or 3.5%, to $36.03, and
    • SBA rose 50 cents, or 1.6%, to $32.04

    Are Gold and Silver Breaking Out?

    Gold hit an all-time high on Tuesday. Silver is trying to challenge its high from March 2008. Both are inflation indicators and new highs indicate paper money is losing its value.

    Spot gold came within a whisker of $1275 an ounce yesterday and was up 2% at its high. Spot silver traded around $20.54 at its peak and has so far been a bit higher today. Unlike the U.S. stock indices, both gold and silver are in secular (long-term) and cyclical (short-term) bull markets. Their recent rise was based on reports that the Federal Reserve would likely engage in more quantitative easing. The trade-weighted dollar dropped significantly on the news and fell below its 200-day simple moving average. The dollar has been in a secular bear market for many years and usually moves in the opposite direction of the precious metals.

    The technical indicators for gold (GLD) are somewhat overbought and look like they are losing strength. Silver (SLV), is more clearly overbought than gold, but the technicals look better overall. In strong bull markets, rallies can continue on weakening technicals however. News, as is always the case, can override all other considerations - although it will have to be news about liquidity and central bank money pumping and money printing.

    As I have stated many times, there is already a lot of liquidity flowing into U.S. stocks and other investment markets in the last few months. Prices for almost all assets are rising because of this. Stocks continually went up on bad economic news during the summer and while some incorrectly interpret this to mean that the market is forecasting a better economy, this is wishful thinking. Look inside a number of economic reports and you will notice that rising prices are an important reason they don't look worse. The mainstream media does not report this however because the Federal Reserve keeps telling them that 'there is no inflation'. Apparently though, the Fed forgot to inform the gold and silver markets. Perhaps they should get a memo out right away and put 'rush delivery' on it.

    Disclosure: No positions

    Ancestry.com Finally Looks Like A Buy

    "According to seeking Alpha's market currents alert at 10:41 AM Morgan Stanley fires up Ancesty.com (ACOM +2.0%) as a Long Research Tactical Idea after analysts got excited that an episode of the TV show Who Do You Think You Are? starring Reba McEntire drew a stellar 7.5M viewers."

    Although this company's growth rate over the past three years has been extraordinary, the company's track record is still too young to rely on. However, there appears to be a strong and growing interest with people wanting to know more about their ancestry. Consequently, Ancestry.com, Inc. appears poised for continued above-average growth in the future. Furthermore, if the TV show Who Do You Think You Are?, remains successful, then it could be a catalyst towards accelerating this company's future growth.

    Growth stocks are defined as companies with high rates of change of earnings growth of 15% to 20% or better. Growth stocks offer the potential for share prices to rise in lockstep with their profit growth in the long run. Therefore, the PEG ratio formula (price equals growth rate) tends to be the most appropriate formula used to value growth stocks. However, due to the exponential nature of compounding large numbers, PEG ratio forecasts are capped at 40%.

    Because of the higher valuation typically awarded to fast growth, growth stocks offer the potential for greater capital appreciation. On the other hand, they also offer higher risk. First of all, they tend to command much higher than average PE ratios, and second, achieving very high levels of growth is very difficult to sustain. Consequently, forecasting future earnings growth is more important with high growth stocks than any other class of stock. Also, the average growth stock typically plows all of its profits back into the company to fund its future growth, instead of paying dividends.

    Ancestry.com Inc.: Large-cap Growth at an Attractive Price

    About Ancestry.com Inc.: Directly from its website

    Ancestry.com Inc. (NASDAQ:) is the world's largest online family history resource, with more than 1.7 million paying subscribers. More than 8 billion records have been added to the site in the past 15 years. Ancestry users have created more than 31 million family trees containing over 4 billion profiles. In addition to its flagship site ancestry.com, Ancestry.com offers several localized Web sites designed to empower people to discover, preserve and share their family history.

    Earnings Determine Market Price: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.

    Ancestry.com Inc. : Historical Earnings, Price, Dividends and Normal PE Since 2009

    (Click charts to enlarge)

    Performance Table Ancestry.com Inc.

