Roame Predicts Next Scandal in Advisory Industry

Chip Roame, head of Tiburon Strategic Advisors, drew attention to several risky trends affecting the financial services industry during his keynote talk on Tuesday at the Tiburon CEO Summit XXV in San Francisco.  

The first trend he pointed to was the fact that about two-thirds of investors do not understand what happens to their portfolios when interest rates change, according to a recent poll.

“This is the industry’s next scandal,” said Roame, a former McKinsey consultant and Charles Schwab employee. “Financial advisors are not telling investors what happens when interest rates rise.”

The industry needs to take the opposite approach for its own good, he says. “Be out there real loud explaining this … in pamphlets, online and at quarterly meetings with clients. If two-thirds of investors don’t get this, they will blame someone!”

Adding to the potential negative fallout for advisors, Roame says, is the hope that consumer confidence in the industry is going to come back. “No. Not with one stumble after another,” he stressed before an audience of about 200 industry VIPs.

While the vast majority of financial advisors don’t operate in the types of business schemes that Bernie Madoff and SAC Capital Advisors ran, “This is how [the industry] is perceived, and it’s naive to think there will no scandals in the next six months.”

The Madoff debacle has “scared investors for decades,” Roame said. “We are underestimating its impact on consumer confidence … and, the fact that only Madoff has gone to jail, makes a lot of investors skeptical. The industry has got to deal with this.”

Regardless of whether or not an advisor is independent, fee based or with a bank, “You are lumped in with Madoff … that may be unfair, but it’s how it is perceived. I encourage you all to look at how investors perceive the industry.”

Marketplace Movement

On the plus side, advisors who can overcome the PR crisis have consumers with total net worth of about $35 trillion as investible assets and about $18 trillion in retirement plans as potential clients.

“It’s a very fragmented industry. The top play, BlackRock, has just $3 trillion of the $53 trillion,” Roame shared.

Still, most U.S. households, 90%, have less than $500,000 to invest, and the average is under $270,000.

Nonetheless, the level of investible assets has risen about 40% since 2008, and the amount of money in retirement plans is up 30%. “So, on a combined basis, you’re up 35%, if you were in the market. Most Americans, though, were not in the market,” Roame said.

For the industry, the “vanishing middle class” has serious consequences, and "we are not close to the consumer confidence level of 2006,” he noted.

This has led more and more investors, especially younger ones, to open do-it-yourself (or self-serve) accounts online, which is good news for TD Ameritrade and Merrill Edge, but not great news for more traditional broker-dealers.

“There is a fear that equity investors and the assets class may never come back,” Roame said. ETFs and mutual funds, however, are seeing growth that surpasses that of equities.

“The mutual fund market is alive and well and will be here for a long time,” the consultant stressed. “Consumers are pushing money, and advisors are going more into passive products.”

Advisor Movement

Industry growth is strongest in the RIA and online banking segments, according to a survey of the Tiburon CEO Summit’s participants, while it is slower for the regional broker-dealers and wirehouses.

Of the 320,000 advisors nationwide, some 45% are in the independent channel, 30% in the banks/insurance segments and 25% at the wirehouses and regional firms (down from 38% in 2005). But wirehouses still manage 57% of assets — down from 62% in 2007, but still dominant, Roame says.

Wirehouse assets per rep stand at about $93 million vs. roughly $21 million for independent reps and $50 million for reps at the regionals and fee-based advisors.

12 “Triple F” Stocks to Sell

Popular Posts: 7 Biotechnology Stocks to Buy Now4 Pharmaceutical Stocks to Buy Now17 Oil and Gas Stocks to Sell Now Recent Posts: 12 “Triple F” Stocks to Sell 7 “Triple A” Stocks to Buy 5 Machinery Stocks to Buy Now View All Posts

This week, 12 stocks get F’s (“strong sell”) in Portfolio Grader‘s three main grading categories, Total Grade, Overall Fundamental Grade, and Quantitative Grade.

These are the worst of the worst in the entire Portfolio Grader database. This week, there are 4,253 stocks and only these 12 get failing marks in all categories to make the dreaded “Triple F” stocks list. Here they are:

Aluminum Corporation of China Limited Sponsored ADR Class H (NYSE:) is a producer of aluminium, with operations in bauxite mining, alumina refining, primary aluminium smelting, and aluminium fabrication. It also provides ancillary products and services. The price of ACH is down 20.2% since the first of the year. This is worse than the S&P 500, which has seen a 12.1% increase over the same period. .

Cliffs Natural Resources (NYSE:) is an international mining and natural resources company. Shares of CLF have slipped 39.3% since the first of the year. As of Oct. 11, 2013, 31.1% of outstanding Cliffs Natural Resources shares were held short. .

Cypress Semiconductor Corporation (NASDAQ:) is engaged in the design, development, manufacture, and marketing of high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value. Since the first of the year, CY has dropped 17%. .

Devon Energy Corporation (NYSE:) explores, develops, and transports oil, gas, and natural gas liquids. .

Enerplus Corporation (NYSE:) is an oil and gas exploration and production company that owns a large, diversified portfolio of income-generating crude oil and natural gas properties. .

Eagle Rock Energy Partners, L.P. (NASDAQ:) engages in gathering, compressing, treating, processing, transporting, marketing, and trading natural gas, as well as fractionating and transporting natural gas liquids. Shares of EROC are trading 16.1% lower than at the start of the year. .

