Stocks Lower As Earnings Season Takes Back Seat To Geopolitical Uncertainties

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U.S. stocks fell as the Dow dipped below the 17,000 marks as geopolitical concerns become a main focus.

In a televised statement, President Obama said the United States will expand on sanctions meant to hurt Russia's energy, defense and financial sectors.

The move follows Russia's continued support of separatists in Ukraine and a militarized presence on its own border with Ukraine.

In the Middle East, Israel continues its offensive to root out terrorists, as a near-term solution appears to be less likely.

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The Dow lost 0.42 percent, closing at 16,912.11. The S&P 500 lost 0.45 percent, closing at 1,969.95. The NASDAQ lost 0.05 percent, closing at 4,442.70. Gold lost 0.21 percent, trading at $1,300.60 an ounce. Oil lost 0.81 percent, trading at $100.85 a barrel. Silver gained 0.35 percent, trading at $20.64 an ounce.

News Of Note

ICSC Retail Store Sales rose 4.6 percent year over after rising 2.8 percent last week.

S&P Case-Shiller Home Price Index declined by 0.3 percent in May, falling short of forecasts for a gain of 0.2 percent. Non-seasonally adjusted prices rose 1.1 percent, lower than expectations of a 1.5 percent rise.

Redbook Chain Store Sales rose 3.0 percent year over year after rising 3.7 percent last week.

July Consumer Confidence rose to 90.9 from 86.4 in June. Analysts were expecting July's reading to be 85.5.

A group of Argentina's creditors have offered to waive their rights upon future offers clause that was included in the original bond contracts. This could potentially help Argentina reach a deal with holdout bond investors before Wednesday.

The European Union will introduce new sanctions that target four of Russia's economic sectors: finance, dual-use equipment that could potentially be converted to military applications, arms as well as oil production equipment.

Analyst Upgrades And Downgrades Of Note

Analysts at Credit Suisse maintained an Outperform rating on Cummins (NYSE: CMI) with a price target raised to $167 from a previous $161. Shares lost 1.14 percent, closing at $143.70.

Analysts at Deutsche Bank maintained a Hold rating on Darden Restaurants (NYSE: DRI) with a price target lowered to $44 from a previous $49. Shares gained 4.36 percent, closing at $46.88.

Analysts at S&P Capital IQ upgraded Deutsche Bank (NYSE: DB) to Buy from Hold. Shares lost 0.50 percent, closing at $35.69.

Analysts at BMO Capital downgraded Dollar Tree (NASDAQ: DLTR) to Market Perform from Outperform with a price target lowered to $59 from a previous $69. Also, analysts at Jefferies maintained a Hold rating on Dollar Tree with a price target raised to $56 from a previous $51. Shares lost 0.78 percent, closing at $54.44.

Analysts at UBS maintained a Buy rating on EMC Corp (NYSE: EMC) with a price target raised to $33 from a previous $32. Shares lost 0.67 percent, closing at $29.47.

Analysts at Argus Research maintained a Buy rating on Eli Lilly and Company (NYSE: LLY) with a price target raised to $72 from a previous $64. Shares lost 0.98 percent, closing at $62.77.

Analysts at Piper Jaffray upgraded Family Dollar (NYSE: FDO) to Neutral from Underweight with a price target raised to $74.50 from a previous $50. Shares lost 1.64 percent, closing at $74.50.

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Analysts at JPMorgan maintained an Underweight rating on Garmin (NASDAQ: GRMN), with a price target raised to $51 from a previous $50. Shares gained 0.10 percent, closing at $57.58.

Analysts at Piper Jaffray downgraded Horizon Pharma (NASDAQ: HZNP) to Neutral from Overweight with a price target lowered to $9 from a previous $22. Shares lost 9.67 percent, closing at $8.27.

Analysts at Sterne Agee initiated coverage of St. Jude Medical (NYSE: STJ) with a Neutral rating and $74 price target. Shares lost 1.09 percent, closing at $66.03.

Analysts at KeyBanc maintained a Buy rating on Tyson Foods (NYSE: TSN) with a price target raised to $48 from a previous $46. On the other hand, analysts at Credit Suisse maintained an Underperform rating on Tyson Foods with a price target raised to $38 from a previous $35. Shares lost 3.43 percent, closing at $39.17.

Analysts at Goldman Sachs downgraded Wal-Mart (NYSE: WMT) to Neutral from Buy. Shares lost 0.36 percent, closing at $75.44.

Equities-Specific News Of Note

Citigroup (NYSE: C) plans to hire 100 bankers for its commercial banking services in Asia-Pacific and target potential clients that could generate annual sales of $10 million to $500 million. Shares lost 0.56 percent, closing at $49.42.

BlackBerry (NASDAQ: BBRY) has agreed to acquire Secusmart, a German maker of mobile encryption and security. Shares lost 4.42 percent, closing at $9.51. Separately, Ford announced that it replace around 3,300 of its employees' BlackBerry phones with iPhones by the end of the year. In total, Ford will replace nearly 6,000 of its employees BlackBerry phones with iPhones over the next 24 months. Shares of BlackBerry lost 4.42 percent, closing at $9.51.

Authorities in China are investigating Microsoft (NASDAQ: MSFT) over anti-monopoly concerns. China's State Administration for Industry & Commerce noted that Microsoft did not fully disclose information regarding its Windows operating system as well as Office applications. Shares lost 0.19 percent, closing at $43.88.

Electronic Arts (NYSE: EA) announced a new subscription service that will be exclusive for the Xbox One. Subscribers will be granted unlimited access to many of Electronic Arts' games for $4.99 a month or $29.99 a year. Shares lost 2.14 percent, closing at $34.34.

Apple (NASDAQ: AAPL) announced new lower prices on its MacBook Pro lineup, which also features faster CPUs and more RAM. Shares hit new 52-week highs of $99.44 before turning negative and closing the day at $98.38, down 0.65 percent.

Jana Partners wrote a letter to PetSmart (NASDAQ: PETM) blasting the company's decision to skip a review of potential acquirers and explore a recapitalization plan instead. Shares lost 0.33 percent, closing at $70.23.

Chesapeake Energy (NYSE: CHK) announced it will buy back all outstanding preferred shares issued by its Utica unit for $1.26 billion to simplify its balance sheet as well as eliminate $75 million in annual dividend payments. Shares gained 0.82 percent, closing at $27.06.

Caterpillar (NYSE: CAT) will purchase $2.5 billion of its common stock under an accelerated stock repurchase transaction. Shares gained 0.52 percent, closing at $104.69.

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Aecom Technology (NYSE: ACM) has acquired Hunt Construction for an undisclosed sum. This marks Aecom's second large acquisition in the span of two weeks. Shares lost 0.32 percent, closing at $34.72.

