Baron Funds Comments on NQ Mobile Inc.

NQ Mobile, Inc. (NQ) was up nearly 170% in the third quarter. NQ is the #1 mobile security provider in China with an emerging mobile gaming business. In our opinion, performance in the third quarter was partially driven by new content and distribution deals with Baidu, Tencent, China Mobile, and Perfect World. NQ also reported strong second quarter results, with 107% year-over-year revenue gro wth, and raised guidance for the third quarter. (Catherine Chen)

From Ron Baron's Baron Funds third quarter 2013 commentary.

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Tackling Hot-Button Topics

For those who may not know, each month we host a joint web chat for subscribers of The Energy Strategist (TES) and MLP Profits. The chat is conducted by Igor Greenwald, managing editor for TES and chief investment strategist for MLP Profits, and myself.

We place a priority on answering questions about portfolio holdings and recommendations during the chat, but often we get questions about companies we don’t currently recommend. Sometimes we may get questions that require an extended answer, or there may just be so many questions we can’t get to them all. For the most recent chat there were three MLP questions that warrant some elaboration.

Q: Do you anticipate any impact on MLP share prices in a rising interest rate environment?

We got a couple of questions about the effect of interest rates on expected MLP unit performance. Igor’s view is that the spring/summer MLP correction sort of inoculated against a repeat, and further that the economy isn’t strong enough to support significantly higher rates for a good long while. And as the economy strengthens, it should generate plenty of demand for new energy infrastructure, helping the MLP sector grow, he argues.

I would add that those MLPs that are highly leveraged will be most at risk as rates rise. I would further avoid those that have had a significant run-up that has depressed the yields to low levels. A low-yielding MLP like Phillips 66 Partners (NYSE: PSXP), which had a very big rally from its initial IPO price, could be particularly vulnerable to higher interest rates.

Q: What are the pros and cons of holding an MLP in a retirement account? And which would you recommend?

Opinions on this are split. A big advantage of MLP investing is the potential for deferring taxes on earnings. However, the income in retirement accounts is already tax deferred. Further, it is possible that the retirement account could end! up owing additional taxes on MLP distributions, reducing the potential return to investors. Retirement accounts are taxed on “unrelated business taxable income” (such as partnership income) in excess of $1,000 in the aggregate. As a result, many financial planners  recommend that you not complicate your retirement account with MLPs.

Others argue that the steady cash distributions are a safe, conservative way to build up the value of the retirement account over time, even if the account ends up having to pay some taxes. The fact that the MLP isn’t paying corporate income taxes is a significant advantage over time with respect to its ability to generate higher income over time than would be possible for a corporation.

My view is that you first want to make sure that any of your fully taxable investments are protected in retirement accounts to the greatest possible extent before you start to consider putting MLPs in your retirement account. For example, investors with both taxable and tax-deferred investment accounts would generally be better off holding MLPs in the taxable accounts, where their tax deferral benefit would be more valuable, and where they would not generate a liability for unrelated business taxable income.

Of course, some MLP affiliates and/or sponsors are tax-paying corporations, and their shares can be held in a retirement account. MLP Profits portfolio picks suitable for IRA accounts include Kinder Morgan (NYSE: KMI), Williams (NYSE: WMB), Targa Resources (NYSE: TRGP) and Navios Maritime Partners (NYSE: NMM), all of which pay dividends and issue the 1099 miscellaneous income forms, rather than the more complicated K-1’s from partnerships.

Q: Linn Energy (NYSE: LINE) seems to have gotten thru the SEC looking them over. The merger with Berry seems to be on track, although at a higher purchase price. Do you think Linn is a good investment going forward?

This particular question was answered in the chat, but it warrants some a! dditional! commentary. We got half a dozen queries on Linn Energy during the chat, so there is obviously still a lot of interest there. Igor’s answer to this question was “All of that is true, and I expect the merger to close by year’s end, but I think Linn has some structural issues that go beyond Berry with its debt load and past acquisition quality, so I’m steering clear. There are better upstream MLPs in our portfolios.”

I would add that we have been pretty steadfast in believing that the SEC inquiry wouldn’t turn up anything substantive. However, we couldn’t recommend Linn with that inquiry hanging over the partnership. MLP investors in general are not looking to take on that kind of risk, and I suspect most didn’t think it was possible to see Linn drop like it did (down ~40 percent over the summer). This kind of volatility might be acceptable for aggressive speculators, but that doesn’t fit the profile of most MLP investors.

Now that the SEC cloud appears to be lifting and the merger with Berry looks to be imminent, we have taken another look at Linn. But after comparing to peer upstream MLPs, we feel that there are safer options, especially given the higher purchase price Linn had to pay for Berry, and Linn’s relatively high debt level. The present dividend yield of nearly 10 percent is certainly attractive, but our view is that the downside risk will continue to be unacceptably high for conservative investors.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Will Sony Be Able to Regain Its Gaming Crown?

With shares of Sony (NYSE:SNE) trading around $18, is SNE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company bring new technologies to the hands of your average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony's much-anticipated PlayStation 4 video game console was released Friday morning. Reviews of the device have been mostly positive, with the console's graphics, social media incorporation, and new controller cited as being the device's best new features, USA Today reports. Sony is looking to take back its video game lead from Microsoft's (NASDAQ:MSFT) Xbox and Nintendo's (NTDOY.PK) Wii. With a powerful device that at $399 costs $100 less than Microsoft's Xbox One — which will be launched in a week's time — Sony could be on its way to regaining its gaming crown.

T = Technicals on the Stock Chart Are Weak

Sony stock has seen its fair share of struggles over the last few years. The stock is currently trading sideways and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sony is trading below its rising key averages, which signal neutral to bearish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Sony options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Sony Options	32.83%	33%	30%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
December Options	Steep	Average
January Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Sony’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sony look like and more importantly, how did the markets like these numbers?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	22.71%	82.50%	125.35%	93.93%
Revenue Growth (Y-O-Y)	10.64%	-8.96%	-5.41%	-4.07%
Earnings Reaction	-11.17%	4.37%	0.78%	-4.36%

Sony has seen improving earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Sony’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers, Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), Dolby Laboratories (NYSE:DLB), and sector?

	Sony	Microsoft	Canon	Dolby Laboratories	Sector
Year-to-Date Return	65.89%	41.60%	-17.40%	21.00%	28.77%

Sony has been a relative performance leader, year-to-date.

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company’s PlayStation 4 video game console was released Friday morning. The stock has struggled in recent years and is now trading sideways. Over the last four quarters, earnings have improved while revenues have declined, however, investors have been pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. WAIT AND SEE what Sony does this quarter.

