(Correction) Gannett: Q4 EPS To Meet High Estimate

USA Today publisher Gannett’s (GCI) CFO Gracia Martore, speaking at a UBS digital media conference, this morning said shewas “comfortable” with the high end of analysts’ estimate range of 48 cents to 62 cents for Q4. Miami Herald owner The McClatchy Company (MNI) was at the same conference yesterday and offered positive remarks about Q4 advertising growth, boosting its stock 10%.

Martore’s remarks were accompanied by projections for 2010, including “high single digits” decline in headcount in the print publishing part of the business, and “low single digits” decline in Gannett’s digital media division. The company plans to put more money into digital while costs decline for the print and broadcast divisions. Correction: An earlier version of this post implied that Gannett was laying off personnel in print & digital. In fact, the year-over-year decline in both units is primarily a result of layoff activities taking place this year. My apologies for any confusion caused by the error.

Gannett shares are off 2 cents, a fraction of a percent, at $11.74, after briefly spiking following the presentation.

Sprint: Macquarie Sees Risk In High-Yield Breakdown

Macquarie Securities’s Kevin Smithen today cut his price target on four of the U.S.’s smaller telecom companies’ stocks, Sprint-Nextel (S), Frontier Communications (FTR), Leap Wireless (LEAP), and MetroPCS (PCS), writing that the companies, highly leveraged, are threatened by the breakdown of the high-yield bond market and the resulting increase in premia on their debt.

Smithen notes the bonds of all of them are seeing rising premia, as measured by credit default swaps, and are seeing a spike in yields.

Sprint’s bonds maturing 2019, which have a coupon of 6.9%, are currently trading with a yield of 9.4%, for example. Frontier has seen its 2022 bonds with an 8.75% coupon blow out to a 10% yield. PCS’s 2020 issues with a 6.625% coupon are at 8.45% yield, and Leap’s 2020 issues with a 7.75% coupon are trading at 9.9%.

Smithen takes his cue from the movie “Moneyball,” in which baseball sabermetricians correlate the statistical value of players who get on base frequently. He sees a disturbing statistical correlation between these stocks and the index of high yield corporate paper:

Widening yield spreads could cause leveraged telco equity values to �overshoot� on the downside over the next few months as they did in 2008. Names such as LEAP, FTR, S and PCS have the most correlation to the high yield indices and could see further share price erosion if the high yield markets deteriorate further.

The actual concern is that the higher premia threaten higher borrowing costs for companies such as Sprint whose network expansion capital requirement is not fully funded.

Smithen cut his price target on Sprint to $3.73 from $4.10, while reiterating a Neutral rating. His target on PCS goes to $14.25 from $16.50, though he maintains an Outperform rating on the shares. Smithen rates Leap stock Underperform and cut his price target to $40 from $6.35. He downgraded Frontier shares to Underperform from Neutral and cut his price target to $5 from $7.20.

Smith recommends telco investors focus instead on “investment grade” names such as Verizon Communications (VZ) and CenturyLink (CTL).

This afternoon, all four of those names are trading down worse than the Nasdaq’s 2% decline:

Sprint shares are off 13 cents, over 4%, at $2.90;
MetroPCS is down 44 cents, or 5%, at $8.26;
Leap is off 68 cents, or almost 10%, at $6.23;
and Frontier is down 37 cents, or 6%, at $5.74.

� Widening yield spreads could cause leveraged telco equity values to �overshoot� on the downside over the next few months as they did in 2008. Names such as LEAP, FTR, S and PCS have the most correlation to the high yield indices and could see further share price erosion if the high yield markets deteriorate further.

Apple Is a Sell

Apple is a sell.

I know, I know. Nobody wants to read about a stock that is a sell. You want to know about the next big winner, the next Apple.

But hear me out. There is a unique twist to this story that you probably don�t know. This cinched it for me � it is what inspired me to take to the keyboard.

Now, I know it may seem crazy to say anything contrary to the bull thesis on Apple. After all, the company has probably around $100 billion in cash right now. That�s about 20% of its market cap. It grew more than 70% in its last quarter, trades for only 15 trailing earnings and only 11 times this year�s consensus guess.

Hard as it is to believe, Apple looks like a value stock.

Yet the stock has been on fire. As I write, the stock has just put in a new all-time high of $547 per share. It is up 33% in 2012 alone. It�s up 159% since the start of 2010. The market cap of Apple is over $500 billion. It is only the sixth company ever to reach that mark after Microsoft, GE, Cisco, Intel and Exxon Mobil. None of the others held that spot for long. (GE held it for about a year, but it stepped down quite a bit after that. Cisco held it for two weeks; Intel for a day.)

That huge price tag has led to the creation of a whimsical website dedicated to telling you things that Apple is worth more than. For example, Apple is worth more than it cost to build the U.S. highway system. It�s worth more than the U.S. aircraft carrier fleet, more than retail electricity sales in the U.S., more than the global coffee industry, more than the U.S. beef industry. It�s worth more than the National Football League � times ten!

To get there, the stock has no shortage of boosters. I happened to catch a segment on CNBC recently in which a fluffy-minded blond host had two guests on her show to talk about Apple�s stock. She opened by saying she wanted to have one bull and one bear, but she couldn�t find a bear. So the segment basically turned into a cheerleading session for Apple, with both guests telling us why Apple�s stock was going to move higher.

It�s hard to find anyone willing to take the other side because nearly everyone owns it. The Wall Street Journal reports today that of the 465 funds Morningstar tracks, 400 own shares of Apple. And 320 of them have made it at least 4% of the fund�s holdings. �It�s the stock everyone seems to have to own,� says Richard Nackenson of Neuberger Berman, quoted in the story.

This alone is a telling piece of anecdotal evidence, by the way. When everyone thinks alike, there isn�t much thinking going on, as the old saying has it. The investing annals are full of sure things that evaporated like the morning dew.

But Apple does have a few big problems with which to contend…

The first is obvious, and that is the loss of its visionary founder, Steve Jobs. It is hard to think of Apple without also thinking of Steve Jobs. There is, of course, a very good reason for that. He was instrumental in bringing about the array of beloved products that Apple is famous for producing. I can�t understand how anyone can look past the loss of Jobs and think that the company�s future could be brighter without him than it has been with him.

The loss of Jobs was a dramatic blow to the company, and it will have all kinds of effects that are hard to quantify, or even imagine. I think its ability to reinvent and create is much diminished. Its future looks more like Microsoft�s to me, a tech giant milking past successes but an also-ran in the derby for creative breakthroughs.

But the real reason I take to the keyboard has to do with the sustainability of its most-popular product, the iPhone, which makes up half of its sales.

Here I give credit to Anton Troianovski, who wrote a piece titled �iPhone�s Crutch of Subsidies� in The Wall Street Journal. In the U.S., hardware manufacturers pay Apple about $400 every time a customer buys an iPhone with a two-year contract. By contrast, Google licenses its Android to hardware manufacturers for free.

Let that sink in. Does that sound like a sustainable business model? It sounds to me like the soft underbelly of a mighty beast called Apple.

We�re already seeing this play out in Europe, where a weaker economy perhaps forces people to be more budget conscious. In Europe, Troianovski writes, Android phones cost less than $200 without a contract. The cheapest can be had for about $106. Contrast this with Apple, whose cheapest phone, a four-year-old model of the iPhone 3GS, goes for $535.

No wonder the Android is eating into Apple�s lead. In hard-pressed markets like Portugal and Greece, more than 90% of all smartphones sales were Android sales last year.

Suddenly, the hardware manufacturers are starting to wonder about that stiff subsidy. The CEO of the telecom giant Telefonica Spain said: �We can�t keep subsidies at these levels.� In Denmark, wireless carriers have already stopped paying the subsidy.

Apple is going to lose in Europe. Either it sticks to its strategy and Android eats its lunch, or it lowers the subsidy, which will impact its bottom line.

The bigger prizes out there are the emerging markets. Apple�s CEO said the emerging markets are �critical� to Apple. Yet how do you think this subsidy model will roll out in places like China, India and Brazil?

My hunch is that is won�t be nearly as successful as Google�s �give it away for free� model.

In the U.S., this subsidy issue hasn�t been a problem because people pay a lot for a phone to begin with. But how long will that last? It�s hard to say. But I think the fundamental problem is that Apple�s products are luxuries, and that makes them vulnerable on the price front.

