Tuesday, April 30, 2013

2 Stocks With Sustainable Growth

If you follow the investing world at all, you've likely heard the Warren Buffett quote: "Be fearful when others are greedy and greedy when others are fearful." You can apply that to many different situations in the investing world and it will serve you well. I applied it to a situation recently in which I felt that two stocks were unfairly undervalued, and asked whether it was time to scoop up some shares while others are fearful of them? There's definitely a bearish case to be made about each stock, but I'll show you why each one has sustainable, profitable growth ahead.

First up
Ford (NYSE: F  ) has long been a favorite of mine; even after its recent climb in stock price, I feel it's undervalued. In my opinion it's undervalued mainly due to the dismal outlook from Europe, which weighs heavily – an estimated $2 billion in losses – on the balance sheet. Here's why I think investing in Ford now could be a good play.

Growth
Its new global platforms of vehicles have been successes, every single one. The Fiesta, Focus and F-Series are all in the top six in global sales. The Fusion, which has had more success than the Fiesta and Focus in the U.S., is just now entering Europe and China. Ford will be introducing 15 models into China by 2015, expecting to double its market share as the region quickly expands. The growth story is compelling, but is profitability sustainable now? 

Sustainable
Ford is well ahead of its competitors in creating economies of scale. It's running plants at or near capacity, helping U.S. margins maintain 11% – a strong number in the auto industry. It's expecting to get its number of platforms down to nine by the end of this year, allowing it pricing power through its suppliers. It's estimated that Ford can break even at U.S. automotive sales as low as 10 million a year now. Cost-cutting measures are already in place, and only improving; growth seems secure, and it definitely seems sustainable.

Last but not least
Boeing (NYSE: BA  ) is an intriguing play that could rebound with the global economy and increased air travel. A common bearish argument I hear is that with government defense cuts looming, it could have a big effect on Boeing's profitability. While those cuts definitely will have an impact, I think future growth in its commercial airline business – where it derives 60% of its revenues – could outweigh the loss of defense money.

Growth
Boeing has estimated that, as developed markets replace existing aircraft fleets and emerging markets increase air travel, future aircraft demand will be worth almost $4.5 trillion over the next 20 years. Considering that Boeing and competitor Airbus have a duopoly on the market for large commercial aircraft, that demand will equal a nice chunk of change for growth potential. However, what can Boeing promise investors that is sustainable – not just potential – growth?

Sustainable
We're in luck! Boeing has a massive backlog of orders and deliveries to produce – equaling nearly $400 billion. If you want to compare that to its annual sales, it's roughly 4.5 times this year's estimate. That's about as sustainable as growth gets. Four years of guaranteed sales? Sign me up. 

Bottom line
Both of these companies have bear cases to be made against them, but I like the future sustainable profits they have in line. I think both are undervalued and may take some time to appreciate to the stock prices they deserve. If you're a long-term investor, this could be a reason to research more. If you decide to invest, while you're waiting, know that both happen to offer dividends to help make your trip a little more enjoyable.

Want more analysis on Boeing?
Boeing operates as a major player in a multi-trillion-dollar market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. In our premium research report on the company, two of The Motley Fool's best minds on industrials have collaborated to provide investors with the key, must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out – simply click here now to claim your copy today.

Avon Keeps Quarterly Dividend at $0.06

Health and beauty products provider Avon Products  (NYSE: AVP  )  will pay a regular quarterly dividend of $0.06 on June 3  to shareholders of record at the close of business on May 14. That's the same amount it declared in February and November.

It has paid a quarterly dividend consistently since 2000, but was forced to cut its payout last year after profits fell 81% in the third quarter.  The quarterly dividend at the time had been $0.23, so the lowered payout (to $0.06) represented a near-75% cut. 

Avon is a leading global beauty company with nearly $11 billion in annual revenue. Its products are sold through more than 6 million active independent sales representatives in more than 100 countries.

The most recent dividend payment equates to a $0.24-per-share annual dividend yielding 3.3% based on the closing price of Avon's stock on April 29.

AVP Dividend Chart

AVP Dividend data by YCharts.

link

1 Bright Spot in 1 Struggling Industry

Just How Good Is AIG's Superman?

In this video, analysts Matt Koppenheffer and David Hanson talk about AIG's "superman." AIG was on a rough path heading toward a very steady decline. However, CEO Robert Benmosche stepped in and turned the company around.

Both analysts rate Benmosche highly, as AIG looks quite solid at the moment. AIG's mess could have led the company into a further downfall, but Benmosche's efforts paid off and the company was able to repay most of the government money it got a couple of years back.

David notes that the recovery process could have taken more than 10 years. But Benmosche motivated the employees and brought confidence to the company, and AIG is now an exciting place to work at. Overall, our analysts say, Benmosche has done a fantastic job in saving AIG and getting it back on the right track.

At the end of last year, AIG was the favorite stock among hedge fund managers. Have they identified the next big multibagger, or are the risks facing the insurance giant still too great? In The Motley Fool's premium report on AIG, financials bureau chief Matt Koppenheffer breaks down the key issues that you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you'll also receive a full year of key updates and expert analysis as news continues to develop.

Monday, April 29, 2013

Why Sprint's Initial Offer for Clearwire Could Fall Short

It was only a couple of weeks ago that shareholder discontent forced T-Mobile's parent company to sweeten its MetroPCS (NYSE: PCS  ) buyout offer. Two hedge funds, Paulson & Co. and P. Schoenfeld Asset Management, so badgered MetroPC with SEC filings opposing the merger that Deutsche Telekom finally came up with terms that quelled the misgivings of those influential investors.

Now, Sprint Nextel's (NYSE: S  ) proposed buyout of its networking partner Clearwire (NASDAQ: CLWR  ) is also facing serious shareholder opposition.

Clearwire investor Mount Kellett Capital Management, which owns 7.7% of Clearwire shares, sent a letter to Clearwire's board soon after the Sprint deal was proposed in October, saying it believed "Clearwire's stock to be substantially undervalued."

Last December, another Clearwire shareholder, Crest Financial, holder of 5.2% of Clearwire shares, went further than just sending a letter. It sued the board, the company, and Sprint to stop the buyout. Crest alleged (link opens PDF) "breaches of fiduciary duty by Clearwire's controlling stockholders and its officers and directors."

Just this past week, an additional lawsuit landed on Clearwire's doorstep, this one from another shareholder, hedge fund Aurelius Capital Management. In its court filing, Aurelius said that Sprint, as Clearwire's majority stockholder, had forced "manifestly unfair" conditions upon the company's minority shareholders.

On April 9, Aurelius chairman Mark Brodsky wrote to the Clearwire board offering the company some financing to make it less dependent on Sprint. Brodsky wrote that though the $80 million it was willing to lend Clearwire wasn't even close to the $480 million available from Sprint, "We believe the $400 million differential could readily be obtained through a combination of the $240 million of financing proposed by Crest Financial Limited ... [and there would be] an additional $160 million ... we trust others would welcome providing."

Why the rush forward to provide Clearwire with funding? You can bet it's for the large cache of spectrum licenses Clearwire controls. DISH Network (NASDAQ: DISH  ) has already made a $2.2 billion offer to buy 24% of Clearwire's spectrum, and Verizon has offered to buy between $1 billion and $1.5 billion for a portion of spectrum.

The $2.1 billion that Sprint has offered for total ownership of Clearwire -- and all its spectrum -- just isn't cutting it now for those investors with a lot of shares at stake.

Seeing how successful P. Schoenfeld Management's proxy campaign was in defeating Deutsche Telekom's initial offer, Crest Financial has filed a preliminary statement informing the SEC it intends to "wage a campaign to convince the Clearwire stockholders to vote against the proposed merger."

If that's not enough of a headache, Sprint is now also facing its own hostile takeover attempt from DISH Network, which made a $25.5 billion counteroffer to Japanese telecom SoftBank's $20 billion bid.

Sprint taking total control of Clearwire may have originally been thought of as a done deal, but if there's anything certain about it, it's that nothing is certain.

The Motley Fool's chief investment officer has selected his No. 1 stock for the year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Is This Apple's Biggest Problem in China?

Apple (NASDAQ: AAPL  ) has not made it a secret that China is a critical market for the company and one that it intends to focus on. Despite this reality, the iPhone 5 is not the top-seller there and faces stiff competition from local manufacturers including Samsung and Lenovo. As Samsung prepares to release its own operating system to compete with Google (NASDAQ: GOOG  ) Android and Microsoft (NASDAQ: MSFT  ) Windows, Asia promises to be an exciting landscape for smartphones this year.

In the video below, Fool.com contributor Doug Ehrman discusses one of the biggest threats to Apple and how it impacts the smartphone wars.

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

Profit Warning at Greggs

The shares of Greggs (LSE: GRG  ) slumped 8.6% to 423 pence during London trade today after the company revealed that like-for-like store sales had declined more than 4% since last year.