    The Two Keys to Long-Term Performance

    Years of research and experience have taught us that there are two critically important keys to achieving above-average, long-term shareholder returns at reasonably controlled levels of risk. The first key is earnings growth, or what we like to call the rate of change of earnings growth. The faster a company can grow its business (i.e. earnings), the larger the income stream it can produce with which to reward shareholders. This is because of the power of compounding, which Albert Einstein was alleged to have called "the most powerful force on earth." Ultimately, both capital appreciation and dividend income will be a function of a company's ability to grow its profits.

    The second key is valuation. When a company can be purchased at its intrinsic value based on earnings and cash flow generation, the shareholders' rate of return or long-term capital appreciation will inevitably correlate to and/or equal its earnings growth rate. Overvaluation will lower that rate of return and conversely, undervaluation will increase it. Consequently, paying strict attention to the valuation you pay to buy a stock is a critical component of both greater return and taking lower risk to achieve it. Because, ironically, when you overpay for even the best business, you simultaneously lower your return potential while increasing your risk of achieving the lower return.

    The associated performance results with the earnings and price correlated graph, validates the above discussion regarding the two keys to long-term performance. Notice the impact that valuation (black line above or below orange earnings justified valuation line) had on the following performance results.

    The following graph plots the historically normal PE ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 2009.

    A further indication of valuation can be seen by examining a company's current price-to-sales ratio relative to its historical price-to-sales ratio. The current price-to-sales ratio for Ancestry.com Inc. is 2.47, which is historically low.

    Looking to the Future

    Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

  • The rate of change (growth rate) of the company's earnings
  • The price or valuation you pay to buy those earnings
  • Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

    Therefore, it logically follows that measuring performance without simultaneously measuring valuation is a job half done. Ancestry.com Inc. is clearly an industry leading superior business, which based on the consensus estimates from leading analysts, appears to be capable of growing earnings at an above-average rate for the foreseeable future. At its current price, which is attractively aligned with its True Worth™ valuation, Ancestry.com Inc. represents an opportunity for growth at a reasonable price. The important factor is that Ancestry.com Inc., with its strong balance sheet and potential for future earnings growth, has real assets and cash flow underpinning its stock price. This solid economic foundation offers shareholders the potential for both a strong margin of safety and an opportunity for outsized future returns.

    The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component toward making sound and prudent commonsense investing decisions.

    The consensus of eight leading analysts reporting to Capital IQ forecast Ancestry.com Inc.'s long-term earnings growth at 15%. Ancestry.com Inc. has no long-term debt at 0% of capital. Ancestry.com Inc. is currently trading at a P/E of 15.9, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Ancestry.com Inc.'s True Worth™ valuation would be $52.47 at the end of 2017, which would be a 15.1% annual rate of return from the current price.

    Earnings Yield Estimates

    Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stake holders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

    Since all investments potentially compete with all other investments, it is useful to compare investing in any perspective company to that of a comparable investment in low-risk Treasury bonds. Comparing an investment in Ancestry.com Inc. with an equal investment in 10-year Treasury bonds, illustrates that Ancestry.com Inc.'s expected earnings would be 7.6 times that of the 10-Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

    Summary & Conclusions

    This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts his or her own due diligence in order to validate whether the consensus estimates seem reasonable or not.

    After falling off of its extreme overvaluation highs, Ancestry.com Inc. has recently come back to fair value with a PE ratio that approximates its forecast earnings growth. Furthermore, there is a strong possibility that future earnings growth could be higher than is currently forecast. Nevertheless, after once being what we would consider ridiculously overvalued, the company can at least be bought today where fundamentals reflect fair value. Consequently, Ancestry.com appears to be an attractive investment in a small-cap company with room to grow. Therefore, it is suitable for the aggressive investor seeking maximum capital appreciation.


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

    Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

    Will Congress Take Away Your IRA?

    For decades, tax-favored retirement accounts have given savers their best chance to gather up a big enough nest egg to have a prosperous, financially secure retirement. But as the federal government looks for ways to increase tax revenue, some have feared that the tax breaks that IRAs and 401(k) plans enjoy might be on the endangered list -- and a recent move in Congress brought those fears to the forefront.