Stockholder Vote be Damned: Big Bonuses Paid to Xstrata Execs in Glencore Merger

The $75 billion merger between commodities trading house Glencore International and Xstrata for form Glencore Xstrata plc was completed in April of this year. In December of 2012, several Xstrata executives received millions of dollars in bonus payments that had been rejected by shareholders

As part of the original merger offer, about 70 Xstrata executives were in line to receive some $223 million in retention bonuses, with Xstrata's CEO looking at a payout of around $47 million. After a shareholder vote in late November, the merger was approved but the retention bonuses were not.

According to Bloomberg News, Xstrata CEO Mick Davis paid his colleagues "transaction" bonuses. The payments came to light as part of a lawsuit in London involving a former Xstrata executive who was paid a transaction bonus of $783,000, but sued claiming he was owed a severance payment of about $667,000 when he was forced to resign. The severance payment was part of the executive's contract while the transaction bonus was not, according to lawsuit.

The letter from Davis announcing the bonuses was quite cheery:

The task of achieving a merger between Xstrata and Glencore has brought with it many hurdles along the way and has been a real test of our character to rise up and meet such obstacles. … I would like to thank you for the contribution you have made to get Xstrata to this point of the merger and am pleased to inform you that you have been awarded a transaction bonus.

Bloomberg cites the head of research at a U.K. body established to monitor public and private compensation:

It seems like a classic example of firms not wanting to heed investors' advice on pay. These payments should certainly be disclosed and explained.

Now there’s a classic British understatement for you.

Glencore Xstrata paid Davis about $7.4 million after terminating his six-month appointment as CEO of the combined companies.

Cushioning The Blow Of Rising Rates

There is a certain sense of doom among income investors these days. It started with nerves over the Federal Reserve's tapering mishap and continues as the question of Chairman Ben Bernanke's succession hangs overhead. Ultimately income investors are fretting about what interest rates will look like once the Fed's manipulation is over.

First, it's time to stop worrying about short-term rates. Those will continue to be manipulated down for the benefit of Uncle Sam, maybe forever.

You should also stop focusing on what Bernanke is saying. His timetable ends in January, and we don't yet know the name or sentiments of his successor.

No matter who is the next chairman, you can be sure that long-term rates are going to rise over the next two years and that the change will be accompanied with significant volatility.

For individuals this is a scary prospect. The natural reaction is to go to cash and ride it out, but the downside is not earning any income on your capital for the next two years.

I say embrace the new financial reality. There is a glut of capital in the world, and economic growth is slow. That means too much money is chasing too few good investment options. Hence, anything that is safe doesn't even pay you the rate of inflation. Witness the negative 0.75% rate on TIPS earlier this year. In this environment, volatility is a plus because it creates investment opportunities.

As an alternative to cash, I would suggest investing in preferred stocks, which are callable anytime. This will provide significant short-term income and very limited volatility. What I call "cushion preferreds" are normally something investors avoid because they can be called in at any time. But it's exactly this feature that now makes them highly attractive given that short-term yields are being manipulated by the Fed.

Many cushion preferreds can be bought today at their call price plus accreted dividends. So you have no risk of loss–even if they're called the next day you are accruing income at their coupon rate during the 30-day notification period. This strategy works for callable bonds, too, but they're not exchange traded and are harder to buy at the right price.

Special Offer: Why bother with stocks or Treasurys when you can clean up in convertibles, preferreds and MLPs? Earn 8% yields on top of chunky capital gains. Click here for recommended buys in Forbes/Lehmann Income Securities Investor.

Here are the ground rules for buying cushion preferreds. First, I recommend a website called Quantumonline.com, which has a trove of data on preferred stocks, or my own website, Incomesecurities.com, which also lists candidates.

Seek out investment-grade issues to minimize credit risk and coupon rates over 6%. Calculate the accreted amount of the next dividend payment and add this to the call price. This sum should be your bid price.

Set a limit order, and be careful not to chase the price. In fact, I find it best to bid on multiple preferreds to increase the chances of getting enough viable investments. It's also important to watch for the ex-dividend date and then adjust your buy price down to the call price. Note your broker's bidding system will generally do this for you automatically. Be cautious of issues selling substantially below their accreted value, as there may be some overriding credit problem.

Here's an example: Barclays Barclays has a 7.75% preferred (BCSpC) that traded at 25.45 just before an Aug. 28 48-cent ex-dividend date. It's callable at $25. On the 28th the price dropped to 25.10. Since it won't be called sooner than Nov. 28, the price will rise to accrue the dividend and, even if called, will yield 6.1% for the three-month holding period. If it's not called for another year, that yield goes to 7.3%.

Yes, interest rates are going up. But my guess is that 6% to 7% for investment-grade preferreds will again become the norm, and these cushion preferreds will find a permanent place in your long-term portfolio.

Richard Lehmann is editor of the Forbes/Lehmann Income Securities Investor and Forbes/ISA Closed End Fund & ETF Report newsletters. He is also the author of Income Investing Today (John Wiley & Sonss, 2007). For more follow him at forbes.com/lehmann.

New Hire Roundup: Steve Dunlap to Head Wealth Management at Cetera

This week in new hires, Cetera Financial Group welcomed Steve Dunlap; Jeff Pawliger was appointed as Janus' regional director for southern Florida, and PFM Group announced that Susan Musselman, Fred Eoff and Johanna Roodzant have joined with the acquisition of SDM Advisors.

Also, BMO Global Asset Management welcomed LJ Jhangiani, Hartford Funds announced a promotion and several additions, and Rosetta Packer became a partner at Ballard Spahr.

Steve Dunlap Joins Cetera as Head of Wealth Management

Cetera Financial Group announced that Steve Dunlap will join the company as executive vice president, wealth management. He assumes the role from Barnaby Grist, who will be leaving Cetera at the end of the month to focus on his family, and will report to Valerie Brown, CEO.

Most recently, Dunlap served in a dual role as president and CEO of Lockwood Advisors, which operates as the retail distribution arm of The Bank of New York Mellon, and as president of managed investments at the company’s Pershing unit. Before joining Pershing, he was president of Finetre Corp. His experience spans from managing private equity-funded startup companies to key leadership positions at multibillion-dollar corporations. He spent his early career as an investment executive, giving him insight into the challenges advisors face.

Janus Names Jeff Pawliger as Regional Director for Southern Florida

Janus Capital Group recently announced the appointment of Jeff Pawliger as regional director of Janus’ Advisor Solutions Group in southern Florida.