Greggs, the largest bakery chain in the U.K., reported a 3% improvement in total sales, with new shops and additional wholesale and franchise income counterbalancing the performance at the existing stores.

The company blamed "adverse weather" in January and March, as well as "lower footfall across much of the estate," for the disappointing same-store performance, but it claimed the trends had been improving during the last two weeks.

The company confirmed that it had refurbished 59 stores in the first quarter, with plans to refit a total of 250 shops during 2013. Meanwhile, 10 new stores were opened, taking Greggs' total shop count to 1,681.

Offering its outlook for the year, the company commented:

We do not expect a significant improvement in the difficult underlying market conditions in the short term. Although we are only four months into the year, based on current own shop like-for-like performance we believe that profits for the year are likely to be slightly below the lower end of the range of market expectations.

Despite good cost control, overall profits have been affected in the first quarter of the year and are behind our plan and last year. The business remains highly cash-generative and maintains a strong balance sheet position.

Following today's update, Greggs trades at about 11 times this year's expected earnings and offers a prospective dividend yield of 4.2%. Of course, whether that valuation and the general prospects for the wider bakery industry combine to make Greggs a buy is up to you.

But if you already own shares in Greggs, you may want to download this exclusive wealth report, which reviews five particularly attractive offerings, carefully compiled by The Motley Fool's expert stock pickers.

Indeed, all five opportunities offer a mix of robust prospects, illustrious histories, and dependable dividends, and they've just been declared by the Fool as "5 Shares You Can Retire On"! Just click here for the report -- it's free.

“What Tax Bracket Am I In?" -- "It’s Complicated.”

It's common for us taxpayers to think about, and occasionally look up, our tax bracket, to see how big a tax hit we're taking. But many people misunderstand the tax bracket concept.

You might, for example, glance at the table below, which features the tax brackets for the current tax year, and note that your taxable income of $50,000 parks you in the 25% bracket. You might then assume that your tax rate for those 50,000 dollars (as a single person) is 25%. Wrong!

Tax Rate

Single filers

Married filing jointly

or qualifying

widow/widower

Married filing

separately

Head of household

10%

Up to $8,925

Up to $17,850

Up to $8,925

Up to $12,750

15%

$8,926-$36,250

$17,851-72,500

$8,926-$36,250

$12,751-$48,600

25%

$36,251-$87,850

$72,501-$146,400

$36,251-$73,200

$48,601-$125,450

28%

$87,851-$183,250

$146,401-$223,050

$73,201-$111,525

$125,451-$203,150

33%

$183,251-$398,350

$223,051-$398,350

$111,526-$199,175

$203,151-$398,350

35%

$398-351-$400,000

$398,351-$450,000

$199,176-$225,000

$398,351-$425,000

39.6%

$400,001 or more

$450,001 or more

$225,001 or more

$425,001 or more

Source: Bankrate.com 

Here's what really happens: Your first $8,925 of taxable earnings are taxed at 10%. Then, your next $27,325 is taxed at 15%. Finally, the remainder of your taxable income, $13,750, is taxed at 25%. So actually, most of your dollars got hit with a 15% tax rate. Still, the answer to the question, "What tax bracket am I in?" isn't 15%.

Instead, when someone refers to your "tax bracket," it usually means the highest rate at which you're being taxed – and the rate at which your next dollar of taxable income will be taxed. That's also referred to as your "marginal" tax rate. Most of us have more than a single rate that affects us, though. For example, someone with taxable income of, say, $500,000, will actually pay taxes at every bracket's rate. In our example, your tax bracket, and your marginal tax rate, would be 25%.

The marginal tax rate matters for planning purposes. If you're wondering whether to generate more income in the year, for example, you'll know that it will be taxed at your marginal rate. Just remember to keep things in perspective: If additional income kicks you into a higher bracket, it doesn't mean that all your income will suddenly get taxed at that rate. Not at all.

The tax rate that should usually interest you most is your "effective" tax rate. That's the tax rate you actually pay on your taxable income. In the example above, you'd pay $892.50 (that's 10% of $8,925), plus $4,098.75 (that's 15% of your next $27,325), and $3,437.50 (that's 25% of your final 13,750). Add them up, and your total tax paid would be $8,428.75. Divide that by the $50,000 you started with, and you'll see that your effective tax rate is 0.17, or 17%. That's much more attractive than 25%, right?

So, next time you ask yourself, "What tax bracket am I in?" be sure to look at the big picture, not just your marginal tax rate.

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

Here's HowEnergy Is Making So Much for You

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

Here's the current margin snapshot forEnergy over the trailing 12 months: Gross margin is 54.9%, while operating margin is 26.4% and net margin is 10.8%.

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

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

Here's the margin picture forEnergy over the past few years.

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

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

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

Here's how the stats break down:

Over the past five years, gross margin peaked at 54.9% and averaged 44.6%. Operating margin peaked at 26.4% and averaged 19.7%. Net margin peaked at 10.8% and averaged 6.9%. TTM gross margin is 54.9%, 1,030 basis points better than the five-year average. TTM operating margin is 26.4%, 670 basis points better than the five-year average. TTM net margin is 10.8%, 390 basis points better than the five-year average.

With TTM operating and net margins at a 5-year high,Energy looks like it's doing great.

Can your portfolio provide you with enough income to last through retirement? You'll need more thanEnergy. Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks." Click here for instant access to this free report.

AddEnergy to My Watchlist.

Sunday, April 28, 2013

Boeing Lands $27.4 Million Worth of Helicopter and Drone Contracts

The Department of Defense awarded Boeing (NYSE: BA  ) and its subsidiaries two separate contracts on Wednesday worth $27.4 million.

Of the two, the smaller contract for $7.8 million went to Boeing's unmanned aerial vehicle subsidiary, Insitu. This contract extends Boeing's obligation to provide the Navy with operational and maintenance services in support of ScanEagle UAVs, including the capture of electro-optical/infrared and mid-wave infrared imagery, through March 2014.

The larger contract, for $19.6 million, modifies Boeing's previously awarded firm-fixed-price foreign military sales contract for the procurement of Apache Block III AH-64D attack helicopters for Taiwan. According to the DOD announcement, this contract win brings the total cumulative face value of Boeing's underlying contract to $624.5 million.

More Expert Advice from The Motley Fool
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Kinder Morgan Wins With RINs

When the secondary market for renewable identification numbers, the designation given to ethanol credits, took off earlier this year, it crushed refining stocks. Many wondered if the soaring ethanol credits would hurt consumers at the gas pump. Almost no one wondered who was on the other side of the soaring costs, benefiting as their credits jumped in value, if only for a short time. In this video, Fool.com contributor Aimee Duffy takes a look at how Kinder Morgan (NYSE: KMI  ) profits from the RINsanity.

It's easy to forget the necessity of midstream operators that seamlessly transport oil and gas throughout the United States. Kinder Morgan is one of these operators, and one that investors should commit to memory due to its sheer size -- it's the fourth-largest energy company in the U.S. -- not to mention its enormous potential for profits. In The Motley Fool's premium research report on Kinder Morgan, we break down the company's growing opportunity -- as well as the risks to watch out for -- in order to uncover whether it's a buy or a sell. To determine whether this dividend giant is right for your portfolio, simply click here now to claim your copy of this invaluable investor's resource.

CAPScall of the Week: RealPage

For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'm going to take a closer look at RealPage (NASDAQ: RP  ) .

What RealPage does
RealPage is a software-as-a-service applications provider to apartment communities and single-family housing developments. The company has a portfolio of cloud-based software products that allow apartment communities to automate leasing, renting, management, and accounting activities. It also provides software capable of helping apartments originate and find new leads, as well as optimize rent yields.

In its fourth-quarter report, RealPage saw its revenue jump 20% to $85.7 million while net income rose 43% to $10.2 million over the year-ago period. Looking toward full-year 2013, RealPage anticipates revenue growth of 20% to a mid-point forecast of $386 million, with EPS forecast to be between $0.57 and $0.60.

Whom it competes against
RealPage doesn't have any comparably sized publicly traded competition. The greatest point of concern for any RealPage shareholder has to do with the overall health of the housing market, the trends in rent prices, and the underlying drive of residential real estate investment trusts to drive growth.

In recent months, rental growth trends have slowed as housing prices began to once again creep higher and lending standards relaxed just enough to allow previously locked-out potential buyers the ability to buy a home. According to MPF Research, effective rent growth for new leases grew 2.6% in the first quarter, which is still strong, but down from the 4.8% growth we saw in the fourth quarter of 2011. On the flip-side, apartment vacancy rates are at their lowest levels (4.3%) since 2001. 

