What the Heck Is Nokia Doing Wrong in China?

New numbers came out yesterday for Nokia's (NYSE: NOK  ) sales in China -- and things aren't looking good. The company failed to benefit from a prime gift-giving holiday, and even the new Lumia 920T hasn't turned the tide in the country.

Nokia's been busy in China over the past few months, but unfortunately, not all of it has paid off. At the end of 2012, the company jumped on board with China Mobile to sell it's Lumia 920T, a move I thought would help the company. Having the China Mobile advantage could have boosted sales over the past few months, but apparently it didn't work out that way.

Source: Nokia.

Nokia announced its Q1 2013 numbers today, and the figures show device sales in China falling 26% from the previous quarter -- and a jaw-dropping 63% decline year over year.

Despite Nokia's 20-year history in the country, the company holds about 1% of the Chinese smartphone market right now. The company lost its 50% smartphone market share after Apple and Google swept in with its operating systems. With China recently taking the No. 1 spot as the biggest smartphone market, Nokia investors should be very concerned with the company's latest China sales.

So what the heck is going on over there?

Apple and Samsung are two fierce mobile competitors, and Nokia simply hasn't been able to beat them in China's high-end mobile market. That may be why Nokia is developing a cheaper line of phones for developing markets.

Nokia CEO Stephen Elop recently said at the World Mobile Congress: "There's a very large number of inexpensive and largely undifferentiated devices. We believe we have to offer differentiation at each price point." But Nokia already sells cheap phones in China, so believing that a new line of low-end phones will rebound Nokia's position in China may be wishful thinking.

Aside from Samsung and Apple, Nokia also faces challenges from local Chinese vendors. Data released by IDC at the end of January showed that Nokia didn't even make it on the top five smartphone vendors in China, and could beat out Chinese vendors Huawei and ZTE.

Nokia isn't completely dependent on China for its business, but the company's overall numbers aren't looking great, either. Nokia saw a loss of $196 million this quarter, and overall device sales were down 30% compared to last quarter. The good news was that Lumia sales were up 27% from the previous quarter, but that shouldn't be enough for investors to get excited about. The company has a long way to go before things will start turning around for its mobile offerings, and the competition is only getting more intense. Investors needed to see strong Lumia sales in China and the absence of that means that China is going to be an uphill battle for Nokia.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.

 

 

5 Energy Companies Generating Enormous Cash Growth

All too often, we see growth in the energy industry simply for the sake of growth. Whether its empire building or a race against expiring leases, energy companies can take the "Drill, baby, drill" mantra to a whole new level. Worse yet, many companies have loaded up on debt to fuel this growth.

I do have some good news for you, though: Not all energy companies are growing just to get bigger. Several are actually growing cash from operations by focusing on profitable growth. Below is a list of the top five energy companies that have grown cash from operations by the highest compound annual rate over the past five years.

Magnum Hunter Resources (NYSE: MHR  )
Topping the list with a five-year compound annual growth rate of 220% is Magnum Hunter Resources. First, I will point out that the company started at a very low base as its market cap was just $10 million as its share price bottomed out at $0.37 in 2009, when its current management team assumed leadership. However, that team has led the company to phenomenal growth in cash from operations since taking over.

The company has been in the news a lot lately with its announcement of the the sale of its Eagle Ford assets while also dismissing its auditor. The good news is that the Eagle Ford deal delivered a nice return and a major cash infusion, which will be reinvested to grow production at its liquids-rich acreage in the Bakken and Marcellus. Because of that, cash flow growth will slow down in the short term but the long-term story remains very compelling despite the concerns surrounding the auditor transition. 

Vanguard Natural Resources (NYSE: VNR  )
Clocking in at No. 2 with a five-year compound annual growth rate of 172% is Vanguard Natural Resources. The company started with just 67 billion cubic feet equivalent of mainly natural gas reserves in Kentucky and Tennessee back in 2007. Today, the company has 175 million barrels of oil equivalent reserves spread across nine operating areas.

As an oil and gas MLP, Vanguard's business model is driven by acquiring currently producing reserves. Over the past year, the company has doubled its reserves and has been taking advantage of cheap natural gas -- which have risen from 34% in 2011 to 60% as of the end of last year -- to boost those reserves. This growth has enabled Vanguard to deliver distribution growth of 43% since its IPO in 2007.

Oasis Petroleum (NYSE: OAS  )
Oil exploration company Oasis Petroleum boldly proclaims to investors that its "aggressively drilling the Williston Basin." That's probably why it shouldn't come as a surprise that it made this list. Its oil-rich Bakken acreage has led to growth in operational cash flow at a compound annual rate of 170% for the past five years.

Oasis is one of the many great Bakken growth stories. This is clearly evidenced by looking at production, which grew 82% year over year while reserves have grown at a compound annual rate of 121% since 2009. However, this isn't growth by any means, as the company had seen a 16% reduction in well costs, which has helped improve its cash flow.

Kodiak Oil & Gas (NYSE: KOG  )
Joining Oasis in the Bakken as another king of cash flow growth is Kodiak Oil & Gas, which saw a five-year compounded annual growth of 165%. The story is much the same: Kodiak has been growing production and reserves while also working to get its well costs down. Since 2010, production has gone from 1,260 barrels of oil equivalent per day to a projected range of 29,000 to 31,000 barrels of oil equivalent per day this year. This has the company nearing the point where its cash flow will soon fully fund its drilling program, which is a real sign of sustainability. 

Heckmann (NYSE: HEK  )
So far, our list has been filled with exploration and production companies. Heckmann, however, is an oil-field service company concentrating on providing water management services to the companies like those on this list. That business has generated a five-year annualized cash flow growth rate of 86%.

Like many of the names on this list, Heckmann has operations in the Bakken, which it just acquired last year. Outside of that, the company has operations in most of the major shale plays, with its revenue highly concentrated in the liquids-rich shale plays. Because of this, 70% of the company's shale-related revenue is tied to liquids, meaning its cash flow growth isn't likely to slow anytime soon. 

The Foolish bottom line
Personally, my money's in Heckmann because it's tackling the important environmental issues surrounding the water used in fracking. However, there's something for everyone on this list: Kodiak, Oasis, and Magnum Hunter are all growth-oriented exploration companies while Vanguard is an income-focused MLP. While each company is quickly growing operational cash flow, it's important to drill down a little deeper before committing capital to any name on this list.

For those investors not afraid of a little risk, Kodiak Oil & Gas offers a real dynamic growth story. However, the great opportunities it offers come with great risks. As you drill deeper into the company, I'd encourage you to let us help you with your due diligence. To find out whether Kodiak is currently a buy or a sell, you're invited to check out The Motley Fool's premium research report on the company, which comes with a full year of updates and analysis as key news breaks. To get started simply click here now.

GT Advanced Technologies Might Be Worth the Risk

A little more than a month ago, I poked and prodded at GT Advanced Technologies (NASDAQ: GTAT  ) to try and determine whether the stock might actually be able to regain even a fraction of its former glory.

After all, shares of GTAT were down more than 68% over the previous year after its core polysilicon business had collapsed along with the broader solar industry. What's more, that was even after popping 10% in a single day after the company announced a memorandum of understanding with Powertec Energy, which stated Powertec's intention to buy polysilicon technology and equipment from GTAT sometime in the second half of 2014.

In addition, the stock had already jumped 10% just two days earlier after an MIT Technology Review article pitched its sapphire tech as a promising potential alternative to Corning's (NYSE: GLW  ) Gorilla Glass product. Of course, overcoming Corning is easier said than done, considering just last week the company informed elated investors that its Specialty Materials segment sales should improve sequentially in the 15% to 20% range next quarter. Of course, that was all thanks to -- you guessed it -- strong demand for Gorilla Glass. 