Winners Of Note

Windstream (NASDAQ: WIN) announced it plans to spin off its fiber and copper networks in addition to other real estates into a new publicly traded REIT. The company's board of directors approved the plans following a favorable letter ruling from the IRS, which leads management to the belief that it can reduce its debt by $3.2 billion and free up cash flow to invest in broadband. Following the spin-off the company will issue a $0.70 per share dividend with $0.60 coming from the REIT. Shares hit new 52-week highs of $13.30 before closing the day at $11.83, up 12.35 percent.

All six of Casablanca Capital's nominees have been elected to Cliff Natural Resources' (NYSE: CLF) board of directors, including Lourenco Goncalves who is considered a likely replacement to the company's current CEO Gary Halverson. Shares gained 6.21 percent, closing at $17.62.

Decliners Of Note

This morning, Eaton (NYSE: ETN) reported its second quarter results. The company announced an EPS of $0.41, missing the consensus estimate of $1.14. Revenue of $5.77 billion missed the consensus estimate of $5.79 billion. Net income for the quarter fell to $172 million from $497 million in the same quarter a year ago despite sales rising three percent from a year ago, including a six percent rise in electrical product sales and nine percent rise in aerospace. The company lowered the high end of its fiscal 2014 guidance and now sees its EPS being in a range of $4.50 to $4.70, down from a previous $4.50 to $4.90. The company noted that the lower guidance reflects lower margins in its electrical systems and services segment. During the conference call, the company noted that it does not see any compelling reason to transform its portfolio, as it will face a large tax liability if it were to spin off a division within five years of its Cooper Industries acquisition. Shares lost 8.13 percent, closing at $70.51.

This morning, Corning (NYSE: GLW) reported its second quarter results. The company announced an EPS of $0.37, missing the consensus estimate of $0.38. Revenue of $2.58 billion missed the consensus estimate of $2.53 billion. Net income for the quarter fell to $169 million from $638 million in the same quarter a year ago as Gorilla Glass sales fell short of expectations and remained flat from a year ago at $298 million because of soft retail demand. The company also noted it is seeing lower than expected sales for planned new smartphones and tablets. The company did see its LCD glass division sales rise 62 percent form a year ago to $1.1 billion because of its agreement with Samsung. Optical communications sales rose 14 percent to $601 million, while environmental technologies sales rose 25 percent to $285 million. Corning issued guidance and sees its third quarter LCD glass volume rising by a mid-single digit percentage point with price declines moderating further. Optical sales will grow by a mid-single digit while environmental sales will rise 20 percent to 25 percent. Shares lost 9.30 percent, closing at $20.00.

Men's Wearhouse (NYSE: MW) disclosed during its Analyst Day presentation that it sees its comp growth being in a range of two percent to three percent through 2017, while gross margins will improve 150 bps to 200 bps as sales are expected to top $3.7 billion by 2017. The company also said that expectations of merger synergies is pushed back because of some potential inventory issues. Shares lost 9.89 percent, closing at $51.66.

Earnings Of Note

This morning, Level 3 Communications (NASDAQ: LVLT) reported its second quarter results. The company announced an EPS of $0.37, beating the consensus estimate of $0.30. Revenue of $1.63 billion beat the consensus estimate of $1.60 billion. Net income for the quarter rose to $51 million from a net loss of $24 million in the same quarter a year ago as the company saw its Core Network services revenue grow 6.9 percent to $1.479 billion, as sales grew in Latin America and North America. At the end of the quarter the company noted it had $1.143 billion in differed revenue, up from $1.132 billion at the end of the same quarter a year ago. The company noted that it remains confident in its performance for the rest of the year and reiterated its full year fiscal 2014 outlook. Shares hit new 52-week highs of $49.22 before closing the day at $46.18, up 2.83 percent.

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This morning, Merck & Co (NYSE: MRK) reported its second quarter results. The company announced an EPS of $0.85, beating the consensus estimate of $0.85. Revenue of $10.93 billion beat the consensus estimate of $10.60 billion. Net income for the quarter rose to $2.00 billion from $906 million in the same quarter a year ago despite total sales declining one percent reflecting unfavorable impact of patent expires, divested products and decline in sales of Hepatitis C products. The company's largest segment by revenue (Pharmaceutical) saw its sales decline by two percent to $9.087 billion because of the ongoing impact of the loss of market exclusivity for TEMODAR and NASONEX. Merck issued guidance and sees its EPS being in a range of $4.44 to $4.77 and revenues to be between $42.4 billion to $43.2 billion. Shares gained 1.05 percent, closing at $58.58.

This morning, Pfizer (NYSE: PFE) reported its second quarter results. The company announced an EPS of $0.58, beating the consensus estimate of $0.57. Revenue of $12.773 billion beat the consensus estimate of $12.50 billion. Net income for the quarter fell to $14.095 billion in the same quarter a year ago mainly related to its spin-off of its animal-health unit into a new entity named Zoetis. The company saw its pharmaceutical segment revenue fall six percent to $6.5 billion because of generic competition. Sales of innovative pharmaceutical products fell five percent to $3.5 billion because of the expiration of a co-promotion agreement for Enbrel in the U.S. and Canada. Revenue from the company's vaccine unit rose 13 percent to $1.1 billion, while oncology medicines saw its sales rise 16 percent to $570 billion. Pfizer revised previous guidance and sees its full year fiscal 2014 revenue being in a range of $48.7 billion to $50.7 billion from a previous guidance of $49.2 billion to $51.2 billion. GAAP EPS is now guided to a range of $1.47 to $1.62 from a previous $1.57 to $1.72. Shares lost 1.23 percent, closing at $29.73.

After the market closed, Buffalo Wild Wings (NASDAQ: BWLD) reported its second quarter results. The company announced an EPS of $1.25, beating the consensus estimate of $1.19. Revenue of $366.0 million beat the consensus estimate of $358.85 million. Shares were trading lower by 4.62 percent at $159.42 following the earnings release.

After the market closed, American Express (NYSE: AXP) reported its second quarter results. The company announced an EPS of $1.38, beating the consensus estimate of $1.37. Revenue of $8.70 billion beat the consensus estimate of $8.66 billion. Shares were trading lower by 0.01 percent at $91.70 following the earnings release.

After the market closed, Twitter (NYSE: TWTR) reported its second quarter results. The company announced an EPS of $0.02, beating the consensus estimate of -$0.01. Revenue of $312.0 million beat the consensus estimate of $282.82 million. Shares were surging higher by 29.90 percent at $50.13 following the earnings release.

After the market closed, United States Steel (NYSE: X) reported its second quarter results. The company announced an EPS of $0.34, beating the consensus estimate of $0.32. Revenue of $4.45 billion missed the consensus estimate of $4.51 billion. Shares were trading higher by 5.67 percent at $29.24 following the earnings release.

Quote Of The Day

“Russia is the largest oil- and gas-producing country on the planet, and the world is going to need 40 percent more energy between now and 2035. That's why you can see many, many, many international companies working in Russia.” - BP's CEO Bob Dudley, speaking of the dilemma imposed by sanctions on Russia.