To get a better idea of how RealPage is doing, it's always best to look at occupancy rates for some of the nation's biggest residential-REITs. In AvalonBay Communities' (NYSE: AVB  ) most recent quarter, the company reported a 5% increase in revenue attributable to a 4.7% boost in prices in established communities, and a 0.3% uptick in occupancy. For Equity Residential (NYSE: EQR  ) it was much of the same, with revenue rising 5.4% in the fourth-quarter as occupancy rates rose 40 basis points to 95.4% from the year-ago period. Finally, Essex Property Trust (NYSE: ESS  ) delivered some of the strongest occupancy results of all, with 96.9% of its units occupied as of the end of January. The point is that with occupancy rates at their lowest levels in more than a decade, these residential REITs are driving growth by boosting prices because of rent scarcity.

The call
After carefully reviewing the prospects for RealPage, I've decided to make a CAPScall of outperform on the company.

Although RealPage's valuation leaves a lot to be desired for a deep-discount value seeker like myself -- it's valued at 34 times the mid-point of this year's EPS estimates -- its cloud-based applications are sitting in the sweet spot of an industry with incredible pricing power.

Looking at the first from a housing inventory perspective, the home buying process may be getting moderately easier as lenders ease their qualifications for a loan. However, inventory levels themselves are at multi-year lows, which is boosting home prices and pushing prospective homebuyers out of the market. This is only going to further push existing renters into "wait-and-see" mode.

From a residential-REIT's point of view, they'd be foolish not to utilize RealPage's rent optimization and automation tools to boost their margins. All three REITs noted above should maintain the ability to boost rental rates so long as vacancy rates remain near their lows, which provides more than ample reason for RealPage's cloud-based software to remain in high demand. 

Another fresh idea for 2013
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

2 Stocks Hold Dow's Gains in Check

Today was a bullish day on Wall Street -- 80% of blue chips ended in the black -- and yet the Dow Jones Industrial Average (DJINDICES: ^DJI  ) added only 10 points, or less than 0.1%, closing at 14,547. The subdued gains were mostly due to the poor performance of just a few companies that really bit the dust. The meager 10-point advance wasn't enough to salvage losses earlier in the week, as the Dow posted its worst week of 2013, slipping 2.1%. 

Microsoft (NASDAQ: MSFT  ) pleasantly surprised the markets today, adding 3.4% on the heels of a good earnings report. Expectations had been rather low for the tech giant, especially after news broke in recent weeks that PC sales declined to an all-time record in the first quarter. The adoption of Windows 8 wasn't quite as bleak as investors had come to expect. In fact, the Windows division boosted sales 23% from a year ago, pulling in $5.7 billion.

Although there were just a handful of laggards in the index, those laggards sure were steep decliners. Hewlett-Packard (NYSE: HPQ  ) , which didn't share the glory with Microsoft, slipped 3.2% after a private equity buyout of rival PC maker Dell fell through. Reading between the lines, HP shareholders sold off today as it looks like confidence in a turnaround for the PC industry is fading.

The major laggard of the day and, in fact, the reason that the Dow struggled to stay positive despite its overwhelming bullishness was IBM (NYSE: IBM  ) . IBM lost 8.3% -- its worst single-day stumble in eight years -- after a quarter where revenues declined 5%. The only silver lining to today's report is that results were hit more by currency headwinds from a weak yen than inherent weakness in the underlying business.

Shares of General Electric (NYSE: GE  ) also stumbled and took a 4% hit. The 16% bump in net income just didn't do it for Wall Street, which was bummed by the flat year-over-year revenue growth. The stock is down 7.3% this week, after weak industrial numbers from Philadelphia earlier in the week offered a sign that GE's results may not be the rosiest on record. 

For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

Saturday, April 27, 2013

Chiquita Brands: Fruitful turnaround?

George PutnamChiquita Brands International (CBQ), which traces its history back to a ship captain in 1870, has many of the features that we like to see in a turnaround candidate.

First and foremost, it has a powerful brand. The Chiquita brand dominates the banana market, and it is probably the most widely-recognized name in any form of fresh produce.

The company was hurt by a "banana war" in Europe around the turn of the century 20th, and was forced into Chapter 11. It emerged from bankruptcy in 2002 with an improved balance sheet.


In 2005 it acquired Fresh Express, a large producer of packaged salads. Results were variable for several years, but then began to steadily decline in the latter half of 2011.

However, the banana and fresh produce markets are likely to remain strong as consumers around the globe become more health conscious.

Second, Chiquita has a new CEO. In late 2012 the company brought in Edward Lonergan. Prior to coming to Chiquita, Lonergan led the turnaround of a cleaning products company. Before that he had a distinguished career in branded consumer products with Gillette and Proctor & Gamble.

Even before Lonergan arrived, the company had begun to restructure its operations.  It sold off a number of non-core businesses – another thing we like to see – to focus on bananas and salads & healthy snacks.  It moved its headquarters, reduced headcount and realigned management to reduce costs and improve efficiencies.

In February of this year Chiquita refinanced much of its balance sheet, pushing the bulk of its debt maturities out to 2021.  This gives the company plenty of breathing room to carry out its restructuring plans.

While there is risk in any agricultural product business, we believe that the current stock price represents an attractive level to get into a company with a dominant brand that appears to be well into a turnaround. We recommend buying Chiquita up to $12.

Is Apple Losing Its Edge?

The following video is from Wednesday's Investor Beat, in which host Chris Hill, and analysts James Early and Ron Gross dissect the hardest-hitting investing stories of the day.

Apple (NASDAQ: AAPL  ) reported better-than-expected earnings on Tuesday, and announced a $50 billion increase in its share buyback program. But bears pointed to Apple's shrinking margins and the lack of guidance on when the next great product will be released. Will this begin the company's turnaround, or will Apple shares continue to slide? That story, plus four stocks making big moves on Wednesday's market, and two stocks we've got a close eye on this week.

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

LivePerson's Big Competitive Advantage

The following video excerpt was taken from an interview with Robert LoCascio, founder and CEO of LivePerson (NASDAQ: LPSN  ) , as he talks about what was behind the company's incredible success story. In this segment, he explains how his line of products and services uses predictive technology to move beyond a basic chat company. A transcript follows the video.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Brendan Byrnes: Let's talk about you products at LivePerson. I think some people look at it and say, "All these big companies are customers of yours -- [Hewlett-Packard], Microsoft, Verizon." They say, "Why don't they do it themselves?" But you've built some solid competitive advantages in the fact that what makes that product so good that these companies don't do it themselves, they go to LivePerson.

Robert LoCascio: It's really our intelligence and our predictive capabilities, so chat is a channel of communication, and we chat, we use SMS, we use video, voice. These are channels of communication, but when you pair it with intelligence and the ability to say, "Hey, there's a consumer on my website; let me practically offer to this specific consumer, because they need it, and then convert that consumer into a sale," that's what we do really well, and we pioneered the idea of using predictive technologies and behavioral targeting back in 2005, and that's where it's really helped us grow our business and make it more than just a chat company.

Byrnes: Let's expand on that a little bit. I'm shopping for something, I have something in my shopping bag, and I wait maybe a little bit too long. Is that when the chat pops up? What are some factors that go into that?

LoCascio: It's interesting. We have this predictive model, and it's a very fascinating thing. You set the target, so you say, like, shopping cart sale is our goal, and it looks all the way back on historical data and may find 50 different things that you did: stopped on a page for two minutes, came from this keyword, you've been here in the last 30 days. You put a specific item in your shopping cart or a specific price is in your shopping cart, and all that gets mixed together, and the model says this person has a high probability to buy, but they look like they're going off the path, and that's when we do the invitation to chat or we send some content out, so it's a very sophisticated model.

Wall Street: We've Seen It Before, and We'll See It Again

During the financial crisis in 2008, JPMorgan Chase (NYSE: JPM  ) CEO Jamie Dimon's daughter asked her father what was going on. "Well, it's something that happens every five to seven years,'' he said he told her.

How much truth is there to his statement?

Wall Street has a deep history of boom and bust. Throughout all economic conditions, all political administrations, and all regulatory environments, it finds a way to get itself into trouble. When there's so much money dangling in your face, otherwise admirable people do stupid things.

Last week I asked David Cowen, CEO of the Museum of American Finance and a financial historian, what he thought of Wall Street's boom-bust cycle. Here's what he had to say. (A transcript follows.)

David Cowen: "There's an old adage: It's greed and fear on Wall Street. And we've seen the cycle over and over. Here at the museum just last night, we had a play that was based on the events of what was called The Panic of 1857, triggered -- the match that set the powder keg off was actually a bank failure, and that bank failure was in large part by embezzlement by their cashier, which is kind of an Enron-Lehman rolled into one. And so no, human nature hasn't changed so very much. I look at these as cyclical, and we've seen it all before and sadly probably will see it again." 

More Expert Advice from The Motley Fool
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Corporations Boost Dividends 3.3 Times Since 1998

Friday, April 26, 2013

Citi's Corbat Gets a Big, Fat Vote of Confidence

Citigroup's (NYSE: C  ) annual shareholder meeting was held Wednesday in New York City. It was Michael Corbat's first since he took the reins as CEO last October.

Shareholders gave him a much better reception than they gave ex-CEO Vikram Pandit last year, easily approving an $11.25 million pay package for the new chief executive. All things considered, Corbat is worth it.