To its credit, GTAT did announce this week that Motorola Solutions (NYSE: MSI  ) has chosen GT Crystal Systems as the exclusive supplier of 24-square-inch sapphire scan windows for Motorola's new MP6000 multi-plane bioptic imagers (think barcode scanners at the grocery store). That's certainly a suitable place for GTAT's scratch-resistant sapphire to find a home, but it's not exactly the big win investors were hoping for. 

Motorola MP6000 scanner. Image Source: Motorola

So how did GTAT fare during its earnings announcement last week? Well, even though the stock ended Wednesday down 5%, let's just say it could have been worse.

More specifically, while the company's first=quarter revenue of $57.8 million represented an 84% drop from the same three months of 2012, its net loss was actually less than expected at $18.7 million, compared with a loss of $159.4 million last quarter and $79.1 million in the first quarter of last year.

But that's not what really had investors worried. Remember, last quarter I noted more than half of GTAT's $1.25 billion backlog came from its sapphire segment. Unfortunately, the company since decided to nix around $356 million in sapphire furnace orders it had previously identified as "at risk." The company went on to elaborate:

While the orders have not been cancelled and the customers remain contractually obligated, the company has determined that these orders are unlikely to convert to sales in the foreseeable future and leaving them in reported backlog, in the company's view, is no longer a good indicator of the company's revenue potential.

As a result, GTAT's new backlog sits around $851 million, including $491.1 million from the polysilicon segment, $8.3 million from photovoltaic products, and $351.6 million from sapphire. Also included in those amounts were around $146.2 million in deferred revenue.

Foolish final thoughts
Despite the difficulties, the fact remains these quarterly results were slightly better than expected. Going further, I have to applaud management for biting the bullet and dropping its at-risk orders from the backlog knowing it might not be well received.

In the end, management still reiterated its previous guidance for 2013 revenue in the range of $500 million to $600 million, and non-GAAP earnings per share between $0.25 and $0.45. At least for now, then, the long-term story seems to remain intact. Besides, we already knew management has made no promises for things to get better in the near future, so all it really needs to do at this point is to continue making progress to stem the bleeding. Given GTAT's $320 million in cash and relatively manageable total debt of $259.6 million, it still has the resources to buy itself at least a little more time to do so.

As I suggested last month, GTAT remains a speculative stock for patient investors who can wait for the business to turn around. As it stands, that probably won't happen until at least next year. If it does, shares of GTAT could easily prove worth the risk for cautious investors willing to open a small position at today's beaten-down levels.

More expert advice from The Motley Fool
With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand-new premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy.

Tesla Revises Model S Financing Offer

Tesla (NASDAQ: TSLA  ) has revised its Model S financing plan -- offering longer-term loans that the company says will have those who use the electric car for personal use paying $580 a month, after taking gasoline savings into account -- and raising the resale value guarantee of the vehicles as well.

"Buying a Model S through the Tesla financing offering now comes with a guarantee that the resale value will be higher than that of BMW, Audi, Mercedes, Lexus or Jaguar," said the company in a statement today.

Tesla's initial financing offer debuted last month and had many journalists and customers questioning the program's details, including whether a buyer would actually end up paying $500 a month. The company's co-founder and CEO, Elon Musk, said in an online statement today that Tesla has fixed the offer and increased the resale value of the cars as well. "We appreciate the feedback from a number of journalists and customers that the first version of our financing product wasn't quite right," he said in a statement.

According to Tesla, for those who purchase the Model S for a business, which means 70% of the car's miles are for business use, the depreciation would reduce the effective monthly payment to $315. 

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Prologis to Pay Regular and Preferred Dividend

Industrial real estate developer Prologis  (NYSE: PLD  )  has declared regular and preferred dividends for the second quarter of 2013. The company plans to distribute $0.28 per share of its common stock on June 28 to shareholders of record as of June 11. For its 8.54% Series Q cumulative redeemable preferred stock, Prologis will distribute $1.0675 per share, which will be paid on July 1 to shareholders of record at the close of business on June 18.

The dividend payment on the common stock has consistently been at $0.28 every quarter since 2009. It annualizes to $1.12 per share and yields 2.7% at the closing price of Prologis' stock price on May 2.

More Expert Advice from The Motley Fool

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Google Updates Gmail to Add Google Calendar Events

3 FTSE 100 Shares for the Week Ahead

LONDON -- We've been getting a few quarterly updates recently for the period ending March 31. But things will be heating up next week as we start to get annual results from companies with March as their year-end. We'll have quite a few FTSE 100 companies reporting throughout the month. Here are three for next week.

Sainsbury (LSE: SBRY  )
Wednesday will bring us full-year results from J Sainsbury, and it's looking like they should be pretty decent. In its fourth-quarter trading statement, released in March, the supermarket chain told us that like-for-like sales were up 4.2% for the quarter and 2.1% over the whole year (3.6% and 1.8%, respectively, excluding petrol).

Current forecasts suggest a 6% rise in earnings per share, with a dividend yield of 4.4% on a share price of 386 pence. That would need a 4% rise in the dividend over 2012, and with the first-half dividend having already been lifted by 6.7% to 4.8 pence per share, that seems like a reasonable expectation.

But what of valuation? Well, the shares have gained 25% over the past 12 months, which is pretty good going. But even after that, they're on a P/E of 13 based on these forecasts, and that doesn't look excessive.

Experian (LSE: EXPN  )
It's Experian's turn to bring us annual results on Thursday, and the City is expecting a modest rise in earnings this year -- though there's a further rise of about 15% penciled in for 2014. At the third-quarter stage, the information services firm revealed 7% revenue growth and told us it expects "high single-digit" growth for the full year and a modest margin improvement.

The forecast dividend of about 22 pence per share represents a yield of 1.9% on the latest share price of 1,136 pence, and the shares are on a forward P/E of a little more than 20. That might sound a bit rich, but there is clearly some decent growth potential in this kind of business over the next few years, so a high rating is perhaps not surprising.

Those who bought the shares a year ago will be up 15% now, and there's surely a good chance of further worthwhile gains over the next five years.

BT Group (LSE: BT-A  ) (NYSE: BT  )
Finally, Friday will see the release of results from BT Group, whose shareholders have enjoyed the biggest share-price appreciation of the three we're looking at today -- at 280 pence, the price is up about 35% over the past 12 months.

But even after that rise, the shares are only on a P/E of about 11.5 based on March estimates. There's a dividend yield of about 3.4% forecast, which might not be one of the biggest but is ahead of the FTSE average of 3.2%.

At the time of BT's Q3 update, revenue was down 7% for the nine months to December, but pre-tax profit was up 8% to 1.86 billion pounds, and adjusted earnings had risen 9% to 18.4 pence per share.

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What Happens on the Floor of the New York Stock Exchange

You wake up, read the news, and decide to buy or sell a stock. You log into your brokerage account and enter a trade. Within a second or so, it's executed.

All is well. But what happened in between?

I recently met up with Art Cashin, director of floor operations at UBS and a regular on CNBC for years, on the floor of the New York Stock Exchange. I asked him to explain what exactly goes on on the floor. Have a look (transcript follows):

Morgan Housel: What exactly is going on on the floor behind you? What are all those people doing down there?

Arthur Cashin: Okay, several are doing various things. There are what we used to call "specialists," which have been transformed into "designated market makers," and they are the people at the center of trade. So that the viewers best understand it, long before electronics, the New York Stock Exchange ingeniously decided that they would centralize trading. In other words, if you were going to trade General Motors, you had to go to one specific spot. The reason I say that's ingenious was that it thereby forced all the best bids and offers, the best prices, to come together at one central point, and that made for much better pricing here in New York, and it allowed the New York to grow to the prominence that it had.

Later on, as electronics and other things came in, they determined it was still a good idea to centralize the pricing so that the buyers would compete with each other to try and get the best price for somebody on the other side. So what we have there is centralized places where each stock individually trades. People will then perhaps get an electronic order in their handheld device. It may come from anywhere in the country; it may come from outside the country. But you want to get into that auction, that competition going.