Pawliger, a 27-year veteran of the financial services industry, previously held positions as a regional and divisional sales manager for Wood Logan & Associates, Citigroup Smith Barney and AXA Distributors.

Susan Musselman, Fred Eoff, Johanna Roodzant Join PFM Group

PFM Group announced that it has acquired Seattle-based SDM Advisors. Susan Musselman, president of SDM Advisors, will join PFM as a director, and her colleagues Fred Eoff and Johanna Roodzant will also join the firm. They will work with PFM professionals already active in the northwest and will continue to serve clients from PFM's Seattle office, which will now have 10 employees.

SDM Advisors, formed in July 1996 as Susan D. Musselman, has clients in Washington that include counties, cities, utilities, school districts, housing agencies and special-purpose districts. SDM Advisors also serves most of the state's public universities, is advisor to the office of the state treasurer for its lease purchase program, and is on the financial advisory team for the Washington State Housing Finance Commission.

Collectively, SDM's professionals represent more than 70 years of experience in banking and public finance, general-purpose municipal finance, public housing development financing, higher education and economic development finance. Musselman has more than 30 years of experience in public finance, primarily in the Northwest. Eoff has 35 years of experience in public finance in the Northwest and nationally.

BMO Global Asset Management Welcomes LJ Jhangiani

BMO Global Asset Management announced the addition of LJ Jhangiani as a director, senior securities lender/trader in its securities lending group. Based in Chicago, Jhangiani will be responsible for the control and coordination of the securities lending trading desk and trading/lending within client portfolios.

With more than 20 years of securities lending exerience, Jhangiani's previous roles include portfolio manager, chief operating officer and vice president of global securities lending at several leading organizations. Hartford Funds Promotes Brian Garrette, Adds Four

Hartford Funds named Brian Garrette and Michael Tobin divisional sales managers, overseeing the company’s south and west regions, respectively. In addition, the firm added three new advisor consultants. In their new roles, Garrette, based in Boca Raton, Fla., and Tobin, based in San Diego, Calif., are responsible for managing sales staff in their geography, including hiring, coaching, training and mentoring advisor consultants, as well as optimizing sales results and representing Hartford Funds at regional events. They both report to Jeff Reiss, head of retail sales.

Richard Benn, Nathan Fair and James “Mike” Sargent Jr. will serve as advisor consultants in New York and New Jersey, Wisconsin and Texas, respectively. Benn reports to Andrew Shaw, divisional vice president for the Northeast region, and is based in Florham Park, N.J.; Fair, based in Hartland, Wis., and Sargent, based in Dallas, report to Kirt Jones, DVP for the central region.

Garrette joined in 2004. He was promoted from his previous position as advisor consultant in the South Florida region, where he was responsible for financial sales performance and territory management in the wirehouse channel. Before joining, he spent nearly 15 years in business development at independent broker-dealer Investor Capital Corp., earning the title of firm principal.

Tobin brings nearly 25 years of mutual fund experience and joins from LPL Financial Services, where he served as the senior vice president, national sales manager, responsible for sales and marketing of advisory platforms. Prior to that, he served in various sales and distribution roles, including western divisional sales director at Invesco Distributors, previously Morgan Stanley Investment Management. He joined Invesco after six years with AllianceBernstein Investments, where he was the senior vice president, eastern divisional sales manager.

Benn joins after nearly seven years with RS Investments. In his most recent role, he served as regional vice president in northern New Jersey and New York. He joined RS Investments as a senior internal wholesaler from Guardian Investor Services, where he served as an internal wholesaler. Prior to that, he spent most of his career as a trader.

Prior to joining, Fair was regional vice president of national sales for Pioneer Investments. He joined Pioneer following six years with Natixis Global Associates, where he served as senior regional director and was responsible for growing sales as a wholesaler in Wisconsin and Iowa. Prior to that, he was a senior regional sales representative for Guardian Investor Services and spent three years as a personal financial advisor for American Express Financial Services.

Sargent brings more than 22 years of financial services experience, including his most recent role as vice president of Managers Investment Group, where he was responsible for business development within the wirehouse and broker-dealer channels in Texas and Oklahoma. He was previously at Capital Institutional Services, Inc., where he served as vice president of the institutional investment group. Earlier, he spent 10 years with American Beacon Advisors, where he served as vice president, responsible for business development for the American Beacon mutual funds and the American Private Equity Partners Limited Partnership.

Rosetta Packer Joins Ballard Spahr

Rosetta Packer has joined Ballard Spahr as a partner in the Philadelphia office. Packer focuses on complex commercial and real estate workouts and related state and federal litigation. She advises a range of leading financial institutions in loan restructuring, lender liability prevention and defense, and intercreditor relationships.

Packer has represented secured lenders in major Chapter 11 proceedings and has negotiated and documented complex real estate restructured transactions and asset-based facilities. In addition, she has tried cases in federal and state courts in complex commercial matters and lease finance transactions. Before joining, she was a partner in the Philadelphia office of McCarter & English. At Ballard Spahr, she is a member of the business and finance department and the firm’s bankruptcy, reorganization and capital recovery; transactional finance; and real estate finance and capital markets groups.

Read the June 26 New Hire Roundup at AdvisorOne.

Intelsat Sets Preferred Dividend

Satellite services provider Intelsat (NYSE: I  ) announced yesterday its second-quarter dividend of $0.799 per share on its 5.75% Series A mandatory convertible junior non-voting preferred stock, which trades on the NYSE under the symbol I.PRA.

Each Series A preferred share will automatically convert on May 1, 2016, into between 2.2676 and 2.7778 common shares. The number of shares issuable on conversion will be determined based on the average of the closing prices per share over the 40-trading-day period ending on the third trading day prior to the mandatory conversion date, the company said. They may be converted at any time before then at the minimum conversion rate of 2.2676 shares per Series A preferred share.

The board of directors said the dividend is payable on Aug. 1 to the holders of record at the close of business on July 15. The payout reflects preferred dividends accrued during the 100-day period starting on the date of the satellite service provider's initial offering of preferred shares, or April 23, and ending July 31.

Intelsat does not pay a dividend on its common stock.

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Apple Sticks With Corning -- for Now

There's been talk this year that the next big thing in smartphones would be the adoption of sapphire displays. It all started in March, when MIT Technology Review published a report on the material, suggesting that the material's strength could represent a threat to Corning (NYSE: GLW  ) Gorilla Glass. All the signs of a disruptive threat remain, except the cost differential remains large enough that Corning should be safe for now.