Now this is a mandate
Corbat's 2012 pay package received a 90% vote of approval, in stark contrast to last year's pay package, which was soundly rejected by shareholders, who weren't happy with Pandit's performance.

For this year, Corbat and chairman Michael O'Neill went back to the drawing board, revamping Citi's pay package so that pay is more closely tied to performance. Under the rules of the new package, stock can even be clawed back if the situation is serious enough. 

Rock star, sports star, CEO
Yes, $11.25 million for one year's work is a lot of money. Is anyone really worth that? Are athletes? Are performers? In an absolute sense, no one is, but in a relative sense, Corbat is.

Goldman Sachs (NYSE: GS  ) CEO Lloyd Blankfein will make at least $15 million in 2012. JPMorgan Chase (NYSE: JPM  ) CEO Jamie Dimon will make $11.5 million for 2012 (his pay was cut in half as punishment for last year's London Whale trading scandal). Wells Fargo (NYSE: WFC  ) CEO John G. Stumpf will make more than $22 million in total compensation for 2012. 

Now, is Citi performing at the level of a Goldman, JPMorgan, or Wells? No, but consider how far the bank has come since the financial crisis, when the only big bank that was more of a basket case was Bank of America (NYSE: BAC  ) .

On that note, Pandit has to be given his due for stabilizing Citi in the immediate aftermath of the crash, but I just never had the feeling he had a handle on turning the bank around in the same way that Corbat does.

Corbat has made some courageous decisions in his short time as CEO, like opting not to increase Citi's dividend in the wake of impressive 2013 stress-test results, even though that would have curried serious favor with investors. He also stood up to investors at Wednesday's shareholder meeting by refusing to wind down Citi Holdings -- Citigroup's "bad bank" -- too quickly, so as to not to "destroy our capital simply for the sake of speed."

Foolish bottom line
Most of the time, you get what you pay for. Corbat is a pro who knows Citi inside and out (he's been with Citi for almost 30 years), and he's someone who puts the interests of the business first. By voting in approval of Corbat's 2012 pay package, shareholders also voted their approval of Corbat himself. And I think Citi's impressive first-quarter results are just the beginning of good things for the superbank under his watchful -- and fairly recompensed -- eye. 

Looking for in-depth analysis on Citi? Look no further than our new premium report. In it, Matt Koppenheffer, The Motley Fool's senior banking analyst, will take you step-by-step through the superbank's operations in the jargon-free, easily readable style you've come to expect from The Motley Fool, and leave you with reasons to buy and reasons to sell the superbank.

Matt will also clue you in on what areas Citi investors need to watch going forward. For instant access, simply click here now.

Why Bebe Shares Jumped

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

What: Shares of Bebe Stores (NASDAQ: BEBE  ) were back in style today, gaining as much as 11% after receiving an upgrade from Janney Capital from Neutral to Buy.

So what: Janney said that it was bumping its rating on account of new management, better products, and improved inventory control. Bebe has been struggling of late as comparable sales spiraled down 7.2%, which was actually an improvement on the previous quarter's drop of 10.5%. In the fiscal year-to-date, overall revenue was down 8.6%.

Now what: Clothing retailers are notoriously trendy, and turnarounds are not easy to carry out. The details of Janney's upgrade were not provided, so it's unclear what exactly it sees in Bebe. Still, after such a miserable quarter, I'd wait for a stronger sign than an analyst upgrade before getting on board. Declining comps are always a bad sign, and analysts are projecting them through next quarter. You can keep an eye on the latest development with Bebe by adding it to your Watchlist here.  

More Expert Advice from The Motley Fool
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

The Weak Economy Threatens the Bull Market

This morning's news that the U.S. economy grew at just a 2.5% rate during the first quarter of 2013 came as an unwelcome reminder that economic growth has been hard to come by lately. With many economies around the world experiencing slowing growth or outright recessionary conditions, an increase in U.S. GDP that fell well short of what economists had expected to see confirmed that the U.S. hasn't been immune from the global malaise. Yet the Dow Jones Industrials (DJINDICES: ^DJI  ) took the news in stride, gaining ground early in the session to gain 12 points as of 10:30 a.m. EDT.

To understand the market's minimal reaction, you have to consider several things. First, the GDP figures released today were merely the first estimate of the nation's economic growth and will be revised two more times before they're finalized. In the fourth quarter of 2012, initial estimates of a decline in GDP were later reversed higher. In addition, investors have actually tended to like relatively weak figures on the economic front because they believe weakness forces the Federal Reserve to maintain its accommodative monetary policies a while longer. And finally, given that the figures are backward-looking, more important forward indicators like the better-than-expected consumer sentiment data released this morning point toward the potential for future gains from the consumer sector.

Still, there's only so long that the stock market can rise without the fundamentals of economic growth helping push it up further. So far, companies have done a great job becoming more efficient, cutting costs, and expanding profit margins. But Caterpillar (NYSE: CAT  ) , Alcoa (NYSE: AA  ) , and other companies that are most sensitive to economic growth have seen their share prices perform weakly so far this year, signaling concerns about the contribution that industrial activity will play in an eventual rebound.

As earnings season continues, investors need to focus on how well different sectors of the economy perform. So far, the recent stampede toward consumer-oriented stocks Procter & Gamble (NYSE: PG  ) and Johnson & Johnson (NYSE: JNJ  ) indicate most investors' defensive posture, with those stocks seeing their valuations rise substantially. Yet even they may not provide complete protection from the end of the bull market if the economy can't strengthen in the years to come.

Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in The Motley Fool's brand-new report. Just click here to access it now.

3 Stocks Near 52-Week Highs Worth Selling

It's been a tumultuous, Twitter-hacked, earnings-filled week, yet the market continues to chug higher. For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.

Keep in mind that some companies deserve their current valuations. Take casino and hotel operator Las Vegas Sands (NYSE: LVS  ) , for example, which is approaching a new 52-week high on the heels of strength in its Macau business. Targeting a broader class of Chinese citizens and tourists, Las Vegas Sands has supplanted Wynn Resorts in growth and is putting itself atop the casino sector.

Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.

Boring doesn't always mean "buy"
You may have heard me mention recently that boring industries can often make the most profitable industries. That is generally true, but it's not a rule! This is why packaging products maker Rock-Tenn (NYSE: RKT  ) has found its way onto my "sell-now" radar.

Rock-Tenn has been on fire this week after receiving an upgrade from Bank of America/Merrill Lynch and reporting second-quarter results that topped estimates by $0.07. Rock-Tenn has been able to outperform in a generally sluggish environment by raising its prices and improving operating efficiencies (a fancy way of saying "cost-cutting"). While this is fantastic for keeping shareholders happy, it doesn't demonstrate that there are any real growth drivers that would increase the need for packaged products. In fact, the 5.7% decrease in durable goods orders yesterday would insinuate just the opposite -- that consumer demand is declining and the need for packaging products may stagnate.

Now, don't misconstrue what I'm saying; this isn't a call for the long run. This is more of a valuation call, as it seems silly to pay 11 times forward earnings for a company that may grow 4%-5% organically over the next two years, with nearly all of that growth coming from price increases. There's simply not enough packing tape that can mask the lack of volume growth here.

Don't make the wrong Choice
I predict that 2013 will be the return of the "staycation." In the depths of the recession, instead of taking expensive getaways, consumers chose simply to take time off work and stay home or locally. I think we have the perfect confluence of factors that could make life difficult for Choice Hotels International (NYSE: CHH  ) , operator of Comfort Inn, Comfort Suites, and a multitude of other mid-price-point hotels.

The first concern is the increase in payroll taxes and the delay in tax refunds caused by the IRS furlough. Consumers clearly have less to work with in their pocketbook, and that, I predict, will translate into fewer vacations taken. Another concern I have with Choice Hotels is its valuation. Following a special dividend paid last year of $10.41 per share, shareholders have pumped the company's valuation up past 21 times forward earnings despite growth rates of just 5%-6%.

On the bright side, I admit that I like the niche price point Choice Hotels hits, and I appreciate its focus on expanding abroad to diversify its product line. However, the simple nature of today's spending environment isn't remotely optimistic, with widespread austerity measures now in place in Europe. In sum, the valuation bestowed on Choice Hotels is downright scary, and I'd suggest you call for housekeeping!

Why don't you take a picture -- it'll last longer
Seriously, why don't you take a picture of Shutterstock's (NYSE: SSTK  ) chart, because I'm fairly confident that you'll need a picture to remember when it was this high a year from now.

Shutterstock is an online marketplace that provides businesses with more than 25 million different images to use in their advertising. Given the tricky nature of copyrights, it actually has the chance to be a somewhat disruptive company in the space when times are good. The problem is that things aren't really that good, with cost-cutting being the primary driver of companies' profits at the moment. Cost-cutting environments are not the time to consider investing in advertising companies of any form.