Then there is the issue of the Apple iPad, which is the second-most-popular product, at nearly 20% of sales. There is a lot of anticipation about the iPad 3. Why? Well, it�s supposed to have maybe a higher screen resolution or better touch-screen.

I don�t know, maybe there will be more features. But I have an iPad. I don�t think any of the rumored upgrades are going to induce me to buy another one. It seems to me the biggest innovation with the iPad was the device itself. There was nothing like it before. Now there is. Incremental innovations get much tougher from here, much like with a PC or a laptop, or even a smartphone.

What it all comes down to is this: For Apple, things will never get better than they are today. You can�t improve on perfection. Its products are luxuries, clearly vulnerable to cost pressures. It�s surrounded by hungry and eager competitors. And its most-popular product has a definite soft underbelly that the arrows of competitors will find soon enough.

For all these reasons, if I owned Apple � which I don�t � I�d sell it.

Under Any Scenario, JC Penney News is Bad: Nomura

On Monday after the market closed, JC Penney (JCP) announced that President Michael Francis was leaving. The company offered no explanation for his departure, but there isn’t really any explanation that could lessen the damage, writes Nomura analyst Paul Lejuez.

Among other problems, the sudden change could affect the company’s relationship with vendors. “We believe he, along with Ron Johnson, played a large role in signing up new brands/vendors, so his departure will likely cause some questions in the vendor community.”

The move clearly raises larger questions about the company’s strategy and who takes the blame for recent missteps, writes Lejuez.

“Is Francis taking the blame for marketing or did he lose faith? The turnaround envisioned in Jan has not gained traction, and the company has made basic mistakes such as introducing �branding� marketing before the product/stores had changed. Francis may be taking the blame for the marketing mistakes. Alternatively, maybe Francis is giving up on a turnaround plan he helped create. When he was hired, Francis was awarded 1 million restricted stock units that do not vest (and only one-third) until Nov 2015 � perhaps the date seemed farther and farther away.”

Lejuez lowered his price target to $26 from $30. JCP shares were recently down 10% at $21.88.

Profits from Capture-the-Dividend Plays

With the Standard & Poor’s 500 Index flat for another year, dividend income has become even more vital.� According to mutual-fund legend John Bogle in his book Enough, dividends have historically provided over 40% of the total return in the market. Since the financial markets were flat for the last decade, that means the capital-gains segment of an equity was -60% of the total return. For investors, money in stocks that don’t pay dividends hasn’t just been�”dead money” (in that there was no�income), it’s been zombie money — eating into the total returns of the body of the portfolio.

This does not seem likely to change for either stocks or bonds. In an article in Smart Money magazine by Ian Salisbury, “Trust Me, I’m a Fund Manager,” William Eigen, manager of J.P. Morgan’s Strategic Income Opportunities Fund, notes that “there’s no income in fixed income.” And Bill Gross, the “bond king” who’s head of Pimco, is recommending dividend stocks. Since the entire basis of investing is the time value of money, leaving funds dormant for all but the four dividend-paying days of the year is hardly efficient.

Capture-the-dividend trades allow investors to maximize return on capital by owning a security for the days when it goes “ex-dividend” — paying out to the shareholders of record. The security, be it a stock or an exchange-traded fund, is bought before the ex-dividend date, then sold quickly for a profit.� Capture-the-dividend trading is the ultimate transaction for “the perfect trading day” — i.e., ending with all positions closed.

Surprisingly, stocks associated with conservative, long-term investing, such as utilities and consumer companies, are ideal. Most importantly, these stocks pay healthy dividends. Pepco Holdings (NYSE:POM),�the utility for the Washington, D.C., region, pays a dividend of 5.37%. Altria Group (NYSE:MO) is a consumer giant with a dividend yield of 5.67%. AT&T (NYSE:T) offers dividend payments of 5.91%. The average dividend for a stock on the Standard & Poor’s 500 Index is around 2%.

While capture-the-dividend plays are similar to day-trading if executed adroitly, the ideal stock is one that’s�not volatile. Since the object of capture-the-dividend trading is to book the gain and then sell quickly, a trader won’t want to get caught on the wrong side of a wild swing.� Again: �Widow and orphan� stocks are the most suitable. AT&T has a beta of 0.60, while overall market volatility is 1. That means AT&T moves less than two-thirds as much as the market. The beta for Altria Group is 0.42. Potomac Holdings’ is 0.51.

Your target company should also be listed on the New York Stock Exchange, so there isn’t a wide gap between the “bid” and the “ask” price. This protects the individual from being abused by market makers. If the stock is listed on the Big Board, volume is most likely strong as well. Investors do not want to be the market in capture-the-dividend transactions. With the daily volume for Potomac Electric at 1.84 million shares, 25.30 million for AT&T and 13.55 million for Altria, that is not a concern.

To mitigate transactions costs, investors have several options. Trading in a retirement account will allow for the gains to be tax-free. In addition, since you can’t go on margin in a retirement account, there’s a built-in hedge against a trade gone awry. Investors can also elect to utilize capture-the-dividend trades with tax-free bond exchange-traded funds.

The most important reason to deploy capture-the-dividend trading is the rarity of it: Investors know what the dividend payment will be and when it will be paid, since the board announces that info in advance. How many other plays can you name that have zero uncertainty?

Oracle: Three Downgrades; Is It Them or The Economy?

Shares of Oracle (ORCL) are down $4.15, or 14%, at $25.02, having deepened their slide in the course of the morning session after the company last night missed fiscal Q2 expectations and forecast the current quarter below consensus estimates as well.

Oracle management on the conference call following the results said that some software orders had taken longer to close but that the company was putting in place measures to ameliorate that situation this quarter and going forward.

The gloomy report has hit all the major software vendors today. Salesforce.com (CRM), for example, shares are down $9.14, or almost 9%, at $95.19. And SAP AG (SAP) is off $3.72, or 7%, at $52.01.

Analysts, however, sounded skeptical that the shortfall was as simple as the company suggested.

Today, both bull and bear are inclined to think the weakness is a bit more than Oracle will fess up to, as price targets and estimates come down.

The stock received one downgrade I’m sorry, three downgrades, that I can see, from Societe Generale’s Richard Nguyen, who lowered his rating from Buy to Hold; one from CLSA Asia-Pacific Markets‘s Ed Maguire, who cut from Buy to Underperform; and one from�Canaccord Genuity’s Richard Davis, who cut his rating to Hold from Buy, and cut his price target to $28 from a prior $38.

Given the shocking nature of the shortfall for such a predictable company, Davis thinks the stock will trade sideways “for the next two to three quarters.”

Davis thinks some of this is Oracle’s own fault, writing, “Our view is more nuanced; ORCL missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications. We expect Oracle to catch up, but it will be through some R&D and a lot of M&A.” Davis advises buying Salesforce.com in bulk on any shortfall in that stock.

CLSA’s Maguire is inclined to assume Oracle is doing it’s best, but he sees the circumstances stacked against the company, writing “Customers are delaying commitments due to uncertainty driven by a combination of factors [...] we expect negative bookings and growth trends, lengthening decision cycles, FX headwinds and increasingly tough YoY compares to keep the shares range-bound in the near term.” He cut his rating to Underperform from Buy.

Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating on the stock and a $32 price target. Sherlund cut his fiscal 2012 estimate to $37.39 billion in revenue and $2.36 per share in profit, down from $39 billion and $2.44 per share. Sherlund notes that the slippage in deals is “typical of a macro[economi] slowdown,” but he also argues, “there were likely some execution issues at Oracle that may have made this worse for ORCL than other companies that have reported so far.” But the sell-off today probably “de-risk ORCL shares,” he thinks, and the continued strong growth in the company’s “Exadata” hardware could prove a “catalyst,” he thinks.

Joel Fishbein, Lazard Capital Markets: Reiterates a Buy rating and cuts his price target to $34 from $40. But he’s inclined to believe it’s nothing specific to Oracle, just the tough environment for software given global macroeconomic distress. Fishbein but his estimate to $37.34 billion in revenue this fiscal year and $2.35 per share in profit, down from $38.56 billion and $2.43 per share. “We are resetting our numbers and price target to account for elevated macro concerns, but continue to believe in multiple company specific drivers and with the stock trading at trough multiples, we maintain our BUY rating.” Fishbein writes that he is specifically looking forward to products such as the “SuperCluster,” the “Big Data appliance” and the “Exalytics” in the next couple of quarters.