Exelixis, Inc. (NASDAQ:) is a development-stage biotechnology company dedicated to the discovery and development of small-molecule therapeutics for the treatment of cancer and other serious diseases. As of Oct. 11, 2013, 22.7% of outstanding Exelixis, Inc. shares were held short. .

Navistar International Corporation (NYSE:) manufactures and markets medium and heavy trucks, school buses, mid-range diesel engines, and service parts. As of Oct. 11, 2013, 13% of outstanding Navistar International Corporation shares were held short. .

Newfield Exploration Company (NYSE:) is an independent oil and gas company which explores, develops, and acquires oil and natural gas properties. .

Swift Energy Company (NYSE:) develops, explores, acquires and operates oil and natural gas properties, primarily those that are onshore and in the inland waters of Louisiana and Texas. Since January 1, SFY has slumped 23.6%. As of Oct. 11, 2013, 21.4% of outstanding Swift Energy Company shares were held short. .

Thompson Creek Metals Company Inc. (NYSE:) is an integrated North American primary producer of molybdenum. Since January 1, TC has tumbled 10.3%. As of Oct. 11, 2013, 10.8% of outstanding Thompson Creek Metals Company Inc. shares were held short. .

Walter Energy (NYSE:) is a producer and exporter of metallurgical coal for the global steel industry. The price of WLT is 56.4% lower than at the first of the year. As of Oct. 11, 2013, 13.3% of outstanding Walter Energy shares were held short. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

[video] Jim Cramer Quick Take: Owning JPMorgan Depends on Resolution

NEW YORK (TheStreet) -- The government shutdown is lasting much longer than most had thought it would and TheStreet's Jim Cramer told Debra Borchardt that it's a binary event.

In other words, investors want to own stocks if there is resolution in Washington and don't want to own stocks if the U.S. defaults.

In regards to a stock such as JPMorgan (JPM), Cramer said that investors could factor in a slowdown in its mortgage business, but couldn't factor in a default.

He said that the Treasury Department and President Obama said this wouldn't be something to worry about, and yet here we are. With both political parties digging in their heels, someone has to be willing to negotiate. According to Cramer, whoever fails to do so will cause a U.S. default and nobody wins if that happens. Investors can use deep-in-the-money call options to limit risk and use stop orders to limit losses. Cramer concluded that there hasn't been any big pullback to put money to work. The stocks that have had deep pullbacks have had something wrong with them, such as Cisco Systems (CSCO) and Union Pacific (UNP), which have warned that things won't be that good. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell

Closure Creates an Investor Opening

As they sift through the Washington mess, some money managers think it could be a blessing, at least for their investments.

With the government shutdown heading toward a second week, economists say it could hold back economic growth, business confidence and corporate earnings, but probably won't cause a recession. Many money managers doubt the damage will be lasting. Any stock selloff, they say, would be a great buying opportunity.

"We are looking to take advantage of it if it drives turmoil in the markets," said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at Key Private Bank, an arm of KeyCorp(KEY) in Cleveland.

Richard Steinberg, whose Steinberg Global Asset Management oversees $600 million in Boca Raton, Fla., said he would buy if stocks fall another 2%. David Kotok, whose Cumberland Advisors oversees $2.25 billion in Sarasota, Fla., said he has moved $100 million into stocks in the past two weeks.

"I view this recurring weakness as an entry opportunity in the U.S. stock market," Mr. Kotok said.

With Wall Street taking things so calmly, there hasn't been much turmoil yet for investors to take advantage of, despite the specter of a government that soon could be unable to pay its bills.

On Friday, the Dow Jones Industrial Average rose 76.10 points, or 0.51%, to 15072.58, just 3.9% below its September record. The S&P 500 index still stood at 18 times its component companies' earnings for the past 12 months, more expensive than the historical average of 16. That means most stocks need to fall farther before they look cheap.

The risk in buying during a crisis is that the Washington gunfight could be a bigger calamity than Wall Street thinks. If an actual debt default, financial crisis or recession began to loom, these money managers say, they might have to adjust their strategies.

"If we see evidence that there is major and lasting damage, obviously we would have to rethink that," Mr. McCain said.

The real crisis could come in a few days, with House Republicans refusing to raise the debt ceiling unless the administration suspends Obamacare or agrees to another, as-yet-unidentified quid pro quo. The Treasury Department says it will run short of money around Oct. 17 unless it can resume borrowing.

In 2011, after a previous debt-ceiling fight, Standard & Poor's Ratings Services cut the U.S. debt rating to AA+ from AAA, citing government dysfunction. Fitch Ratings says it could do the same this time unless Congress raises the debt ceiling "in a timely manner" before Oct. 17.

"Investor confidence in the full faith and credit of the U.S. would be undermined in such a scenario," Fitch said Oct. 1.

Ratings firms generally expect the government to use tax revenue to keep servicing the debt even if the debt ceiling isn't raised. Other bills would go unpaid. For Fitch, that would merit a downgrade. Moody's Investors Service says as long as debt payments are made, it wouldn't downgrade.

Many money managers think Congress will raise the debt limit because failing to do so would damage the U.S. position in the world. But even if congressional Republicans refuse to do so by Oct. 17, professional investors widely view that as a short-term tactic that wouldn't lastingly hurt financial markets.

After the S&P downgrade in 2011, stock prices fell sharply. Bond prices rose as investors sought havens. Stocks finally recovered and surged to new records.

"We just believe the odds of lasting economic damage are very, very minimal," Mr. McCain said.