Then there's Shutterstock's valuation, which places it at a whopping 47 times forward earnings, 20 times book value, and roughly seven times next year's sales figures. It's not astronomical by any means -- especially for an online ad marketplace -- but it's also a bit frothy considering that sales growth is forecast to dip from 29% to 23% next year. It's a name I'll certainly revisit in due time, but for now I'd say this picture is worth one word: sell.

Foolish roundup
This week was all about dissecting good business models with a chance to outperform over the long run that are simply in the wrong place at the wrong time for the next couple of years.

I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?

Should you gamble with Las Vegas Sands near a 52-week high?
For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's indeed the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further, but will it be able to replicate its prior successes? Learn about all these opportunities, and the risks they pose, in our premium report on Las Vegas Sands. Be sure to claim your copy today by clicking here.

Thursday, April 25, 2013

Why Shares of Cliffs Natural Resources Were on Fire Today

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

What: Shares of Cliffs Natural Resources (NYSE: CLF  ) jumped 17% today after the company released earnings.

So what: Revenue fell 6%, to $1.14 billion, and net income dropped 74%, to $97.1 million, or $0.60 per share after adjusting for one-time items. Analysts expected earnings of $0.32 per share, so the company did far better than expected, which is why the stock jumped. 

Now what: Cliff's may have beaten estimates, but the industry trends still aren't working in its favor. Global iron ore volumes fell 10% in the quarter and prices are down, which is why profit was so low. I'm not betting on an industry in decline and would sell the bump today.

Interested in more info on Cliffs Natural Resources? Add it to your watchlist by clicking here.

More Expert Advice from The Motley Fool
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

4 Reasons to Buy Hasbro Now

Credit Card Rewards: Don't Let Good Points Go Bad

Wednesday, April 24, 2013

Samsung Galaxy S4 Delayed on Sprint and T-Mobile

Both Sprint Nextel (NYSE: S  ) and T-Mobile are seeing slight delays with launching the new Samsung Galaxy S4 smartphone that was unveiled in March. The device was scheduled for retail launch this month, but inventory issues are hindering availability.

A T-Mobile spokesperson provided the following statement:

We know customers are really looking forward to getting their new Samsung Galaxy S 4 soon. However, due to an unexpected delay with inventory deliveries, the Galaxy S 4 will not be available on www.T-Mobile.com as planned today. Instead, online availability is expected to begin on Monday, April 29. We apologize for any inconvenience and are working with Samsung to deliver the device to T-Mobile customers as soon as possible.

A Sprint spokesperson provided the following statement:

Sprint is excited to launch the new Samsung Galaxy 4. We had planned to launch this next generation of the award-winning Samsung Galaxy line-up on Saturday, April 27. Unfortunately, due to unexpected inventory challenges from Samsung, we will be slightly delayed with our full product launch. Sprint is one of Samsung's largest partners and we are working closely with them to launch in all Sprint channels as soon as possible. We expect to make GS4 available at www.sprint.com and Telesales (1-800-SPRINT1) as planned on Saturday with Sprint retail stores and other channels receiving devices as inventory becomes available.

Sprint said it was trying to work through the inventory challenges as soon as feasible. In contrast, rival AT&T (NYSE: T  ) has reportedly begun taking delivery of inventory slightly ahead of schedule, with pre-order deliveries arriving as early as April 25. Verizon (NYSE: VZ  ) Wireless will open Galaxy S4 pre-orders for tomorrow, with no specified shipping dates.

link

3 Key Moments That Helped Shape the Dow

Sanmina Beats Analyst Estimates on EPS

Sanmina (Nasdaq: SANM  ) reported earnings on April 22. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 30 (Q2), Sanmina met expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue dropped slightly. Non-GAAP earnings per share grew. GAAP earnings per share grew.

Gross margins contracted, operating margins dropped, net margins expanded.

Revenue details
Sanmina booked revenue of $1.43 billion. The seven analysts polled by S&P Capital IQ expected sales of $1.42 billion on the same basis. GAAP reported sales were the same as the prior-year quarter's.

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

EPS details
EPS came in at $0.30. The seven earnings estimates compiled by S&P Capital IQ forecast $0.29 per share. Non-GAAP EPS of $0.30 for Q2 were 11% higher than the prior-year quarter's $0.27 per share. GAAP EPS were $0.25 for Q2 compared to -$0.02 per share for the prior-year quarter.

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

Margin details
For the quarter, gross margin was 7.0%, 30 basis points worse than the prior-year quarter. Operating margin was 2.4%, 10 basis points worse than the prior-year quarter. Net margin was 1.5%, 160 basis points better than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $1.47 billion. On the bottom line, the average EPS estimate is $0.35.

Next year's average estimate for revenue is $5.91 billion. The average EPS estimate is $1.34.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 130 members out of 157 rating the stock outperform, and 27 members rating it underperform. Among 50 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 42 give Sanmina a green thumbs-up, and eight give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Sanmina is outperform, with an average price target of $11.14.

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

Add Sanmina to My Watchlist.

Tuesday, April 23, 2013

How This Big Pharma Is Staging a Big Comeback

It was a big day for investors watching the race to create the next generation of hepatitis-C drug cocktails. Most of the major players released data for the European Association for the Study of the Liver conference today.

In the following video segment, health-care analyst David Williamson explains why former front-runner Bristol-Myers Squibb may have returned from the wilderness of a big drug failure to launch a second effort at claiming the crown for treating this disease. Watch and find out how Bristol matches up with its two biggest competitors, Gilead and AbbVie. Both have treatments in phase 3 trials, and Gilead recently submitted an application for approval of its cornerstone drug sofosbuvir earlier in the month. Provided no hiccups, Gilead should be able to commercialize the drug within a year, if the FDA sticks to its first-quarter 2014 deadline.

Editor's note: This video incorrectly states that Gilead's drug sofosbuvir would be available commercially by the end of the year. Given the FDA's timeline, if approved, a 2014 launch is more likely.

What macro trend was Warren Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: What's Really Eating at America's Competitiveness. You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.

Coach Stock Soars as Investors Ignore Red Flags

Investors pushed Coach (NYSE: COH  ) stock up by more than 9% on Tuesday, after the luxury goods retailer beat analysts' estimates for its third quarter. Coach reported earnings of $0.84 a share for the period, whereas analysts were expecting earnings per share of $0.80 at best. To top off the impressive quarter, Coach rewarded stockholders with a dividend hike of $0.15 annually. This means Coach stock will now pay an annual dividend of $1.35 per share.

However, the good news masked red flags that would otherwise be cause for concern at the company.

The timing couldn't be worse
While most investors focused on the upbeat earnings announcement, little attention was given to the fact that Reed Krakoff, the company's president and executive creative director, will be leaving the company when his contract expires next June. The creative director is the lifeblood of a brand. Moreover, during his 16-year career at Coach, Krakoff is credited with transforming the company from a leather goods seller into a global luxury brand.

The timing of Krakoff's departure is equally troubling. The news comes as the company attempts to rebrand itself as a so-called "lifestyle" brand, in order to fend off increased competition from Michael Kors (NYSE: KORS  ) . As you can see from the chart below, the namesake fashion company has markedly outperformed Coach stock year to date.

COH Chart

COH data by YCharts.

Going forward, Coach's retail strategy of becoming a lifestyle brand could be even harder to achieve without the vision of longtime creative director Krakoff. The famous fashion designer Michael Kors, on the other hand, is still heavily involved in the Kors brand.

In addition to the competitive setbacks Krakoff's resignation may cause, the news comes just months after Coach's longtime CEO Lew Frankfort announced his own plans to leave the company next year. Ouch.

These impending departures by top executives could cause investors to dump Coach stock down the road. For this reason, investors may want to wait on the sidelines as the stock works through this transitional period. In the meantime, investors may want  to take a closer look at rival stock Michael Kors.

Michael Kors is one of today's hottest high-end fashion brands, and that's translated into one of the best-performing stocks in retail -- since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.

Canadian National Railway Hits Estimates, But GAAP Results Lag Last Year's

Canadian National Railway (TSX: CNR) reported earnings on April 22. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), Canadian National Railway met expectations on revenues and met expectations on earnings per share.

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

Margins contracted across the board.

Revenue details
Canadian National Railway reported revenue of $2.42 billion. The 22 analysts polled by S&P Capital IQ expected sales of $2.45 billion on the same basis. GAAP reported sales were the same as the prior-year quarter's.

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

EPS details
EPS came in at $1.20. The 27 earnings estimates compiled by S&P Capital IQ anticipated $1.19 per share. Non-GAAP EPS of $1.20 for Q1 were 1.7% higher than the prior-year quarter's $1.18 per share. GAAP EPS of $1.28 for Q1 were 27% lower than the prior-year quarter's $1.75 per share.

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

Margin details
For the quarter, gross margin was 44.4%, 250 basis points worse than the prior-year quarter. Operating margin was 31.6%, 220 basis points worse than the prior-year quarter. Net margin was 22.5%, much worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $2.65 billion. On the bottom line, the average EPS estimate is $1.59.