Apple (NASDAQ: AAPL  ) is largely credited with sparking Gorilla Glass adoption after it found a new use for the decades-old material in the iPhone. The iPhone maker currently uses sapphire in the latest iPhone 5, except only as a small camera lens cover. Apple is one of the few high-end OEMs that could potentially be willing to pay up for sapphire cover glass to further differentiate the iPhone from the competition. That could potentially spark another shift, except this time, away from Gorilla Glass.

Speaking of high-end OEMs, Vertu CEO Perry Oosting shines some light on the state of sapphire smartphones. The maker of diamond-encrusted smartphones is about as high end as it gets, and has experience putting sapphire (and other precious gems) all over smartphones. In a recent interview with German site Tages-Anzeiger, Oosting mentions that Apple had previously hired away several Vertu employees to investigate using sapphire displays.

However, sapphire requires a lot of processing time for production, which makes it difficult to meet Apple's volume needs that easily reach 30 million to 40 million units per quarter. That's one reason why Apple has shelved the idea for the time being and will stick with Gorilla Glass for the foreseeable future.

Nokia used to own Vertu, but sold off the majority of the company to private equity firm EQT VI last year, while retaining a 10% minority stake.

Corning has also proactively responded to the threat, and has released internal tests that show Gorilla Glass holding up better than sapphire. That's why the glass maker isn't scared of sapphire quite yet, and can enjoy its latest cash cow for a little while longer.

Apple has a history of cranking out revolutionary products ... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

 

The Curse of the Parabolic Move

 Oh sure... it's all fun and games when prices are going straight up.   But as the old saying goes... What goes up must come down. And the straighter up it goes, the faster it drops...    Take the utility sector, for example...   We first warned about the dangers of the parabolic move in utility stocks a few weeks ago. You can see what has happened to the sector since then...     So with this chart in mind – and with a profitable utility short sale under our belt – it's worthwhile to look for other parabolic moves in danger of breaking down. Here's what we found...    Japan's stock market has been ripping higher since December – when the Bank of Japan announced its own version of quantitative easing. The Japan iShares Fund (NYSE: EWJ) rallied 33% in five months before giving up some of those gains last week.   Over the long term, this bull market could power higher. But in the short term, if the parabolic breakdown plays out as it has in the utility sector, any brief bounce this week could be followed by even lower prices later on. EWJ has support at about $10.50 – which looks like a good downside target...      What started out as a steady grind higher for Microsoft (NASDAQ: MSFT)shares this year has morphed into a parabolic blast-off. The stock is up 23% in just the past five weeks.   The chart does look like it can push higher at least one more time. But the move is getting very stretched. A reversal from slightly higher levels could knock the stock back down to support near $31. If you have a long-term position in the stock, that shouldn't affect you one way or the other. But short-term traders can consider taking some money off the table...      With the stock up 200% in two months, there's no question shares of Tesla Motors (NASDAQ: TSLA) have gone parabolic. Shorting this stock is tough to do, though, since 44% of the float is already sold short – and painfully underwater. When this electric-car bubble finally pops, it should be one heck of an explosion...     – Jeff Clark

1 Big Retailer Stumbles, Falls Behind

This morning's earnings release from Target (NYSE: TGT  ) contained a few surprises -- and not the good kind. The retailer failed to hit the bar analysts had set up, and the stock had fallen 3.5% by midday. The biggest issue for Target is the slowdown in foot traffic. The resulting shortfall forced the company to drop its overall earnings forecast for the full year. In short, things are not looking great over at Target, and it might be time for investors to bow out.

Target misses the boat
The retailer cited softness in its apparel sales, a problem that has plagued apparel retailers all year. The long winter meant that customers were less likely to start buying spring clothes early in the year. That reluctance meant that the total number of transactions suffered, accounting for a 1.9% drop in comparable sales for Target. The company was able to regain a bit of ground, though, due to an increase in average transaction size. The combination of the two left Target with a 0.6% decline in comparable store sales.

Trickle that down to earnings per share, and the company was staring down a 5% drop, from $1.11 per share in 2012 to $1.05 this year. The fall meant that management had no choice but to drop its yearly earnings-per-share expectations, down from $4.85-$5.05 to $4.70-$4.90.

What should Target investors do?
Compared to others in the sector, Target is middle-of-the-pack. The leader is clearly Costco (NASDAQ: COST  ) , which has managed to pull in more customers through its bulk discounting. While the company has not reported its current quarter earnings yet -- the report comes out at the end of the month -- monthly comparable sales have been rising.

Costco has managed to buck the issues that seem to have hampered Target. Last quarter, Costco recorded more transactions, with larger average transactions, both of which resulted in a 5% favorable comparable-sales increase for the quarter.

If Costco is the front-runner of the business, Wal-Mart (NYSE: WMT  ) looks increasingly like it's bringing up the rear. The company blamed inflation, weather, income tax returns, and health care tax in its recent poor showing. Comparable sales fell 1.5% last quarter, and Wal-Mart management was quick to point the finger outside of the company. Even with those issues,it managed to increase earnings per share.

The problem for Target investors is that the cost of moving to a better-performing business may not make sense. Although Target has failed to keep up with returns for the S&P 500 over the last 12 months, it's still up 22%. That's roughly in line with Wal-Mart's return, but well short of the 37% that Costco has gained.

That success comes at a cost, though. While Wal-Mart and Target both trade at P/Es below 16, Costco is trading at 26. If I were invested in Target, I'd seriously consider a switch of allegiance. Target seems to be stumbling -- by no means failing, just stumbling -- while Costco is soaring.

Before you sell or buy any of these retailers, make sure to check out our detailed report on Costco, containing in-depth analysis on the company and one year of free updates on important company news. Simply click here now to gain instant access to this valuable investor's resource.

Apple Is Hitting a Ceiling -- and Tim Cook Knows It

Even though Apple's (NASDAQ: AAPL  ) new capital return program that entails giving back $100 billion to shareholders should hopefully set a price floor for shares, the iPhone maker is also running into a ceiling at the same time: There's simply not much growth left in the high-end smartphone market.

That's the abundantly clear takeaway from the latest figures by market researcher Strategy Analytics. While the 37.4 million iPhones that Apple sold in the first quarter were better than most expected, the figure represented just 7% growth from a year ago. Meanwhile, rivals are gaining traction primarily in lower market segments that Apple has historically left alone.