Robert Breza, RBC Capital: Reiterates a Sector Perform rating and a $30 price target. He cut his 2012 estimate to $38.75 billion in revenue and $2.54 in EPS from a prior $40.76 billion and $2.59. Breza thinks the company’s promise of expanding profit margin may not be enough for some investors: “Management believes it has the products, expanded distribution and resources to give it confidence in the outlook and capitalize on the opportunity. We believe investors may take a more wait-and-see approach, however, and may look for more growth vs what seems to be more balanced growth with margin expansion.”

Mark Murphy, Piper Jaffray: Reiterates an Overweight rating on the stock, while cutting his price target to $33 from $34. Murphy speculates Oracle is a sign of the “new normal” in the software industry, in essence a period of slower growth. Be prepared for a lot of underwhelming results, he writes: “We expect continued unexciting growth over the next two quarters, with little in the way of catalysts on the immediate horizon but we believe Oracle is still a premier large cap software name and like it for its defensiveness.” Murphy cut his fiscal 2012 estimate to $37.46 billion in revenue and $2.35 per share in profit from a prior $38.44 billion and $2.40 a share.

Shhh! 25 Execs Who Out-Earned Their CEOs

Stories of excessive CEO compensation continue to make headlines. For example, a study released in mid-December revealed that CEO pay is shooting skyward, jumping almost 37% in 2010. Another story on InvestorPlace.com, just today, looks at how Viacom‘s (NASDAQ:VIAB) CEO made an astounding $84.5 million in just nine months, making him the highest-paid CEO in America. But while tales of over-the-top CEO pay pummel our news feeds, one group has been cashing their mega-checks with little fanfare. Well, until now.

CNNMoney found 25 “executives down the ladder who quietly out-earned their CEO bosses in 2010.” Here are the top five from its list of Undercover Zillionaires:

No. 1: Tim Cook, $59.1 million
Title: Formerly COO; now CEO
Company: Apple (NYSE:AAPL)
CEO: Steve Jobs
Pay difference: $59.1 million

No. 2: Blake R. Grossman, $33.7 million
Title: Former Vice Chairman
Company: BlackRock (NYSE:BLK)
CEO: Laurence D. Fink, $23.8 million
Pay difference: $9.8 million

No. 3: Stephen B. Burke, $31.3 million
Title: Formerly COO; now Executive VP, Comcast and CEO, NBCUniversal
Company: Comcast (NASDAQ:CMSCA)
CEO: Brian L. Roberts, $28.2 million
Pay difference: $3.1 million

No. 4:� Thomas M. Rutledge, $28.1 million
Title: Former COO
Company: Cablevision (NYSE:CVC)
CEO: James L. Dolan, $13.3 million
Pay difference: $14.8 million

No. 5:� Hamilton “Tony” James, $26.2 million
Title: President and COO
Company: Blackstone Group (NYSE:BX)
CEO: Stephen A. Schwarzman, $6.7 million
Pay difference: $19.4 million

Visit CNNMoney for more details about the plush pay packages of these executives, and to see the full list of 25 Undercover Zillionaires.

Berkshire buys Liberty Media stake, ups tech holdings

NEW YORK (CNNMoney) -- Warren Buffett's Berkshire Hathaway has doubled down on its tech holdings while also acquiring new stakes in entertainment conglomerate Liberty Media and dialysis treatment provider Da Vita.

Berkshire now holds 1.7 million Liberty Media (LMCA) shares and 2.7 million Da Vita (DVA, Fortune 500) shares, according to documents filed Tuesday. Those stakes were worth roughly $133 million and $204 million, respectively, at the end of December.

The company also upped its stake in Wells Fargo (WFC, Fortune 500), now holding more than 7% of the banking giant, and sold its small stake in Exxon Mobil (XOM, Fortune 500).

Buffett's firm has traditionally avoided tech stocks, but in November, Berkshire surprised some observers by announcing new purchases of shares in Intel Corp (INTC, Fortune 500)., DirecTV (DTV, Fortune 500) and IBM (IBM, Fortune 500) during the third quarter. Berkshire bought more than 57 million shares of IBM alone, enough to make it one of the largest investors in the so-called Big Blue.

Berkshire (BRKA, Fortune 500) increased its holdings of all three firms last quarter, Tuesday's filing showed.

It now owns nearly 64 million IBM shares, while its Intel holdings increased by more than 2 million shares. Its DirecTV stake more than quadrupled, shooting up by nearly 16 million shares, and was worth $870 million at year's end.

Warren Buffett: Why stocks beat gold and bonds

Buffett's firm also reduced its stakes in Kraft Foods (KFT, Fortune 500) and Johnson & Johnson (JNJ, Fortune 500). Overall, Berkshire held $66.2 billion in common stock at the end of the fourth quarter, with almost all of it in U.S. companies

The stock holdings list does not include companies that Berkshire now owns in their entirety, such as insurer Geico or chemical company Lubrizol Corp. It also does not include preferred shares or warrants, such as the $5 billion of such holdings from Bank of America (BAC, Fortune 500) that Berkshire bought last year. 

PIMCO Launches Active TIPS ETF (ILB)

PIMCO, fresh off the extremely successful launch of its Total Return ETF (BOND), has rolled out another actively managed bond fund that taps into a corner of the fixed income market that has generated significant interest in recent years. The new Global Advantage Inflation-Linked Bond Strategy Fund (ILB) will be comprised of inflation-protected bonds, securities that are designed to appreciate along with official inflation metrics.

The new PIMCO ETF will be benchmarked against the�PIMCO Global Advantage Inflation-Linked Bond Index, and will invest in inflation-protected bonds that are ‘economically tied to at least three developed and emerging market countries (one of which may be the United States)” according to the prospectus. While most inflation-protected bond ETFs focus primarily on U.S. securities, there are a handful that maintain an international focus. The��SPDR DB International Government Inflation-Protected Bond ETF (WIP) holds a broad-based portfolio with a tilt towards Western Europe, while the iShares Global Inflation-Linked Bond Fund (GTIP) includes both domestic and international holdings.�

TIPS ETFs

Though there are more than a dozen ETFs in the Inflation-Protected Bonds ETFdb Category, ILB is the first actively managed ETF to tap into this corner of the bond market. PIMCO already offers three index-based TIPS ETFs as part of its product lineup, including the broad-based TIPZ. In addition, PIMCO offers products that focus on both the long (LTPZ) and short (STPZ) ends of the duration spectrum [see the Hyper-Inflation ETFdb Portfolio].

STPZ, which debuted in 2009, has already attracted about $1 billion in assets. In total, the three PIMCO TIPS ETFs have aggregate assets of nearly $1.5 billion. In total inflation-protected bond ETFs have aggregate assets approaching $25 billion, highlighting the tremendous interest in accessing this asset class through the exchange-traded structure. The bulk of that $25 billion is in the ultra-popular TIP, which is one of the largest ETFs by total assets with some $22 billion.

ILB will charge 0.60%, which puts it at the high end of the expense spectrum for inflation-protected bond ETFs. The average for the ETFdb Category is about 28 basis points, with the Schwab U.S. TIPS ETF (SCHP) charging just 0.14% annually [download How To Pick The Right ETF Every Time with a free ETFdb membership].

Spain pressured as market weighs Bankia fallout

MARKETWATCH FRONT PAGE

Bankia shares recover from a more than 20% drop on Monday as investors weigh up last week�s �19 billion bailout need for the ailing lender and broader implications for the euro zone. See full story.

Europe shares rise after Greek polls; Spain drops

European stock markets move higher after polls in Greece indicate the conservatives hold the lead, offering signs of progress toward stabilization in the country, while pressure remains on Spain. See full story.

Asia stocks rally amid China stimulus expectation

Asian markets end higher Monday after opinion polls in Greece show a lead for a party favoring the country�s economic bailout in upcoming elections, with mainland Chinese stocks rising amid expectations for a policy stimulus. See full story.

Gold edges up as Greek exit fears ease

Gold futures edge higher as the concerns of a Greek exit from the euro zone ease marginally, while a weaker dollar also lend support. See full story.

U.S. job growth in May seen as mild

After a burst of hiring to start the year, the U.S. economy has settled into a slower pace of job growth and the latest employment figures for May are likely to fit the pattern. See full story.

MARKETWATCH COMMENTARY

Time was small investors couldn�t get enough shares of a hot IPO. Now with Facebook, there are so many nobody knows where they might end up, including in our portfolios. See full story.

MARKETWATCH PERSONAL FINANCE

When it comes to IRAs, timing is everything. Robert Powell looks at five rules that could derail your retirement-savings plans. See full story.