Next year's average estimate for revenue is $10.36 billion. The average EPS estimate is $5.97.

Investor sentiment

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Canadian National Railway is hold, with an average price target of $97.14.

If you're interested in transportation companies like Canadian National Railway, then you should check out our special report that features 3 companies who depend on, and invest in, that industry. Learn the basic financial habits of millionaires next door and get these 3 focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

Add Canadian National Railway to My Watchlist.

15 Stocks That Hit The 'Deep-Value Trifecta'

Value investors tend to favor specific gauges to find bargains. Some like to seek out stocks trading below tangible book value, while others seek out stocks that sport low price-to-earnings (P/E) multiples or impressive free cash flow characteristics.

But why not focus on all three gauges?

I ran a screen to find stocks that press all the buttons, targeting only companies with a market value above $500 million and 2014 P/E multiples below 12. To preserve a nice margin of error for downside protection, I narrowed the list to stocks trading for less than 95% of tangible book value.

Here's what I found.

Of course, these numbers are just a starting point, and the seemingly least expensive stocks aren't always the top bargain. Case in point: Century Aluminum (Nasdaq: CENX), which holds a trove of undervalued assets parked on its balance sheet but is struggling to generate profits in an era of depressed aluminum prices.

Yet some of these stocks fall into the "no-brainer" category.

You'll note that insurers such as Protective Life (NYSE: PL), MetLife (NYSE: MET), Aspen Insurance Holdings (NYSE: AHL) and others make the cut here. These insurers are trading at a sharp discount to tangible book value because they are not seen as timely investments in the current low interest-rate environment. If you've got a multi-year time frame, then insurance stocks are some of the best bargains in the market right now.

Atlas Air: Performing well in a bleak environment
Digging more deeply into these stocks, it's hard not to be impressed by air freight carrier Atlas Air Worldwide Holdings (Nasdaq: AAWW). Global trade flows have been weak since 2008, especially as European economies continue to struggle. That's had a negative impact on air freight volumes and air freight pricing. Still, Atlas has managed to generate an average of $200 million in annual free cash flow during the past four years.

Then again, the weak global economy is impeding Atlas' pricing power. Even as revenues are expected to rise more than 10% this year (to around $1.85 billion) thanks to market share gains, per-share profits are stuck in the $5 range. That's the result of a margin squeeze due to a lack of pricing power. Perhaps that flat profit outlook explains why shares have drifted lower during the past few years.

Simply moving back up to tangible book value would bring this stock to $48, though the free cash flow potential in an eventually firming global economy would yield much more upside than that.

First Bancorp: waiting on the dividend
Thanks to a set of restrictions associated with the U.S. bank bailout program, many banks have been compelled to shore up their balance sheets. In many cases, that meant eliminating their dividends.

 

Puerto Rico-based First Bancorp (NYSE: FBP) would have done so anyway. The lender -- which, in the middle of the past decade, used to pay a $4 annual dividend, thanks to annual pretax income that typically hovered around the $100 million mark -- took a big hit from a weakening Puerto Rican economy.

Between 2009 and 2011, First Bancorp generated a hefty pretax loss as sour loans were written down, and a rebound to $36 million in pretax income in 2012 was still subpar. Yet this bank now appears to be on the mend, earning roughly 10 cents a share per quarter, and annualized pretax income is back up to the $70 million range (based on the past two quarters) and continues to climb.

Although this bank's share count is far higher than a half-decade ago thanks to hefty issuances of preferred stock, First Bancorp now looks poised to restart the dividend in coming quarters. As an added kicker, shares trade for less than 5 times projected 2014 profits and less than 90% of tangible book value. These are the kinds of measures you want to see in a deep-value stock.

Risks to Consider: Low valuations provide only a general, non-specific floor for a stock, meaning the price-to-book ratio or P/E ratio can drop even lower.

Action to Take --> The second quarter has gotten off to a rough start, and investors are increasingly seeking out stocks that appear to hold solid downside protection with upside catalysts. These stocks, which prove three types of support, should be on your research list.

P.S. -- StreetAuthority's Amy Calistri has one objective for readers of Stock of the Month... to provide one quality stock pick each month, with in-depth analysis in plain English that investors can understand. In fact, she just released a special presentation, "How to Beat the Stock Market... In Just 12 Minutes per Month," which tells you more about her strategy. Go here to learn more.

Monday, April 22, 2013

3 Reasons to Buy SandRidge Energy

In this video, Motley Fool energy analyst Joel South describes his three reasons for buying SandRidge Energy  (NYSE: SD  ) . First, the Mississippian Lime play is cheap to explore and produce -- drilling costs are roughly a third of drilling costs in the Bakken Shale play. SandRidge has also invested in its own saltwater disposal systems, further reducing its costs. Second, the sale of Permian Basin assets both reduced costs and raised sufficient capital to aggressively drill in the Mississippian Lime play through 2014. Third, even though the Mississippian Lime is a bit more gas heavy than originally thought, some oil-heavy finds have been made. Natural gas prices have also come off their 2012 lows, and that helps the value of SandRidge's assets.

Investors were startled after SandRidge plummeted when natural gas prices reached 10-year lows, but with the company focusing on growing liquids production, the future looks optimistic. If you are unsure about the future of this emerging oil and gas junior and are looking to find out more about its strengths and weaknesses, then check out The Motley Fool's premium research report detailing SandRidge's game plan and what to expect from the company going forward. To get started, simply click here now!

The Most Famous Building on Wall Street

1 Dividend Stock's New High

The following video is from Thursday's MarketFoolery podcast, in which host Chris Hill, along with analysts Jeff Fischer and Jason Moser discuss the top business and investing stories of the day.

Shares of PepsiCo (NYSE: PEP  ) hit an all-time high on Thursday in the wake of quarterly earnings. Pepsi's profits fell 4.6% due to restructuring charges, but overall revenue was up. Pepsi's snack business racked up some big numbers, but Pepsi's soda business in the U.S. declined at a faster clip than Coca-Cola's (NYSE: KO  ) . In this installment of MarketFoolery, our analsyts discuss the future of Pepsi.

PepsiCo has quenched consumers' thirst for more than a century. But recently, the company has left shareholders craving more. With increased competition and loss of market share, many investors wonder if this global snack food and beverage giant is simply fizzling out. Are more bland results ahead for PepsiCo? The Motley Fool's new premium report on the company guides you through everything you need to know about PepsiCo, including the key opportunities and threats facing the company's future. Simply click here now to claim your copy today.

The relevant video segment can be found between 7:45 and 10:45

For the full video of today's MarketFoolery, click here.

Sunday, April 21, 2013

William Hill Hails Grand National "Major Success"

LONDON -- The shares of William Hill  (LSE: WMH  ) rallied 5% to 410 pence during early London trade this morning after revealing net revenue was 15% higher for the first quarter.

William Hill, the U.K.'s largest bookmaker, delivered an 8% improvement in operating profit from last year, boosted by such "good sporting results" as the unlikely Grand National winner, Auroras Encore.

Mobile and online revenues continue to drive the company's growth, expanding by 21% from last year, as punters rushed to download William Hill's mobile app 96,000 times during the Grand National and Cheltenham combined. With operating profits of 43 million pounds, the segment now represents 45% of the group's operating profits, 13% higher than last year.

While revenues at the company's brick-and-mortar betting shops were marginally higher on an adjusted basis, operating profits declined 3%, mostly due to a higher tax charge hiking operating costs by 5%.

Chief executive Ralph Topping commented:

It has been a successful start to 2013 in trading terms, moving forward with our strategy, expanding into Australia and taking full control of William Hill Online.

Cheltenham results were not as good for us this year but just after the quarter end, Auroras Encore made the Grand National a major success for William Hill, even beating our record win achieved on the race in 2009 when Mon Mome romped home at 100-1. Both of these big meetings proved to be significant attractions for mobile bettors.

With a market cap of 3.5 billion pounds, William Hill trades at just under 13 times expected earnings and on a prospective dividend yield of 3.2%.

Of course, whether the economics of the U.K. betting industry are attractive, or the shares are still reasonably priced after today's price increase, is something only you can decide.

However, if you already own William Hill shares and are looking for another attractive growth opportunity, this exclusive in-depth report reviews a solid possibility within the FTSE 100.

Indeed, the blue chip in question has lifted its profits by 44% since 2009, owns subsidiaries that might contain considerable hidden value -- and has just been declared "The Motley Fool's Top Growth Stock For 2013."

Just click here to download the report -- it's 100% free.

3 FTSE 100 Growth-and-Income Shares

LONDON -- Some investors prioritize capital growth through a rising share price; some prioritize income growth from a rising dividend. But some shares -- growth-and-income shares -- offer investors a bit of both.