Now it is still quite convenient, even though you can do a lot of that electronically, to go into that crowd, to that central place to tray and get on behalf of your client a sense of exactly what is going on here. Is the trading active? Has there been recent news? Is there anything I might have missed, as much as I try to keep track of everything that's going on, because to represent you, the client, best, I have to be as well informed as I can. And so that ability to get in there and get a sense of what's going on, not just electronically, but get a little human interaction, to get a feel for it is good.

In many ways, when something happens, the floor is not necessarily conducive to reflective thought. If an event takes place, you and I don't get a chance to sit down and say, Gee, what do you think that means? My client and your client will expect us to react immediately. If something happens at General Motors, I'm supposed to know what it means for Ford, if I've got an order in Ford. Or I've got to know what it may mean someplace else, so you wind up scenario building, and you do that over years of going into a crowd, getting a sense of how animated they are, how aggressively will people pay up, and what does that mean for your client.

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Here's Why Franklin Electric's Earnings Are Worse Than They Look

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

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

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

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

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Franklin Electric for the trailing 12 months is 129.5.

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

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

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

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

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

On a 12-month basis, the trend at Franklin Electric looks less than great. At 129.5 days, it is 12.2 days worse than the five-year average of 117.3 days. The biggest contributor to that degradation was DSO, which worsened 14.9 days when compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at Franklin Electric looks OK. At 132.2 days, it is 11.0 days worse than the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With both 12-month and quarterly CCC running worse than average, Franklin Electric gets low marks in this cash-conversion checkup.

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

If you're interested in companies like Franklin Electric, you might want to check out the jaw-dropping technology that's about to put 100 million Chinese factory workers out on the street – and the 3 companies that control it. We'll tell you all about them in "The Future is Made in America." Click here for instant access to this free report.

Add Franklin Electric to My Watchlist.

Monster Beverage Is Scared for Its Life

Shares of Monster Beverage (NASDAQ: MNST  ) have been extra volatile lately, primarily because of regulatory concerns over the company's namesake energy drink. The Food and Drug Administration launched an investigation last year into the safety of such beverages, after a series of cases were filed against the company. The latest twist in the energy libation probe came this week when Monster filed a lawsuit in federal court against San Francisco's city attorney.

Monster files back
In the suit filed Monday, Monster pleaded with a federal court to stop San Francisco city attorney Dennis Herrera from trying to enforce restrictions on the company's energy drinks. Monster is the leading seller of energy drinks in the U.S. by volume, according to The Wall Street Journal. However, the company's market share could suffer gravely if Monster is hit with added restrictions on the caffeine content of its beverages or its marketing efforts.

Monster continues to stand by its claim that its energy concoctions are safe. Yet, until now, the company hadn't taken a proactive stance against its critics. This suggests that Monster is increasingly worried about the implications such regulations might have on its business. Specifically, Mr. Herrera is asking that Monster reduce the size of its drinks to 16 ounces, reduce the caffeine content to 160 milligrams, increase the warning labels on its cans, and only market the products to people over the age of 18.

These are serious limitations, particularly because in 2012, Monster energy drinks accounted for 91% of the company's net revenue. Although, Monster isn't alone in regulation purgatory. The FDA has also been investigating products made by other beverage giants including PepsiCo's AMP energy drinks. However, Pepsi has a multi-billion dollar snacks business to fall back on if increased regulations flatten its energy brand. Monster, on the other hand, has everything to lose.

Herrera is sticking to his guns, and said that he plans to see the case through to the end. It will be interesting to see how Monster defends itself going forward. However, this could grow into a serious problem for the company if other state regulators join Herrera's cause.

How to play it

The stakes are high for Monster Beverage these days. The stock had been nothing short of a rocket, but recent developments have sent shares spiraling downward. Health scares sparked a number of investigations at the state and federal level into the energy drink's role in several fatalities. With the company's value slashed in half, investors are wondering whether Monster Beverage is a value or a bust in the fast-growing energy drink category. Find out now in our premium research report, which details all you need to know about Monster Beverage. Click here now to claim your copy and start reading today.

Corporate Executive Board Beats on EPS But GAAP Results Lag

Corporate Executive Board (NYSE: CEB  ) reported earnings on May 1. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), Corporate Executive Board missed slightly on revenues and beat expectations on earnings per share.

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

Margins dropped across the board.

Revenue details
Corporate Executive Board logged revenue of $190.3 million. The seven analysts polled by S&P Capital IQ expected to see sales of $193.4 million on the same basis. GAAP reported sales were 48% higher than the prior-year quarter's $128.5 million.

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

EPS details
EPS came in at $0.67. The seven earnings estimates compiled by S&P Capital IQ predicted $0.59 per share. Non-GAAP EPS of $0.67 for Q1 were 43% higher than the prior-year quarter's $0.47 per share. GAAP EPS of $0.33 for Q1 were 28% lower than the prior-year quarter's $0.46 per share.

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

Margin details
For the quarter, gross margin was 62.7%, 330 basis points worse than the prior-year quarter. Operating margin was 12.5%, 740 basis points worse than the prior-year quarter. Net margin was 5.9%, 620 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $202.9 million. On the bottom line, the average EPS estimate is $0.68.

Next year's average estimate for revenue is $828.0 million. The average EPS estimate is $2.88.

Investor sentiment

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Corporate Executive Board is outperform, with an average price target of $57.57.

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Why PharMerica Shares Popped

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 PharMerica (NYSE: PMC  ) , a pharmacy services company, jumped as much as 11% after reporting better-than-expected first-quarter results.

So what: For the quarter, PharMerica saw revenue fall nearly 12% to $439.8 million as higher generics being sold sapped sales. However, adjusted EPS rose 39% to $0.46, compared to $0.33 in the year-ago period. Wall Street had only been expecting PharMerica to earn $0.34 per share on $435.1 million in sales. In addition, the company delivered record quarterly pharmacy gross margins, fueled by reduced inventories and better accounts receivable collection, and resulting in a 140% jump in cash flow from the year-ago period.

Now what: On one hand, an increase in generic usage is going to continue to pressure PharMerica's revenue, requiring the company to maintain strict inventory controls in order to grow its bottom line. On the other hand, at just 91% of book value and with management reaffirming its full-year forecast, there's plenty of reason for PharMerica's rally to continue. Personally, I feel PharMerica has slightly more upside than downside at these levels; however, I'd keep a close eye on its margins to dictate where it heads next.

Craving more input? Start by adding PharMerica to your free and personalized Watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in pharmacy services companies like PharMerica, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Bank Of America: More Attractive After The Recent Fall?

Bank of America's (BAC) earnings announcement failed to please the market resulting in a 5% decrease in the stock price. The bank announced earnings of $0.2 per diluted share, a substantial improvement over the last quarter of 2012 when it reported earnings of $0.03 per share. However, the increase in earnings fell short of the market expectations and caused the fall in price. While the earnings announcement did not meet the expectations; there were still some positives for Bank of America that indicate better than expected future performance.

Improving Net Interest Margin

The net interest margin for Bank of America has improved to 2.43% in this quarter as compared to 2.35% in the last quarter and 2.21% in the first quarter of 2012. There was also a substantial improvement in asset quality resulting in reduced credit loss provisions to $1.7 billion this quarter from $2.2 billion in last quarter of 2012. The bank has reported a net income of $2.62 billion, a sizable improvement over the last four quarters. Expense cuts are visible through a decrease in full time employees; however, the affect of these measures have not been clearly visible in financial performance.

The key to the quarter's improved income is a substantial growth in non interest income due to improvement in trading income and income from investment and brokerage services. Merrill Lynch has served as the source of profit improvement and the total revenue has improved from $18.7 billion in the last quarter to $23.5 billion. The dependence on one segment of the business increases risk and also poses questions about the performance of other segments. The mortgage segment appears to have shown a decent performance by reporting income of $1.2 billion as compared to a loss of $540 million in the previous quarter. Performance of other segments has remained sluggish submitting to the trends in the industry.