Posted-In: aecomEarnings News Econ #s Economics After-Hours Center Markets Movers Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Today’s Pre-Market Earnings: Hess Corp., Valero Energy Corporation, Humana Inc, More (HES, VLO, HUM, More)

Before the opening bell on Wednesday, a number of big name, dividend paying companies announced their quarterly earnings. Below, we look at these earnings reports and break down the important points for investors.

ADT Beats Estimates; Shares Skyrocket

Shares of ADT Corp (ADT) soared on Wednesday morning after the company beat third quarter estimates. The company reported earnings of $82 million, or 47 cents per share, down from $113 million, or 52 cents per share, last year. Excluding special items related to its Tyco separation, earnings were 55 cents per share, above analysts’ estimate of 47 cents per share.

Energizer Misses Q3 Estimates

Energizer Holdings, Inc. (ENR) reported Q3 earnings of $64.5 million, or $1.03 per share, down from $87.2 million, or $1.38 per share, in the same quarter last year. Excluding special items, earnings were $1.46 per share, below analysts’ view of $1.55 per share. Revenue rose to $1.13 billion from $1.11 billion a year ago. Looking ahead, the company expects to see FY2014 earnings between $7.00 and $7.25 per share, while analysts expect to see $7.08 per share in earnings.

Franklin Resources Misses Wall Street’s View

Franklin Resources, Inc. (BEN) posted second quarter earnings of $578.9 million, or 92 cents per share, up from $552.3 million, or 86 cents per share, a year ago. Revenue came in at $2.131 billion, from $2.085 billion last year. On average, Wall Street analysts expected to see earnings of 95 cents per share and $2.17 billion in revenue.

Garmin Shares Soar

Shares of Garmin Ltd. (

Axel Merk: Time to Take ‘Chips Off the Table’

Inflated asset prices, investor complacency and brewing crisis that could trip up the current happy equilibrium are the backdrop for Axel Merk’s warning that it is time for investors to start “taking chips off the table.”

But the key difficulty for the Merk Investments founder and portfolio manager in his latest investment analysis is where to hide in an environment in which “instability may be the new normal.”

To answer that question, Merk first locates tracks the market’s current state as one of complacency — which is the third of three states in a market crisis.

Typically, he says, equity markets sell off in a crisis; as that crisis evolves, markets tend to differentiate: For example, when Cyprus blew up, Spanish bonds were undisturbed. In the third and current stage of a crisis, risk seems manageable.

“When a Portuguese company didn’t pay its loans on time, the markets barely blinked,” Merk writes.

It is at this stage that pundits typically advise not to sell but rather to buy the dips.

And this approach is vindicated by central bank easy-money policies that have the effect of compressing risk premiums.

European Central Bank chief “Mario Draghi has promised to do ‘whatever it takes.’ So why shouldn’t investors chase yields in the weaker Eurozone countries?” Merk asks.

The currency portfolio manager similarly critiques Fed chair Janet Yellen, whom he assesses as having “all but promised … to be late in raising rates.” What’s more, he thinks any nominal rate increases will be meaningless, because of inflation, such that he expects real rates to remain the same.

The trouble lurking in this low rate, high complacency environment is the danger that risk premia will suddenly and unexpectedly rise.

And while the source of this shift could be as subtle as a change of perception (“the glass is suddenly half empty”) or a result of the Fed seeking to engineer an exit, Merk devotes much of his analysis to growing social and geopolitical disorder.

In the social sphere, central bank easy-money policies are destroying society’s social fabric because asset holders are benefiting disproportionately, thus enlarging the wealth gap.

“I would argue policies of the Fed have a far greater impact on wealth distribution than the policies of Republicans or Democrats,” writes Merk. “Those that know how to deal with easy money, such as hedge funds, can do great in this environment; however, those that don’t know how to deal with debt easily fall through the cracks, unable to recover.”

The result is a deep erosion in purchasing power that fuels populist movements such as the Tea Party and Occupy Wall Street; Japanese Prime Minister Shinzo Abe’s populist policies; uprisings in the Middle East; and the ascendency of populist parties in Europe of late.

In this light, Ukraine’s essential problem is its inability to balance its books, thus turning initially to Russia and now to the European Union for subsidies.

Noting that World War II was preceded by the Great Depression, Merk says that “the aftermath of a credit bust is a fertile environment for the sort of dynamics that can lead to armed conflict. Russia has an interest in an unstable Ukraine; Japan might ramp up military spending to boost domestic growth, to name but two sources of instability.”

While not predicting World War III, Merk continues that “the U.S., a superpower no longer able to finance all of its commitments, is not exactly a source of stability, either: the biggest threat to U.S. national security may not be China or Russia, it’s the national debt.”

Merk is pessimistic about the possibility of dealing with the debt through entitlement reform in an environment of rising populism, for which reason he is convinced that real rates will have to remain low lest U.S. debt servicing costs rise by $1 trillion or more a year with a rise in rates.

So with asset prices at or near record levels and volatility at record lows, combined with rising world and domestic instability, investors should try to steer their portfolios away from risk.

Merk thinks bonds will be among the worst performers in the coming decade, and besides, are too risky to short because of the requirement to pay interest; he does not see the dollar as a safe haven with real interest rates in negative territory; and buying equities now means coming “late to the party.”

Investing in gold makes sense, he says, “as low to negative real interest rates may make the shiny metal that pays no interest (but cannot be easily ‘printed’) a formidable asset.”

Investors might also “diversify to baskets of currerncies” and “possibly be tactical in an effort to stay a step ahead as currency wars may be raging.” 

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Amazon Drops on Q2 Profit Miss - And Yet Sales Were Up 23%

Updated July 25, 2014: After closing up 0.13% on Thursday, Amazon stock(Nasdaq: AMZN) plummeted more than 7.5% after hours when it reported a miss on its Q2 2014 earnings.

We said to look for AMZN stock to keep tumbling, and it sure has. On Friday morning, shares were down 11.03% at 10 a.m. EDT.

We called it because the Seattle, Wash.-based retail giant has historically gained or lost 9.5% the day after its earnings release (which always takes place after market close), according to Bespoke research. Prior to yesterday, Amazon.com had beaten earnings per share (EPS) forecasts 56.4% in the last 10 years, according to CNBC. It had beaten revenue forecasts 66.8% of the time

Amazon posted a wider-than-expected second-quarter EPS loss of $0.27, missing analyst expectations by $0.12. This marks Amazon's biggest quarterly loss since 2012. However, it beat revenue expectations handily - its $19.34 billion was $20 million more than projected. A year ago in the same quarter, AMZN reported a $0.02 loss per share on revenue of $15.7 billion. That means Q2 2014 saw 23.3% higher revenue year-over-year.

That the company notched an EPS loss should come as no surprise - for many analysts, this is a number to ignore when it comes to Amazon.

"Amazon is not going to turn a profit. We already know that," Keith Bliss, senior vice president and director of sales & marketing at Cuttone & Co., said to IBTimes. The company hasn't done so since 2012.

Citigroup appeared more skeptical when it downgraded Amazon from "Buy" to "Neutral" on Tuesday.

