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5 Reasons Apple Inc. Is Looking Good

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Apple has a lot to prove on Monday afternoon. The consumer-tech giant reports its fiscal first-quarter results, and there's plenty riding on the report. The stock hit a fresh 52-week high last month, and even after pulling back in recent weeks it's still trading 6% higher than where it was the day after its fourth quarter was announced.

Let's go over a few of the reasons the market's holding out for an encouraging Apple quarter.

1. Growth will be back
After three quarters of year-over-year declines in profitability -- and flat net income the period before that -- analysts see a resumption of bottom-line growth at Apple. We're not talking about a lot of growth here. Analysts see earnings per share climbing just 2% to $14.09, and all of that could be the handiwork of having Apple's share repurchases push the outstanding share count lower. However, it will be a symbolic turnaround at the very least if Apple lives up to expectations, and that brings us to our next point.


2. Apple's been quietly beating Wall Street's profit targets
You wouldn't think a company with sluggish top-line growth and compressed margins would be landing ahead of where the pros are perched with their income estimates, but Apple was a stealth beater throughout fiscal 2013.

Let's go over the past year of earnings reports.

Quarter

EPS Estimate

EPS

Surprise

Q1 2013

$13.47

$13.81

3%

Q2 2013

$10.00

$10.09

1%

Q3 2013

$7.32

$7.47

2%

Q4 2013

$7.96

$8.26

4%

Source: Thomson Reuters.

These aren't astronomical victories. Apple's been landing just 1% to 4% ahead of the market projections over the past year. Once again, Apple buybacks could be factoring in to the outperformances. This still is a strong enough trend -- accelerating over the past couple of quarters -- to make the smart-money bet on seeing Apple earn more on Monday afternoon than the $14.09 a share the pros are forecasting.

3. Don't forget about China
Apple didn't start selling the iPhone through China Mobile until earlier this month. In other words, the impact of having Apple sell millions of incremental smartphones didn't kick in during the fiscal first quarter that ends in December. 

However, having a presence in China's leading wireless carrier should lead to a rosier-than-usual outlook when Apple reports. China Mobile moves the needle, even for a company as big as Apple. There should also be encouraging comments about the potential during the earnings call.

4. The iPhone product mix could expand margins
Unlike the prior year's generation, when discounted iPhone 4s and iPhone 4 devices sold briskly in comparison with the pricier iPhone 5, sales during this round have gravitated toward the iPhone 5s over the cheaper iPhone 5c.

That may make the gamble to go with the colorful and plastic-shelled iPhone 5c a bad bet if the goal was to make a dent in the entry-level market, but the end result is that the iPhone 5s doesn't cost $100 more to make than the iPhone 5c. That the product mix is skewing toward higher-priced iPhones with greater gross profitability could help both ends of Apple's income statement.

5. Wall Street's been inching their forecasts higher
Another welcome trend heading into tomorrow's report is that estimates for Apple's net income per share continue to move higher. Three months ago we were perched at $13.86 a share, near the $13.81 it posted a year earlier. A month later it was at $13.99. A month ago, $14.05. 

In short, Wall Street revisions have pushed us higher as perceptions of Apple's performance for the holiday quarter continue to improve. This is yet another reason to hold out for a beat on the bottom line.

Monday night could be a good time to be an Apple shareholder.

6 more stocks that are looking good this earnings season
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The article 5 Reasons Apple Inc. Is Looking Good originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Facebook's Next Big Threat to Google

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Facebook has been riding high on mobile success recently, and the company is now preparing to roll out a broader mobile ad network, which shows that the company's ad business is really starting to mature. At the moment, Facebook ads display only on the company's first-party site and apps, but it is currently testing displaying ads on third-party mobile apps, trying to increase relevance using the targeting data it collects from users. This would be all incremental upside for Facebook, since it's effectively an entirely new distribution channel.