    On the chopping block?
    A recent amendment to a minor piece of legislation set off alarm bells within the retirement savings community. The proposed amendment would have changed the rules governing IRAs to force those who inherit them to cash them out more quickly than current law requires. In the end, the proposal never became part of the final law.

    But as the recently proposed federal budget shows, the government is hungry for tax revenue, and one potential source comes from retirement accounts. Although some fears are overblown, others are much more likely to become reality -- and you may want to start planning for them sooner rather than later.

    The deal of the century
    Perhaps the biggest criticism of retirement accounts from an income-tax standpoint is that under current law, there's a huge incentive for people not to use them for retirement. Consider the following:

    • With traditional IRAs and 401(k)s, you're not required to start taking withdrawals until you turn 70 1/2. Even then, you only have to withdraw about 6% of your retirement nest egg.
    • For Roth IRAs, there's no requirement to make withdrawals at all.

    When you combine this with extremely generous laws that allow people inheriting IRAs to stretch out withdrawals over their entire lifetimes, you have the potential for a multigenerational tax windfall that arguably goes well beyond what anyone would have intended for a retirement account.

    It's entirely possible that these inheritance laws could be changed to reflect the primary purpose of IRAs and 401(k)s as covering retirement expenses. Forcing accelerated withdrawals would pump more tax revenue into the federal system more quickly, producing the budget savings that Congress is searching for.

    That would be good for Uncle Sam but bad for a range of businesses. Some of them would include:

    • Financial companies Bank of America (NYSE: BAC  ) and Wells Fargo (NYSE: WFC  ) have identified retirement plans as an area with huge growth potential, as they beefed up their retirement-plan staffing to try to compete. Similarly, discount brokers E*TRADE Financial (Nasdaq: ETFC  ) and TD AMERITRADE (Nasdaq: AMTD  ) value rollovers from retirement plans enough to pay generous rewards for them. Without the multigenerational "stickiness" that current tax law encourages for retirement accounts, their efforts to hold on to assets indefinitely won't be as successful.
    • Similarly, trust company Northern Trust (Nasdaq: NTRS  ) benefits from managing assets for longer periods of time. It could suffer from greater retirement-plan asset turnover.

    Still, it's hard to argue that such changes would be against the spirit of the original provisions of the law.

    Don't worry too much
    As often happens, though, some fear even bigger changes. A few sources have mentioned the possibility of taxing currently tax-free Roth IRAs, while others have even raised false conspiracy theories about IRAs being confiscated. Such major retroactive changes, while theoretically possible, would be politically difficult to apply against those who took the initial provisions into consideration in deciding to open accounts in the first place.

    Whatever happens, we're entering a volatile time for the legal and tax environment. As key tax cuts approach expiration and budget pressures increase, it'll become increasingly difficult to plan your finances for every contingency. Only by staying abreast of the latest developments can you hope to navigate the maze of tax and other laws safely.

    Retirement plans are just one key element of a successful financial plan. You also need the best investments you can find. To get some smart long-term investment ideas, check out The Motley Fool's latest special report. We highlight three smart stock picks for retirement investors, and we won't charge you anything at all for it -- but it won't be around forever, so read it today while it's still available.

    Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.

    Merck Investors Can Sleep Easier (Not Easy)

    Merck (NYSE: MRK  ) said today that its insomnia drug suvorexant had passed two phase 3 trials, putting it on track for an FDA filing this year. But that doesn't mean investors can sleep easy; filing a marketing application doesn't guarantee an approval, and an approval doesn't guarantee sales.

    Investors will have to wait until Merck presents data from the trials at medical meetings later this year to know how well the drug works. The efficacy is likely good enough for approval, since it passed both clinical trials, so safety is the most likely issue that could derail an approval. Insomnia isn't an immediately life-threatening disease, so there's a higher standard for the risk-benefit analysis than there would be for more serious diseases. Sanofi (NYSE: SNY  ) failed to get FDA approval of its sleeping aid Ciltyri a few years ago because the risk-benefit profile was out of whack, causing the French pharmaceutical company to eventually to give up on the molecule.