"While we believe that the core retail business is performing well and posting solid revenue growth and bottom-line leverage, we believe earnings and the stock could remain under pressure during this period of aggressive investment in AWS [Amazon Web Services] as many investors have become frustrated by AMZN's lack of leverage (continued aggressive investment) and lack of transparency," Citigroup analyst Mark May wrote in a note to investors.

But our own Money Morning Chief Investment Strategist Keith Fitz-Gerald shared similar sentiments with Bliss earlier this year.

"I don't care whether Amazon misses, I just care that it's the company's status quo," he said. "With Amazon, I'll take anything but no big surprises - only if there's a big surprise would I be concerned."

Here are the top numbers to focus on from second-quarter Amazon earnings...

Amazon Stock Predictably Dropped Around 9.5% on These Numbers

What Bliss had his eye on was revenue growth.

"The metric that everybody looks for is their year-on-year revenue growth. Early channel checks suggested that they're going to have 24% to 25% year-on-year revenue growth, which is outstanding."

According to Bliss' metric, Thursday's 23% Q2 revenue bump means a win for Amazon and its investors.

But we can be more specific than just revenue growth.

Market research firm Trefis was expecting Amazon's momentum in the electronics and general merchandise segment to fuel revenue with a continuation of its 25% growth rate. Indeed, the segment posted a 26% gain consolidated year-over-year in Q2.

Trefis was also calling for "stellar growth" in web services, "driven by new product launches and continued adoption of existing products among clients." Web services includes Amazon's cloud infrastructure, which gives the company a competitive foothold into the corporate market. It's listed under "Other" in earnings, and had a consolidated year-over-year growth of 36% this quarter.

"[Amazon] launched a bunch of products to strengthen this segment during the second quarter of 2014," Trefis wrote earlier this week. "It introduced an SSD-backed storage service that saves money for customers without sacrificing on speed. The service is aimed at personal users and small/medium sized enterprises. While targeting large enterprises is important, there is a huge opportunity for Amazon to expand its cloud storage and computing business by going for smaller companies which tend to be more flexible. The retailer launched two more new products including new capability for mobile developers. In Q1 2014, Amazon's 'Other' segment revenues jumped by 58%. Most of the sales from this reported segment can be attributed to Amazon's web services."

Web services isn't Amazon's only segment pumping out product in 2014.

So far this year, the company has already released a set top box, a wand for shopping with Amazon Pantry, a new, unlimited e-book subscription, and its own music streaming product. And today, Amazon will launch the Fire Phone, its first foray into smartphones. It connects simply and directly with Amazon's library of wares - videos, books, music, and apps - and it's the easiest way to buy merchandise from Amazon.com.

"We continue working hard on making the Amazon customer experience better and better," chief executive officer Jeff Bezos said at earnings release today. "We've recently introduced Sunday delivery coverage to 25% of the U.S. population, launched European cross-border Two-Day Delivery for Prime, launched Prime Music with over one million songs, created three original kids TV series, added world-class parental controls to Fire TV with FreeTime, and launched Kindle Unlimited, an eBook subscription service. For our AWS customers we launched Amazon Zocalo, T2 instances, an SSD-backed EBS volume, Amazon Cognito, Amazon Mobile Analytics, and the AWS Mobile SDK, and we substantially reduced prices. And today customers all over the U.S. will begin receiving their new Fire phones - including Firefly, Dynamic Perspective, and one full year of Prime - we can't wait to get them in customers' hands."

Money Morning Defense & Tech Specialist Michael A. Robinson is a fan of Amazon's resourcefulness and product growth.

"These guys leave no stones unturned for the next dollar they can bring in," Robinson said earlier this year. "Amazon is constantly upselling, cross-selling, and looking for new products, and they're great at it. Once this franchise is built out, there are billions of dollars in cash flow that will fall to the bottom line."

Lastly, if you expected a profit loss and revenue growth in Amazon's earnings, there's still one number that might surprise you - take a look at operating loss. It was $15 million in Q2, versus an operating income of $79 million in Q2 2013. Net loss was $126 million. And the operating loss guidance for the next quarter is between $410 million and $810 million, versus only $25 million a year ago in the same quarter.

You see, Amazon plans to spend more than $100 million on original video content in the third-quarter, according to chief financial officer Tom Szkutak on the earnings call Thursday evening.

As for how to play Amazon stock right now, stay focused on revenue and growth, and don't let the lack of profits shake you - just be cautious.

"Amazon is so rich compared to its earnings. I think it won't go away anytime soon, and it's going to change the world - but it makes you think twice about investing, because if the company does ever take a hit, it's the investors that would bear the brunt of it," Fitz-Gerald said.

Where do you think Amazon stock is headed in coming months? Leave us a comment on Money Morning's Facebook page. Also, you can join us on Twitter by following @moneymorning.

Finding a great "safety play" is a good idea for investors in case U.S. stocks begin to sputter - or even stall. And this "20% catalyst" Money Morning's Executive Editor Bill Patalon has found could send shares of this company soaring...

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The Tesla Supercharging Network Can Can Benefit This Chipmaker

Tesla Motors (TSLA) got all the affection that it deserved for turning out with something that is without a doubt in front of rivalry – the Model S extravagance sedan. Elon Musk made a strong move to start an EV organization, kept it ticking with assistance from almost a large portion of a billion in Energy Department loans, and has made the organization a profitable extravagance electric automaker. The Model S earned the highest ratings from Motor Trend and Consumer Reports.

While bulls and bears are battling it out on the Street, there are some hurdles that surely need to be overcome and the biggest of them is "reach uneasiness," or in simple words, the distance that one can blanket in a Model S.

To deal with "extent uneasiness," Tesla has plans set up for supercharger stations. When this network is set up, Tesla owners can drive from coast to coast with a "pit stop" of 30 minutes for at regular intervals of drive. This year, most of the metro areas in the U.s. furthermore Canada are wanted to be secured and before the end of 2014, it should spread the whole mainland.

Tesla intends to install a network that would permit a Model S to set out from Los Angeles to New York, Boston to Miami and Vancouver, British Columbia, to Phoenix, Arizona before the year's over. The organization has plans to blanket 80% of U.s. residents by the supercharger network before the end of 2014.

Analysts are also positive on Tesla's performance later on. Revenue is relied upon to develop an incredible 411% this year, as indicated by Yahoo! Money and 35% one year from now. However as Tesla moves into new markets such as Europe and China and diversifies its line up with the Model X SUV and the $35,000 Gen 3 car, these estimates should move higher. Also, expansion into more markets means additionally supercharging stations.

So Tesla will be busy building its supercharging network later on. Anyway, an alternate organization, which is usually not associated with cars, has also been making some moves to profit from the development of Tesla.

Qualcomm to profit

Qualcomm (QCOM) needs no presentation as it is the heading chip supplier for smartphone and tablets. It could be suitably called the "Intel of versatile." It supplies chips to all heading smartphone vendors across the globe and has been doing really well by outpacing competitors in that segment through its innovations. Besides, it also possesses various patents, which can help it create revenue through patent licensing.