Federal Employees Owed OVER $1 Billion in Unpaid Taxes

When has it been all right for employees to break and bend the rules that the federal government enforces on all American people? Apparently ever since they started working for the federal government.

According to records coming from the IRS, congressional staffers owed around $10.6 million in unpaid taxes in 2010. And that's an increase from the previous year, but yet not even a sliver of the growing total of $1.03 billion in unpaid taxes these federal employees have racked up.

If this isn't a clear indication that our government has some serious issues, I don't know what is. This irresponsibility doesn't seem to have comparison in any other work related issue.

About 98,000 federal, postal and congressional employees' total of $1.03 billion in unpaid taxes at the end of fiscal 2010 is atrocious, but the total number of delinquent employees dropped from 2009. 

Some government representatives are taking a stand against this, like Rep. Jason Chaffetz (R- Utah) who remarked that it was “totally unacceptable and disrespectful to hardworking American taxpayers. If you're on the federal payroll, the very least you can do is pay your taxes. Nobody's going to take any joy in firing someone, but there's enough people there that are simply thumbing their nose at American taxpayers that it's not acceptable.”

Chaffetz and Sen. Tom Coburn (R-Oklahoma) have authored bills that would force federal agencies, congressional offices and U.S. Postal service to fire employees who purposely avoid paying taxes.

But here's the kicker, exceptions would be made for employees suffering from family turmoil or working to correct significant financial hardship. Isn't the majority of the U.S. Postal Service “working to correct significant financial hardship?”

Chaffetz's bill was approved by a committee last year, but Coburn's bill is still awaiting consideration from a Senate panel.

I don't mean to sound heartless, but it seems a little unfair. Technically there is no law that says that if you've collected a federal paycheck you must pay federal taxes, but proposals have been made to make it a law. But why hasn't it gone through? This trend of simply not paying up is continuing to keep our nation in debt.

Here's how the figures break down: on Capitol Hill, 684 employees, or almost 4%, of the 18,000 congressional staffers owed taxes in 2010, which is a jump of 46 workers from 2009.

According to the IRS, 4% of House staffers owed $8.5 million and 3% of Senate employees owed $2.1 million.

From The Washington Post,

At the Executive Office of the President – encompassing 1,800 employees of the West Wing, the Office of Management and Budget, the National Security Council and the Office of U.S. Trade Representative, among others – 36 staffers, or 2 percent, owed a $833,970. The amount owed increased by almost $3,000 from the previous year.

Civilian employees of the Defense Department — the federal government’s largest employer — fared the worst. More than 25,600 workers at the departments of the Army, Air Force and Navy owed a combined $225.7 million, while another 4,600 civilian Pentagon employees owed $39.4 million.

Here is the list of the rest of the departments with significant delinquency issues:

U.S Postal Service: 25,650 employees (4% of the 667,000-strong workforce) owed $269.6 million. Figures are lower than of 2009, which is mostly due to staff reductions.

Department of Education: 176 employees owed $4.2 million

Department of Housing and Urban Development: 391 employees owed $5 million

Uniformed military personnel: 2% of active-duty troops and 2% of reservists owed a combined $339 million. 3% of the United States' 2.1 million retired military personnel owed $1.6 billion.

Social Security Administration: 2,000 employees (3%) owed $20.1 million in unpaid taxes.

??U.S. Tax Court: Five employees owed a combined $62,508

Office of Government Ethics (ironic?): Five employees owed $22,160 in unpaid taxes.

Treasury Department: Fewer than 1% of employees, including the IRS, owed $9.3 million.

A little under 2% of the 1.8 million federal retirees tracked by the IRS owed $470 million at the end of fiscal 2010.

Overall, taxpayers in America owed $114.2 billion in unpaid taxes, interest and penalties at the end of the fiscal year 2010. Since 1993, the IRS has tracked tax delinquency among current and retired civilian federal and military personnel while annual reports are compiled for agency heads, but the listings are only released publicly by lawmakers or upon request by the news media.

For something that is a civic duty, it doesn't seem to be too civilly handled and completed. So what makes us feel like we should be paying our taxes as regular Americans while those who should model utmost civic responsibility are neglecting it?

 

Wall Street fights rule limiting oil speculation

WASHINGTON (CNNMoney) -- Wall Street is pushing to stop a new rule that would crack down on speculation in the energy markets, which many blame for contributing to the spike in gas prices.

The new rule -- part of the 2010 Dodd-Frank Act to reform Wall Street -- would set limits on how much traders can buy, preventing firms from grabbing large chunks of the energy market.

But those limits may not be set anytime soon. Nearly two years after the new law, the rule has yet to be fully implemented. And on Monday, two Wall Street trade groups asked a federal judge in Washington to delay or block the rule.

Representatives of the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, which filed suit against the rule in December, appeared at a hearing at which they sought an injunction barring the rule's immediate implementation.

The Wall Street groups said in a statement that the rule was lacking on an economic basis, and would harm markets if implemented.

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The suit spurred one commissioner on the Commodity Futures Trading Commission, the body that regulates energy trades, to urge that regulators speed up position limits to prevent consumers from paying more at the pump.

Commissioner Bart Chilton estimates that Wall Street's "speculative premium" has raised the price to fill up a Honda Civic by $7.39.

"You can't turn on the television or the radio without hearing about record high gas prices, and yet the CFTC has not yet been able to implement Congressionally mandated position limits to put the brakes on excessive speculation in oil and other commodity markets," Chilton said in a statement Friday.

Even if Wall Street loses in court, the new position limit rules can't take full effect until two months after the agency has issued a definition of what qualifies as a swap, which is due out in April.

Gasoline prices have risen in recent years as global demand grew. But the biggest factor for the recent price boost, according to analysts, is fear that tensions with Iran will lead to an all-out war that causes a disruption in oil supplies.

Last week, traders set a record for the amount of money they bet on higher gasoline prices, according to Tom Kloza, chief oil analyst for the Oil Price Information Service.

Yet, the lobbying group for swaps firms points to several studies that conclude there's little to no evidence that speculation in commodities markets causes price volatility.

The Commodity Markets Oversight Coalition -- representing airlines, truckers and heating companies that depend on gas prices -- says it is convinced speculators cause price spikes. They also point to studies that suggest a link and have decried the slow pace of a crackdown on Wall Street bets on energy markets.

"We think these position limits are necessary ... they're long overdue and the market would see a benefit," said Jim Collura, the group's spokesman. 

Cree Shares Soar As UBS Upgrades To Buy; Ups Target To $92

Cree (CREE) shares are sharply higher after UBS analyst Ahmar Zaman today upped his rating on the stock to Buy from Neutral, while lifting his price target on the shares to $92, from $60.

Zaman notes that UBS today is lifting its forecast for 2011 general lighting LEDs to 9.7 billion square meters to 7.3 billion previously, “given an increasing focus on lighting from LED companies” during recent visits with LED companies in Asia.

“Our checks in Asia suggest the bear case of competitive pressure on Cree likely takes longer to develop,” he writes. “We note that many LED chip makers in Korea, Taiwan and Japan continue to out-source high-power LEDs from Cree, as their in-house yields on lighting-class LEDs are not sufficiently high.” Zaman says that Cree and Nichia “continue to split the market for lighting-class LEDs for the near term.”

Zaman upped his EPS forecast for the June 2010 fiscal year to $1.54 from $1.46; more importantly, he lifted his 2011 forecast to $2.44, from $1.75, and now sits well ahead of the Street at $2.01.

CREE is up $6.02, or 8.5%, to $76.62.

Friday Apple Rumors: iPhone 5 Will Work for 3G — and 4G

Here are your apple rumors and AAPL stock news items for Friday:

Morgan Stanley Says iPhone 5 is Both 3G and 4G: Morgan Stanley analyst Katy Huberty said in a Friday note to investors that Apple‘s (NASDAQ:AAPL) next smartphone should leave most consumers happy. Based on information gathered on a recent trip to Asia, the Huberty said it’s likely the iPhone 5 will include a quad-mode chip manufactured by Qualcomm (NASDAQ:QCOM) that will allow the phone to function on 3G networks, as well as LTE networks, like the 4G networks used by Verizon (NYSE:VZ) and AT&T (NYSE:T). The new iPhone also will be slimmer than the iPhone 4S that was released in October. Investors worried that this quarter might see a dip in iPhone sales ahead of the release of a new phone, similar to the one during 2011′s third quarter, should be assured by Huberty’s belief that Apple will be able to maintain heavy shipments after the holiday period.