Recovering Banking Sector?

According to Bloomberg, banks are expected to report increase in profits ! averaging at approximately 31%. This increase, however, is not supported by a boost in the industry's growth. On the contrary, the banking industry is faced with some tough circumstances which include strong regulatory pressures, among other factors, which continue to limit sales growth. Estimates suggest that first quarter's revenue growth for banks could be as low as 2%. As a result the banking industry seems to have been competing on the basis of cost reductions. The whole industry, specifically the larger banks seem to have reported profits by a thorough process of expense cuts. Bank of America, along with JP Morgan (JPM), Citigroup (C) and Wells Fargo (WFC) has also used reserve releases to support their reported earnings.

As the industry is globally integrated, the revenue growth remained sluggish due to risk factors associated with the global economy. The European market has shown a slowdown which has caused a sizable reduction in revenue growth for the banking industry. Other than the economic situations, concerns regarding the fixed income market of the continent have also emerged over the introduction of new rules.

Recent Fall, a Good Opportunity to Buy?

The 5% decrease in the stock price provides a good entry point for long-term investors. The bank operates at a P/E ratio of 13.4 as compared to the industry average of over 30. It is currently trading at 57.4% of its book value of 20.3. Furthermore, the stock repurchase is still on the table, providing a reliable prospect of a boost in the stock price. Going forward, the bank will require an improvement in sales revenues, which is expected to come from cross selling between different segments. This is a very effective strategy as revenues are improved without incurring the costs of reaching out to new customers.

Conclusion

The current year is likely to be a difficult one for the banking industry as the constraints in revenue growth are expected to persist. In this period, the industry's profitability will be highl! y sensiti! ve to the current trend of expense reduction. Similarly, for Bank of America, the performance of Merrill Lynch will be necessary for the sustenance and growth of profits through this difficult period. In 2014, however, the outlook appears brighter as it introduces the prospects of growth in revenues, making Bank of America an attractive opportunity for investors at the current price level.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Is OSI Systems Good Enough for You?

Margins matter. The more OSI Systems (Nasdaq: OSIS  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong OSI Systems's competitive position could be.

Here's the current margin snapshot for OSI Systems over the trailing 12 months: Gross margin is 35.1%, while operating margin is 9.3% and net margin is 6.0%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where OSI Systems has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for OSI Systems over the past few years.

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

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

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

Here's how the stats break down:

Over the past five years, gross margin peaked at 36.6% and averaged 35.3%. Operating margin peaked at 8.5% and averaged 6.2%. Net margin peaked at 5.7% and averaged 3.8%. TTM gross margin is 35.1%, 20 basis points worse than the five-year average. TTM operating margin is 9.3%, 310 basis points better than the five-year average. TTM net margin is 6.0%, 220 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, OSI Systems looks like it is doing fine.

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Home Retail Group Reports Lower Profits

Why Triple-S Shares Soared

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 Puerto Rican managed-care company Triple-S Management (NYSE: GTS  ) popped 11% today after its quarterly results topped Wall Street expectations.

So what: The stock has slumped since fall on concerns over weakness in its Medicare Advantage business, but a wide first-quarter profit beat -- adjusted EPS of $0.55 versus the consensus of just $0.35 -- suggests that management's turnaround initiatives are gaining traction. In fact, the company's Managed Care medical loss ratio fell by a significant 480 basis points over the year-ago period, giving investors plenty of good vibes about its profitability going forward.

Now what: Management reaffirmed its full-year adjusted EPS of $1.90-$2.00 on operating revenue of $2.35 billion-$2.45 billion, in line with analyst estimates of $1.99 and $2.39 billion. "While we generated better-than-anticipated earnings in the period, as we are only one quarter into the year, we have elected to maintain our full-year guidance," said CEO Ramon Ruiz-Comas. "We believe that this posture is prudent until we have additional data further into 2013." Of course, when you couple that conservative outlook with the clear operating momentum currently working in Triple-S's favor, a string of upside surprises over the next year seems like a strong possibility.    

Interested in more info Triple-S? Add it to your watchlist.

 

Orders Slow Down at the Weir Group

LONDON -- Weir  (LSE: WEIR  ) released its interim management statement for the four months between Dec. 29, 2012, to April 30, 2013, this morning, with its share price falling 1.3% in early trade following a mixed reaction by the market.

This followed the announcement of a lower opening order book in the first quarter, down 14% on a reported basis against the same period last year, with the oil and gas division particular underperforming and contributing to lower revenues. Management also stated that "operating profits were down on the prior year period, with margins also affected by one-off costs in relation to the continued restructuring of the pressure pumping operations".

Like-for-like input in the first quarter saw a 14% decline against Q1 2012 but an increase of 14% against Q4 2012, with growth seen in minerals and oil and gas. Original equipment input was 23% lower than the comparative quarter last year, which saw a number of large project orders.

However, the firm stated that trading in the period has been resilient and in line with expectations. As such, full-year guidance remains unchanged, with low single-digit revenue growth and broadly stable margins expected. Weir anticipates growth in the second half of the year to offset lower first-half revenues and margins.

In other positive news, recent acquisitions such as Mathena, a leading provider of pressure control rental equipment and services for onshore oil and gas drilling, contributed well since being incorporated into the group. These buyouts caused net debt to increase against the prior year period, though.

It appears that the commodities cycle hasn't quite turned yet, then, with investors still bearish despite Weir's share price having increased a massive sevenfold since 2009's low of 311 pence. But a yield of around 1.8% at today's price still doesn't seem to offer potential shareholders much reason to buy while there is still negative sentiment around the sector.

However, investors who remain bearish on commodities but are looking for alternative opportunities in the FTSE 100 might like to take in this exclusive wealth report, brand-new from The Motley Fool.

All five of these blue-chip companies offer an attractive mix of robust prospects, illustrious histories and dependable dividends. The report is completely free, but will only remain available for a limited time -- simply click here to get it sent to your inbox immediately.

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Is Franklin Covey's Cash Machine Shutting Down?

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

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

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

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

Over the past 12 months, Franklin Covey generated $13.9 million cash while it booked net income of $9.5 million. That means it turned 7.8% of its revenue into FCF. That sounds OK.

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

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

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

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

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

With 27.6% of operating cash flow coming from questionable sources, Franklin Covey investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 18.3% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which represented 28.3% of cash from operations.

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

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

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

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3 Investment Ideas for Biotech Investors

Investment ideas don't grow on trees. But for biotech investors, they do grow in laboratories. Here are three investment ideas that biotech investors should consider.

Bet on a billionaire
I'm usually inclined to bet on underlying technology rather than the management team, but there are some exceptions.

George Scangos has turned around Biogen Idec (NASDAQ: BIIB  ) . Shares have more than quadrupled since he took the helm in the middle of 2010. Focusing the company's pipeline by getting rid of fringe products was clearly a good move. Fellow Fool Sean Williams drafted him to head his fantasy biotech company, with which I completely concur.

MannKind (NASDAQ: MNKD  ) also has a pretty successful CEO in Al Mann, who became a billionaire founding multiple companies and selling them. For this investment idea, though, we're more interested in Mann's pocketbook than his wheeling and dealing abilities.

The company is developing a small handheld inhaled insulin product called Afrezza. The drug device has run into multiple roadblocks along the way but seems to be on its final approach toward landing on the market.

Whether Afrezza will be a commercial success depends a lot on how hard the product is marketed by MannKind or its marketing partner -- if it lands one. Diabetics are used to injecting insulin; it's going to take some serious promotion to turn around the mind-set of doctors and patients. Fortunately, Mann has the money to invest.

This is Mann's baby. It's his investment idea. But you're welcome to tag along.

Multiple shots on goal
Isis Pharmaceuticals (NASDAQ: ISIS  ) has more than 30 drugs in development. Thirty! The thesis for this investment idea isn't all that complex: With that many drugs, something's got to work.