Anyhow is Qualcomm joyful being just the Intel of versatile? Personally, I don't think so in the wake of perusing this article, and I would be taking a gander at an alternate reason in this article to see why Qualcomm's future is more than just portable.

In the wake of seeing the woes of Intel, which was vigorously subject to the PC market, Qualcomm is most likely feeling the need to diversify.

As such, less than two years back, the wireless giant forayed into the electric vehicle market. It obtained the assets of an organization from New Zealand, known as Haloipt, which had created a wireless electric car charging innovation.

Qualcomm doesn't fabricate any EV. That is something Tesla and others do. Notwithstanding, a press release issued few weeks back is important:

"Qualcomm Incorporated today published a multi-year concurrence with Formula E Holdings (FEH) to turn into an Official Founding Technology Partner of the FIA Formula E Championship, the new global championship offering dashing cars controlled exclusively by electric vitality. The assention will permit Qualcomm and FEH to showcase portable and Electronic Vehicle technologies universally through an invigorating sport and demonstrate how present and future generations everywhere throughout the world can profit from wireless, sustainable engineering on- and-off the track."

"As a pioneer in the portable space, Qualcomm will advise FEH in their quest to join new and more sustainable technologies into the dashing series. As a start, Qualcomm Halo Wireless Electric Vehicle Charging (WEVC) innovation will be adjusted to be fitted into the 2014/2015 FIA Formula E Championship safety cars so they could be wirelessly charged. The wireless charging system will be made accessible to the race cars from season two."

This suggests that Qualcomm is most likely taking a gander at the EV wireless charging business and perhaps was also crashed into this decision on once more of President Obama's arrangement of 1 million Evs before the end of 2015 in the U.s.

Bosch Automotive Service Solutions has effectively started offering $3,000 wireless chargers for Nissan Leaf and Chevy Volt owners. So Qualcomm is doubtlessly not going to be upbeat just being a player in the versatile figuring space. There another open door blending in the EV business sector and that is plugless charging and it would seem that Qualcomm is looking to profit from it.

That is the reason Qualcomm is aggressively moving into this business sector and it entered into yet an alternate concurrence with Drayson Racing Technologies last week. Qualcomm will give its wireless electric vehicle charging innovation to Drayson Racing, which will then fabricate related products available to be purchased to customers in the motorsport and auto sectors.

Qualcomm's Halo WEVC engineering is designed to empower wireless charging of electric vehicles through a cushion in the carport. It is an engineering that is relied upon to significantly enhance EV infrastructure and uptake. The organization is also creating forefront dynamic wireless charge progressing systems as well.

Conclusion

So it is truly clear that Qualcomm is not just a versatile player. The organization's moves into wireless EV charging look great and a tie up with Tesla later on shouldn't be discounted either. Qualcomm's development has been breathtaking recently as the organization developed revenue 35% in the previous quarter on a year over year basis and analysts anticipate that earnings will develop at a CAGR of 16.7% throughout the following five years.

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TSLA STOCK PRICE CHART 223.57 (1y: +66%) $(function(){var seriesOptions=[],yAxisOption

Look Who’s Buying: Pinnacle Entertainment, Penn National Gaming, Omnicare

As earnings season rolls onward, InsiderScore released a new report that zeroed in on three companies slated to report this week that were on the receiving end of some insider buying during the quarter.

REUTERS

First up is Pinnacle Entertainment (PNK). CEO Anthony Michaal Sanfilippo bought 23,000 shares of the Las Vegas-based gaming company for $505,800. InsiderScore notes this is his first purchase in nearly two years and writes, "After shares retreated more than 15% from a six-year high and with an activist hedge fund pushing the casino operator to spin off its real estate into a REIT, Sanfilippo stepped up with his first purchase. [He put] a fresh $500,000 into the stock at a price two times his cost basis of previous buys."

Next, we turn to another gaming company: Penn National Gaming (PENN). Three insiders bought during the quarter: CEO Timothy J. Wilmott bought 50,000 shares for $537,000; CFO Saul Reibstein bought 5,000 shares for $52,700 and John Jacquemin, a director, bought 20,000 shares for $214,800

InsiderScore notes that Wilmott made his first purchase on record and that Jacquemin's buy was his first in over 10 years, while Reibstein's purchase more than doubled his cash investment in Penn National. According to InsiderScore:

The [executives] sent a meaningful valuation message, transacting buys as shares of Penn fell to an 18-month low in early May. The purchases came two weeks after the gaming company issued a mixed earnings report and downside guidance and represented a sentiment reversal following quantitatively significant selling by other insiders in late 2013. Shares of Penn continue to trade near the level where the insiders bought, and there has not been an insider sale at the company since the purchases.

Finally insiders bought at Omnicare (OCR), a long-term care pharmacy provider. Now CEO/former COO Nitin Sahney bought 10,000 shares for $584,900 and CFO Robert Kraft bought 1,500 shares for $90,000. InsiderScore writes that Sahney's buy was the largest in at least 10 years at Omnicare and Kraft's purchase was his first on record.

InsiderScore continues: "Shares hit a new all-time high of $67.49 on July 1st, or a price 15% above insiders' average buy price of $58.69. The stock has since returned to the $64.00-$65.00 level."

Shares of Pinnacle Entertainment have gained 0.8% to $24.36 at 3:27 p.m. today, while Penn National Gaming has jumped 3.2% to $11.64 and Omnicare has advanced 0.4% to $65.07. Omnicare reports July 23 and Penn National and Pinnacle report July 24.

Cybersecurity startups to bank $788 million

NEW YORK (CNNMoney) Online privacy is on the tips of everyone's tongues these days, and investors are rushing to pour money into cybersecurity startups.

Venture capital firms are expected to funnel $788 million into early-stage cybersecurity startups this year.

That's a 74% increase from last year's $452 million, according to PrivCo, a financial data provider on privately-held companies. In 2011, VC firms invested just $160 million in cybersecurity startups.

PrivCo estimates the funding will be dispersed among about 40 cybersecurity startups in the early stages of funding.

Particularly hot right now? Companies offering protection against mobile malware.

"Employees' mobile phones have become the biggest soft targets for cybercriminals, and the venture capital dollars are following," said PrivCo CEO Sam Hamadeh.

Security breeches at companies like eBay (EBAY, Tech30) and Target (TGT) have made companies more willing to try new products from new firms, especially since it's difficult for cyberdefense powerhouses like Cisco (CSCO, Tech30) and Symantec (SYMC, Tech30) to innovate, according to Aaref Hilaly, partner at Sequoia Capital. From developing comprehensive cloud security to "botwalls," startups are hoping to fill the gap.

"Large companies rely on small companies for innovation," said Hilaly. "The radical new ideas come from small businesses. That's across the board in tech -- not just security."

Hamadeh said Sequoia Capital is one of the most active venture capital investors in the security space.