Apple Teams With Fair Labor Association: Apple’s bright and friendly image is a difficult thing to maintain, especially given the frequency with which deaths occur at the Foxconn Technology Group manufacturing plants that make the company’s iPhone and iPad. At least 15 workers have died at the Chinese manufacturer, 12 of which were suicides, and reports of worker mistreatment at Foxconn’s plants have plagued Apple since 2006. A Bloomberg report on Apple’s new partnership with the Fair Labor Association, a watchdog group that monitors workplace conditions around the world, said the company is working to ensure its products are made under humane conditions. Apple’s suppliers now will submit to audits conducted by the FLA and will enforce United Nations-approved conduct codes.

OnLive Windows Desktop for iPad Released: That was quick! Streaming media company OnLive announced a new service on Tuesday that will let iPad owners stream a fully functioning Microsoft (NASDAQ:MSFT) Windows desktop to their tablet, including access to Microsoft’s popular Office tools. The app was made available to the public on Friday morning. While the current version of the app is free and gives users 2GB of free cloud storage for documents, the company plans to launch a premium version for $10 per month that will give 50GB of storage and improved Web browsing.

As of this writing, Anthony John Agnello did not hold a position in any of the aforementioned stocks. Follow him on Twitter at�@ajohnagnello�and�become a fan of�InvestorPlace on Facebook. For more from the company, check out our previous Apple Rumors stories.

Top Stocks For 2012-2-15-2

Dr Stock Pick HOT News & Alerts!

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DrStockPick.com Stock Report!

Stocks Upgraded Today

Company	Ticker	Brokerage Firm	Ratings Change	Price Target
Brooks Automation	BRKS	Stifel Nicolaus	Hold � Buy	$12
Costco	COST	William Blair	Mkt Perform � Outperform
Duke Realty	DRE	FBR Capital	Underperform � Mkt Perform
Douglas Emmett	DEI	FBR Capital	Underperform � Mkt Perform
Washington REIT	WRE	FBR Capital	Mkt Perform � Outperform
UDR Inc	UDR	FBR Capital	Mkt Perform � Outperform
Home Prop of NY	HME	FBR Capital	Mkt Perform � Outperform
Equity Res	EQR	FBR Capital	Mkt Perform � Outperform
AvalonBay	AVB	FBR Capital	Mkt Perform � Outperform
Monster Worldwide	MWW	UBS	Neutral � Buy
Sunstone Hotel	SHO	Argus	Sell � Hold
Reliance Steel	RS	KeyBanc Capital Mkts	Hold � Buy	$54
FedEx	FDX	Argus	Hold � Buy	$97
Campbell Soup	CPB	Argus	Hold � Buy	$37
Waters	WAT	Barclays Capital	Equal Weight � Overweight	$55 � $65
Cytec	CYT	KeyBanc Capital Mkts	Hold � Buy	$42
Allianz AG	AZ	JP Morgan	Neutral � Overweight
Agilent	A	Barclays Capital	Equal Weight � Overweight	$25 � $33
Novellus	NVLS	Credit Suisse	Neutral � Outperform
Celgene	CELG	Robert W. Baird	Neutral � Outperform	$57 � $65
MicroStrategy	MSTR	Roth Capital	Hold � Buy	$70 � $90

Stocks Downgraded Today

Company	Ticker	Brokerage Firm	Ratings Change	Price Target
Applied Materials	AMAT	Caris & Company	Buy � Average	$16 � $14
Sally Beauty	SBH	Caris & Company	Buy � Above Average	$8
Kilroy Realty	KRC	FBR Capital	Outperform � Mkt Perform
Boston Prpts	BXP	FBR Capital	Outperform � Mkt Perform
BioMed Realty	BMR	FBR Capital	Outperform � Mkt Perform
Jack In The Box	JACK	RBC Capital Mkts	Outperform � Sector Perform
InterMune	ITMN	ThinkEquity	Accumulate � Source of Funds	$16
Altria	MO	Credit Suisse	Outperform � Neutral	$20
Mosaic	MOS	Soleil	Buy � Hold	$65 � $56
Potash	POT	Soleil	Buy � Hold
EMC Corp	EMC	Piper Jaffray	Overweight � Neutral	$17
Lukoil	LUKOY	HSBC Securities	Overweight � Neutral
National Fuel Gas	NFG	UBS	Buy � Neutral
Arena Pharm	ARNA	Leerink Swann	Outperform � Mkt Perform	$6
Mid-America Aptmt	MAA	Robert W. Baird	Outperform � Neutral	$45 � $50
Genzyme	GENZ	Oppenheimer	Outperform � Perform

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RIMM: JMP Downgrades; Credit Suisse, RBC Cut Targets, Ests

The Street is beating up on Research In Motion again this morning, with a trio of bearish research notes. All three analysts sound similar themes: the company continues to lose ground against both the Apple iPhone and Android-based phones. All three analysts slashed earnings expectations for the company, as the company�s market share continues to shrink. As for the potential for a bidder to come to the rescue�don�t count on it, given a still-substantial market cap and a patent position that  is generally regarded as weak.

Here�s a look at this morning�s calls:

• JMP Securities analyst Alex Gauna cut his rating on the stock to Market Underperform from Market Perform, setting a target on the stock of $12, well below Friday�s close at $18.19. He trims his FY February 2013 EPS estimate to $2.80, from $4.10. He thinks the company is going to be hurt by more competitively priced Androids and iPhones. �Blackberry has the right idea in mind with BBX convergence and Android support; however, our recent experiences with the Bold and Playbook devices, conversations with Blackberry developers at Blackberry World and DevCon and the company�s track record of delayed or lacking device introductions leaves us skeptical the company can pull off its vision,� he writes in a research note. �If our skepticism proves accurate, the net result will be unit volume and ASP compression, which we are now modeling throughout our forecast horizon.�
• RBC Capital analyst Mike Abramsky, who maintains a Sector Perform rating on the stock, cut his target to $23, from $29. For FY 2012, he cuts his EPS estimate to $4.68, from $4.95; for FY 2013 he goes to $4.63, from $5. He notes that earning visibility has been reduced on �slowing sell-through and service disruptions.�
• Credit Suisse analyst Kulbinder Garcha maintains his Neutral rating, but cut his target to $20, from $30. For FY 2012, he cuts his EPS estimate to $4.28, from $4.72; for FY 2013 he goes to $3.70, from $4.80. The estimate cuts, he writes, reflect �an increasingly competitive environment, lackluster product launches and potential product delays.� He adds that due to ongoing share losses, �further meaningful cost cutting efforts will be required to avoid losses in the hardware business.� So what happens now? �Given inherent concerns with the existing platform, a relatively weak [intellectual property] portfolio and an enterprise value of $8.2 billion, we believe a takeout of RIM is unlikely. Ultimately we believe that although management may need to persevere through its transition to BBX, the visibility on success remains low. Given such choices, we expect the valuation multiple to remain depressed.�

RIMM this morning is down 53 cents, or 2.9%, to $17.66.

Empire State Manufacturing Survey: Expansion Slows

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report indicated continued expansion though at a notably slower rate than at the start of the year with the current business conditions index declining slightly to 4.14 while the future conditions index declined to 31.34.

Current and future new orders remained weak with current orders registering a 4.33 while future new orders declined to 25.37 also markedly slower than prior months.

Consider Utilizing Accounting Services To Help You Grow Your Business

A business owner must recognize and learn how to handle various matters or functions concerning the business to keep the growth of your business. To keep track of everything, tasks are not only limited to doing administrative work but attention is also needed in managing gross revenues, marketing, customer relations, finance and so forth which can all be rather daunting. There should perpetually be a focus on getting new clients as well as on the admin tasks which is why you employ people to be delegated to do these jobs in different areas.

A steady and healthy cashflow is important for any business and you can make that attainable by generating more cut-rate sales. Nevertheless, if your intensity level and time are being taken on payroll processing and other tasks connected to accounting, you won’t be able to concentrate on maximizing your gross revenues.

In this case, outsourcing agencies offering accounting services become really helpful. Even if you can deal with and pull off these tasks, there are a lot other matters which you could pay more attention to and simply entrust these things to reliable accounting services.

Probably you would ask, in what way exactly do outsourcing accounting services help you grow your business?

First Off, you save time. We all know that accounting processing is a very time consuming job and a lot of precious time would just go to it. With that, you might just miss out doing the things you are meant to be putting your energy and time on. Accounting services proposed by agencies will definitely employ their own accounting software to keep things organized and to manage gross revenues, invoices, taxes, profit and organise payroll with relief.