    On the other hand, efficacy will be very important for selling suvorexant. Merck only compared suvorexant to placebo, but there are plenty of other sleep aids available. Without head-to-head trials, doctors will be forced to compare two placebo-controlled trials, which isn't ideal, but they'll do it. In order to cut into market share held by Dainippon Sumitomo Pharma's (OTC: DNPUF) Lunesta, Sanofi's�Ambien CR, Takeda's Rozerem, and others, suvorexant needs to be clearly better, otherwise doctors will just stick with what they have experience with. The sleeping aid market is further complicated by generic versions of Ambien and Pfizer's (NYSE: PFE  ) Halcion, which might not be the best drugs, but still get used because they save patients money.

    Somaxon Pharmaceuticals' Silenor is a prime example of how a nothing-special drug can get approved but struggle in the marketplace. For the third quarter of last year -- its fourth full quarter on the market � sales of Silenor amounted to a whopping $3.7 million. And that's with the help of heavyweight marketing partner Procter & Gamble (NYSE: PG  ) .

    Suvorexant is in a new class of drugs, which will help a little. Since it works under a different mechanism of action, it's possible that suvorexant will treat patients not helped by other drugs. But being used as a second- or third-line treatment isn't going to make suvorexant a blockbuster. The only way investors will be able to rest easy is if the data support its use before other treatments.

    Fool analysts think they've found another health-care company with the kind of upside suvorexant could have without as much uncertainty. You can read about it in their new free report "Discover the Next Rule-Breaking Multibagger." You can get your copy for free by clicking here.

    Shipping: A Beaten-Up Industry Set to Embark on a Comeback

    By Carla Pasternak

    I grew up in New York City, not far from the waterfront. As a special treat, my father would take me to the piers off Atlantic Avenue in downtown Brooklyn.

    There we would stand and watch with amazement as forklifts unloaded heavy packages of cement and grains from gigantic ships that had just arrived from faraway places.

    This was my first contact with the shipping industry, and little did I know how big an impact shipping would have on the world - and my income investing.

    Today, marine shipping is responsible for transporting an estimated 90% of world trade. And while shipping is an ancient form of transportation, it's being used more and more as world markets open up.

    During the past 40 years, total shipping has grown four-fold - from just more than 8,000 billion metric-ton miles in 1968 to an estimated 32,000 billion metric ton-miles in 2008, according to Fearnleys Review.

    And in the economic downturn of the past two years, demand for shipping - and the dividends paid by many shipping companies - fell sharply. But now the industry has started to turn around, providing an early entry point for select high-yield shipping stocks.

    Specifically, freight rates, an indicator of the health of the shipping industry, have recovered from record lows for shippers of all stripes. Consider the following:

    • The Baltic Dirty Tanker Index (BDTI), which tracks freight rates for crude oil transport on 12 routes, has nearly doubled from its September 2009 lows.
    • The Baltic Dry Index (BDI), which measures freight rates for dry bulk cargo like coal and iron, has been volatile. But it's still up almost +30% off the September lows.
    • The Drewry Global Freight Rate Index for container ships, which carry consumer goods, has climbed +24% between July and November 2009, a trend of rising prices for the first time since mid-2008.

    So what do all these indices have to do with shipping stocks? The rates a shipper receives vary widely with the vessel size, routes, and contract terms, but higher freight rates generally translate to fatter profits.

    Consider Bermuda-based Knightsbridge Tankers (VLCCF). The shipper earned an average $36,900 per day for its oil supertankers and $44,300 per day for its dry bulk carriers in the fourth quarter of last year.

    That's up from $32,900 per day for the tankers and $39,200 per day for the dry bulk carriers in the prior quarter. Meanwhile, break-even for these vessels is $19,300 per day for the tankers and $16,900 per day for the dry bulk carriers, providing the shipper with a tidy profit that more often than not is distributed in the form of a high yield.

    Volatile? Absolutely.
    With a global rebound in the works and strong demand from China, the shipping industry's outlook is optimistic -- shipping consultant Drewry forecasts a +3.4% increase in global container traffic this year versus rates from 2009. That will push up average container freight rates about +15%, Drewry says. But no matter how optimistic the forecasts, investors need to tread carefully in this sector. Shipping rates and stocks are nothing if not volatile.