Isis' pipeline is built on an antisense technology. The drugs knock down the expression of disease-causing proteins by promoting the degradation of mRNA that encode for the proteins.

The technology has taken awhile to develop; Isis had to figure out a way to keep the oligonucleotides that bind to mRNA from getting degraded before they could do their job. But it's finally succeeded with Kynamro, a cholesterol-lowering drug it developed with Sanofi (NYSE: SNY  ) .

Partners like this investment idea
When Regulus Therapeutics (NASDAQ: RGLS  ) went public last year, investors weren't the only ones buying the share offering; Regulus' partners and founders clearly thought it was a good investment idea, because they bought more shares. Lots of them. AstraZeneca, Biogen Idec, Sanofi, GlaxoSmithKline and Isis combined to purchase more than 70% of the shares that raised nearly $81 million for the biotech.

AstraZeneca, Biogen, Sanofi and Galxo are all working with Regulus to develop drugs targeting microRNAs. The technology, which was originally a joint venture between Isis and Alnylam Pharmaceuticals, is still in its infancy -- Regulus doesn't have any drugs in the clinic -- but clearly its partners think it's a pretty good investment idea.

The future of MannKind?
Will MannKind's disruptive technology revolutionize the way diabetes is treated around the world -- or will the FDA put the kibosh on this product before it even hits the market? In a new premium research report on MannKind, these complex issues are made crystal clear, in addition to showing you why to buy or sell the stock today. To find out more click here to grab your copy today.

Oshkosh Produces Blowout Earnings, Zero Enthusiasm

Heavy equipment and vehicle-maker Oshkosh (NYSE: OSK  ) reported a more than doubling in quarterly net income Tuesday, confirming strength in its sales to the residential construction market, as well as an ability to charge higher prices for military vehicles.

Operating profit margins increased across the board, and the company raised its earnings guidance for the year ahead. So naturally, Oshkosh shares dropped.

Huh? What?
I know. That hardly seems to make sense, does it? Oshkosh simply crushed analyst earnings estimates for the quarter, delivering $0.97 per share in profit where only $0.86 were forecast. It added a dime to its full-year forecast as well, predicting that earnings could rise as high as $3.15 by year-end. First-half operating profit margins, at 5.8%, still fall far short of rival armored-vehicle makers Textron (NYSE: TXT  ) and General Dynamics (NYSE: GD  ) . But Oshkosh is now neck-and-neck with heavy-equipment maker Terex (NYSE: TEX  ) , and is simply smoking unprofitable rival MRAP maker Navistar (NYSE: NAV  ) .

Yet after all this, the stock went down, when the rest of the market went up? Crazy.

Or not so crazy
Yet there is some method to Mr. Market's madness today. For example, while Oshkosh beat on earnings, it missed on revenues, as sales fell more than forecast. Oshkosh also seems to be having to work harder than in years past to turn revenue into free cash flow. Operating cash flow for the first six months of fiscal 2013 actually declined in comparison to fiscal H1 2012.

Even with Oshkosh making prudent cutbacks in capital spending, therefore, the company still only generated about $29 million in real free cash flow for the first half of the year. While up modestly from last year's performance, that's not even a patch on the $133 million in net income the company claimed to have earned in H1.

What's worse is that things appear to be getting worse. Free cash flow for the past year -- $203 million -- represented 70% of net income at Oshkosh. FCF for the most recent six months, in contrast, backed up a mere 22% of reported income. If Oshkosh keeps rolling in this direction much longer, the stock could wind up being worth even less than the 15 times earnings its shares currently command.

Up 75% in price over the past year, it looks like Oshkosh's big run is done.

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Chesapeake's Now Just a Plane Company for McClendon

As May rolls in on Wednesday, battered Chesapeake Energy (NYSE: CHK  ) will tell us about its quarterly results. That's fine, but what will be of far more interest to essentially all shareholders or potential shareholders, now that founder and longtime CEO Aubrey McClendon is (almost) gone, will be the big picture -- call it a 30,000-foot perspective -- on the company's future direction.

You may be somewhat confused by my indication that McClendon is almost gone from the company. It seems that the terms of his non-competition clause in his employment agreement now provides him with free use of Chesapeake's aircraft through 2016. How in the world did the board let that one fly?

As you know, and without gratuitously invoking history, McClendon was essentially forced out of the company to which he essentially gave birth. The departure occurred on April 1 -- an appropriate date, given the goings on during his last years at the company.

A fracking hall of fame?
To their credit, however, in nearly a quarter-century, McClendon and his founding partner, Tom Ward, now the CEO of SandRidge Energy (NYSE: SD  ) , built an enviable entity in Chesapeake. Despite McClendon's more recent travails, he and his company were at or near the creation of such major unconventional plays as the Barnett, Haynesville, Marcellus, Utica, and the exploding Eagle Ford, among others.

In fact, were something of a shale drilling and production hall of fame to be created, two names would be de rigueur for immediate inclusion: McClendon and George Mitchell. The latter, through his Houston-based -- and now Devon-owned (NYSE: DVN  ) -- company, Mitchell Energy, relentlessly propagated the notion that applying hydraulic fracturing to the massive layers of shale rock spread across the U.S. would yield a bounty of natural gas.

Analysts in a waiting mode
At this stage, and to the extent it's even moderately meaningful, the analysts don't expect Chesapeake's quarter to be a bust. Indeed, their consensus is for the per-share number to come in at or near $0.25, up from $0.18 a year ago. Revenues are expected to reach about $2.8 billion, compared with slightly more than $2.4 billion for the comparable quarter of 2012.

Clearly, however, the vast majority of the Wall Street seers who spend their time checking on Chesapeake and other independent producers, are agnostic regarding the company's ability to execute a recovery from the double trouble created by McClendon's shenanigans and a stretch of moribund natural gas prices. Of the 31 analysts with ratings on the company, 19, or a sizable 60%, currently are sporting hold ratings. Chesapeake clearly has its intrepid believers, however, with 10 analysts calling it a buy or better.

But now, even with gas prices levitating, the key questions concerning the company involve:

news of assets sales, a chosen elixir for bringing relief to its groaning balance sheet progress in naming a CEO replacement for McClendon basic changes being conjured up by the interim leaders relative to strategic and operating approaches

The first and third of these queries coalesce at the point where one considers that, at the conclusion of the fourth quarter of last year, the company's debt was a whopping $12.2 billion. That made for a debt-to-capitalization ratio north of 40%. Another obvious ministration for this condition, in addition to selling off properties, is a reining in of drilling activity.

A couple of sales
As to the second issue, we already know that earlier this month 57,275 net acres and 11 producing wells in the Woodbine and Eagle Ford were sold to privately held Energy & Exploration Partners of Fort Worth. As a Texan, I find it noteworthy that the assets involved included the Woodbine sandstone, the Eagle Ford Shale, and Lower Cretaceous formations with such readily identifiable Lone Star monikers as the Buda, Georgetown, Edwards, and Glen Rose. 

Earlier, the company had pocketed $75.2 million by selling to Gastar Exploration (NYSEMKT: GST  ) leasehold acreage in Oklahoma's Kingfisher and Canadian counties. It'll obviously require a passel of sales of that magnitude to shore up an overweight balance sheet.

As to the company's leadership and direction, last month it was announced that an "Office of the Chairman" has been formed at Chesapeake. The new entity is made up of Archie Dunham, the non-executive chairman of the board, Steven Dixon, the acting chief executive officer (and continuing chief operating officer), and CFO Domenic Dell'Osso. The company's board of directors is continuing to work with Heidrick & Struggles in the search for a permanent CEO-replacement for McClendon.

A rising stock in the offing?
It shouldn't be overlooked that Chesapeake accumulated its imprudent debt level by rounding up some of the nation's most attractive shale acreage. On that basis, amid rising natural gas prices, the nation's second-largest gas producer -- after ExxonMobil (NYSE: XOM  ) -- could see its literal and figurative stock rise. I admittedly make that statement as one who has a position in the company.