Vendor

Q1 2012
Units

Q1 2012
Market Share

Q1 2013
Units

Q1 2013
Market Share

Samsung	44.4 million	28.9%	69.4 million	33.1%
Apple	35.1 million	22.8%	37.4 million	17.9%
LG	4.9 million	3.2%	10.3 million	4.9%
Huawei	5.1 million	3.3%	10 million	4.8%
ZTE	4.6 million	3%	9.1 million	4.3%
Others	59.7 million	38.8%	73.3 million	35%
Total	153.8 million	100%	209.5 million	100%

Source: Strategy Analytics.

Strategy Analytics calls out LG as a particularly strong performer, more than doubling its units over the past year and climbing to the No. 3 spot. LG is using some of Samsung's own tactics against it, including wide distribution. Vertical integration and product imitation aren't hurting its prospects, either.

The total market grew by an impressive 36% to 209.5 million units -- meaning Apple's unit sales significantly underperformed the broader market. CEO Tim Cook specifically addressed this on the last conference call, when asked by Bernstein analyst Toni Sacconaghi.

Cook acknowledged that even after normalizing for channel inventory to arrive at actual sell-through, Apple still "grew less than" the broader market. He took the opportunity to mention other relevant statistics beyond unit share that Apple considers when evaluating its overall health, including customer satisfaction and loyalty, ecosystem commerce, and usage, to name a few. It's also worth noting that lower market segments are less profitable, so rivals gaining unit share doesn't translate into growing profit share. Apple still owns that department.

Cook then hinted that Apple would indeed be focusing on affordability in emerging markets going forward:

Now, that said, we see an enormous number of first time smartphone buyers coming to market, particularly, in certain countries around the world. And so what we've done with that is and we started last quarter is we've made the iPhone 4 even more affordable and which has made it more attractive to first time buyers and [our supply caught up with demand] toward the late in the quarter last quarter and we are continuing to do that in other markets.

The iPhone 4, a three-year-old smartphone, is still selling strong, thanks in large part to Apple's ecosystem advantages and Apple's recent moves toward affordability in important markets like Brazil, India, and China (the "B," "I," and "C" in "BRIC").

Clearly, tapping emerging markets is on Cook's mind. Clearly, an affordable iPhone is in the works.

Just because Apple's hitting a smartphone ceiling doesn't mean its story is over. There's plenty of opportunity in Apple's future. 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 sell Apple and the opportunities left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

 

You won't miss those annoying political ads. Stations will miss the money

NEW YORK (CNNMoney) Attention viewers in Grand Rapids, Des Moines and Augusta: it's almost safe to turn on the TV again.

Election day means the end of another bruising period of political advertising -- ads that are detested by the audience but much appreciated by the TV stations that run them.

Kantar Media estimates that local stations will collectively rake in $2.6 billion from political ads this year. Stations rely on this revenue, which makes them more valuable to owners, particularly in swing states.

It's enough to make you wonder whether all that money warps media coverage of campaigns. Station owners are the ones benefiting from the status quo, so might their newsrooms be a little less likely to cover proposals to reduce the amount of money in politics?

Consider this: revenue from the ads indirectly supports local newsrooms, but it's not as if stations go on hiring sprees during midterm and presidential election cycles. When I recently asked a political reporter in one big market if the money her station makes from campaign ads gets reinvested into fact-checks of those same ads, she laughed and said, "The answer is a loud no."

The relative dearth of ad fact-checking has been a thorn in the side of reformers for years.

Stations aren't the only beneficiaries of campaign spending. Local purchases of airtime on national cable channels will account for another $600 to $800 million, for a total of at least $3 billion in TV ad spending, according to Kantar. Digital spending increases with every election cycle, but TV remains dominant.

Elizabeth Wilner, the senior vice president of Kantar Media Ad Intelligence, described the relationship between candidates (and outside groups who seek to influence campaigns) and television outlets as a "marriage of convenience."

The best word for the res! ult on the local level is saturation, particularly in markets with a bevy of competitive races. In the final days before election day, WZZM, the ABC affiliate in Grand Rapids, Michigan, ran more political ads than any other single station in the country, according to the Republican research firm Echelon Insights. The total was 1,820, not counting any last-minute changes.

1,820 campaign ads! In one week! Echelon co-founder Patrick Ruffini attributed the high number to "heavy spending in the governor's race, State Supreme Court races," a super PAC effort to oust Republican Congressman Fred Upton, and "numerous local races and ballot initiatives."

The two other top markets, ranked by sheer number of ads in the final week, are Des Moines, Iowa and Augusta, Georgia.

Dale Woods, the general manager of WHO, the NBC affiliate in Des Moines, told me on CNN's "Reliable Sources" that the flood of campaign ads have had "a negative impact on the economy," because traditional local advertisers can barely get their ads in.

But the effect is certainly positive for WHO and the other local broadcasters. And they can expect the ad buys to resume as the 2016 election approaches.

"We'll probably have about a six month reprieve here," Woods said, "before we start the caucus process."

Three Reasons Volatility Might Increase

Where art thou volatility? Not here, nor there, but soon to revive, me thinks.  Volatility in risk markets is simply the measurement of variation in prices which is often calculated over certain time periods and against the idea of a normal distribution. The most important markers are historical (statistical) volatility and implied volatility. Historical volatility is a retrospective measurement of actual pricing variations whereas implied volatility is the theoretical price of an asset taking into account actual prices, historical volatility, a time component and the risk free rate within a pricing model such as the Black-Scholes model. Both historical and implied volatility have recently declined to cycle lows in many asset classes. The consensus call is for continued calm waters. This call for tame volatility may be underestimating three potential drivers to higher volatility this year: rising inflation and Federal Reserve policy, a taper tantrum and geopolitical unknowns.

The most popular measure of market volatility in the US is the CBOE Market Volatility Index (the "VIX") which is also known rather ominously as the "fear gauge."  The VIX measures a weighted average of the implied volatility of a wide range of S&P 500 options with a 30 day maturity.  Quite simply, the VIX is the implied volatility of the S&P 500 and is frequently thought of as the market's broad expectation of volatility over the next 30 day period. The VIX has been on a downward trajectory since 2010.

The VIX has an audience across asset classes as it can give insight into the short term biases and leanings of US equity market participants.  To be clear, the VIX is one tool to measure perceived volatility and although a high VIX or an upward trend is most often the result of a declining equity market, the gauge can increase as well when call holders refuse to sell options absent a larger premium.  Thus, the VIX can be a measure of upside or downside moves with higher numbers representing the anticipation of sharper moves. Somewhat ironically, there are many instances where higher VIX prices correlate strongly to higher prices in the S&P 500 as the fear dissipates and markets readjust.