So how worried should Google be about what clearly seems to be a direct threat? In this segment of Tech Teardown, Erin Kennedy discusses Facebook's new venture with Evan Niu, CFA, our tech and telecom bureau chief, and looks at why Google should be concerned. Google's AdMob remains one of the largest mobile ad networks, but with many developers still associating it with boring traditional mobile banner ads, the stage could be set for Facebook to be a dangerous disruptor in the months and years to come.

Here's how investors get rich off of mobile
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits no matter who ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further."


The article Facebook's Next Big Threat to Google originally appeared on Fool.com.

Erin Kennedy and Evan Niu, CFA, have no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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American Airlines Group Inc. Earnings: How Will the Newly Merged Airline Fare?

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American Airlines Group will release its quarterly report on Tuesday, and investors are anxious to see the airline's results after its recent merger with US Airways. Even as Delta Air Lines has posted impressive earnings results, American Airlines shareholders want to know whether the newly combined entity will continue to have the same competitive difficulties that it and United Continental have faced in trying to hold back Delta's impressive growth lately.

American was in bankruptcy for so long that many investors had written off the company entirely, having filed in late 2011. Yet even after the long and arduous process that at times threatened to break down entirely, American succeeded in getting approval of its merger plans. The big key now is whether the new American can compete better against Delta, United, Southwest as well as the many smaller carriers that have sought to get in on the suddenly profitable airline industry. Let's take an early look at what's been happening with American over the past quarter and what we're likely to see in its report.


Source: American.


Stats on American Airlines Group

Analyst EPS Estimate

$0.55

Change From Year-Ago EPS

(20%)*

Revenue Estimate

$9.90 billion

Change From Year-Ago Revenue

67%*

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.
*Reflects comparison with pre-merger AMR results; does not adjust prior-year numbers to include US Airways results.

Can American Airlines earnings fly higher?
Analysts have gotten a lot more excited about American earnings in recent months, with fourth-quarter estimates almost tripling and an 18% rise in full-year 2014 forecasts reflecting the favorable resolution of the American-US Airways merger. The stock has also soared, jumping 43% since late October.

This will be the first quarter that American and US Airways will report earnings as a combined entity, but we've already gotten some early signs of success about the combined entity's results. During December, passenger revenue per available seat mile metrics came in very strong, with the US Airways division posting a 12% gain from year-ago levels and American Airlines weighing in with a 9% jump. American improved its load factors to a larger extent, but overall, the combined group grew revenue passenger miles by 5.7%. Even though the new American leads United and Delta in revenue passenger miles and available seat miles, it trails both of its competitors in terms of load factors.

It's important to remember that even with the merger complete, American and US Airways will continue to operate as separate entities for a long time. The two divisions have started working on integrating frequent flyer programs, and they expect to join the same OneWorld airline alliance at the end of the first quarter, allowing them to start code-sharing flights in order to expand each other's available flight options. Yet tasks like labor integration, painting aircraft, and unifying interior decorations will take far longer to complete. United spent nearly three years on integrating the United and Continental workforces, and Northwest flew its last flight two full years after the Delta merger became official.

Meanwhile, though, American should benefit from the same excellent conditions that have helped its peers' earnings soar. Delta saw its net income jump by more than $1 billion during the fourth quarter, with low fuel costs and cost controls helping to boost bottom-line growth. The combination of a recovering economy and better-managed capacity as well as a declining number of major-airline options has brought the airline industry back to solid profitability.

In the American Airlines Group earnings report, watch to see how well early efforts to begin the long and complicated integration process are going. With the industry still enjoying excellent conditions, American needs to make the best of the good times as long as they last in order to reap the full benefits of its merger with US Airways.

Make your portfolio fly higher this year
You always want good stocks in your portfolio, but there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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

The article American Airlines Group Inc. Earnings: How Will the Newly Merged Airline Fare? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Forget the Aluminum F-150, Ford's Next Move is Truly Eco-Friendly

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Real wood interior? Photo credit: Flickr/Nicholas A. Tonelli

Automakers are racing to meet an aggressive deadline for future fuel efficiency standards. By 2025 automakers are required to produce vehicles that can achieved 54.5 miles per gallon. That has companies like Ford  taking out heavier metals like steel and replacing it with lighter aluminum in its wildly popular Ford F-150 pickup. Ford, however, is not stopping there in its effort to produce greener vehicles, as its next move has it adding renewable wood fibers to the 2014 Lincoln MKX. 