Interested in yet another perspective on Chesapeake Energy? Investors would be hard-pressed to find another company trading at a deeper discount. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.

The Text Message Is Dying. Who Will Rule the Future?

Researcher Informa published a report which estimates an astounding 17.6 billion SMS texts are sent each day. Yet, in spite of those eye-popping figures that follow a decade of tremendous growth, SMS texting's best days are probably behind it. In 2012, chat apps such as as iMessage and WhatsApp sent over 19 billion messages per day, besting SMS for the first time. By next year, chat app use is expected to rise to 50 billion messages per day while SMS budges forward to 21 billion messages a day, supported by mobile users without data plans.

In the video below, senior technology analyst Eric Bleeker discusses how smartphones are liberating wireless users from costly SMS text plans. Mobile companies see over $115 billion per year in high-margin fees from SMS messages. But texts taking up almost no data and smartphones with apps capable of sending messages now in ubiquitous use, the future of SMS was bound to diminish once chat apps established critical mass. With Apple (NASDAQ: AAPL  ) unveiling iMessage for Apple products, Facebook (NASDAQ: FB  ) putting more resources behind Messenger, and the emergence of WhatsApp, plenty of messaging platforms have gained in popularity across the past year.

SMS is facing a classic case of technological disruption, and the winners of the next generation have a different way of profiting from the messages: Instead of making money per each message sent, they view messaging apps as a way to keep users engaged on their platforms. To see Eric's full thoughts, watch the video below.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Soros Lifts J.C. Penney's Spirits

Since the very public ousting of CEO Ron Johnson, J.C. Penney (NYSE: JCP  ) bulls (including this author) have been quietly licking their wounds, telling themselves that this is a moment of faith and that their stock-picking abilities do not resemble the "Wheel of Fortune" letter-selection process. On April 10, investor extraordinaire Bill Ackman said he has no plans to dump his 17.8% stake in the company and may even dig in deeper. That particular vote of confidence, given the wide range of opinions surrounding the hedge fund manager, did little to soothe investors' and analysts' concerns.

This past week, though, that all changed. Another superinvestor has gotten behind J.C. Penney, and this time it sent the stock soaring. Does George Soros' 8% position in the company ease your fears about that beleaguered retailer?

Chitchat 
A megainvestor's word probably would have meant more five years ago than it does today. Since star fund managers have taken to the silver screen to tout their positions, their credibility has suffered a bit. Take Ackman, for example. Personally, I remain a strong believer in his positions and point to some incredible successes that, in my opinion, overshadow the failures -- Burger King being one of them. Though it hasn't received much media attention, Burger King was reorganized a year ago and brought back out from under the private equity wing with a refreshed menu and a more appealing, modern image. Since the stock debuted (in its most recent incarnation) last summer, it has ticked up more than 20%. Still, all of the media attention Ackman has garnered with his J.C. Penney and Herbalife bets has left many unconcerned and, perhaps, unimpressed with "smart money" movements. David Einhorn, Nelson Peltz, Carl Icahn, and other famous activists have investors similarly skeptical.

With that in mind, it was interesting to see J.C. Penney stock soar nearly 15% during Friday's trading after it was announced late Thursday that famed investor and political activist George Soros had taken a nearly 8% stake in the troubled retailer, whose sales hit rock-bottom in the recent quarter. The stock is much cheaper than when Ackman built his stake, but should investors so quickly restore their faith in the company?

The pros, speculatively
One of the biggest concerns lately regarding J.C. Penney is liquidity. The company spent a bundle under Johnson's reign, with minimal cash flow to refill the coffer. But now, Goldman Sachs has announced it is leading a $1.75 billion financing round for the company -- effectively erasing the short-term liquidity crisis.

Also, I've exhaustively touted the success in the company's renovated spaces, and I still believe in them. If J.C. Penney can reconnect with the customer and make good on its prior missteps, the true genius of Johnson's plan can once again take center stage. If and when that happens, watch as the financials about-face.

As for this moment, though, the latter is a speculative consideration and should be treated as such. Mike Ullman is back in the C-suite and has publicly committed to getting back in touch with J.C. Penney's alienated customer. But as we have learned from plenty of CEO, analyst, and fund manager promises, the real proof is in the numbers.

I wouldn't follow Soros in on J.C. Penney, but I wouldn't cast it out yet, either. This story isn't quite done.

More from The Motley Fool 
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about J.C. Penney's turnaround -- or lack thereof. Simply click here now for instant access.

Are You Terrified of Bank Stocks?

Many investors have sworn off financial stocks since the credit crisis. Even after the recovery, headwinds like Bank of America's (NYSE: BAC  ) legal situation and the London Whale trading fiasco at JPMorgan Chase  (NYSE: JPM  ) have kept investors from diving back into individual bank stocks.

Despite the perceived riskiness of the sector, some investors may desire to have some exposure to financial stocks over the long-term. In this video, Motley Fool banking analyst David Hanson tells investors one way that they can get exposure to the sector without having to worry about a bank-specific event crushing their investment. 

Despite headwinds, Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

Is George Soros Lighting His Money on Fire?

Finding value in J.C. Penney (NYSE: JCP  ) is like looking for the Northwest Passage -- it probably doesn't exist, and even if it does, it's probably not worth it. The billionaire and philanthropist George Soros is the most recent man to try to turn J.C. Penney around. If you wanted to wish him luck, now is the time, before he disappears into the frozen wastes of the Canadian countryside forever.

The problem is that these men don't seem to see what J.C. Penney has become. Soros just bought a 7.9% stake in the failing retailer, with the hope that it can be more than it has been for years. I think he's probably wrong, but here's a look at the pros and cons of J.C. Penney, in its current state.

The view from the ground
Looking back over the last year, the best thing that you can say about J.C. Penney right now is that Ron Johnson isn't around anymore. During his tenure as CEO, the company tried desperately to be something that it wasn't. It tried to be a place where you didn't use coupons and where you didn't buy back-to-school jeans off the rack -- you bought them from a "denim bar."

Here and there, little bits of these plans stuck, and made a bit of money. But the larger rebranding failed miserably, and shoppers fled the stores in disgust. Now that Johnson is gone and former CEO Mike Ullman is back in charge, the company should move back to being the kind of place that it always was.

The other benefit of J.C. Penney is that Soros' involvement may make it easier for the company to raise money. J.C. Penney hired Blackstone Group to try to help it raise some much-needed cash, and having Soros as a big stakeholder might make some funds more likely to open their purses. That would be a big deal for the company, which burned through $600 million in cash last year.

Luckily -- another point in the "pro" column -- J.C. Penney has some credit to its name, so it shouldn't be hurting too badly, even if the cash situation gets dire. Finally, and perhaps the best reason to consider the company, J.C. Penney has a lot of real estate -- like, "so much it could spin out a REIT and still have some left over" a lot.

Up in flames?
In conclusion, any meaningful investment in J.C. Penney has to revolve around the idea that you don't think the company can survive as a retailer. Soros may think that the company is doomed, that the cash it can unlock by selling its real estate is worth more than the cost of getting in -- and that might be a good investment.

But there are a lot of ifs. J.C. Penney is still burning through cash, and it needs to know when to say when -- something it hasn't done well in the past -- if it's going to be profitable even in liquidation. It needs to fail, because if it just limps along, then there's no impetus to unlock that property-based cash. I don't see this turning into a good idea anytime soon. But I guess I'm not George Soros.

J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

3 Things to Watch at Sirius XM This Earnings Season

Satellite radio is a hit, and Sirius XM Radio (NASDAQ: SIRI  ) has made the most of the situation.

Sirius XM will report on Tuesday morning, and in this video, longtime Fool contributor Rick Munarriz looks at three things that investors will want to keep an eye on when the media giant does report.