Unilever  (LSE: ULVR  ) (NYSE: UL  ) , J Sainsbury  (LSE: SBRY  ) (NASDAQOTH: JSAIY  ) , and Standard Chartered  (LSE: STAN  ) are three companies from the U.K.'s elite FTSE 100 index that have grown both their earnings and dividends faster than inflation and are forecast to continue doing so.

Unilever
The global consumer goods giant owns powerful brands in food, drinks, cleaning, and personal care. The 2009 appointment of an outside chief executive for the first time in the company's history seems to be paying off. Paul Polman -- a Procter & Gamble and Nestle veteran -- has impressed in driving Unilever's sales and earnings upwards at a good clip over the last three years.

Unilever delivered earnings-per-share (EPS) growth of 10% for 2012 and increased its dividend by an ahead-of-inflation 4.4%. Analysts are expecting a similar growth performance for 2013, and the dividend to be covered 1.7 times by earnings.

At a recent share price of 2,792 pence, Unilever is trading on 19.5 times forecast earnings with a prospective yield of 3.2%. That's a pretty rich rating relative to the market, but there does seem to be above-average momentum in Unilever's business, notably from emerging markets, where the company has a stronger presence than its rivals.

J Sainsbury
Sainsbury is another company with good momentum in its business. The supermarket has prospered compared with its faltering FTSE 100 rivals Tesco and William Morrison over the last year or so.

In a competitive environment, Sainsbury delivered EPS growth of 6% for the year ended March 2012. Analysts expect the same when the company announces its results for the year to March 2013 -- and the same again the following year. The dividend is expected to grow a little slower -- at around 4% a year -- with cover edging up from 1.7 to 1.8.

At a recent share price of 385 pence, Sainsbury is trading on 12.3 times forward earnings with a prospective income of 4.7% -- both at value levels relative to the Footsie average.

Standard Chartered
Standard Chartered's geographical positioning is unlike any of its U.K. banking rivals: The company earns 90% of its profits from the Asia-Pacific, Middle East, and Africa regions. This exposure to higher-growth economies has enabled the bank to deliver 10 successive years of record profits.

Standard Chartered provided its shareholders with double-digit EPS and dividend growth for 2012, and analysts expect more of the same for 2013. The forward numbers suggest the dividend will be covered a healthy 2.6 times by earnings.

At a recent share price of 1,630 pence, Standard Chartered is trading on more than 10 times forecast 2013 earnings and offers a prospective yield of 3.6%. As with Sainsbury, Standard Chartered's earnings rating and yield are both at value levels. For the supermarket, the value is tilted more toward yield. For the bank, it is more toward earnings.

Growth and income
If you're an investor who's more interested in growth rather than income, you may wish to read this exclusive in-depth report. The company featured has several compelling drivers for growth -- and has just been declared "The Motley Fool's Top Growth Stock for 2013." Just click here to download the report -- it's free.

If income is more important to you, we have another exclusive report, which features a great dividend share. This company offers a juicy 5.5% yield -- and our analysts have declared it "The Motley Fool's Top Income Stock for 2013." This report is also 100% free -- simply click here.

link

Apple Earnings: An Early Look

On Tuesday, Apple (NASDAQ: AAPL  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Apple's past success is well-known, with its impressive lineup of popular mobile devices. But what has many investors worried is how the company plans to keep growing in the future. Let's take an early look at what's been happening with Apple over the past quarter and what we're likely to see in its quarterly report.

Stats on Apple

Analyst EPS Estimate

$10.07

Change From Year-Ago EPS

(18%)

Revenue Estimate

$42.49 billion

Change From Year-Ago Revenue

8.4%

Earnings Beats in Past 4 Quarters

2

Source: S&P Capital IQ.

Will Apple pull out of its tailspin?
Analysts have slashed their earnings calls on Apple in recent months, cutting more than $1.75 per share off their calls for the just-ended quarter and more than $4.50 per share from their full-year 2013 consensus. The stock has plunged in suit, having fallen almost 20% just since mid-January.

The big debate over Apple essentially boils down to one argument: whether its past performance has any bearing on its future results. After the death of Steve Jobs, many investors have worried that Apple's best days are behind it, as the company has been slow in delivering on promises for brand-new products.

Despite those concerns, Apple won't stop trying to innovate. Lately, attention has swirled around the prospects for a lower-priced iPhone as well as an iWatch and its ongoing efforts on an Apple TV product. A low-cost iPhone would make the product economically viable for a wider range of consumers around the world, but investors fear that it would also force Apple to accept lower margins and potentially dilute its reputation for quality.

Perhaps the biggest thing going for Apple is the fact that expectations are so low. The company's earnings are poised to fall on a year-over-year basis for the first time in a decade, and that has shifted perception of the stock away from its former growth focus to raise questions about whether it's more of a value play. Strong value-based arguments support Apple, but even the discussion of Apple as a value stock is a big change for the tech giant.

Apple's earnings report will have a huge range of metrics that investors will pore over, including its new framework for providing future guidance. But the most important thing for Apple to resolve right now is how it plans to deal with its big cash balance. With activist investors having raised the issue repeatedly, it's becoming a distraction that Apple needs to answer once and for all. If that brings shareholders a bigger dividend, share buybacks, or some more novel reorganization of the company's capital structure, then Apple could finally see its stock hit bottom.

Read more about the debate that's raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Click here to add Apple to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

China’s Stocks Rise Most in Month on Profit, Economy

China's stocks rose the most in a month after companies from Qingdao Haier Co. (600690) to Northeast Securities Co. reported higher profit and a government economist forecast growth will rebound this year.

Qingdao Haier, China's biggest refrigerator maker, advanced 1.9 percent. Northeast Securities capped its biggest weekly gain in two months. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111), the largest producer of the metal, paced a rebound for material stocks before the release of earnings today. China Southern Airlines Co., whose profit gets a boost from a stronger yuan, added 2 percent on speculation the currency will gain after the central bank signaled plans to widen a trading band.

"Listed companies will achieve profit growth in the first quarter and that'll provide support," said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. "The slowdown in the economy and expectations about tightening liquidity have already pretty much been priced into stocks."

The Shanghai Composite Index (SHCOMP) climbed 2.1 percent to 2,244.64 at the close, capping its biggest gain since March 20. It rose 1.7 percent this week. The CSI 300 added 2.8 percent to 2,533.83. The Hang Seng China Enterprises Index (HSCEI) advanced 2.4 percent.

Still, the Shanghai Composite has dropped 7.8 percent from a Feb. 6 high, with losses triggered by concern measures to cool property prices will hurt economic growth. Valuations on the Shanghai gauge are 9.2 times projected 12-month earnings, compared with the seven-year average of 15.8, data compiled by Bloomberg show.

Brokers Gain

Chinese stocks extended gains today after the Shanghai Securities News reported that regulators are studying plans that would allow A shares to be added to international "well-known" indexes to lure overseas funds. There's market speculation that MSCI Inc. is contacting "relevant departments" about adding A shares to the MSCI Emerging Markets Index, the report said, without saying where it got the information.

A Beijing-based press official at the China Securities Regulatory Commission, who declined to be named because of the agency's policy, and Melita Renee Eclavea, a Philippines-based marketing communications official at MSCI, said they could not immediately comment on the report.

Northeast Securities rose 3 percent to 18.74 yuan, adding to an 8.7 percent advance for the week. First-quarter net income jumped 280 percent from a year earlier, the brokerage said in an exchange statement yesterday.

Citic Securities Co. (600030), China's biggest listed brokerage, climbed 5.5 percent to 12.82 yuan. Haitong Securities Co., the second largest, rose 4.4 percent to 10.91 yuan.

Qingdao Haier advanced 1.9 percent to 13.46 yuan after saying profit increased 16 percent in the first quarter.

Growth Outlook

Zhu Baoliang, head of the State Information Center's economic forecast department, said the nation's economy may rebound in the second and third quarters of the year.

China should stabilize money supply growth and loosen fiscal policy to boost economic growth, Zhu said at forum in Beijing. The center is a research institute under the National Development and Reform Commission, China's top economic planner.

Trading volumes in the Shanghai index were 16 percent higher than the 30-day average today, according to data compiled by Bloomberg. Thirty-day volatility was at 16.6, near the lowest level since Dec. 4.

China Southern, the nation's biggest carrier by fleet size, gained 2 percent to 3.63 yuan. Air China Ltd. (601111), the largest international carrier, added 1.3 percent to 5.51 yuan.

Yuan forwards were within 0.1 percent of a record high and set for a fourth weekly gain after the central bank said the currency's trading band will be widened soon. The band is likely to be increased "in the near future," the central bank's Deputy Governor Yi Gang said April 17 in Washington.

Yuan Prospects

"It seems that China's government intends to reform the currency," said Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd., which oversees about $250 million.

A gauge of material stocks in the CSI 300 added 2.5 percent, rebounding from two days of losses. The 14-day relative strength measure for the sub-index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 27.8 yesterday. Readings below 30 indicate it may be poised to rise.