    For example, Capesize dry bulk vessels commanded an all-time high of $233,988 per day in June 2008, only to fall to a decade-low of $2,316 per day six months later.

    Changing rates can lead to wild swings in the shares and dividends of some shippers. The problem is that some companies seek to maximize earnings by leasing out fleets under short-term charters at spot market rates. If rates rise, earnings -- and dividends -- rise in tandem, but the reverse is also true.

    Steady the Ship and Your Portfolio
    For investors seeking a steadier income stream, shippers with longer-term leases -- such as Navios Maritime (NMM) - are the way to go. Their vessels are leased out under long-term, fixed-rate contracts that provide stable cash flow and dividends despite fluctuations in the short-term spot market.

    One final note: It's also important to check out the balance sheet of a shipper before you invest. Since many of them pay out most of their free cash flow as dividends, they often go to the capital markets to finance growth. New ship purchases and acquisitions can cost millions of dollars. As such, shippers tend to bear heavy debt loads, but some have more cash flow than others to cover their debt and dividends, while also financing growth.

    This is one of the reasons many shippers saw their shares tumble in the financial crisis. Of course, with a rebound in both the global economy and shipping rates, now looks like an opportune time to pick up stable shippers at reasonable prices.

    Disclosure: No positions

    China: It’s the Year of the Draggin’

    Today’s investor faces a host of global concerns. Despite a deal brokered in Greece for harsh austerity measures and a steep �haircut� to bondholders, it remains unclear whether the eurozone nation ultimately will avoid default. In the U.S., unemployment remains persistently high, running at over 8% for three years — the longest stretch for jobless rates above that mark since the Great Depression.

    But investors shouldn�t take their eyes off of Asia. The problems in China have equally large implications for the global economy. And unlike the European debt crisis and American joblessness, the headlines have been anything but encouraging lately.

    China helped power the world through the financial crisis with breakneck growth around 10%. And with forecasts of an 8% increase in GDP for 2012, it�s hardly the end of the world in China.

    However, the fact remains that Western companies — and investors — are banking big on China. And as we all know, on Wall Street it�s not necessarily a lack of growth that kills companies, but a failure to live up to expectations.

    Here are five reasons China�s Year of the Dragon in 2012 will wind up being the Year of the Draggin� instead, and how that could wind up hurting unsuspecting investors.

    Housing Slowdown

    The talk of an overheated housing sector in China are hardly new, so I�ll just share a few of the most recent and dramatic figures:

    • The value of land sales across 130 Chinese cities fell 13% in 2011, according to the China Real Estate Index System.
    • GMO Insights estimates that as much as 14% of China�s GDP growth is a result of �direct� investment in housing. The global investment manager says industry-to-GDP ratio is disturbingly high, approaching the 17% share that technology held of American GDP during the 2000 tech bubble.
    • China’s investment in real estate development rose 28% to almost $1 trillion in 2011 — $200 billion more than U.S. residential real estate investment in 2005, at our housing market peak.

    Some folks will say this cooling off is actually due to moves taken by the government to hold back an overheating real estate sector. Beijing recently ordered cities to better manage the supply of land, raise tax rates on the sale of apartments or houses held for less than five years and set price control goals for new homes.

    But whether this is a �soft landing� for China housing or indeed a bubble bursting, the bottom line is that the slowing of the real estate industry will naturally weigh on the broader economy there.

        

    Auto Sales

    For all the bluster about China�s rapidly growing auto market — the People�s Republic supplanted America as the leader in global vehicle sales back in 2009 — it must be noted that this growth could be running out of gas.

    Yes, China�s total auto sales topped 18.5 million in 2011 vs. 12.8 million in America for the same year. But the growth was a meager 2.45% in China for 2011 — compared to a roughly 10% jump in American auto sales. What�s more, U.S. vehicle sales are forecast to grow another 10% to 15% in 2012, while China has another rather anemic growth forecast ahead.

    In short, the lion�s share of the auto sales growth in China might already be realized.