Mr. Steinberg said he would watch closely for signs of economic damage, but he doesn't expect it either. "We are hoping to pick up some bargains on any weakness," he said.

One hidden benefit for investors is that the confusion could delay any Federal Reserve cutback in financial stimulus.

The looming political mess was one reason the Fed decided against trimming its $85 billion monthly bond-buying program at its September meeting. The Fed meets next at the end of October, and it could delay again.

"All of these shenanigans indicate that the Fed is going to continue this stance for a longer period," Mr. Kotok said.

Fed stimulus supports economic growth and funnels cash directly into financial markets, some of which winds up supporting stock prices. The longer the Fed stimulates, the better the stock outlook, investors figure.

The fight in Washington is proving particularly helpful to investors who want to adjust their bond portfolios.

They think long-term bond prices will suffer and yields will rise once the Fed cuts back on bond buying, so many want to reduce holdings now. And with the Fed still buying and some investors fleeing to the perceived safety of bonds, bond prices have risen. That lets investors unload long-term Treasury bonds at higher prices now and shift to shorter-term bonds or stocks.

Some clients are too scared to follow the "take advantage of the turmoil" strategy, Mr. Kotok said. He said half a dozen clients have phoned in the past week, saying, "I can't stand it, take me out, liquidate everything." But that represents a tiny proportion of his total investments.

What makes some people nervous is that Washington already has sunk deeper into dysfunction than most people believed possible. If a refusal to raise the debt ceiling provokes another financial crisis, it could cause a bigger stock slide than markets anticipate.

Many money managers shrug off that risk.

"We don't see an apocalyptic event," Mr. Steinberg said. "The way we view it is we are watching a train wreck in slow motion, but eventually there won't be a crash."

The Advisor Services Company That Does It for You

The companies on the Inc. 500 list of fastest growing privately held companies are a diverse lot, to be sure, but one of them — No. 362 to be precise—has achieved its meteoric rise by propelling financial advisors' businesses.

Inc.’s stats show Platinum Advisor Strategies has grown 1,218% over the past three years, reaching 2012 revenue of $2.3 million—three years after its 2009 founding.

And it is the unmet needs of beleaguered financial advisors that are fueling that rapid-fire growth, according to Platinum’s CEO and co-founder, Robert Fross.

“Our growth is the result of the desire our industry has for a company that can help advisors do the things they know they need to do,” Fross told ThinkAdvisor in a phone interview from Washington, DC, where Fross is attending Inc.’s annual awards ceremony for companies that made its 2013 list.

But Platinum’s growth has already zoomed past its 2013 Inc. listing, which among other statistics, shows 825 financial advisors being served by 15 employees.

Today, the advisor services company’s 23 employees serve nearly 1,000 financial advisors, and Fross says Platinum is committed to adding staff as necessary to keep up with the advisor work flow.

Employees of The Villages, Fla.-based company—dubbed “advisor’s assistants”—work “as an extension of advisors’ offices—they work almost as an employee of the advisor,” Frost says.

“In our business, we have coaches to tell advisors what to do. What we’ve found is the hole in our business is not telling advisors what to do, but providing a service we can do for advisors.

“[Advisors are] told we need to communicate more regularly with clients, do more client events, connect on a more personal level, be more involved in social media,” Frost continues. “What most of these coaches don’t realize is we already know that. But we’re already busy working as financial advisors for a living. If you expect me to also be an events coordinator, that’s unrealistic.”

That’s where Platinum’s advisor’s assistants come in—they’ll tweet, blog, post on LinkedIn in addition to other branding and communications tasks, while Platinum’s office systems and turnkey prospecting initiatives designed to let advisors just “show up.”

“Most [coaching-type] companies teach the advisor how to fish, or show him how to fish; we take them to the pond and cast the line, then hand them the rod,” Fross says.

The idea for a company that would help advisors grow stemmed from the rapid growth Fross’ own wealth management company experienced. Fross and his twin brother, Thomas, remains actively engaged in their own Fross & Fross Wealth Management firm, which they started in 2007 after working five years with another indie firm.

The financial crisis proved no barrier to Fross & Fross’ growth, from $160 million in assets in 2007 to about $400 million today.

“Because we were communicating so regularly, we retained our clients. So many people weren’t hearing from their advisors — so that was an opportunity to attract new clients. We were very much in front of them,” he says.

Fross says lack of communication is the No. 1 reason people leave their advisor. So Platinum offers its white papers, newsletters, conference call and video scripts, e-mail updates and other communications to help its advisors similarly stay in front of their clients.

“We connect the dots between what the advisor knows he needs to do and what he has time to do,” citing a “State of the Market” assessment as an example.

“The advisor has to build the presentation, do the research and get approved by compliance. For all those reason few advisors will ever do a State of the Market.

“We personalize invitations with advisors’ broker-dealer disclosure statement under the event; build the PowerPoint; get it approved by the advisor’s compliance department; have it printed and mailed for him. All he has to do is show up and read the speaker notes and address what’s going on in market,” Fross says.

Such services are especially valuable for independent advisors, since wirehouses often handle these details, which he says are a challenge for independent advisors. “Our comp has really stepped in to fill that niche,” he says.

The Platinum CEO adds that compliance departments view his firm as an ally.

“LPL can approve this commentary 100 times or once,” he says. “We try to make it as easy as possible and they in turn appreciate that advisors are doing things the right way.”

The do-it-for-you approach applies in more esoteric areas as well. Platinum members can organize a wine tasting with Platinum’s help, for example.