Baotou Rare-Earth rose 2.8 percent to 28.48 yuan. The company may turn to profit in the first three months of the year from a fourth-quarter loss, according to data compiled by Bloomberg.

The Bloomberg China-US 55 Index (CH55BN), the measure of the most- traded U.S.-listed Chinese companies, added 0.2 percent in New York yesterday. Spreadtrum Communications Inc. (SPRD) gained after Bank of America Corp. said rising smartphone use will boost Asian semiconductor makers.

Saturday, April 20, 2013

Dell: Here's Your Winner

U.S. stocks finished a challenging week on a high note, with the S&P 500 (SNPINDEX: ^GSPC  ) and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) gaining 0.9% and 0.1%, respectively, on Friday. The discrepancy in performance between the two was largely due to IBM's heavy weighting in the price-weighted Dow. On the week, the S&P 500 lost 2.1% -- its weekly loss since November.

Consistent with the S&P 500's daily gain, however, the VIX Index (VOLATILITYINDICES: ^VIX  ) , Wall Street's fear gauge, fell 15%, to close just below 15. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Dell: Wrap it up. It's priced to go
Shares of PC and devices manufacturer Dell (NASDAQ: DELL  ) closed below Silver Lake Partners and Michael Dell's $13.65-per-share acquisition offer this afternoon. The catalyst for the decline was the news that a consortium led by private equity heavyweight Blackstone is withdrawing from the contest, unwilling to pursue its preliminary offer of at least $14.25. The situation is starting to look like a classic merger arbitrage in which shares typically trade at a discount to the offer price, which discount reflects the uncertainty pertaining to the completion and timing of the transaction.

In theory, activist investor Carl Icahn is still in the running (he's made a preliminary offer of $15 for 58% of the company). Earlier this week, he even negotiated with Dell's board the ability to engage with other investors on the matter in exchange for a promise that he will not increase his current shareholding beyond 10% -- but this smacks more of Icahn's old greenmail tactics than a considered interest in the company.

How will this play out? Going by today's closing price, the consensus view now appears to be that Silver Lake Partners and Michael Dell will ultimately be successful in taking the company private at their current offer price. If that does come to pass, it looks like they will have been marvelously opportunistic, sweeping the company away at a fire-sale price. On the other hand, in light of the latest data on PC shipments, they're probably wise to require a considerable margin of safety.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

This Day in History: The Deepwater Horizon Disaster and Reagan's Social Security Rescue

On this day in economic and business history ...

A thick, black cloud of smoke rose from the Gulf of Mexico on the evening of April 20, 2010. A fierce explosion had ripped through the Deepwater Horizon oil rig parked near the Mississippi River Delta, engulfing the rig in a fireball seen 35 miles away and killing 11 of the 126 crewmen on board. The burning rig would continue to burn for 36 hours, resisting all attempts to extinguish it, before finally sinking into the sea on April 22. By this point, BP (NYSE: BP  ) , the primary rig operator, was already anticipating a leak of 1,000 barrels of crude per day into the Gulf. Other authorities offered much higher estimates -- a Coast Guard officer gave CNN an 8,000 barrel-per-day figure for the leak.

It was not the first time that BP's Macondo well (the site Deepwater Horizon was drilling) ran into problems. The previous fall, rig owner Transocean (NYSE: RIG  ) was forced to replace a different drilling platform with Deepwater Horizon after Hurricane Ida left it too damaged to continue work. By the start of April, the Macondo project had already turned up several concerns. An accident had damaged part of the rig's blowout preventer -- an essential part of any drilling operation, designed to prevent catastrophic eruptions -- in March. Services contractor Halliburton (NYSE: HAL  ) had warned BP that its methods ran counter to established drilling practices, and some of BP's own engineers expressed concern over the "nightmare well." BP and Halliburton had several major arguments, since well documented by the press, over the former's safety practices and fail-safe efforts. Even so, it's unlikely that any but the gloomiest engineer could have foreseen the catastrophe that would occur on April 20.

The Deepwater Horizon disaster captured America's (and the world's) attention for months. Within days of the rig's sinking, an oil slick hundreds of square miles in size had spread across the Gulf of Mexico. Cleanup efforts raced against the clock to contain the uncontrolled flow of oil away from ecologically sensitive coasts, and President Obama issued a moratorium on new Gulf drilling. Several efforts to cap and control the leak failed, and BP executives (particularly then-CEO Tony Hayward) created a self-inflicted public relations disaster by saying the wrong things at the wrong times, over and over. By mid-May, the leak was thought far larger than previously estimated, and new spill projections ranged from 20,000 to 100,000 barrels per day.

It was not until mid-September that the Macondo spill was considered permanently closed, although oil continued to appear on the surface of the water for nearly three more years -- and may still appear in the future before all is said and done. Nearly 5 million barrels of oil are thought to have spilled from the damaged Macondo well, which makes it by far the largest accidental offshore oil spill in human history.

From the time Deepwater Horizon caught fire to the time the spill was brought under control in July, Halliburton lost 15% of its value and both BP and Transocean saw their shares slide more than 35% lower. Only Halliburton has since seen its share price recover in the three years following the first day of the disaster. Thus far, BP has agreed to billions of dollars in penalties and settlements, including a $4.5 billion settlement for criminal obstruction of justice that ranks as the largest corporate criminal penalty in U.S. history, and a nearly $8 billion settlement for damage done to Gulf Coast businesses. If BP is found liable for all the violations it's charged with, it could wind up paying out $90 billion for the spill -- but by most estimates, BP will pay less than half that amount before all is said and done.

The other side of the oil-drilling coin
More than a century before Deepwater Horizon, on April 20, 1893, a pair of Los Angeles prospectors discovered one of the West Coast's largest oilfields. The discovery was right in the middle of Los Angeles -- in fact, it's near the current site of Dodger Stadium -- and it created one of the earliest California oil booms. Four years later, the Los Angeles skyline looked very industrial indeed, with more than 500 oil wells dotting the landscape. By the time the Roaring '20s came around, the Los Angeles oilfield was one of the largest producers in the world, contributing the lion's share of the oil that went toward making California a supplier of half the world's crude.

After more than a century and more than 9 billion barrels of oil, the Los Angeles oilfield remains one of the most productive in the United States. Even today, more than 30,000 wells mark the Los Angeles County landscape, extracting approximately 230 million barrels of oil each year.

The Sun comes up for Larry Ellison
Oracle (NASDAQ: ORCL  ) made one of the largest acquisitions in its history on April 20, 2009, when it made a $7.4 billion offer for server and software maker Sun Microsystems. The deal came soon after Sun had rejected a slightly smaller offer, and it was an ideal merger of Oracle's enterprise software expertise and Sun's established (but fading) position in the networking space. Competing offers might have threatened Oracle's software dominance if the acquirer had made Sun's Java platform open-source, which gave Oracle further impetus to snatch up the company at what was then a 42% premium over Sun's market cap.

Oracle's effort to control formerly open-source projects, particularly Java and MySQL, has led to some friction within the developer community. In response, several developers decided to "fork" several Sun-related projects (where the original source code is modified to create an independent piece of software). Oracle remained fiercely possessive of its acquired software and even decided to go after Google's Android platform, which uses Java-based application programming interfaces. That case has turned out in Google's favor so far, but things may change as the appeals work their way through the courts.

Reagan's reforms
President Reagan signed a comprehensive (and somewhat controversial) set of Social Security reforms into law on April 20, 1983. At the time, Reagan said:

This bill demonstrates for all time our nation's ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire.

The reforms greatly expanded and protected mandatory eligibility during a critical time, as lawmakers were under intense pressure to answer a deficit in the trust fund that would have disrupted the normal flow of payouts. But what were the costs? The payroll tax rate was increased -- placing a larger burden on low-income taxpayers. The retirement age was raised, and "windfall" benefits were to be taxed. The resulting expansion of eligibility brought in more money and left Social Security with a growing surplus, but it also added more people to the eventual benefit rolls -- and this may prove difficult to sustain in the future.

The early 1980s was the perfect time to expand the pool of Social Security taxpayers, as baby boomers were entering their peak earning years en masse. The wealth of the nation, which increasingly flowed into stocks, grew enormously, as millions of people watched the Dow Jones Industrial Average (DJINDICES: ^DJI  ) increase by nearly 700% for the following two decades.

The Social Security trust fund grew right along with the stock market, expanding from a value of $25 billion to more than $1 trillion by the start of the 21st century. This growth dwarfed all previous expansion of the trust fund's holdings, as the trust fund had seen its nominal value increase by only 3,100% from the program's creation in 1937 to its expansion in 1982, compared with a 3,900% expansion during the boomer bull market. At present, Social Security's trust fund will reach a maximum surplus of $3.7 billion in 2022, after which it will remain solvent and able to pay out full benefits until 2036.

What new reforms might be necessary to push Social Security forward into its second century? Can the program survive without another population and wealth expansion like that produced by the boomer generation?

Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically undersaving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. Learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.