The VIX and other measurements of volatility have continued to trend down for many reasons including the fact that the world's central banks have maintained highly accommodative monetary policies.  The European Central Bank has just announced a program of direct asset purchases including the cessation of the "sterilization" of their current markets program. Moreover, secondary central banks like the Bank of Mexico have cut rates in an effort to spur higher inflation.  Assuming a direct correlation between liquidity and volatility, all of these programs should act as a governor to higher volatility. Other reasons offered to explain the calmness in markets include exceedingly low trading volumes, range bound markets, recently improving economic data and fewer economic surprises, the transparency of corporate reporting, and the perception that there is no immediate catalyst to drive volatility higher.

3 Biotech Stocks Under $10 to Watch

DELAFIELD, Wis. (Stockpickr) -- At Stockpickr, we track daily portfolios of stocks that are the biggest percentage gainers and the biggest percentage losers.

>>5 Hated Earnings Stocks You Should Love

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.

>>5 Rocket Stocks to Beat a Sideways Market

With that in mind, let's take a closer look at a several stocks under $10 that are making large moves to the upside.

CytRx

CytRx (CYTR) operates as a biopharmaceutical research and development company specializing in oncology. This stock closed up 2.4% to $3.41 in Tuesday's trading session.

Tuesday's Range: $3.27-$3.45

52-Week Range: $1.95-$8.35

Tuesday's Volume: 1.07 million

Three-Month Average Volume: 2.35 million

From a technical perspective, CYTR trended higher here with lower-than-average volume. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $2.78 to its recent high of $3.62. During that uptrend, shares of CYTR have been making mostly higher lows and higher highs, which is bullish technical price action. This spike higher on Tuesday is starting to push shares of CYTR within range of triggering a major breakout trade. That trade will hit if CYTR manages to take out some near-term overhead resistance at $3.62 and then once it clears both its 50-day moving average of $3.71 to its 200-day moving average of $3.82 with high volume.

Traders should now look for long-biased trades in CYTR as long as it's trending above Tuesday's low of $3.27 or above $3 and then once it sustains a move or close above those breakout levels volume that hits near or above 2.35 million shares. If that breakout gets started soon, then CYTR will set up to re-test or possibly take out its next major overhead resistance level at $4.64.

Hemispherx Biopharma

Hemispherx Biopharma (HEB), a specialty pharmaceutical company, engages in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. This stock closed up 11.1% to 37 cents in Tuesday's trading session.

Tuesday's Range: $0.31-$0.37

52-Week Range: $0.19-$0.55

Tuesday's Volume: 1.67 million

Three-Month Average Volume: 1.50 million

From a technical perspective, HEB ripped sharply higher here right above its 200-day moving average of 30 cents per share with above-average volume. This move is quickly pushing shares of HEB within range of triggering a near-term breakout trade. That trade will hit if HEB manages to take out its 50-day moving average of 37 cents per share to some more near-term overhead resistance levels at 38 to 40 cents per share with high volume.

Traders should now look for long-biased trades in HEB as long as it's trending above some key near-term support at 30 cents per share and then once it sustains a move or close above those breakout levels volume that hits near or above 1.50 million shares. If that breakout triggers soon, then HEB will set up to re-test or possibly take out its next major overhead resistance levels at 50 to its 52-week high at 55 cents per share.

Geron

Geron (GERN), a clinical stage biopharmaceutical company, develops a telomerase inhibitor, imetelstat, to treat hematologic myeloid malignancies. This stock closed up 8.6% to $2.02 in Tuesday's trading session.

Tuesday's Range: $1.92-$2.07

52-Week Range: $1.05-$7.79

Tuesday's Volume: 4.52 million

Three-Month Average Volume: 5.52 million

From a technical perspective, GERN gapped sharply higher here with decent upside volume. This spike higher on Tuesday is quickly pushing shares of GERN within range of triggering a near-term breakout trade. That trade will hit if GERN manages to take out some near-term overhead resistance at $2.07 with strong upside volume flows.

Traders should now look for long-biased trades in GERN as long as it's trending above Tuesday's low of $1.92 or above more near-term support at $1.69 and then once it sustains a move or close above $2.07 with volume that hits near or above 5.52 million shares. If that breakout triggers soon, then GERN will set up to re-test or possibly take out its next major overhead resistance levels at $2.29 to $2.53. Any high-volume move above $2.53 will then give GERN a chance to re-fill some of its previous gap-down-day zone from March that started near $4.50.

To see more stocks that are making notable moves higher, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>3 Stocks Breaking Out on Unusual Volume

>>5 Stocks Set to Soar on Bullish Earnings

>>4 Big Stocks on Traders' Radars

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com.

You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

JP Morgan Offering a 17.6% pretax yield

Company History and Business

JPMorgan Chase (JPM) is a global finacial service firm and banking institution operating in 50 countries. It is engaged in investment banking, financial sevices for consumers and small businesses, commercial banking, financial trancactions processing, asset management and private equity. It is a well-run moneymaking machine that =brought in $24 billion in revenues with $2.5 trillion in assets in the last quarter. With a outstanding CEO in Jamie Dimon who has lead the company through the financial crisis, the London Whale Losses, government investigations and a first first quarter 2014 loss, while still ensuring that the earning power of the firm isn't harmed or impaired by these problems.

Jamie Dimon has been the CEO of JPM since 2005 and Chairman of the Board since Dec. 31, 2006. Under his leadership, JPM has become the leading bank in domestic assets under management and market valuation, and the top credit card provider in the U.S. Dimon led JPM through the financial crisis and acquired Bear Stearns and Washington Mutual for pennies on the dollar, increasing JPM in size and scope. But the acquistion of Bear Stearns and Washington Mutual came with mortage-backed securities and potional government lawsuits by the Justice Department. Forseeing that JPM has injected $28 billion into its legal reserves, since the end of 2009. Starting with the London Whale losses, the bank has had the Justice Department investigate the company, resulting in penalties up to $20 billion, most of this happened within the past year.