Growing a sustainable advantage
Ford went on a three-year search to find a lighter replacement for fiberglass. Its collaboration with Weyerhaeuser  and Johnson Controls  believes that it has developed the ideal solution by using natural fibers that are harvested from trees. These all-natural, renewable fibers replace traditional glass fibers to create what is being called "cellulose reinforced polypropylene," though Weyerhaeuser sell the product under the THRIVE brand name. 

This has the potential to be a game-changing development for two reasons. First, natural fibers from harvested trees are renewable and in many cases the fibers will be harvested from byproducts that would otherwise be wasted. Further, the new fiberglass replacement is 6% lighter than standard fiberglass, which will help to increase fuel efficiency.

Building a thriving product
Working with Weyerhaeuser to create a sustainable wood-based replacement product made a lot of sense for Ford. Weyerhaeuser isn't just one of the largest forest product companies in the world, but it is also internationally recognized for its sustainability practices. Because of this, the company can ensure that it can meet future demand as it plants more trees than it harvests.

The renewable nature of the product hints at its long-term potential. However, Weyerhaeuser sees THRIVE composites initially being used to make automotive parts and household goods. After that its future uses could include office furniture, kitchenware, consumer appliances and industry goods. Because of the broad potential applications of the product, Ford thinks it can eventually be used for exterior and under-the-hood applications as it grows to become a greater portion of each car.

Weyerhaeuser and Ford see such a far reaching future for THRIVE due to the product's combination of economical production, low mass, strength and flexibility. Further, the product can be made faster and with less energy than traditional fiberglass materials. 

Ford's drive to go green
Ford is doing everything it can to reduce the weight of its vehicles as that is one of the keys to fuel efficiency. A recent study showed that a 10% reduction in a vehicle's weight yields a 3%-4% reduction in fuel consumption. This is why we are seeing Ford focus on reducing the weight of its vehicles. 

Lighter metals like aluminum are providing the most immediate boost. It can reduce the weight of an average midsize car by nearly 12% and those saving really add up in larger vehicles like trucks. For example, Ford was able to shave a few hundred pounds off of the F-150 thanks to aluminum. That change, along with a new engine has the potential to save Ford F-150 customers a staggering 115 million gallons of fuel. That's one-tenth of one percent of the entire country's fuel consumption. That's why it is easy to see how these moves to add lighter materials like aluminum and wood fibers will have a meaningful impact on fuel consumption in the U.S.

Investor takeaway
Ford is making some gutsy moves. However, the data is pretty compelling that these moves will really translate into real tangible fuel savings for Ford customers. That puts Ford on the pathway to a pretty compelling future as its drive to go green should yield substantial profits for its investors.

Is Ford the best stock to buy in 2014?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

The article Forget the Aluminum F-150, Ford's Next Move is Truly Eco-Friendly originally appeared on Fool.com.

Matt DiLallo has the following options: long January 2016 $15 calls on Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Pick the Right IRA Before Year's End

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Flickr source

As the end of the year approaches, many Americans may be in a rush to complete year-end financial tasks that will help them to save a little money. One of those tasks include opening an individual retirement account (IRA). However, choosing between a traditional IRA and a Roth IRA remains a tough decision. A traditional IRA allows taxpayers to deduct their contributions, but taxes are imposed when distributions are taken during retirement. Meanwhile, contributions to a Roth IRA are not tax-deductible, but taxes are not imposed on distributions.


Generally, taxpayers who expect their tax rate to increase should go with a Roth IRA while those who expect their tax rate to decrease should opt for a traditional IRA.