Secondly, by employing accounting services from adept people, you do save more than you spend in reality which means it is worth the money you spend on accounting services. As often said in business, time is equal to money and that’s true. Spending too much time on handling accounts might just take the chance of a good deal away from you.

Lastly, businesses would be less prone to mistakes. As firms extending accounting services often call for highly qualified professionals to take charge, you will be assured that they’d always try their best to deliver spotless results. Still, be sure that you have chosen the most dependable and most recommended accounting services for your business so you can be freed from worrying and thinking about how to manage your accounts.

Don’t have a single clue where to find the dependable accounting services and corporate secretarial services for your needs? It’s time to do your inquiry to make sure you choose the most recommended! Unique version for reprint here: Consider Utilizing Accounting Services To Help You Grow Your Business.

GameStop Q3 Beats, Stock Up 3%

Video game retailer GameStop (GME) appears to be doing its best, with sales rising 8% in Q3, the company reported this morning, even though the video game market is pretty lousy overall with video game industry total sales down 19% in dollar terms in October. GameStop revenue of $1.84 billion beat the average estimate by $100 million, while profit per share of 32 cents was ahead by two cents. For the current quarter, the company forecast profit per share of $1.47 to $1.65, which is a penny below, at the midpoint, the average $1.57 estimate.

Inflation, Job Woes Weigh on ETFs

Exchange traded funds (ETFs) turned flat on Thursday after mixed economic data raised concerns about the labor market and higher inflation.

• The Labor Department report said the number of U.S. workers who filed new applications for jobless benefits surged by 35,000 last week to 445,000. The four-week average of new claims rose a much smaller 5,500 to 416,500. The moving average is considered a more accurate measure of employment trends because it evens out fluctuations in the weekly data that can give a distorted picture of the labor market. The number of people who continue to receive unemployment checks, meanwhile, dropped. As workers become more discerning about spending investors can consider the First Trust Consumer Staples AlphaDEX (FXG), which is up 0.6% so far today.

• U.S. wholesale prices climbed 1.1% in December, largely reflecting a spike in gasoline, the Labor Department reported. The seasonally adjusted increase in producer prices last month was the biggest since last January, according to government data. Wholesale prices have climbed 4% over the past 12 months, but the core rate has risen at a much slower pace — 1.3%. Low inflation is generally viewed positively, but sometimes it reflects weak economic conditions. United States Gasoline (UGA) is down today, but in the last three months it has gained nearly 20%.
• The U.S. trade deficit narrowed for a fourth straight month in November, confounding economists who had expected a rebound, government data showed Thursday. The nation’s trade deficit contracted a slight 0.3% to $38.3 billion from a revised $38.4 billion in October, the Commerce Department said. This marked the smallest trade gap since January. The last time the deficit shrank for four months in a row was during the global financial crisis — from late 2008 into early 2009. Both exports and imports rose in November, but exports expanded at a slightly faster pace. iShares Dow Jones U.S. Industrials (IYJ) is flat today in the wake of the news.
• Shares of Marathon Oil Corp. (MRO) surged more than 8% in early trading after the company said its board of directors has approved a plan to split the company in two. The Houston-based energy company said it would spin off its refinery business, which would become the fifth-largest U.S. producer of gasoline and other fuels, in order to focus on oil and gas exploration. PowerShares Dynamic Energy (PXE), which counts Marathon as 5.4% of its total holdings, is up a moderate 0.3% so far today.

Disclosure: No positions

Adobe Gets App Happy

Over the years, Adobe (NASDAQ:ADBE) has created powerful development tools, such as its Creative Suite CS5.5 desktop software, which includes notable applications like Photoshop, Dreamweaver and Illustrator.

Yet when it comes to tablets, Adobe has been a laggard. Then again, Apple�s (NASDAQ:APPL) iPad caught many other tech companies, such as Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC), by surprise.

But now it looks like Adobe is catching up. For instance, this week the company acquired PhoneGap, which develops next-generation mobile technologies. And it’s likely that more deals are on the way.

However, the bigger announcement was Adobe�s new suite of apps — called Touch Apps — for the iPad and Google (NASDAQ:GOOG) Android tablets. The main one is Photoshop Touch, which makes it easy to edit, transform and scale images. No doubt, by leveraging the tablet interface — whether with a person�s hand or stylus — it should be easier for designers to evolve their creations.

Adobe makes use of new technology that helps deal with soft edges and other tough spots on an image. There also are helpful apps to improve color selection, as well as integrate photos. And yes, designers can share their images via Facebook and other social media platforms.

Adobe plans to sell each app at a starting price of $9.99, which should be a nice high-margin revenue source. And the company hopes the apps eventually will help boost sales of new licenses for the Creative Suite.

However, the grander vision for Touch Apps is to be a part of the Adobe Creative Cloud. Think of this as an app store for sophisticated products that leverage the rich technology of Adobe and allow for features like file syncing across devices.

True, for a company the size of Adobe — which has a market cap of $11.5 billion — the Touch Apps are not likely to move the needle in a significant way. But the company needs to maintain its competitive edge against a growing market of cheaper products coming to market. By offering tablet apps, Adobe should be able to stay ahead of the curve — at least for now.

Tom Taulli is the author of �All About Short Selling� and �All About Commodities.� You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

7 Cheap REIT Stocks With Repeated Insider Buying

Real Estate Investment Trust (REIT) stocks have been trending up for many months now, as the economy has stabilized. However, most REIT stocks have come off their highs recently, so now's a good time to take another look. What makes the names below very interesting is that these companies have reported substantial insider buying. The fact that insiders are buying these names could be a sign that there is still significant upside potential in these names.

The U.S. economy appears to be generally improving and even though there will be speed bumps along the way, it seems highly likely that some of these stocks have significant upside potential. Many of these REIT companies acquired cheap real estate during this downturn and continue to do so. This will add to future gains. Some of these companies pay generous dividends which are an added bonus. I have provided links for each stock which verifies the insider buying filed with the SEC below. Here are the stocks:

How Does VMware Boost Its Returns?

As investors, we need to understand how our companies truly make their money. A neat trick developed for just that purpose -- the DuPont formula -- can help us do so.

The DuPont formula can give you a better grasp on exactly where your company is producing its profit, and where it might have a competitive advantage. Named after the company where it was pioneered, the formula breaks down return on equity into three components:

Return on equity = net margin x asset turnover x leverage ratio

What makes each of these components important?

• High net margins show that a company can get customers to pay more for its products. Luxury-goods companies provide a great example here.
• High asset turnover indicates that a company needs to invest less of its capital, since it uses its assets more efficiently to generate sales. Service industries, for instance, often lack big capital investments.
• Finally, the leverage ratio shows how much the company is relying on liabilities to create its profits.

Generally, the higher these numbers, the better. That said, too much debt can sink a company, so beware of companies with very high leverage ratios.

Let's see what the DuPont formula can tell us about VMware (NYSE: VMW  ) and a few of its sector and industry peers:

Company	Return on Equity	Net Margin	Asset Turnover	Leverage Ratio
VMware	16.1%	18.2%	0.51	1.74
Citrix Systems (Nasdaq: CTXS  )	13.2%	16.2%	0.57	1.43
CA Technologies (Nasdaq: CA  )	15.5%	18.7%	0.40	2.10
LogMeIn (Nasdaq: LOGM  )	6.7%	7.7%	0.60	1.45

Source: S&P Capital IQ

For companies with such fat profit margins, it's surprising to see such modest returns on equity, but you can see why here. Despite net margins in the high teens, VMWare, Citrix, and CA all have asset turnover around 0.5 and not particularly high leverage. LogMeIn has a net margin that is less than half of what these bigger players post, but its asset turnover and leverage are situated similarly.

Using the DuPont formula can often give you some insight into how a company is competing against peers and what type of strategy it's using to juice return on equity. To find more successful investments, dig deeper than the earnings headlines.

If you'd like to add these companies to your watchlist, or set up a new one, just click below:

• Add VMware to My Watchlist.
• Add LogMeIn to My Watchlist.
• Add Citrix�Systems to My Watchlist.
• Add CA�Technologies to My Watchlist.