Finances

Balance Sheet

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Total Current Assets	-	-	-	-
Total Assets	2415689	2359141	2265792	2117605
Cash & Due from Banks 39771 53723 59602 27567 Other Earning Assets, Total 1404299 1358307 1271811 1174042 Net Loans 722154 711860 696111 660661 Property/Plant/Equipment, Total - Net 14891 14519 14041 13355 Property/Plant/Equipment, Total - Gross - - - - Accumulated Depreciation, Total - - - - Goodwill, Net 48081 48175 48188 48854 Intangibles, Net 11232 9849 10430 17688 Long Term Investments - - - - Other Long Term Assets, Total - - - - Other Assets, Total 175261 162708 165609 175438
Total Current Liabilities	-	-	-	-
Total Liabilities	2204511	2155072	2082219	1941499
Accounts Payable 194491 195240 202895 170330 Payable/Accrued - - - - Accrued Expenses - - - - Total Deposits 1287765 1193593 1127806 930369 Other Bearing Liabilities, Total - - - - Total Short Term Borrowings 267005 322106 287071 346332 Current Port. of LT Debt/Capital Leases - - - - Other Current liabilities, Total - - - - Total Long Term Debt 317506 312215 322752 348302 Long Term Debt 317506 312215 322752 348302 Capital Lease Obligations - - - - Total Debt 584511 634321 609823 694634 Deferred Income Tax - - - - Minority Interest - - - - Other Liabilities, Total 137744 131918 141695 146166
Total Equity	211178	204069	183573	176106
Redeemable Preferred Stock, Total - - - - Preferred Stock - Non Redeemable, Net 11158 9058 7800 7800 Common Stock, Total 4105 4105 4105 4105 Additional Paid-In Capital 93828 94604 95602 97415 Retained Earnings (Accumulated Deficit) 115756 104223 88315 73998 Treasury Stock - Common -14868 -12023 -13193 -8213 ESOP Debt Guarantee - - - - Unrealized Gain (Loss) 2798 - - - Other Equity, Total -1599 4102 944 1001
Total Liabilities & Shareholders' Equity	2415689	2359141	2265792	2117605
Total Common Shares Outstanding	3756.11	3803.95	3772.7	3910.3
Total Preferred Shares Outstanding	1.12	0.91	0.78	0.78

Income Statments

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Net Interest Income	43319	44910	47689	51001
Interest Income, Bank 52996 56063 61293 63782 Total Interest Expense 9677 11153 13604 12781
Loan Loss Provision	225	3385	7574	16639
Net Interest Income After Loan Loss Provision	43094	41525	40115	34362
Non-Interest Income, Bank	53287	52121	49545	51693
Non-Interest Expense, Bank	-70467	-64729	-62911	-61196
Net Income Before Taxes	25914	28917	26749	24859
Provision for Income Taxes	7991	7633	7773	7489
Net Income After Taxes	17923	21284	18976	17370
Minority Interest	-	-	-	-
Equity In Affiliates	-	-	-	-
U.S GAAP Adjustment	-	-	-	-
Net Income Before Extraordinary Items	17923	21284	18976	17370
Total Extraordinary Items	-	-	-	-
Net Income	17923	21284	18976	17370
Total Adjustments to Net Income	-1330	-1407	-1408	-1606
Income Available to Common Excluding Extraordinary Items	16593	19877	17568	15764
Dilution Adjustment	-	-	-	-
Diluted Net Income	16593	19877	17568	15764
Diluted Weighted Average Shares	3814.9	3822.2	3920.3	3976.9
Diluted EPS Excluding Extraordinary Items	4.35	5.2	4.48	3.96
DPS - Common Stock Primary Issue	1.36	1.2	1	0.2
Diluted Normalized EPS	6.27	5.95	5.37	5.26

For fiscal year 2013, the firm interest income decreased 5% to $53 billion and net interest income after loans after loan loss provision increased 4% to $43.09 billion. It earned $17 billion and had revenues of $96.billon for 2013. The company had legal expenses after taxes of $8.6 billion you the year. Total deposite of $453 billion up 10% from the prior year.

Financial Assets and Liquidity

Ratio's	2013	2011
Debt to Equity	1.68	1.62
Total Equity to Total Assets	0.09	0.09
LT Debt to Total Assets	0.12	0.12
Tier 1 Capital	11.9	12.6
Tier 1 Common	10.7	11.0
Total Capital	14.4	15.3

JPM Pretax Earnings

	Net Common Income to Shareholders	Income Tax	Pretax Income
1Q2013	6,121	2,553	8,684
2Q2013	6,101	2,802	8,903
3Q2013	5,346	2,278	7,624
4Q2013	5,322	1,258	6,580

JPM 12 month pretax earnings after adding back taxes paid is $31.8 billion. It trades at around $57 with 3.8 billion shares outstanding, giving JPM a market cap of $213 billion that a 14.6% pretax yield. Buying JPM stock at today's price will give a pretax return of 14.6%compaired to the 2.5% on treasury is pretty good.

What JP Morgan Considers Normal Range For Earnings

Under normalize environment JP Morgan net income of $24 billion with growth initiative that will allow the firm to earn more than $24 billion over time. With the growth initiative in place target for earnings of $27 billon. Using the $27.5 billion "normalize" figure with growth initiative and $1.3 billion in benefit from a 100 basis point increase in interest rates that would come to $39.3 billion pretax. Assuming a 30% tax rate and deducting $1.5 billion in preferred dividends thats leaves $37.8 billion. This implices a 17.8% pretax yield based on shares out standing and the current stock price.

Risk to JPM

There are risks to JPM mainly from the Department of Justice and its investigations of the bank. With $28 billion in its legal reserve it can weather the penalities from the Department of Justice. JPM has penalties totaling $20 billion from the Department of Justice. Department of Justice penalties broken down:

$2 billion civil penalties to settles DOJ claims under the Finacial Institutions Reform, Recovery, and Enforcement. $1.4 billion to settle federal and state securities claim by the National Credit Union Administration $515.4 million to federal and state securities claims by the Federal Deposit Insurance Corporation $4 billion to federal and stater securities claims by the Federal Housing Agency $298.8 million to claims by the state of California $19.7 million to claims by the state of Delaware $100 million to claims by the state of Illionois $34.4 million to claims by the state of Massachusetts $613.8 million to claims by the stae of New York

JPM said about $7 billion of its penalties were tax-deductable, because of these penalties it earnings fell flat for the four quarter. JPM still has legal risk, but there is little risk to its business model, and earning power.