The table below compares the differences in retirement savings between a traditional IRA and Roth IRA with a few factors to bear in mind. Assume that the person saving for retirement, we'll call her Mary, is a single tax filer, starts saving at age 25 to retire at age 65, contributes $5,500 per year and earns an average annual return of 5 percent.

*The amount in () represents the balance accumulated from tax savings that earn an average annual 5 percent return in a taxable account.

If Mary started in a lower tax bracket (15%) and entered a higher tax bracket (28%) at retirement, she would have about $109,000 more in retirement funds by contributing to a Roth IRA instead of a traditional IRA.

The traditional IRA would be the wiser choice if Mary started at the higher tax bracket and fell to a lower one. In this example, the traditional IRA would have led to $28,000 more in her nest egg.

Because many people tend to start off with lower-paying jobs and work their way up to higher-paying positions, it makes sense for these taxpayers to choose the post-tax contribution structure of a Roth IRA, which is often recommended by financial experts.

Regardless of the the type of retirement account you choose, there is still plenty of time to open an IRA and meet the contribution deadline. For tax year 2013, you may contribute a maximum of $5,500 or your annual income, whichever is higher. The deadline to contribute to tax year 2013 is April 15, 2014.

Stocks for your retirement
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

The article Pick the Right IRA Before Year's End originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Why 2014 Could Be a Huge Year for M&A Activity

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Mergers and acquisitions -- M&A -- are a key part of the health-care sector, with companies routinely buying other companies, as well as entering into joint ventures and collaborating on the development of specific drugs.

Indeed, 2014 has already seen notable M&A activity, with the purchase of a stake in Alnylam Pharmaceuticals  by Sanofi being yet another major deal in the health-care space.

The acquisition sees Sanofi purchase a 12% stake in Alnylam for $700 million, as the French-based company seeks to overcome the loss of patents on some of its best-selling drugs, with its research and development function seemingly unable to fill the void on its own. It also comes just a month after U.S. regulators rejected Sanofi's potential blockbuster drug for multiple sclerosis, Lemtrada, which had been a key driver of the $20 billion 2011 takeover of Genzyme and, as such, was a major disappointment for the company.


Furthermore, as part of the deal, Sanofi and Alnylam will ramp up their research collaborations, with the focus being on treatments for rare genetic diseases, as management at Sanofi seeks to beef up the company's drug pipeline. This arguably highlights that time is of the essence for current management, which is now entering its sixth year at Sanofi, and which needs to start delivering an improved top and bottom line so as to appease shareholders.

Sanofi's purchase of a stake in Alnylam is not the only piece of M&A activity of recent weeks, with Shire  also announcing the successful completion of the tender offer for all of the outstanding shares of ViroPharma  for a total consideration of around $4.2 billion.

The deal could be significant for Shire, as it seeks to increase its focus on serious diseases, with ViroPharma's development of drugs such as Cinryze (which is used to prevent and treat attacks of a genetic disorder called hereditary angioedema -- a swelling of the larynx) and maribavir (a potential treatment for a virus that can prove fatal for patients with weak immune systems).

In addition, private-equity business Carlyle Group recently announced the acquisition of Johnson & Johnson's  blood-testing business for around $4 billion. The deal is, of course, part of Johnson & Johnson's divestment of divisions that it sees as offering less growth potential in future years, relative to some of its other divisions. Further divestment looks likely as the business seeks to restructure, so as to improve efficiency and deliver improved top- and bottom-line growth prospects.

So with 2014 still less than a month old, deal-making in the healthcare sector has been very much on the agenda. Although it has been a busy start to the year, there could be even more deals ahead, as the likes of AstraZeneca and Sanofi seek to combat their respective patent cliffs, with M&A activity being an obvious answer.

Furthermore, as Johnson & Johnson continues its divestments, this could mean increased activity, and when the low cost of borrowing is taken into account, 2014 could prove to be a year where the health-care sector goes all out on M&A activity.

Can this stock crush the market In 2014?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

The article Why 2014 Could Be a Huge Year for M&A Activity originally appeared on Fool.com.