Seagate Technology Passes This Key Test

There's no foolproof way to know the future for Seagate Technology (Nasdaq: STX  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Seagate Technology do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Seagate Technology sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Seagate Technology's latest average DSO stands at 43.8 days, and the end-of-quarter figure is 46.3 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Seagate Technology look like it might miss its numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, Seagate Technology's year-over-year revenue grew 17.5%, and its AR grew 16.9%. That looks OK. End-of-quarter DSO decreased 0.5% from the prior-year quarter. It was down 1.2% versus the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

• Add Seagate Technology to My Watchlist.

Friday’s ETF Chart To Watch: SPDR S&P Retail ETF (XRT)

Domestic equity indexes staged an impressive comeback on Thursday as stocks climbed out of a hole in the final hours of trading. Mixed economic reports played a key part in paving the way for back-and-forth trading throughout most of yesterday. Weekly jobless claims were encouraging, although the figure ultimately missed estimates; 359,000 people filed for unemployment benefits versus the expected 345,000. U.S. GDP also came in below expectations; domestic economic growth came in at 3% versus analyst estimates of 3.2% [see also 3 ETFs For The End Of Operation Twist].

The domestic retail sector could make the headlines later today as investors gain insights into the health of the consumer. Our chart to watch for the day is the State Street SPDR S&P Retail ETF (XRT) as it may see an increase in trading volumes following the release of the latest consumer sentiment data [see also Shopping For A Retail ETF]. Analysts are expecting for consumer sentiment to come in at 75, versus the previous reading of 75.3.

Chart Analysis

Consider the chart below. XRT has been�consistently�trekking higher along a steep, rising level of support (see green trend line) since this ETF regained its footing above the 200-day moving average (yellow line) at the start of 2012. The uptrend in this ETF is undeniable; XRT has gained nearly 40% since bottoming out at $43.40 a share back on 8/19/2011. This ETF, which debutted in mid-2006, has been trading at all-time highs since the start of�February�2012 [see also XRT Fact Sheet].

Click To Enlarge

Investors who are eager to jump into this uptrend should exercise caution as a more serious correction could follow if the price fails to hold support at the $60 level. Those with a stomach for risk are advised to establish a long position with a carefully managed stop-loss order in case selling pressures�unexpectedly�accelerate.

Outlook

If consumer sentiment data comes in better-than-expected, a rally in the retail sector will likely follow. In terms of upside, XRT could resume its uptrend and climb back above $62 a share, although caution should be exercised as it nears its previous peak at the $63 mark [see also Five ETFs With Sky High Yields]. On the other hand, if selling pressures develop after a worse-than-expected consumer sentiment release, XRT may trade lower. In terms of downside, this ETF has support at the $60 level followed by support at $58 a share.�As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

[For more ETF analysis, make sure to sign up for our�free ETF newsletter�or try a�free seven day trial to ETFdb Pro]

2 Positive Signs for Freeport-McMoRan

Freeport-McMoRan Copper & Gold (NYSE: FCX  ) carries $326.0 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be the case with Freeport-McMoRan?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share.

It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Freeport-McMoRan holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Freeport-McMoRan has an intangible assets ratio of just 1%.

This is well below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value is simply what remains after subtracting goodwill and other intangibles from shareholders' equity. If this is not a positive value, Heiserman advises you to run away because such companies may "lack the balance sheet muscle to protect themselves in a recession or from better-financed competitors."

Freeport-McMoRan's tangible book value is $15.8 billion, so no yellow flags here.

Foolish bottom line
Freeport-McMoRan appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

Keep up with Freeport-McMoRan Copper & Gold, including news and analysis as it's published, by adding the company to your free, personalized watchlist.

Advisors Attracted to Independent Model

In another sign of just how important breakaway brokers are to the major custodial firms, Charles Schwab released on November 20 the results of a new survey of advisors at major financial firms which found that six out of ten respondents (59%) say the idea of being an independent investment advisor appeals to them and nearly half of the respondents indicated they would actually consider a move to independence.

The survey polled 200 financial advisors at 15 major full service firms, including wirehouses, banks, and independent broker/dealers, more than half of whom have more than a decade of investment advisory experience. Some 80% of those advisors said that they felt that their clients are more loyal to them than to the firm for which they work and 54% believe their employer's brand is not an asset that helps them acquire or retain clients.

"The success of independent investment advisors has not gone unnoticed by the industry at large, and there are now more individuals and teams who are investigating whether the independent model is right for them," said Barnaby Grist, senior managing director with Schwab Advisor Services, in a statement accompanying the survey release.

Grist also noted that not all advisors who are interested in independence want to start their own businesses from the ground up. This is echoed in the survey findings, as more than half of the advisors participating in the survey (56%) say they would rather join an existing RIA than start their own firm. "Plugging into an existing firm is an increasingly popular choice, and more RIA firms are building business models and technology platforms that allow this to take place," said Grist. "As a result, independence has become a viable option for a greater number of advisors."

The survey finds that the more familiar advisors are with the concept of being independent, the more likely they are to consider such a move. In fact, of those respondents who know someone who is or has considered becoming an independent advisor, 77% find the idea appealing.

When considering the perceived challenges to going independent, advisors surveyed cite having back office support (55%), obtaining new clients (39%), and having access to research and information to support investment decisions (30%) as the top three concerns.

Schwab indicated that as of the end of September 2009, 126 teams have moved to an independent model with the firm this year. This is an increase from 123 teams in all of 2008 with a quarter still left to go.

Download a copy of the Schwab advisor survey here.

Are the Earnings at Cal-Maine Foods Hiding Something?

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 Cal-Maine Foods (Nasdaq: CALM  ) , 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, Cal-Maine Foods generated $61.6 million cash while it booked net income of $59.8 million. That means it turned 5.7% 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 Cal-Maine Foods 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 26.5% of operating cash flow coming from questionable sources, Cal-Maine Foods investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 42.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 29.4% 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.

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

• Add Cal-Maine Foods to My Watchlist.

Share the Wealth with These Top 10 Keepers of Cash

Cash, they say, is king.

If that's true -- and after the financial crisis we can all agree that it is -- then these 10 companies must be the masters of the universe. 

Company (Ticker)	Cash/Near Cash
General Electric (NYSE: GE)	$61.4 Billion
Berkshire Hathaway (NYSE: BRK-B)	$26.9 Billion
Ford (NYSE: F)	$25.8 Billion
Merck (NYSE: MRK)	$21.8 Billion
Oracle (Nasdaq: ORCL)	$16.2 Billion
Hewlett-Packard (NYSE: HPQ)	$13.3 Billion
Dell (Nasdaq: DELL)	$12.8 Billion
ExxonMobil (NYSE: XOM)	$12.5 Billion
Google (Nasdaq: GOOG)	$12.1 Billion
Johnson & Johnson (NYSE: JNJ)	$11.9 Billion

Each of these blue-chip companies has more than $10 billion in the cash and near-cash line on its balance sheet. Together, their collective cash hoard is a staggering $214.6 billion.  

To put that number in perspective, $215 billion would buy each and every resident of Atlanta a $325,000 house AND a new Cadillac Escalade.

Not only is the cash line on the balance sheet strong, the bottom line of the income statement is also robust. What's more, the likelihood of these companies continuing to post massive profits in the future is very high.  Consider: In the 90 days that made up the third quarter this year, these 10 companies earned a profit of $22.3 billion.  In other words, even in a down economy mired in recession, these astonishing businesses collectively made more than $100 million in profit every hour of every day, seven days a week.

The question, of course, is whether these cash-rich companies are good investments. Today, we'll look at the top two companies, and follow up with the seven remaining companies on Thursday and Friday.

No. 1: General Electric Co. (NYSE: GE), $61.4 billion

For experienced investors, General Electric is the House that Jack Built. Jack Welch, the conglomerate's CEO from 1981 to 2001, took a stodgy industrial manufacturer and turned it into one of the leaders in power generation, health care and financial services. Welch wanted GE to be No. 1 or No. 2 in every business in which it participated, and managers either met that goal or they went to work somewhere else. Now, the company is lead by Welch's hand-picked successor, Jeffrey Immelt, and it occupies much the same vaunted position. The case can be made, and made compellingly, that GE is a proxy for the overall U.S. economy.

As any student of Machiavelli will tell you, a company's greatest strength is also its greatest weakness. And when the financial panic hit, GE was one of the companies that bore the brunt of the blow. In early March of this year, as the market circled the bowl and the Dow plunged to a gut-checking 6,500, things looked very bad for GE, which derived a significant source of its revenue by making loans that many of its customers suddenly looked unable to repay.