Now that Liberty Media (NASDAQ: LMCA  ) has acquired a majority stake in the company, there is little that investors can do in terms of worrying about what Liberty Media's master plan here will be. The one thing that will guide Sirius XM's stock higher or lower will be its financial performance and those are the areas that will matter come Tuesday morning.

Despite Sirius XM being one of the market's biggest winners since bottoming out four years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in The Motley Fool's premium report. To get started, just click here now.

Hey, Yield-Starved Investors: What Are You Doing?

Bonds and bond funds trade at some of the lowest yields on record. Why are investors putting up with measly yields? Partly because inflation is so low, and partly because they're frightened of everything else in the investment world.

But low yields in bonds has spilled over into stocks, too. Traditional dividend dynamos like Altria (NYSE: MO  ) and Verizon (NYSE: VZ  ) have seen their share prices spike and their yields fall in recent years as the hunt for income grows vicious.

What are yield-hungry investors getting themselves into? I asked Charles Schwab chief investment strategist Liz Ann Sonders. Here's what she had to say (transcript follows):

Sonders: I'm not so sure if the reason why investors continue to put money in fixed income is optimism about the potential return in fixed income. I think it's vestige fear of just about any other risk asset, so at least they, in their mind, they know what they're getting. Unfortunately I think a lot of investors don't realize that what they're getting in real terms is a guaranteed loss in the case of certain Treasury securities.

But again, there are other places one can go within the fixed income sphere. You know, high quality corporate credit where you get a pickup in yield, but I think one of the interesting things that you're seeing as it relates to the equity market is that there is that fear, but there's also that desire for income, and I think that's why some investors are now looking toward the equity market, but staying in that income sphere within the equity markets. So one of the reasons why defensive names and industries and sectors have done well may be a combination of the fact that as you tiptoe in, you want to kind of keep those defensive characteristics, but that's also generally where the yields are to be found.

Not only that, but some of the move that we've seen into the equity market has actually come from bond funds that have enough of a hybrid mandate that they can move into the equities sphere if there's an income component to what they're buying as well. 

More from the Motley Fool
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Starbucks Is Still a Winner

Last week, Starbucks (NASDAQ: SBUX  ) handed in an excellent second quarter, emphasizing the strengths that it has as a business, and pointing out the road that it has ahead of it. Wall Street wasn't blown away, and the stock dropped about 1% over the course of Friday. That's OK, though, because Starbucks met expectations, and proved that its current strategy is going along just fine.

In fact, it was more than just an average quarter, and comparable sales extended their long run of big gains. Revenue, operating margin, and income were all up as well, and management increased its fiscal-year guidance based on that strength. There are still some challenges ahead, but it looks more and more like those will turn into new sources of revenue as the company continues to grow.

Starbucks' strategy
Start with 1,500 new stores in the U.S., and you have a good idea of what the plan looks like. Starbucks has no intention of slowing down its expansion. More than 300 of those locations will be open this year, and we're not even talking about China yet. The company had an 8% increase in comparable sales in China, last quarter. That result helped Starbucks to global comparable-store sales growth of 6%, which made it the 13th quarter that the company exceeded 5% growth globally.

The question for investors and management is, "How will Starbucks keep that level of growth up?" Retail sales, tea, and food all come to mind as potential answers. Recently, the company has brought its bagged retail coffee into its reward system, offering customers who buy Starbucks in the grocery stores a reason to come into the cafes.

Starbucks also purchased Teavana at the beginning of the year and has announced plans to expand the business, adding eight stores last quarter with more to come. At the end of the quarter, the company already had more than 325 Teavana locations. That business will open up new consumer markets and give Starbucks something to hold onto as it grows in the United States.

Finally, food made an impact in the quarter, lifting comparable sales. Starbucks is rolling out its La Boulange range and now has a presence in 439 stores in the United States. As that line grows, the company is going to see more and more of its income generated by food. That will not only help growth, but it should also eventually help balance out costs so that a smaller percentage of the business is subject to the broad swings in coffee prices.

Competitors to watch out for
While Starbucks could be said to be in competition with every cafe, I'm looking out for Panera Bread (NASDAQ: PNRA  ) and Kraft (NASDAQ: KRFT  ) . Panera is the cafe that has the best shot at making a dent in Starbucks' ironsides, with its extensive food menu and rapid growth. The company posted a comparable-sales increase of 3.3% last quarter, and the beginning of its current quarter was even stronger. If Starbucks makes a concerted push into food, Panera could be its biggest hurdle.

Kraft has taken a more aggressive tack with its Gevalia brand bagged coffee. The company has done taste tests likening it to Starbucks coffee, and has essentially launched a marketing campaign telling customers, "Think you like Starbucks? Then you'll love this!" That could be some stiff competition.

Even with the competition, I'm sticking with Starbucks. CEO Howard Schultz is a tiger, and the plan that the company has in mind for the next year looks solid. While the stock is trading near its all-time high, I still think it's worth a look.

Investors can be forgiven for thinking that a company that has returned almost 2,500% since going public probably has its best days behind it. But in the case of Panera, there's reason to believe that the best is still yet to come. The stock has been on an absolute tear over the past five years, and you're invited to find out why -- and what else there is to look forward to -- in The Motley Fool's brand-new premium report on Panera. Included are key areas that investors must watch, as well as opportunities and threats facing the company both today and in the long term. Don't miss out on this invaluable investor's resource -- simply click here now to claim your copy today.

Best Dividend Stocks For 2014

We've been profiling undervalued and/or oversold high dividend stocks in our recent articles over the past few weeks. As with some of the previous stocks we've been covering, this week's stock is also listed in our High Dividend Stocks By Sector Tables.

In fact, with its 13%-plus dividend yield, Aes Tiete, (AESAY.PK), sits atop our Utilities Sector table.

Best Dividend Stocks For 2014: Frontier Communications Company(FTR)

Frontier Communications Corporation, a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. It offers local and long distance voice services, including basic telephone wireline services to residential and business customers; switched access services that allow other carriers to use the facilities to originate and terminate their long distance voice and data traffic; and directory services that provide white and yellow page directories for residential and business listings. The company also provides data and Internet services, which include residential services comprising high-speed Internet, dial up Internet, portal and e-mail products, and hard drive back-up services; and commercial and carriers services, such as metro Ethernet; dedicated Internet; Internet protocol, optical, multiprotocol label switching, and TDM data transport services. In addition, it offers di rect broadcast satellite services and fiber optic video services, as well as provides online access to video content, entertainment, and news available on the worldwide Web through its Web site myfitv.com. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927 and is based in Stamford, Connecticut.

Advisors' Opinion:

• [By Harding]

  CLO; EVP Reg & Gov't Affairs of Frontier Communications, Kathleen Q Abernathy, bought 40,000 shares on 09/09/2011 at an average price of $7.11. Frontier Communications Corp., formerly Citizens Communications Company, is a full-service communications provider and one of the largest rural local exchange telephone companies in the country. Frontier Communications has a market cap of $7.08 billion; its shares were traded at around $7.11 with a P/E ratio of 28.4 and P/S ratio of 1.8. The dividend yield of Frontier Communications stocks is 10.5%.
  
  On August 3, Frontier Communications Corporation reported second-quarter 2011 revenue of $1,322.3 million, operating income of $238.3 million and net income attributable to common shareholders of Frontier of $32.3 million, or $0.03 per share. After excluding $20.3 million for acquisition and integration costs, $11.0 million for severance and early retirement costs and $10.5 million for a discrete tax item, net income attributable to common shareholders of Frontier for the second quarter of 2011 would have been $62.2 million, or $0.06 per share.
  
  Frontier Communications is in the portfolios of Prem Watsa, Jean-Marie Eveillard, and NWQ Managers. 
  
  In September, Director Edward Fraioli and CLO; EVP Reg & Gov't Affairs Kathleen Q Abernathy bought shares of FTR stock. Director Jeri B Finard and Director James S Kahan bought shares in August.