Fool contributor Peter Stephens has a position in AstraZeneca. The Motley Fool recommends Alnylam Pharmaceuticals and Johnson & Johnson and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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If You're Bullish on America, Then You're Bullish on This Stock

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Analyzing the prospects for banking stocks like Wells Fargo isn't really as hard as many people think.

The fortunes of the banking sector tend to follow the direction of its underlying assets, which, in turn, tend to follow the economy. If you are bullish on America, then you should be bullish on Wells Fargo.


Wells Fargo reports results
The bank's fourth-quarter diluted earnings per share increased 10%, but as always with banking stocks, the devil is in the detail. Essentially, Wells Fargo has done very well growing its net interest income over the course of the year, despite its net interest margin, or NIM, falling. The NIM is the difference between its interest income and what it pays out to its lenders, all over interest-earnings assets.


Source: Company presentations.

This was no small feat considering that core deposits (including retail deposits) have gone up significantly more than it managed to increase its loan book.


Source: Company presentations.

It's somewhat of an anomaly to view a rising deposit base as a problem, because raising deposits is what banks are supposed to do! Indeed, in traditional recoveries, deposit growth is highly sought-after because it gives banks greater ability to extend their loan books. However, this recovery has been relatively anemic, and loan demand has been slow to take off. In short, Wells Fargo needs a more positive environment for loan demand, but the good news is, it has the deposit base to benefit should this happen.

So, how has Wells Fargo been generating income growth?
Given the dramatic decline in the NIM, Foolish readers might be wondering just how the bank has increased its overall net income? The answer is that credit quality has improved so much that its provisions for credit loss have declined massively.

In other words, Wells Fargo set aside nearly $1.5 billion less in the most recent quarter compared to a year ago.

Not all good news
The mortgage refinancing market had been very strong leading into 2013, and Wells Fargo had previously positioned itself to benefit. However, with rates rising this year, the refinancing market has slowed, and Wells Fargo has been inordinately hit. In the words of its CFO, Tim Sloan, on the recent conference call:

Our market share, over the last couple of years was disproportionately high, primarily because the biggest driver for origination volume until the last couple of quarters was refinances, and the reason for that, again to remind everybody, is that we are the largest servicer and the quality of our servicing book was the highest in the industry. 

Indeed, Foolish investors can see the effect of the refinancing slowdown when looking at Wells Fargo's non-interest income. Note how the reduction in mortgage banking income has reduced non-interest income.


Source: Company presentations.

Putting the pieces together for Wells Fargo
In a typical economic recovery, an increase in credit quality is usually followed by an increase in loan demand, and then the NIM starts expanding while interest rates rise at the same time. However, this has been anything but a normal recovery.

In short, Wells Fargo needs to see a pick-up in loan growth in 2014. History suggests this will happen, and given its exposure to housing, and its growing deposit base, Wells Fargo is ideally placed to benefit.

On the other hand, should the economy stagnate, it can't really boost its net income via reduction in credit loss provisions. Moreover, a slow economy implies sluggish loan demand growth. The NIM would probably decline even further in this scenario.

The bottom line
In a sense, the stock remains a key barometer of where you think the economy is headed. Moreover, Wells Fargo gives you specific exposure to the U.S. and to housing, two of the more positive aspects of the global economy.

All told, investors everywhere can discuss this stock to death, but it still remains a cyclical play on the economy. If you think the U.S. housing market will continue to recover and increase loan demand with it, then Wells Fargo is ideally placed to benefit, and the metrics discussed above will all get better.

Revolutionizing banking
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and it's poised to kill the hated traditional bricks-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

The article If You're Bullish on America, Then You're Bullish on This Stock originally appeared on Fool.com.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Starbucks Corporation Bakes Growth Into Its Future

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While the markets liked Starbucks' caffeinated first-quarter results the other day even though its growth trajectory slowed, the real place to look to see where the java slinger is expanding is its food business.