“We tell them what to buy, where to buy it, get it approved with their back office and send off invitations on their behalf. All the [advisor] has to do is read the tasting notes that we give him,” Fross says.

Asked whether the provision of all this content undermines a sense of authenticity on the advisor’s part, the Platinum CEO responds:

“We encourage all of our reps to get involved," he says. "Our more successful reps do get involved. But if they solely take on all that responsibility, most will become so overwhelmed that they can’t serve their clients, or they’ll just stop [these activities]. The worst thing an advisor can do is not be consistent in their communications.”

The cost for Platinum’s extra hands varies depending on the level of service the advisors is seeking. Members who want all of the firm’s newsletters, office systems and social media support pay $350 a month,  while a smaller segment that want a website and assistance updating blogs and social media pay an additional $200 a month (after a $2,400 setup fee.)

In response to advisor demand, Platinum expects to announce “within the next 30 days” a new coaching program that will formally commence in January.

Frost says advisors who have taken fullest advantage of the firm’s services have seen year-on-year growth between 50% and 90%.

The reason, he says, is “they don’t have to reinvent the wheel because they can use things we [Fross & Fross] have taken years developing and refining.

Fross compares advisors lacking Platinum’s range of services and office systems to “a gentleman [who] had courted his fiancee for months, proposes, then she doesn’t hear from him for six months."

“Our systems allow you to make sure things don’t fall through the cracks,” Fross says.

---

Check out Loss-Leader Pricing Often a Losing Bet on ThinkAdvisor.

AutoZone May Be a Solid Long-Term Investment

AutoZone (AZO) announced earnings on Wednesday, Sept. 25, beating estimates and reporting $10.42 per share. It is clear in listening to the conference call that the auto parts specialty retailer is a competitive operation. However, some are not currently as enthusiastic and O'Reilly Automotive Inc. (ORLY) has been outperforming.

A simple set-it and forget-it investment in AZO over the past decade would be up around 350%, compared to 69% for the rest of the S&P 500, and 126% for Berkshire Hathaway (BRK.A)(BRK.B). The stock has done well for a number of reasons. Drivers remain:

· It has anticyclical attributes as people fix their own cars ("DIY") when they are on budgets, such as when there is problematic unemployment.

· AutoZone is the largest company of its kind with 5,201 stores, and its plan is to continue growing square footage. It currently has 362 stores in Mexico, with 21 opened during the recently concluded quarter four. Of its foremost competitors, O'Reilly and Advance Auto Parts (AAP), it is the only one with an expanding international presence in Mexico.

· There are also three stores in Brazil, with a plan for 10 to 15 before reevaluation.

· The company's voracious, nonstop buyback plan has also paid off: AutoZone uses all of its free cash flow, maxes out its accounts payable, and incurs debt to the point that it can maintain an investment grade credit rating (2.5x EBITDAR) in order to repurchase shares. In the fourth quarter, $560 million has been bought back, and the company's market cap is just under $16 billion.

· People are keeping their cars on the road longer, resulting in their ongoing maintenance. Purchases of traded-in vehicles also result in repairs and enhancements and therefore business for the company.

· While it lags its competitors in commercial operations, meaning supplying parts to professional shops, improvement is another means for growth. In order to address this issue, CFO Willliam Giles cites m! aturation of its marketing program and inventory assortment additions.

· Using GuruFocus's DCF Calculator, the company has a fair value of $642, or $588 in consideration of tangible book value, resulting in a 29% margin of safety.

Goldman Sachs rates AutoZone a "buy" as of Sept. 27 with a $470 12-month price target. Here is part of its note:

Implications

"We cut forecasts to account for lower SSS trends and sticky SG&A. EPS estimates for FY14/FY15 go to $30.25/$33.80 from $31.00/$34.75. We also introduce FY16 estimate of $37.50. Given AZO's very strong financial profile, we are inclined to give the firm the time to work through issues; financial risk is limited, and valuation leaves some room to maneuver."
Valuation

"We hike our 12-month target price to $470 from $456 on a roll-forward of estimates, offset by our lower forecasts. Our target price is based on risk/reward (EV/EBITDA). Valuation looks undemanding relative to peers."Goldman's report is thorough enough that I would like to provide detail. A table summarizes the firm's findings:

[ Enlarge Image ]

The firm also keeps a YoY inflation index of motor oils, fluids, filters, washes, and waxes for ORLY, AAP, and AZO. Since July 22, AZO's prices have risen at close to 13%, whilst the total index has been up 5.8% to 9.2%. According to Goldman, management says a non-inflationary environment is providing pressure in contrast to the firm's own index.

UBS has two notes issued on Sept. 25. Much of the same topics are discussed, however a Neutral rating in place since July 2011 (when shares traded for $300) is reiterated, and $430 price target is assigned. The Swiss firm observes that a sharply "Accelerated pace of its commercial expansion with 173 openings vs. 102 last quarter... should boost the DIFM biz ahead."

In its other note, UBS says:

"During 4Q, AZO's TTM ROIC was 32.7% as it remained inte! ntly focu! sed on maximizing this key metric. Over time, we think it can still earn a very handsome return (well in excess of its WACC) while it invests in its supply chain and parts availability. But, it might have to sacrifice some of its return profile to do so…Our $430 price target is based on 13x our CY'14E EPS of $31.93… Compared to peers, AZO has a substantial opportunity to close the commercial productivity gap.Strangely, a $31.93 EPS estimate for 2014 is higher than Goldman's $30.25."