Hilaly said they've had a consistent strategy: Look for companies that innovate around "architectural shifts" in computing that happen about once every five years -- like the turn toward mobile or the growth of the cloud.

One company they've invested in, Skyhigh Networks (which closed a $40 million round of financing in June), was early to anticipate the move toward the cloud.

Rajiv Gupta, CEO of Skyhigh Networks, and his two cofounders created a product to help companies evaluate the risk of using the cloud and analyze employee cloud behaviors. They officially launched in February 2013 with about 30 employees. Today, they employ about 130 people and service 220 enterpri! se customers, including some of the world's largest banks.

Gupta used to work for Cisco, which has since employed Skyhigh's product to understand their employees' need for cloud services, assess and reduce risks of using the cloud and ultimately improve the firm's productivity.

"We're addressing a need that [big cybersecurity firms] aren't addressing," explained Gupta. "We've chosen to partner with them as opposed to compete with them."

Shape Security also raised $40 million this year.

Sumit Agarwal and his two co-founders developed technology that protects against malware and bots (which can cause spam and hijacked accounts). Unlike existing software that protects based on past attacks, their "botwall" proactively transforms code on every webpage so cybercriminals can't latch onto the code.

The company publicly announced their anti-automation product in January. Agarwal said they work with major Fortune 500 companies that span the financial services, health care and ecommerce industries. The team went from six employees in 2012 to more than 100 employees today and Agarwal doesn't expect growth to slow.

"Everyone with a website is an eventual future customer of ours," explained Agarwal.

7 Biotechnology Stocks to Buy Now

Popular Posts: 8 Biotechnology Stocks to Buy Now9 Oil and Gas Stocks to Buy Now10 Best “Strong Buy” Stocks — GMK TPL BITA and more Recent Posts: Hottest Financial Stocks Now – NBG GGAL BMA HDB Hottest Healthcare Stocks Now – HLS PBYI MD VRX Hottest Technology Stocks Now – MDRX SNX STX MITL View All Posts 7 Biotechnology Stocks to Buy Now

Seven biotechnology stocks are moving up in their overall rating this week, according to the Portfolio Grader database. Every one of these is graded an “A” (“strong buy”) or “B” overall (“buy”).

Stemline Therapeutics, Inc. () is making headway this week, with the company’s rating improving to an A (“strong buy”) from a B (“buy”) last week. For more information, get Portfolio Grader’s complete analysis of STML stock.

Pharmacyclics, Inc. () is bettering its rating of C (“hold”) from last week to a B (“buy”) this week. Pharmacyclics is a pharmaceutical company developing products to improve upon current therapeutic approaches to cancer, atherosclerosis, and retinal disease. For more information, get Portfolio Grader’s complete analysis of PCYC stock.

This week, Acorda Therapeutics, Inc. () pushes up from a C to a B rating. Acorda Therapeutics is a commercial stage biopharmaceutical company dedicated to the identification, development and commercialization of novel therapies that improve neurological function in people with multiple sclerosis (MS), spinal cord injury and other disorders of the central nervous system. For more information, get Portfolio Grader’s complete analysis of ACOR stock.

Northwest Biotherapeutics, Inc. () shows solid improvement this week. The company’s rating rises from a C to a B. Northwest Biotherapeutics engages in discovering, developing, and commercializing immunotherapy products to treat cancers in the United States. For more information, get Portfolio Grader’s complete analysis of NWBO stock.

BioMarin Pharmaceutical () earns a B this week, jumping up from last week’s grade of C. BioMarin Pharmaceutical develops and commercializes innovative pharmaceuticals for serious diseases and medical conditions. Shares of the stock have been trading at an exceptionally rapid pace, up threefold from the week prior. For more information, get Portfolio Grader’s complete analysis of BMRN stock.

Seattle Genetics, Inc. () is seeing ratings go up from a C last week to a B this week. Seattle Genetics is a clinical-stage biotechnology company that is focused on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer and autoimmune disease. For more information, get Portfolio Grader’s complete analysis of SGEN stock.

This week, Amgen’s () ratings are up from a B last week to an A. Amgen discovers, develops, manufactures, and markets medicines for serious illnesses. At present, the stock has a dividend yield of 2.4%. For more information, get Portfolio Grader’s complete analysis of AMGN stock.

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

Americans stock up on Tylenol, baby products

NEW YORK (CNNMoney) Americans are taking their medicine.

Strong sales of staples like Tylenol and Motrin helped Johnson & Johnson (JNJ)hit record quarterly revenues in the spring, beating Wall Street expectations.

Americans have also been stocking up on anti-smoking aids, baby products, Aveeno skin care products and even Listerine mouthwash, according to the company.

The consumer brands giant brought in $19.5 billion between March and June, good enough for a 13% jump in earnings.

"We're also focusing on 12 mega brands including Listerine, Aveeno, Tylenol and Johnson's baby to ensure they are exceeding consumers' expectations around the world," said Chairman and CEO Alex Gorksy during an earnings call. "And the strategy is working."

One of the few areas that wasn't doing well for the company was feminine hygiene products. Johnson and Johnson owns brands such as Carefree, Stayfree and o.b.

Drug money: While most people know Johnson & Johnson for its consumer brands unit, the company's biggest segment is pharmaceutical sales, which jumped by more than a fifth worldwide.

Much of that bump was driven by Hepatitis C drug Olysio. It brought in more than $1 of every $25 in sales for Johnson & Johnson. The company said that 97% of Hep C cases in the world's seven biggest economies remain untreated.

But Olysio is just one part of a common treatment and is typically prescribed with Gilead Science' (GILD)s Sovaldi drug. Gilead is working on an Olysio replacement that will render Olysio's continued growth unsustainable, according to Royal Bank of Canada's Glenn Novarro.

"The market is going to gravitate towards that new Solvaldi combination," he said.

Obamacare and growth: The company's main growth catalyst could end up being the Affordable Care Act and other factors will boost health care spending in the near future.

CEO Gorsky said that things like doctor and hospital visits were still subdued, but he thought that would turn around.

Longer term, demographics, and increasing middle class around the world and increasing access to health care under the Affordable Care Act, will translate into more growth for the com! pany, he argued.

Despite earnings and revenue that beat Wall Street's predictions, the company's stock is down over 1.5%, although it's still up close to 13% for the year.

A number of firms, including Deutsche Bank and Jefferies, view the stock favorably, but the consensus price target is around $108, and the stock now trades at just above $103. There is concern about how much more growth there will be.

America's Richest Families: 185 Clans With Billion Dollar Fortunes

Edited By Kerry A. Dolan and Luisa Kroll

The Mellons. The Kennedys. The Rockefellers. You know the names already. Now Forbes has compiled the first comprehensive ranking of the richest families in America: 185 dynasties with fortunes of at least $1 billion. They're collectively worth $1.2 trillion. Many are working at increasing their fortunes. Others are merely sleepy heirs, several generations removed from their families' heydays. Nearly all have ties to some of the most storied businesses and brands in American history, including Jack Daniel's, L.L. Bean, Getty Oil, Hallmark and Budweiser Budweiser.