    Of particular concern is the decline in high-end vehicle sales, with big margins and big profits for manufacturers catering to Chinese elite. Lamborghini recently said sales of ultra-luxury sports cars may slow in 2012. That�s not just a discouraging sign for the auto industry; it could be a hint of future troubles for a host of industries that have relied on China�s free-spending ways — from Macau casino operators like Wynn Resorts (NASDAQ:WYNN) to luxury retailers like Tiffany & Co. (NYSE:TIF).

    Manufacturing Slowdown

    Beyond the indications for Chinese consumers, the auto industry�s slowdown also is an indicator of trouble on in the mighty manufacturing sector of China.

    The closely watched HSBC Purchasing Manager�s Index for China rose in February, but remains at levels that still hint at a modest contraction in the sector. Even worse, underlying data showed a weakening in new export orders — meaning weakness in future readings is likely, too.

    Specifically, the flash estimate for HSBC�s February PMI in China was 49.7 on a 100-point scale, up from 48.8 the previous month. Anything less than 50 marks a decline, and anything above 50 signifies growth — so the decent rebound still wasn�t enough to push the index into encouraging territory.

    This was despite a positive reading in new orders last month. So it�s very likely to expect a stumble in the HSBC reading next time around now that new orders for February are on the decline. If the PMI report holds, February�s contraction will be the fourth consecutive month of declines.

    Foxconn and Worker Unrest

    Perhaps even more of a threat to the nation�s economy is a growing backlash from workers in China�s big cities as employees demand better conditions and better pay.

    Take the very recent and very public move by Foxconn — a top Apple (NASDAQ:AAPL), Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) supplier — to announce a 25% increase in worker wages. That change, however, amounts to a new monthly paycheck of about $350 for most workers, compared with $286 a month. There also are moves to provide support and better working conditions after a staggering 14 Foxconn workers committed suicide in 2010 alone.

    Western media, such as the NPR radio show highlighting �The Agony and The Ecstasy of Steve Jobs,� introduced Americans to the idea of teenagers working up to 16-hour shifts wiping screens or sleeping 15 people to a 12-foot-by-12-foot room.

    Chinese media, since it is state-run, obviously has avoided such pieces.

    But Foxconn is hardly alone in its efforts to lure cheap migrant laborers to its facilities as a way to keep wages low and margins very high. Workers at an LG Display (NYSE:LPL) factory making flat-screen displays in eastern China recently went on strike to protest similar conditions, halting some production.

    In late 2011, Reuters posted a rather stark outlook on worker unrest in China. Here�s a line that sums it up best:

    �At factory towns across China’s export powerhouse in the Pearl River Delta, a vicious cycle of slowing orders from the West and increasing wage pressures has led to a series of major strikes that could reverberate through the economy.�

    In short, Foxconn�s troubles are representative of a general unrest in China�s manufacturing sector. The country has seen huge growth in the last several years, and many companies have seen huge profits as a result. Unfortunately, that growth frequently has come thanks to workers getting paid rock-bottom wages and working under harsh conditions.

    That model is not sustainable. One way or another — either through higher production costs, strikes or shutdowns — Chinese manufacturing is going to have to address these concerns.

    ‘Shadow Banking’ Threat

    According to a study issued by the People�s Bank of China in 2010, non-banking-sector lending expanded to anywhere between $1 trillion and $10 trillion — as much as 40% of the total lending activities of China�s economy. These loans come with exorbitant interest rates as high as 70%. They can come from individuals, akin to loan sharks, but they often come from legitimate businesses, too.

    Now this isn�t high-interest lending Atlantic City-style, fueling degenerates who just like to gamble and do drugs. These are investments — loans to start-up businesses or folks looking to buy real estate. In a red-hot economy these arrangements seem like a win-win, with both the lender and the borrower alike coming out ahead.

    But what happens when loans can�t be repaid? Unlike banks, which have a large portfolio of loans and assets to fall back on, individuals making these loans don�t have diversified portfolios to protect them. In fact, many lenders may be borrowers, too — creating the risk of a domino effect.

    Back in late 2011, I wrote an in-depth analysis of China shadow banking. At the time, China had pledged more oversight of such unregulated transactions. But with growth dependent on easy money and growth harder to come by these days because of the issues previously discussed � well, I have my doubts.

    Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.