Best Dividend Stocks For 2014: National CineMedia Inc.(NCMI)

National CineMedia, Inc., through its subsidiaries, operates a digital in-theatre network in North America. It develops, produces, sells, and distributes various versions of a branded, pre-feature entertainment, and advertising program called ?FirstLook? on theatre screens and advertising programming on its lobby entertainment network; and sells various forms of advertising and promotions in theatre lobbies. The company distributes Fathom business and consumer entertainment events through digital content network and live digital broadcast network utilizing its proprietary digital content software. It also facilitates business meetings, church services, and corporate marketing/communication events in the movie theatres throughout its theatre network; and distributes entertainment programming products, which include live and pre-recorded concerts, opera, symphony, concert and DVD product releases, theatrical premieres, Broadway plays, and other music events, as well as live sports and other special events. In addition, the company provides its services to third-party theatre circuits through network affiliate agreements. As of August 4, 2011, its advertising network had approximately 18,100 digital screens. The company was founded in 2005 and is headquartered in Centennial, Colorado.

Advisors' Opinion:

• [By Jeff Reeves]

  National CineMedia (NASDAQ: NCMI) is a massive in-theatre advertising network across North America, serving ads on screen and throughout cinema properties that reach almost 18,000 movie screens.

  Current Yield: 5% (80 cents a share annually)

  Dividend History: In June 2010, the company paid 18 cents a share for its quarterly dividend. This year, CineMedia will pay 20 cents a share. That’s an 11% dividend increase.

  Dividend Outlook: According to Bloomberg, National CineMedia has a three-year expected dividend growth rate of 10.3%.

  Recent Performance: The biggest flaw in NCMI is its recent performance. The company recently swung to a quarterly loss in its latest earnings report, and shares are off almost 20% year-to-date in 2011.

  Strong Outlook for Shares: Though a bit risky due to its recent earnings and stock performance, NCMI may be a strong growth buy as advertisers return to the screen and movie-goers head back to the theater. Revenue increased 9% from 2009 to 2010, and is set to grow 9% again this year. As we enter the blockbuster summer movie season, NCMI may be a good buy before a rebound.

Best Dividend Stocks For 2014: United Bancorp Inc.(UBCP)

United Bancorp, Inc. operates as the holding company for The Citizens Savings Bank that provides various commercial and retail banking products and services in the northeastern, eastern, southeastern, and south central Ohio. Its deposit products include interest-bearing deposits, certificates of deposit, demand deposits, savings accounts, NOW accounts, and money market deposits. The company?s loan portfolio comprises commercial, real estate, installment, and consumer loans, as well as letters of credit and lines of credit. It also offers brokerage, night deposit, safe deposit box, and automatic teller machine services. United Bancorp provides banking services through its main office and stand alone operations center in Martins Ferry, Ohio; and 19 branches in Belmont, Harrison, Jefferson, Tuscarawas, Carroll, Athens, Hocking, and Fairfield counties, as well as in the surrounding localities. The company was founded in 1974 and is headquartered in Martins Ferry, Ohio.

Best Dividend Stocks For 2014: Verizon Communications Inc.(VZ)

Verizon Communications Inc. provides communication services. The company operates through two segments, Domestic Wireless and Wireline. The Domestic Wireless segment offers wireless voice and data services; and sells equipment in the United States. The Wireline segment provides voice, Internet access, broadband video and data, Internet protocol network, network access, long distance, and other services in the United States and internationally. The company serves consumer, business, and government customers, as well as carriers. As of December 31, 2010, its network covered a population of approximately 292 million and provided service to a customer base of approximately 94.1 million. The company was formerly known as Bell Atlantic Corporation and changed its name to Verizon Communications Inc. in June 2000. Verizon Communications Inc. was founded in 1983 and is based in New York, New York.

Advisors' Opinion:

• [By Jim Cramer,TheStreet]

  This is the year for Verizon Communications (VZ). The iPhone is coming in the first quarter, which will lead to a growth spurt.

  The FIOS buildout is largely paid for, and now the company can reap the benefits. The company's half-owned portion of Verizon Wireless will be paying hefty dividends in 2011, and I think we will get a nice dividend boost.

  We're talking about $40 being reasonable, if conservative, giving this stock one of the best risk-reward profiles we've got in the Dow, or the S&P 500, for that matter.

  CEO Ivan Seidenberg has done a remarkable job turning this staid company into a growth vehicle with a nice dividend. It will be a core holding for many mutual funds.

• [By Jonas Elmerraji]

   The sole downside setup we're looking at today is communications giant Verizon (VZ). Even though Verizon isn't a tech stock in the traditional sense, its exposure to mobile phone sales and its scale as an internet service provider means that its price action correlates highly with the rest of the tech sector. But more recently, that correlation has decoupled thanks to a topping pattern in shares.

  Verizon is forming a head and shoulders top right now, a bearish pattern that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head. A breakdown below the pattern's support level, called the neckline, triggers the sell signal for this stock. For Verizon, the sell signal comes in right at $41.50…

  The head and shoulders may be a popular pattern, but it's also a potent one: a recent academic study conducted by the Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in “profits [that] would have been both statistically and economically significant.” That's a good reason to keep an eye on how this stock trades for the next week.

Best Dividend Stocks For 2014: China Nepstar Chain Drugstore Ltd (NPD)

China Nepstar Chain Drugstore Ltd. operates retail drugstores in the People?s Republic of China. The company?s drugstores provide pharmacy services and other merchandise, including prescription drugs; over-the-counter drugs; nutritional supplements, such as healthcare supplements, vitamins, minerals, and dietary products; herbal products, including drinkable herbal remedies and packages of assorted herbs for making soup; and private label products. Its stores also offer personal care products, such as skin care, hair care, and beauty products; family care products, including portable medical devices for family use, birth control products, and early pregnancy test products; and convenience products, such as soft drinks, packaged snacks, other consumables, cleaning agents, and stationeries, as well as seasonal and promotional items. The company operates its stores under the China Nepstar brand name. As of December 31, 2009, its store network comprised 2,479 retail drugstores located in approximately 71 cities in Guangdong, Jiangsu, Zhejiang, Liaoning, Shandong, Hunan, Fujian, Sichuan, and Hubei provinces, as well as in Shanghai, Tianjin, and Beijing municipalities of the People?s Republic of China. The company was founded in 1995 and is headquartered in Shenzhen, the People?s Republic of China.

Best Dividend Stocks For 2014: Himax Technologies Inc.(HIMX)

Himax Technologies, Inc., together with its subsidiaries, designs, develops, and markets semiconductors for flat panel displays. Its products include display drivers and timing controllers for various thin film transistor liquid crystal displays (TFT-LCD) panels, which are used in desktop monitors, notebook computers, televisions, and mobile handsets, as well as consumer electronics products comprising netbook computers, digital cameras, mobile gaming devices, portable DVD players, digital photo frame, and car navigation displays; and TFT-LCD television and monitor semiconductor solutions. The company also provides liquid crystal on silicon (LCOS) products for palm-size mobile projectors; power management integrated circuits, which include drivers, amplifiers, DC to DC converters and other semiconductors; complementary metal oxide semiconductor image sensors for camera-equipped mobile devices, such as mobile phones and notebook computers with a focus on lowlight image and video quality; and wafer level optics products. It serves TFT-LCD panel manufacturers, mobile device module manufacturers, and television makers. Himax Technologies, Inc. was founded in 2001 and is headquartered in Tainan, Taiwan.

Best Dividend Stocks For 2014: ProLogis(PLD)

Prologis Inc. is an independent equity real estate investment trust. It invests in the real estate markets across the globe. The firm engages in the ownership, development, management, and leasing of industrial distribution and retail properties. It was previously known as Security Capital Investment Trust. Prologis Inc. was formed in 1991 and is based in San Francisco, California with an additional office in Denver, Colorado.