Building on its $100 million acquisition in 2012 of La Boulange, a small San Francisco bakery and cafe it's using to provide baked goods to all its 20,000 coffee shops, Starbucks is seeing the opportunity to add a croissant or Danish to every coffee sale as a means of boosting sales. It's a multiyear rollout that currently has the baked goods sold in around 3,500 of Starbucks' company-operated cafes, or about a third of the U.S. total.


While I've previously wondered about whether the move by Starbucks to become a more broadly defined food and beverage company would be effective, analysts have questioned the impact it would have on operations and questioned whether the drop in same-store sales experienced last quarter was a result of baristas' need to spend more time warming up baked goods, thus slowing down service.

The coffee shop quickly stamped out the notion that the modest decline in comps from 7% last year to 5% this year had nothing to do with its baked goods but rather the decision by consumers to do more online shopping instead of visiting bricks-and-mortar stores this holiday season. CEO Howard Schultz calls it "a myth that absolutely has no legs."

Despite my reservations about its mixed marketing strategy, I'm inclined to agree, since McDonald's has suffered a meltdown of global proportions, reporting that December sales tumbled at a much steeper rate than expected, which it blamed on poor weather. While there is a certain dichotomy present in the type of customer who will buy coffee at Starbucks and one who will pick up a cup at McDonald's or fellow value brand Dunkin' Brands , they're all still subject to the same larger market forces affecting consumer spending.

Even so, they're leading an expansion boom, with Dunkin' having added 790 stores last year and planning on adding as many as 800 more this year. Similarly, Starbucks opened 680 stores in the Americas, 588 in China and the Asia-Pacific region, 100 in Europe, the Middle East, and Africa, and 333 in all other areas. While Krispy Kreme Doughnuts is also undertaking some major expansion, signing a multiyear development agreement to open 23 stores in China's southeastern province of Guangdong, it's also offered up weak guidance and has lost nearly a third of its value over the past two months.

So Starbucks is moving more toward a place where it resembles its rivals in their offerings but comes at it from a better place. It notes that wherever it has introduced its revamped food menu, croissant sales have doubled. It also anticipates that future growth prospects are just as rosy, as its deferred revenues surged 29% to more than $1 billion as gift card sales spiked over the holidays. Together with its mobile app, the two payment options represent more than 30% of Starbucks' total U.S. payments, giving it a technological edge as well.

I think there's a word of caution that needs to be said about that, as the coffee shop recently admitted that its mobile app stores a user's mobile-payment app password, username, and geolocation tracking points in unencrypted plain text, making it easy to hack into and use the account. In the aftermath of the Target hack attack debacle, there might be some consternation about the program, especially since Starbucks management had a rather cavalier attitude about the risk.

For the first time in years, Starbucks saw food as a percentage of total sales rise, and it now represents a fifth of all revenues, up from 19% for the past few years. As La Boulange continues to roll out over the entire store footprint, that figure will continue to rise, but even though I've cautioned that it may be necessary to change how we value Starbucks, at the moment it doesn't appear we should bake anything into our forecasts other than continued growth.

Check out these 6 picks for ultimate growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

The article Starbucks Corporation Bakes Growth Into Its Future originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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3 Reasons to Tune In to Health Care in 2014

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This year has kicked off with a bang for a number of health-care stocks!

Just last week, Intuitive Surgical  saw its shares fall by around 7% when it announced that revenue and profits for the fourth quarter of 2013 were disappointing. Revenue fell by just over 5%, while earnings fell by 5% to $166.2 million - down from $174.9 million in 2012.

Furthermore, the company decided not to issue guidance for sales in 2014, which may have been a major reason for the aforementioned share-price fall. Investors, it seems, don't appreciate uncertainty, and a lack of sales forecasts by the company for 2014 highlights just how uncertain management is about the company's near-term prospects.


Of course, 2013 had been a highly challenging year for Intuitive Surgical, with sales of the company's key da Vinci surgical robots falling for the first time, partly because of customer concerns about the safety and cost-effectiveness of the product. In addition, lower-than-expected hospital spending hasn't helped the business to post a successful 2013, either.