The wealthiest family in America, and also the world, is the Walton family, which includes the three living children of Wal-Mart Stores Wal-Mart Stores founder Sam Walton; the wife of his son John, who died in 2005 in a plane crash; and the two daughters of his brother James "Bud" Walton, who helped found the Arkansas retailer in 1962. They are worth $152 billion, $63 billion more than the second richest family, headed by the politically active and often controversial Koch brothers. The three richest families are worth $301 billion, one fourth of cumulative net worth of all the wealthiest families.

This portrait of Sam Walton, his wife and children, decades before his heirs became the wealthiest dynasty in American history, hung in the Wal-Mart Museum in Bentonville, Arkansas. (Photo: Gilles Mingasson/Getty Images)

These Companies Need to Adapt to Survive the Mobile Revolution

Mobile technology is no longer the coming thing; it's here and everyone better learn to adapt.

From the growth of tablet computers to the collapse of the PC industry to the rapid rise of smartphones, mobile tech is here. Firms that can manage the switch will thrive and those that can't will find themselves dying off. It's that important a shift. This is akin to the switch from typewriters to PCs or from vinyl to CDs. It's an enormous change in the way customers are behaving.

Which is why this is becoming a critical time for technology investors. No one wants to be caught leaning the wrong way, do they? More importantly, investors don't want their money to be leaning left when the world goes right. Balancing that sort of risk is tricky, at best.

Anticipating the market

More and more, it appears that what Steve Jobs did best was that he saw the trend early. Apple (AAPL) has nothing to fear from a switch to mobile technology. Even the drying up of the PC market won't hurt too much as they've sort of defined the smartphone and tablet market. The company has sold tens of millions of both devices in just a few years and I think that'll continue.

The recent drop in the share price is mystifying to me. Apple remains a great company to invest in. It has still got the early mover advantage and for media-inspired reasons, has dropped like a rock in share value.

Another firm that's been more than ready to respond to the mobile switch is Google. While this quarter's earnings were surprising – profit beat estimates by $0.90 while revenue slightly underperformed – the way its mobile ad revenue climbed is the real story. A steady growth in mobile income shows that Google made the right moves at the right time.

Not ahead of the curve

It's not CEO Marissa Mayer's fault that Yahoo! (YHOO) is playing catch-up ball regarding mobile technology. Yahoo!'s playing all forms of catch-up ball. Still, the company is now committing that way. Few days back, Yahoo! announced that it would shutter dozens of older services to focus on about a dozen or so mobile technologies. Devoting that sort of resource base to the new mobile world shows that some of the growth over the last year – 57.83% in twelve months – is justified. That, combined with 65.66% net margin, shows that Yahoo! is on its way back in a big way.

Another firm showing a bit of trouble adapting is Microsoft (MSFT). Long reliant on Windows and Office as primary sales drivers, the shift away from PCs is troubling Microsoft. That's a strong reason the company is pushing the Windows Phone and the Surface tablet...and the new, just announced line of mini tablets due out in a month or two.

The firm will likely come through it well enough. Microsoft is a good and well managed company that, even with these challenges, saw profit rise in the previous quarter. The shares are up around 20% so far this year. Moreover, a quarterly net margin of 29.55% suggests that it's a worthwhile investment.

One firm that is beginning to look desperate in figuring out the mobile trend is Facebook. I swear, I'm willing to be convinced that Facebook's endless stream of enhancements and upgrades will pay off, but I'm yet to see any of them that seem to really get it done. The P/E of 1742.04 just indicates to me that even the current share price is far overvalued for performance, and a net margin of 1.04% doesn't really inspire confidence in a firm without a solid footing.

Keep on moving

Mobile's the thing. There's room for a lot of companies to succeed and grow using mobile technologies. But there's also a strong chance that some big companies will fall behind due to the switch. The best will be nimble and light on their feet in an environment that's continually changing. The worst will fail and end up bought and sold. Keep an eye peeled and make sure you can tell the difference.

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Stagflation, Anyone?

Remember the 1970s? It was known as the “Me Decade” and for bad music (disco). Among the other, more significant developments was “stagflation”: a period of stagnant economic growth, soaring inflation and, as a consequence, high unemployment.

Stagflation has edged back into the conversation about the economy and markets this month. First, the World Bank lowered its projected global growth rate for 2014 to 2.8 percent from its previous 3.2 percent. Then the International Monetary Fund lowered its forecast for U.S. growth from 2.8 percent to 2 percent.

This week, the final revision for the U.S. economy’s performance in the first quarter of 2014 came in at a dismal -2.9 percent, even worse than the pessimistic consensus.

Based on the general tenor of economic reports over the last three months, growth likely rebounded to an annual rate approaching 3 percent in the current quarter and could do so again in the July-September period.

After that, it’s anybody’s guess, particularly with the Federal Reserve gradually tapering its monthly purchases of Treasury and mortgage securities. We have yet to see 3 percent annual growth in the current economic recovery, which is now entering its sixth year.

In addition, job growth remains sluggish, with the decline in the official unemployment rate to 6.3 percent attributable in large part to the many people who have left the work force.

Meanwhile, prices of most commodities are up sharply in 2014. Energy, agriculture and precious metals led the way, with only industrial metals faltering. Prices for food, health care, heating/AC and more have climbed meaningfully. No doubt, many of you have noticed shrinking portions of various supermarket products, just like in the inflationary ’70s.

Last week, we heard that the consumer price index (CPI) is now up 2.1 percent over the last 12 months through Ma! y, and 2 percent excluding food and energy.

This week brought the latest numbers for the Federal Reserve’s favorite inflation gauge, the core personal consumption expenditure (PCE). Core PCE gives more weight to health care and less to housing. Over the past 12 months, the PCE has climbed 1.8 percent, and the core PCE, again excluding food and energy, is up 1.5 percent.

Either way, it’s widely acknowledged that the official government numbers understate inflation, partly because of changes made in the calculation methods over the years.

In other words, inflation indeed is dormant if you don’t eat, don’t drive, don’t send kids to college, don’t need healthcare and don’t breathe. 

What Lies Ahead?

Over the past 20 years, the CPI has averaged 2.4 percent, far from the double-digit levels of the late 1970s. So the current level of inflation is near the long-term trend.

Better economic growth seems likely in the near term, in the U.S. if not elsewhere. Our job market, as defined by qualified workers, may be tightening. The movement to raise the minimum wage is gathering momentum.

By historically normal measures, economic growth of 2.5 percent a year (we hope); 2 percent inflation, which is the Fed’s target rate; and a 6.3 percent unemployment rate would call for a more normal monetary policy.

In theory, that should lead the Fed to start raising its benchmark short-term interest rate as soon as the first quarter of 2015, earlier than most people currently expect. That rate has remained in the zero-0.25 percent range since December 2008.

We see three counter arguments. First, the Fed likely has to risk acting too late before hiking its short-term rate. Reason: If economic growth falters, the need for easier money could increase again, leading the Fed to reverse course.