The comment on WACC is pertinent to a valuation using the DCF calculator. As such, value is offered in addition to a long-term growth story.

AutoZone is off slightly since earnings are currently trades at around $419. There is also appeal because the company can be counted on to buy back shares at times like now when it trades sideways. There is an imaginable day when the amount of stock left available would be severely limited, and shares might be somewhat illiquid and expensive.

Until then, AutoZone should be viewed favorably because of international expansion, other growth prospects, cheap valuation and security against any economic slowdown.

Wednesday's Top News Headlines

Here are today's top news headlines from Fool.com. Check back throughout the day as this list is updated, and follow us on Twitter at TMFBreaking.

Google CEO Goes Public on Vocal Cord Issue

Nokia Unveils New Lumia Model

Boeing Resumes 787 Deliveries

ConocoPhillips Declares Dividend

SwapLease: 2013 Shows Strong Credit for Car Leasing

GE Wins Contracts for C-130 Props, U-2 Engines

FLIR Wins $82 Million Pentagon Contract

Textron Lands 2 Foreign Military Sales Contracts Worth $85 Million

Brown Shoe Sells Avia and Nevados for $74 Million

Eurozone Recession Extends Into Sixth Quarter

Big Airlines Narrowed Losses in Q4

3M Maintains Quarterly Dividend at $0.635

Exelis Wins Navy Night Vision Contract

Greece to Break Up State Power Company for Money

Lorillard Maintains $0.55 Dividend

Steady as She Goes for Morningstar Dividend

Pinnacle Foods Starts Paying Quarterly Dividend

Arctic Cat Reinstates Dividend

Gartner: Q1 PC Shipments Fell 20.5% in Western Europe

Oil Back Above $94 a Barrel After Early Loss

Crude Oil Inventories Dip as Inputs Rise

Gold Slumps Below $1,400 as U.S. Dollar Recovers

Obama to Meet With Treasury Officials Over IRS

Cheap Gas Pushes Producer Prices Down 0.7%

It's a Crowded Trade

This crowded trade statement currently is apropos in regards to US and European equities, writes MoneyShow's Jim Jubak, also of Jubak's Picks, however, that does not mean these stocks have to decline.

It's one concept that my friend, Peter Tchir, of TF Market Advisors, uses to assess the potential risk and reward of a strategy. In concept, it's pretty simple: Look to see how much of the market, how much of the available money, is already lined up on one end of a trade or the other. And ask, how much more money is available to further push up an already popular trade, or what it would take to get money to flow into the currently unpopular end of a trade. (The concept is simple. Where Peter and his partner Jeremy Hill excel is in figuring out how to measure how crowded a trade might be.)

Looking at the markets right now, I'd have to say, being long US equities is a very crowded trade.

As of September 27, Markit Securities reports that only 2.4% of the shares in the companies on the Standard & Poor's 500 are out on loan to short sellers. That's near a record low.

Granted that number may have changed in the days leading up to an actual government shutdown, but given the performance of the market in the last few days, I don't think short interest has climbed significantly. (To go short, after all, you borrow shares and then sell them, and I don't see a wave of selling recently.)

Markit's data shows an equally crowded long trade on European equities with short positions on European shares totaling just $144 billion, the lowest level since Markit began tracking this data in 2006.

This crowded trade doesn't mean that US and European stocks have to go down. The bet right now, which sees the shutdown of the US government as a minor road bump, is on third quarter earnings. "For the last five quarters, stocks have climbed on the day that the company has announced its earnings," according to Bespoke Investment Group. That's the longest streak in at least a decade according to Bespoke's data.

But it does suggest that the upside to this trade is limited by the popularity of the trade, and that the downside is relatively large if either the budget/debt ceiling battle is more serious than expected or if earnings in the third quarter, which begin with Alcoa (AA) on Tuesday, October 8, disappoint.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any stock mentioned in this post as of the end of June. For a complete list of the fund's holdings as of the end of June see the fund's portfolio here.

Deutsche Bank Upgrades Barrick Gold to “Buy” (ABX)

Deutsche Bank reported on Wednesday that it has upgraded Barrick Gold Corporation (ABX) to “Buy.”

The firm has raised its rating on ABX from “Hold” to “Buy,” and has raised the company’s price target from $20 to $30. This price target suggests a 40% increase from the stock’s current price of $18.03.

Analyst Jorge Beristain noted that the price target was being re-set at 0.8x DBe NPV versus 0.6x previously “as we believe that the risk of an equity issue has receded, thanks to a comprehensive program to shore up the balance sheet unveiled with 2Q13 results and follow through.”

Beristain added, “Barrick's plan includes $4bn in capex cuts/deferrals over 4 years, an immediate 6% reduction in cash operating costs and a 15% cut to exploration expenditures. A 75% reduction in dividends will save a further $600m per year. A portfolio review should see some marginally profitable mines (defined as those with AISC>$1,000/oz) either shuttered or sold. In August, the company unveiled the sale of its Yilgarn South (YS) three-mine 425k oz p.a. complex (5.5% of attributable volumes) for $300m. We look for Barrick's divestiture program to continue with Plutonic (110k oz @ $1,134/oz AISC) and Porgera (464k oz @ $1,317/oz AISC) gold mines, with the former bringing in $45-77m and proceeds from the latter falling in the very broad $70-275m range.”

Barrick Gold shares were up 32 cents, or 1.77%, during pre-market trading Wednesday. The stock is down 49% YTD.