The falloff was dramatic. In December 2008, GE shares were trading at about $20. By March 4th, they'd fallen to a low of $5.73, a loss of more than -70%.

  That was then.

When -- and to some degree before -- the financial crisis struck in early fall of 2008, GE took a number of unusual steps to avert sure and certain financial Armageddon.

First, it sold stock to raise cash. The move was extraordinarily well timed: The company sold 547.8 million shares at $22.25 each on Oct. 8, 2008, which brought in $12 billion.

At about the same time, GE also accepted a $3 billion loan from Warren Buffett. GE might have thought its underwriters charged steep fees to sell its shares, but their cut was nothing compared with the terms Buffett exacted on his loan: Perpetual preferred stock that pays a 10% dividend and can only be bought back after three years -- and even then only at a 10% premium. Buffett also received warrants to buy $3 billion worth of common stock within the next five years.
 
In the meantime, the federal government stepped in to guarantee some of GE's debt, a program the company has since started weaning itself from as investors started showing they were once again willing to shoulder some measure of the risk. That a company with a long-standing AAA credit rating from Standard & Poor's needed a guarantee underscored the severity of the financial crisis. For a brief interlude, the composite rating on the triple-A bond shot up above 10% and investors practically gave GE debt away, pushing its bond prices to bargain-basement levels. S&P cut its rating; GE cut its dividend and the Dow began to climb out of the gutter.

These moves collectively allowed GE to stay afloat. Its shares have since rebounded to about $16, which values the company at about 12 times earnings. That's a discount from its historical average of 16.2 and well below the S&P 500's composite earnings multiple of 22.2.

GE, which remains profitable, is on track to earn $1.00 a share this year, a massive -48.2% decrease from the year before. Immelt has signaled that the company will actively seek huge government projects and thinks they will mean $192 billion to the company during the next three years. The consensus estimate for 2010 is a ridiculously low $0.90 a share. I think earnings of between $1.25 and $1.50 are far more likely as the economy rebounds and Immelt brings in government contracts.  If management can indeed deliver those kinds of results, Wall Street will be reminded of the earning machine that GE has traditionally been, and I think its P/E will rise to its typical 20. This, to my way of thinking, implies a 12-month price target of $30. With that in mind, and continued growth from there back to the company's historical revenue and earnings levels, I think the shares could be an exceptionally strong long-term buy.

So does Warren Buffett.

His warrants allow him to buy $3 billion worth of stock within five years. But the key to a warrant isn't the time frame, it's the exercise price. Buffett can buy stock at $22.25 a share, which means he clearly thinks the stock's value will be well above that by the time the warrants expire in 2013.

Investors interested in following Buffett's lead can do so by adding these shares to their portfolio and just letting them sit. My prediction: Buffett will exercise that warrant and double his money, and investors who buy now will do even better.

No: 2: Berkshire Hathaway (NYSE: BRK-A), $26.9 billion

One of Warren Buffett's most endearing qualities is the way he phrases things. The guy is the king of the understatement. In a shareholder letter years ago Buffett said something to the effect of, "We always keep plenty of cash on hand." That's like saying Andy Roddick generally serves hard. Plenty of cash on hand? How does $26.9 billion strike you?

Debt, as Buffett would tell you, always limits options. Cash always creates opportunities. It can allow a company to weather a storm and survive when its competitors can't. It can mean a business doesn't need to seek outside financing to pursue a new opportunity. And if you want to ensure a deal goes through, showing up with cash is a good opening salvo.

Berkshire Hathaway, Buffett's holding company, owns insurance companies and utilities. It also has a host of subsidiary businesses that Buffett has bought over the years, from NetJets to DairyQueen and Fruit of the Loom. Berkshire also has immense stakes in about a score of public companies, including Wells Fargo (NYSE: WFC), Coca-Cola (NYSE: KO) and American Express (NYSE: AXP). Buffett, who had been buying up railroad stocks, recently bought No. 2 U.S. railroad Burlington Northern Santa Fe (NYSE: BNI).

Buffett's record, over time, speaks for itself. The first item in the annual report is always the same: The change in the company's book value, or shareholder equity, which he compares to the total return of the S&P 500. Buffett's growth in book value since he took over Berkshire in 1964 has been +362,319% versus a gain of +4,276% in the S&P. He has warned that such outsize growth simply cannot continue -- as the law of large numbers finally caught up with him -- but he still does a pretty good job of making money for his shareholders, and he and his partner Charlie Munger are two of the smartest and savviest businessmen in the world.

That's all well and good, but what's really going to make the difference this year to Berkshire Hathaway is its first split.  As part of the Burlington deal, the company is engineering a 50-for-1 split. Owners who now have one share of B worth $3,400 will soon have 50 shares worth $68. (50 times $68 = $3,400.) While this doesn't erase or create any wealth in and of itself -- as the market cap stays exactly the same -- the move will likely create a run on Berkshire. This is a good thing: Berkshire grows. It makes money. And it has the best management in the world. There's no earthly reason it should trade at a -20% discount to the S&P. One of the reasons Wall Street has a hard time unlocking the value of this company is its arbitrarily high share price. The split will correct that.

Why? Because everyone who invests wants a piece of Buffett in his portfolio. For most investors, though, he's long been out of reach. A single share of B represents a sizable chunk of change, and an "A" share, currently selling for about $100,000, exceeds the equity many investors have in their homes. But that's changing. After the split, a round lot of Berkshire -- that is, 100 shares -- will require the same capital as a similar stake in United Technologies (NYSE: UTX) or Nike (NYSE: NKE). I think Berkshire will rise to $100 a share on this demand alone.

That's not a bad reason to jump on the Berkshire bandwagon, but it might be short-sighted. Its cash hoard, on the other hand, is a great reason. No one has ever put cash to work more effectively than Buffett. That's a point he has conclusively proven with the aforementioned GE loan, a similar deal with Goldman Sachs (NYSE: GS), and his recent stake in lithium-ion battery pioneer BYD Corp, which has risen +825% since he bought the stock in fall 2008.  

Do I think Berkshire is a buy? Absolutely.

Iran Threatens Oil Blockade Over Sanctions

Oil traders ignored Iran's threat to choke off oil exports. (Photo: AP)

As the U.S., and possibly the European Union as well, seek to tighten sanctions on Iran to discourage the country from pursuing nuclear weapons, Tehran has responded by threatening to cut off all oil from passing through the Strait of Hormuz—where the country has just begun 10 days of naval operations. Markets, however, paid little attention and Brent crude actually snapped a six-day increase as the country's threats were largely dismissed as rhetoric.

In a New York Times report, Iran’s first vice president, Mohammad-Reza Rahimi, said the country would strike back against any tighter sanctions by blocking all oil shipments through the strait, through which approximately a fifth of the world’s oil supply passes on its way to customers around the world. His threats are seen as fear that expanded sanctions contained in legislation about to be signed by President Barack Obama will have a severe effect on the country.

Apparently the threat of sanctions is a matter of concern to the Iranian leadership, since the Iranian currency is falling against the dollar and there are rumors of bank runs. Even though Iran is the third largest exporter of energy, it already is facing tough economic times.

Through Iran’s official news agency, Rahimi said, “If they impose sanctions on Iran’s oil exports, then even one drop of oil cannot flow from the Strait of Hormuz.” Whether that threat can be carried out remains to be seen, since the U.S. has plans in place to prevent a cutoff of oil transport.

Its threats were dismissed by Washington as "an element of bluster" and by markets that, after six days of increases in the price of Brent, moved to profit taking instead. Reuters reported that Thorbjoern Bak Jensen, oil analyst with Global Risk Management, said, "The threat by Iran to close the Strait of Hormuz supported the oil market yesterday, but the effect is fading today as it will probably be empty threats as they cannot stop the flow for a longer period due to the amount of U.S. hardware in the area."

Abbas Milani, director of Iranian studies at Stanford University, “Iran’s economic problems seem to be mounting and the whole economy is in a state of suspended expectation. The regime keeps repeating that they’re not going to be impacted by the sanctions. That they have more money than they know what to do with. The lady doth protest too much.”

The Obama administration aims to cut Iran’s oil revenue through cutting its sales volume, and forcing it to give its customers a discount on the price of crude. Some economists debate the feasibility of such a strategy, with investment bank analysts cautioning that the price of gasoline may rise in 2012 under the new U.S. sanctions and possible complementary ones from the EU.

Should the measures fail to achieve the desired result but instead cause the price of oil to rise and threaten the economy and/or national security, the president has the option to waive them.