Second, inflation is considered primarily a monetary phenomenon by many. In other words, it comes from “too much” mo! ney chasi! ng goods and services. Currently, all too much money is doing nothing: Money velocity is low despite the Fed’s aggressively easy policies.

Third, aging societies tend to grow more slowly than when their populations were younger. To a lesser extent, the US is now experiencing what has been happening in Europe and Japan for some time.

Bond investors, arguably the most inflation-sensitive, aren’t worried yet. Fixed-income yields are depressed in much of the world, including the 10-year U.S. Treasury issue down nearly 2.5 percent.

Why Coca-Cola Will Acquire Keurig Green Mountain Outright

Back on May 8, Coca-Cola  (NYSE: KO  )  quietly started adding to its previously announced 10% position in Keurig Green Mountain  (NASDAQ: GMCR  ) by buying shares on the open market. The trades, placed over three business days, preceded an announcement that the company would exercise its option to acquire up to a 16% stake in GMCR.

Over the course of 945 separate transactions, from humble "round lot" 100-share trades, to single purchases in excess of $5 million, the company bought in force, in the end acquiring $302.3 million worth of GMCR stock.

There was just one hitch in this well-executed accumulation: Keurig Green Mountain's stock price was rising rapidly in real time. It wasn't propelled by exiting short-sellers -- those had largely scrambled down from the Green Mountain when Coke first announced its presence in the stock in February. The previous evening, GMCR had reported second-quarter 2014 revenue that increased almost 10% over the prior year, demonstrating to many that the company had regained its sales momentum.

From Coke's first purchase at $96.65 on the 8th, a Thursday, to its last trade the following Monday, Keurig Green Mountain's share price would climb almost 11.5%, as Coke found itself bidding against other buyers enthused by GMCR's earnings report, while simultaneously contributing to the upward pressure on the stock.

By the time the closing bell rang on May 12, Coke had acquired its total batch of 2.8 million shares at an average price of $107.75, meaning that it had seen its excursion grow more expensive by $31 million. 

Of course, $31 million is a pittance for Coke -- it sells that much of its products every six hours. But the rapidly rising share price of GMCR has ostensibly forced management to grapple with a fundamental question: How many shares of the company does Coke want to own, and how quickly?

Now we just need doughnuts. Image from Flickr/planetc1 under Creative Commons license.

Keurig Green Mountain reminds Coke of a company it already knows very well
Exercising its option to purchase more shares of Keurig Green Mountain just 14 weeks after its first announcement of ownership speaks volumes about Coke's future intent. The market responded so positively to news of its initial stake that Coke was quickly put in the position of having to buy shares at a premium it created itself.

I've argued that the market really can't value the future impact of Coke's trademark on GMCR revenue at present. This imprecision will provide buoyancy to the stock until earnings come in from Coke-branded drinks on the upcoming Keurig Cold carbonated single serve platform. You can read this analysis here. GMCR now trades at a 54% premium to where it did the day before Coke announced its initial position in February. It's evident that Coke has revised both its expectations and its interest level, and probably wishes it had negotiated a larger initial purchase.

Coke's desire to add to its GMCR position may have something to do with Keurig's resemblance to Coke itself. If you were to strip away the details from these two companies, you'd find two very similar operations. Coke is a $46.8 billion company that licenses its intellectual property (its brand formulas) to bottlers and restaurants, and returns about 18% net profit each year.

Keurig Green Mountain, which is compensated to distribute other brands' coffees through its proprietary technology, is approximately one-tenth the size of Coca-Cola (at $4.4 billion in annual revenue), and returns roughly 11% profit each year, although last quarter its net profit clocked in closer to Coke's, at 15%. As a financial model, Keurig Green Mountain is a younger version of Coca-Cola, with a higher growth rate.

Coke's money and distribution can scale GMCR quickly
Seeing the similarities, Coke's management probably recognizes that its resources could fuel Keurig's growth on a global basis. Keurig Green Mountain has existed as a North American company since its inception. At the end of its last fiscal year, it estimated that it had only a 13% market penetration in North America. While there is surely further potential on this continent, much opportunity lies ahead in other markets: The company's international push did not start until fiscal 2014.

If Coke owned GMCR outright, it could subsidize international expansion by using its balance sheet for price investments in GMCR's technology. In other words, Coke has the deep pockets to offer GMCR's Keurig machines at a discounted price in Europe and Asia (two major coffee markets), which will speed adoption of Keurig's technology versus existing competitors such as Nestle. Nestle's "Nespresso" single-pod machine is the current single-serve coffee leader, with 26% share of the global market. Hastening adoption of Keurig brewing systems will pave the way for Coke's unparalleled distribution system to move K-cups en masse -- and wrest market share from Nestle.

Image from Flickr/Taymaz Valley under Creative Commons License

GMCR is hitting the wrong line item on Coke's income statement
Perhaps the most persuasive reason for Coke to completely own Keurig lies in the mechanics of accounting. For the time being, Coke recognizes its GMCR holdings as "available for sale" securities. Changes in market value of the shares occur in the "other income" line of the income statement. As Coke's interest rises toward the 16% mark, it may change its accounting to reflect an equity investment, with its proportionate share of income from GMCR recorded in the income statement's "equity income" line item, net of any dividends received.

While such accounting would positively affect earnings per share, or EPS, the impact of owning a rapidly growing company whose prospects will improve under Coke's ownership is muted. If Coke owned GMCR outright, the smaller company's revenues and expenses would consolidate under Coke's income statement, and affect measures that Coke investors pay close attention to, such as operating income. More importantly, GMCR's revenue growth would improve Coke's overall reported revenue growth. As I discussed, Keurig Green Mountain is only one-tenth the size of Coke, but it's expanded revenue by a compounded annual growth rate of 28% over the past three years. It's conceivable that Keurig Green Mountain, even after factoring in slower growth, could double its revenue over the course of five to 10 years, at which point it would have a measurable influence on Coke's revenue. Coke loses all this benefit if it continues to hold just a 16% stake, accounted for in a single line item, at the very bottom of its income statement.

A final clue: close ties in the relationship
As I've written about previously, Keurig Green Mountain's CEO, Brian Kelley, is himself a Coke veteran, with an understanding of how Coke can assist the company to scale up its operations. During GMCR's most recently conducted earnings conference call, Kelley noted:

We are also in the final stages of closing on the site for the first dedicated commercial cold -- Keurig Cold production facility in the southeastern United States.

Source: GMCR quarterly earnings call transcript

Last week, Georgia Gov. Nathan Deal confirmed that Keurig Green Mountain has closed on a $337 million, 585,000-square-foot production facility for the upcoming Keurig Cold machine, just outside Atlanta -- Coca-Cola's corporate headquarters. This reveals from Kelly's perspective just how important both Coke's trademarks and expertise will be in selling Keurig Cold machines and "Cold" carbonated servings. It's also yet another clue that these two corporations are gearing up, perhaps inevitably, for a much closer relationship. 

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