JPM Valuation

The firm is selling for 13x its earnings, 2.5x free cash flow, and 1.00x book value which shows that the company isn't cheap, but it is selling below its intrinsic value based on its pretax earnings, free cash flow and book value. JPM offers a 14.6% pretax return plus it's worth $86/share base on 10x its pretax earnings. By using $37.8 billion pretax earning or $9.94 per share at 10x will give you a $99.40 per share value and a 17% pretax return. JPM will continue to grow its earnings and make more money on its loans as interest rate moves up. Compared to Wells Fargo which offers a 12.8% pretax return, you'll getting one the best managed banks in the world with a higher return. JPM didn't just survived the 2008 crisis it thrived on it, making the bank one of the most stable and sound banks in the world. If JP Morgan traded at the same price to free cash flow as Wells Fargo then the company would sell for $130.00 per share or at the same price to book value $95.04 per share. Based on all of this it is very clear that JP Morgan intrinsic value is $99.40 per share and offers a 17% pretax yield which make it a great Long-Term Play for potential investors.

http://files.shareholder.com/downloads/ONE/3120446062x0x742266/2bd13119-52d2-4d78-9d85-a433141c21ae/01-2013AR_FULL_09.pdf

http://files.shareholder.com/downloads/ONE/3120447064x0x652147/a734543b-03fa-468d-89b0-fa5a9b1d9e5f/JPMC_2012_AR.pdf

http://money.cnn.com/2014/04/11/investing/premarkets/

About the author:Cody Eustice

Visit Cody Eustice's Website

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FuelCell Energy Inc Earnings: What to Expect Monday

FuelCell Energy (NASDAQ: FCEL  ) will release its quarterly report on Monday, and bullish investors have sent shares of this fuel-cell power-plant developer soaring in recent days as the space has drawn a lot of attention lately. With industry peer Plug Power (NASDAQ: PLUG  ) having made a deal with Wal-Mart to supply the retailer with fuel-cell power, Plug, Ballard Power Systems (NASDAQ: BLDP  ) , and FuelCell have all inspired dreams of huge growth in the near future.

FuelCell's area of expertise is designing, manufacturing, installing, and maintaining stationary fuel-cell power plants. By taking advantage of a wide variety of different fuels, FuelCell plants have generated more than 1,500 gigawatt-hours of electricity. Yet, while many believe that all fuel-cell-related stocks are the same, Plug and Ballard use proton-exchange membrane technology that's different from the molton carbonate fuel-cell technology that FuelCell specializes in. By using that technology, FuelCell can produce larger systems designed for higher-energy applications. Let's take an early look at what's been happening with FuelCell Energy during the past quarter, and what we're likely to see in its report.

Dominion Resources plant in Bridgeport, Conn., using FuelCell technology. Source: Dominion Resources.

Stats on FuelCell Energy

Analyst EPS Estimate	($0.04)
Year-Ago EPS	($0.07)
Revenue Estimate	$43.44 million
Change From Year-Ago Revenue	19.5%
Earnings Beats in Past 4 Quarters	1

Source: Yahoo! Finance.

When will FuelCell earnings get into the green?
Analysts have become less optimistic about FuelCell earnings in recent months, keeping their January-quarter estimates unchanged, but widening their loss projections for this fiscal year and next by 33% to 50%. The stock, though, has soared, jumping 118% since late November.

FuelCell's October-quarter results were extremely disappointing, chopping off a quarter of the stock's value in a single day. Sales jumped 56% from the year-ago quarter, and FuelCell's annual manufacturing run rate climbed 25%, to 70 megawatts. But investors were disturbed by the abrupt slowdown in sequential growth between the company's fiscal third and fourth quarters, with gross profits actually falling by more than 40%, as revenue only posted a 2% gain. Unfortunately for investors, abrupt start-and-stop movements are nothing new in the fuel-cell industry, with Plug Power and Ballard also having been prone to big swings in both directions in the past.

But FuelCell has taken big steps forward to try to demonstrate its commercial viability. In late December, the company said it had completed a project for Dominion Resources, with a fuel-cell system producing 14.9 megawatts of power accompanied by a 15-year contract for Dominion to buy the energy produced by the system.

Unfortunately, FuelCell also suffered from bad timing during the quarter. The company priced a stock offering at $1.25 per share in mid-January, which was nearly 25% below the prevailing price of the shares right before the offering. By not waiting until the stock hit its current level of $3, FuelCell gave up what could have been an extra $40 million from the offering, and also diluted the gains that shareholders could have enjoyed if the offering hadn't taken place. By contrast, Plug Power waited for its shares to soar before pricing a secondary offering of its own just earlier today.

One key question facing FuelCell in its battle against Plug Power and Ballard is whether FuelCell's larger-scale plants will emerge as superior technology to Plug and Ballard's smaller systems. The advantage of FuelCell's technology is that it is more electrically efficient and runs on a wider variety of fuels than smaller PEM technology. But the mobile systems that FuelCell's competitors offer can serve a wider range of applications, such as oilfield power generation, where producers will want to move units to different drilling sites. In addition, the big order that Plug Power got from Wal-Mart for 1,500 of its GenDrive power units in six of its distribution centers -- units for which Ballard is the exclusive supplier of fuel-cell stocks -- suggests that buyers might be more comfortable with the flexibility of PEM-based fuel cells.

In the FuelCell earnings report, watch to see how the company responds to the huge rise in its share price. Without finding ways to match the growth of its industry peers, and demonstrate the superiority of its technology, FuelCell will have a hard time sustaining the gains it has enjoyed lately.

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Apple unveils integrated car service CarPlay

Back in June at its Worldwide Developers Conference, Apple announced that it was developing a new platform called iOS in the Car. The company promised to bring a car-customized version of its popular mobile operating system — including a tailored version of the Siri personal assistant — to vehicles from a huge array of leading automotive manufacturers.

Today, iOS in the Car arrived, albeit with a name change: Apple CarPlay, which rolls out first on cars from Ferrari, Mercedes-Benz, and Volvo at this week's Geneva Motor Show. It will work with the iPhone 5, 5S, or 5C.

CarPlay mirrors your iPhone's screen in a driver-friendly format, filling your center-console touchscreen with large buttons for key functions like maps, music, text messaging, and phone calls. Alternatively, drivers can press a voice control button on the steering wheel to call up Siri for an eyes-free control experience.

Apple's platform has also been designed to work with various manufacturers' physical controls, so you can navigate through the CarPlay interface with knobs, dials, and buttons. In Apple's words, "If it controls your screen, it controls CarPlay."

Along with native Apple apps like iTunes and Maps, CarPlay will work with a variety of third-party apps, primarily audio-focused. Options at launch will include Spotify, Beats Radio, iHeartRadio, and Stitcher. Apple promises more compatible apps are coming soon.

If there's one big down-side to CarPlay, it's that it is a phone-mirroring setup: It will only work if you own an iPhone. That means the 55% of U.S. smartphone owners who use Android or Windows Phone will be left out in the cold—a fact Apple is surely hoping will drive iPhone sales even higher.

Though only three manufacturers are debuting CarPlay this month, Apple's list of "committed partners" is all-encompassing, with only Chrysler, Volkswagen, and Audi as notable absences.

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