Cardless ATMs allow you to get cash with your phone

The cardless ATM allows you to withdraw cash using your phone.

NEW YORK (CNNMoney) Imagine getting cash out of an ATM without using a debit card.

Just like using a "remote control for the ATM," you will soon be able to log onto a mobile app, indicate the amount of money you want and receive it in seconds from an ATM. No debit card necessary -- all you need is your phone, financial services giant FIS announced at the Money2020 conference in Las Vegas this week.

Three banks -- Wintrust in Illinois, BMO Harris in Chicago and City National in New York and New Jersey -- have been piloting the service in recent months and plan to launch it across all of their ATMs by the end of 2014.

Here's how it works: Using an app on your phone, you can place an order for cash as far as 24 hours in advance or up to seconds before the transaction -- like while you're waiting in line to use an ATM.

When you arrive at the ATM to pick up the cash, the app needs to be open on your phone. You then scan a code on the ATM screen to prove that you're actually there and the machine dispenses the cash.

FIS said it has been receiving strong interest from a number of large banks, in addition to other smaller institutions.

This is just one of the latest attempts by banks to revolutionize the ATM experience. Over the past year, Bank of America, Chase and other big banks have been rolling out so-called virtual tellers, ATMs that provide nearly all the same services as a human teller would -- including exact change, video conferencing and loan and credit card payment capabilities.

  ! How hackers can steal your debit card info

Mary Monahan, of Javelin Strategy & Research, says cardless ATM transactions using FIS technology generally take less than nine seconds compared to 30 or 40 seconds for a traditional ATM withdrawal.

She also believes the technology is more secure than using a debit card. Using a phone prevents skimming, where fraudsters set up cameras on ATMs to capture your card number and PIN. And even if someone finds or steals your phone, they would need to know your passcode to log in, as well as the information for your bank account and your PIN number -- making it far more difficult to steal your identity.

One of the issues this technology faces, however, is connectivity, she said. If there's no cell phone service, a user may not be able to withdraw the money they have pre-ordered. If this happens regularly, it could deter customers from using the service. To address the issue, FIS said it is working on an "offline mode" that would allow people to use their phone to make cash withdrawals no matter how bad their cell phone connection.

Looking forward, the company plans to expand far beyond ATMs. Think gas stations where you can pay by scanning a code at the pump with your phone. Some restaurants are even piloting a service where they put a code on diners' bills that customers can scan in order to pay by phone and leave a tip.

"The phone is becoming a security blanket," said Monahan. "The more you can do with it, the better."

Mom and pop can't quit emerging-market stocks. And that's good

Mom-and-pop investors are best known for their penchant for performance chasing, but they're showing an unusual commitment to emerging markets — even as institutions pull back amid lackluster performance.

Typically, big institutions such as pension funds and endowments — often called the smart money — lead the pack but this time, roles are reversed, and financial advisers are happy about it.

The MSCI Emerging Markets Index, a popular benchmark of emerging-markets stocks, has fallen more than 10% this year while the S&P 500 has rallied more than 18%, but a look at mutual fund flows, which are primarily driven by retail investors, tells a completely different story.

Diversified-emerging-markets funds have had net deposits of $27 billion this year through July, while U.S. large-cap stock funds have had net deposits of just $5 billion, according to Morningstar Inc.

“It's really surprising how resilient the flows have been,” said Mike Rawson, a mutual fund analyst at Morningstar.

Emerging market funds have not posted net outflows since February 2011.

“It's refreshing to see that retail investors haven't abandoned emerging markets,” he said. “Just because performance is bad, it doesn't mean you should sell everything.”

The resilience is drawing some rave reviews from advisers.

“We're seeing good discipline at work,” said Kate Stalter, investment adviser at Portfolio LLC. “That's a very encouraging development.”

Emerging-markets stocks have rapidly become a larger part of since the financial crisis, thanks to the allure of the fast-growing countries.

Since 2009, emerging-markets-stock funds have nearly doubled as a percentage of all equity fund assets, according to Morningstar. Today, investors have just under 8% of all equity fund assets in emerging-markets funds, up from 4% in 2009.

The growth argument started to break down around the middle of last year, however, said Kristina Hooper, head of investment strategies U.S. at Allianz Global Investors.

“Investors have been told emerging markets offer growth, which has been hard to find anywhere, for years now,” she said. “The dynamic really started changing last year. Growth has been disappointing.”

The helps explain why large institutional investors that use exchange-traded funds for easy access in and out of asset classes have been scaling back on emerging markets this year.

The $48 billion Vanguard FTSE Emerging Markets ETF (VWO) and the $35 billion iShares MSCI Emerging Markets ETF (EEM) had a combined $10.8 billion pulled out by investors this year through July, according to IndexUniverse LLC.

That ! doesn't mean that retail investors should be following suit.

“Investors with a long-time horizon are right on in staying the course,” Ms. Hooper said.

Ms. Stalter has been re-balancing her client portfolios to move assets from U.S. stocks into emerging markets.

“Emerging markets have never been cheaper,” she said. “It's a great time to get into some of the smaller areas of emerging markets.”

This Beverage Giant Looks Potentially Lucrative

Soft drinks have always been a hit among people of all ages, until recently. This trend has taken a dip as weight gain, poor dental health, diabetes and cardiovascular diseases are on the rise. People are now much more health conscious as the rate of obesity is accelerating at a great pace. Sugar, being the most important ingredient of soft drinks, is the main contributor to obesity. PepsiCo (PEP), being one of the largest beverage and food companies, is also facing this heat since there has been a decline in the sales of soft drinks in the U.S. Despite this decline, the cola company has managed to grow its revenues by 2%. PepsiCo owns 200 brands, 22 of which do over $1 billion in annual sales.

Competition Faced

PepsiCo's largest competitors include The Coca-Cola Company (KO) and Dr Pepper Snapple Group (DPS). There is an intense competition between the two companies. They not only compete in soft drinks, but also have branched out to other beverages including coffee, juice drinks, and even water. If Pepsi were to offer a new product it wouldn't be surprising to see Coca-Cola follow suit.

Coca-Cola entered foreign markets differently than Pepsi, providing it an edge over Pepsi. While Pepsi invested heavily in foreign markets, Coca-Cola's appointed bottlers with significant experience easily neutralized any threat PepsiCo could pose. Coca-Cola sees declining demand for sparkling beverages. PepsiCo is in a better position than Coca-Cola and Dr. Pepper Snapple because it has already diversified into the salty snacks market. It also offers a strong dividend.

On the other hand, Dr Pepper Snapple Group has 4.9% decline in its sales of its diet brands, despite a 2.3% increase in units sold on promotion. The company's flagship brand, Dr Pepper's sales volume declined 4% followed by the company's main brands; 7-Up, A&W, Sunkist, and Canada Dry, which were down 1%. Only, Snapple and Mott's sales volume increased 4% and 2%, respectively.

What to Expect

As I said earl! ier, people now are much more health conscious, and so to survive in this industry PepsiCo has to constantly keep on innovating. In order to cut costs by $3 billion through 2014, PepsiCo is also undergoing a strategic initiative. The company has a high return on equity which has remained above 30%, with the exception of a brief decrease in 2005 and 2012.

[ Enlarge Image ] Chart from wikinvest.com

The company is expecting to grow its earnings per share by 7% over the next year. This indicates that the company will keep its history of consistently increasing dividends. Every year, PepsiCo has consistently managed to repurchase 1.10% of its outstanding shares. The company boasts successful innovation with the introduction of Aquafina, Gatorade and Propel, Lipton teas and Tropicana. PepsiCo acquired the leading Russian food and beverage company Wimm-Bill-Dann (WBD) in 2011, building its nutrition business.

When it comes to the profitability of PepsiCo, its gross profit margin in the last five years has been around 53.04%, which is quite encouraging. It is making good money since net profit margins are around 11.13%. Next year's estimated earnings will be $4.72 per share. Pepsi boasts a dividend of 2.85% with a payout ratio of 50.1%. The company's return on equity is quite healthy at around 27%, which means that shareholders can expect good returns on their investments.

The company could do better by cutting down on its operating expenses. The price/earnings ratio of PepsiCo is around $20, which is quite a bit lower than its competitors, which again goes in favor of this company. It has entered into a partnership with Jamba, thereby deciding to give a miss to the boring breakfast by giving something new. A merger of PepsiCo's salty snacks with Mondelez's sweet treats would create a company with nearly $70 billion in annual revenue. The merger could yield an implied value of $175 per share for PepsiCo by the e! nd of 201! 5.

On a Concluding Note

The company has a consistent dividend track record, as a global food and beverage company with brands that stand for quality, and are respected household names — Pepsi-Cola, Lay's, Quaker Oats, Tropicana and Gatorade, to name a few. It has a portfolio of enjoyable and wholesome foods and beverages. PepsiCo is committed to sustainable growth by investing in a healthier future for the investors with net revenues of more than $65 billion and a product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales.

PepsiCo is focused on delivering sustainable long-term growth and strong cash returns to shareholders. With this momentum, PepsiCo is expected to quench the thirst of its consumers in the recent times to come.

Chrysler IPO could be a shot in the arm

DETROIT -- Despite Fiat's preference for a complete buyout of Chrysler, the Auburn Hills automaker could continue to recover and thrive with a new set of investors who wouldn't be exposed to Fiat's risks, according to one fund manager studying the automaker's proposed initial public offering.

Sergio Marchionne, CEO of Fiat and Chrysler, doesn't want two sets of shareholders, two sets of regulators and new shareholders second-guessing his judgment. But the UAW Retiree Medical Benefits Trust also took a chance on Chrysler's bankruptcy restructuring and subsequent turnaround. Now, it wants to convert its Chrysler shares to cash so it can pay the medical bills of about 60,000 retirees.

"It does sometimes help to have more than just one interested party take a look at the company's operations and strategy," said Mirko Mikelic, senior portfolio manager for Fifth Third Asset Management. "Whenever I am making an investment decision, I always like to hear that completely opposite view. It either helps me solidify my view, or pull back."

Fiat could increase its offer for the UAW trust's 41.5% stake. That would enable it to draw on Chrysler's cash to fund its turnaround in Europe after the partners renegotiate current loans.

"There is no way Marchionne wants to deal with public investors, especially if a bunch of activist investors get involved," said Ken Elias, a partner with Maryann Keller & Associates in Greenwich, Conn. "They'll question everything."

Chrysler executives often say that the teamwork and respect that has characterized Fiat's stewardship of its partner is dramatically better than the disdain that characterized the Daimler ownership from 1998 to 2007.

Marchionne repeatedly has said his goal is to forge a global automaker that can sell at least 6 million vehicles annually and compete in all major markets. Now he's sending mixed signals.

Chrysler's registration statement, filed Sept. 23, warned that Fiat might back away from the Chrysler alliance if the th! e public offering goes through.

Fiat and the UAW trust have been embroiled in a bitter dispute since last summer over the value of the shares Fiat wants to buy.

The two sides are said to be more than $1 billion apart, with the UAW trust asking for $5 billion. If there is an initial public offering, it probably won't occur early next year. If the two sides reach an agreement, it wouldn't happen at all.

In Europe, Fiat is restructuring and developing new cars, especially for its upscale Alfa Romeo and Maserati brands, that can sell in larger quantities outside Italy.

Given its current problems, cutting ties with Chrysler doesn't seem likely or logical. So far this year, Fiat would have lost $654 million, or 482 million euro, without Chrysler.

"No one has asked the question whether Chrysler might be better off without Fiat," Elias said. "Fiat is too small in Europe and has limited exposure globally — except in Brazil — has high costs and an unclear future. The ingredients missing at Chrysler are really just small and midsize cars and small engines … and no real hybrid or BEV (battery electric vehicle) strategy."

The two partners need each other.

The Dodge Dart compact car launched last year was built on a modified Alfa Romeo platform. The diesel engine in the Grand Cherokee that went on sale earlier this year comes from Fiat-owned VM Motori. The 2014 Jeep Cherokee that goes on sale this month also is built on a modified Alfa Romeo base.

A full merger would give Fiat access to Chrysler's cash to fund future Fiat vehicles if it renegotiates its loan agreements with lenders. But Marchionne has pledged that Fiat never would hurt Chrysler solely for Fiat's benefit.

"The common humanity that binds our two organizations together is the irrefutable industrial logic behind the alliance and the shared values that define our organizational culture," Marchionne said when he spoke earlier this year in Detroit.

Given the way Daimler walked away from C! hrysler, ! reneging on that "irrefutable logic" would not inspire trust among experienced Chrysler workers who have painful memories of life under a European automaker.

In 2009, Fiat paid no cash for 20% of Chrysler, promising to provide management and key technology. Since then, Fiat has paid $2 billion to acquire additional Chrysler shares and repaid loans from the U.S. and Canadian governments.

Mikelic doubts Marchionne is serious about his threat for Fiat to back out of the alliance in light of his repeated goal of building the partners into a global automaker.

Is he willing to deal with a band of outside investors, or will he pay a higher price for total ownership?

"Sometimes you don't like to hear it. But outside investors can offer good advice at times," Mikelic said.

​Amarin Regains Ahead of Vital Q4 Catalysts

Shares of Amarin Corporation (NASDAQ: AMRN) finally seem to be recovering from a prolonged selloff in July and August – possibly on the "adequate" prescription sales data that has recently been coming through for the company's flagship drug Vascepa. Shares bottomed at a newly-made 52-week low of $5.12/share before rallying (strongly) in the last few weeks. This recent rally fought against the broader bearish trend in the pharmaceutical space as well as the broader market.

This is an encouraging turn of events for Amarin shareholders, who have otherwise seen a truly disastrous year. Investors, still upset over the fact that the company was unable to secure a buyout or partnership before the market launch of hypertriglyceridemia drug Vascepa, have punished the stock with a >50% drop in share price since the decision was finalized in December 2012 (along with a non-dilutive debt financing). The NCE status of Vascepa also remains undetermined to the frustration of bulls and bears alike.

Recent Lack of Action in Amarin

Because of the lack of predictable catalysts in the last few months and the relatively unsurprising trend in Vascepa sales, trading interest has slowed down a bit. The NCE status of Vascepa, which would have been revealed in the FDA's monthly Orange Book release, did remain a popular "catalyst" trade throughout the year. Throughout the last few months options traders have attempted a number of straddles in an attempt to capture Amarin's volatility in the event of an NCE, although these trades failed due to the lack of any FDA decision.

It is still unknown when this decision will be made, although we can infer that the binary event will have a noticeable impact on share price. The NCE status of Vascepa will determine whether the drug received 3 or 5 years of exclusivity in the US market. Since this alters the long term revenue potential of the product in its hypertriglyceridemia and cardiovascular risk indications, it should have an even larger impact on the current valuation.

Based on enterprise valuation, we can say that Vascepa is currently worth a bit over $1 B. Analysts are not expecting Vascepa sales to break $100 M this year, although the growth is expected to be enormous over the next few years. By 2016, analysts are anticipating Vascepa sales to be north of $500 M given that the drug stays on its current path and expands into new indications.

Amarin and Vascepa in Q4 2013

As we enter the fourth quarter of 2013, we expect some returning interest in Amarin as we approach very big catalysts for Vascepa.

From our previous note:

Recently, the FDA announced the scheduling of an Advisory Committee for the sNDA submitted by Amarin earlier in the year. An approved for this would expand Vascepa's hypertriglyceridemia indication into the 200-500 mg/dL range, and would add "mixed dyslipidemia" to the Vascepa label (this is also referred to as the "ANCHOR" indication). While this is not as expansive as the REDUCE-IT (cardiovascular risk) indication, it is a huge step forward for the drug and allows the company to market to ~40 M patients in the United States as opposed to the current ~4 M.

The AdCom will take place on October 16th, 2013 and the PDUFA goal date for the ANCHOR sNDA is December 20th, 2013.

Generally we would expect increased volatility of the stock before these events, although the opposite can occur as well. What we do know is that these events will have a profound impact on the long-term success of Vascepa. Expect big reactions from Wall Street soon.

(Original Article)