The company seems to be uncertain as to how these issues could play out in 2014 (hence the lack of sales guidance), although it has said that it expects to sell fewer da Vinci robots in 2014 than it did in 2013.

While on the subject of guidance, sector peer St. Jude  went in the opposite direction to Intuitive Surgical when it raised its fourth-quarter guidance recently. Indeed, it increased its own forecasts from a profit of $0.95 to $0.97 per share to a new range of $0.97 to $0.99 per share, as it benefited from an improving landscape and new product launches.

This boost comes at an opportune moment for the company, as previous quarters were tough and saw sales hurt by various safety concerns, restructuring costs and other costs, all of which held shares back during 2013. However, the raised guidance could improve sentiment, although judging by the slightly mooted response of the share price since guidance was raised, the market could be waiting for confirmation of a turnaround in future quarters before sentiment picks up considerably.

Meanwhile, the health-care equipment sector also started 2014 with a bang through Edwards Lifesciences . Its share price fell heavily after sector peer, Medtronic, had its CoreValve heart device approved by U.S. regulators earlier than expected. This news sent shares in Edwards Lifesciences tumbling by as much as 6%, as it was a direct competitior to its Sapien product, which is now expected to see its market share come under threat.

Edwards Lifesciences is set to give a fourth-quarter update to investors on Feb. 3, and shareholders will no doubt be keen to understand the potential implications of the Medtronic approval. It seems unlikely that the company will issue no guidance, as Intuitive Surgical did, with an upgrade, as in the case of St. Jude, being possible but not probable.

Of course, it should be pointed out that shares in Edwards Lifesciences are still up 4.5% in 2014, despite the news regarding Medtronic's early approval.

So while 2014 has proved to be uncertain for the stocks mentioned here, it has certainly kicked off with a bang and looks set to continue to be volatile over the short to medium term. It's certainly a great reason to tune in to health care for the rest of the year!

Now, tune in to this top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

The article 3 Reasons to Tune In to Health Care in 2014 originally appeared on Fool.com.

Fool contributor Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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What Happens After the Shale Revolution?

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This article was written by Oilprice.com -- the leading provider of energy news in the world.

Saudi Oil Minister Ali al-Naimi said he viewed the increase in U.S. oil production as a new source of supply that will help stabilize oil markets. Oil from shale is providing a buffer against an unsteady Middle East market, but it's not too early to consider what happens to markets after the revolution.

Naimi said during a meeting in Riyadh with U.S. Energy Secretary Ernest Moniz the increase in U.S. oil production was adding a level of stability to an international oil market unsettled by problems in the Middle East and North Africa.


"It is necessary to continue consultations between our two countries to expand the horizons of cooperation, including joint investments, and working with oil producing and consuming countries for the stability of the global market," a statement from the official Saudi Press Agency said.

The U.S. Energy Information Administration said in its short-term market report that production from countries outside the Organization of Petroleum Exporting Countries is expected to increase by a record 1.9 million barrels per day this year. Most of that increase is expected from North America. By next year, U.S. oil production should break a 43-year-old record with 9.3 million bpd.

With a leading consumer producing more of its own oil, Saudi Arabian Oil Co. has the breathing room it needs for February maintenance at its 750,000-bpd Shaybah oil field. Oil production from Saudi Arabia, OPEC's leading supplier, declined 3.5% from the third quarter of 2013 to settle at 9.6 million bpd during the fourth quarter, leaving plenty of room for U.S. production growth.

U.S. oil production gained traction just as Libya's position in the marketplace fell because of civil war. Nearly three years ago, the International Energy Agency called on member states to release oil from their strategic reserves to offset declines from Libya. With Libya still struggling to return to pre-civil war oil production levels, the conversation is different because of oil from North America.

Without erasing U.S. legislation enacted in the wake of the 1970s Arab oil embargo, crude oil produced in the United States should stay within the domestic economy. By 2035, the United States should be self-reliant in terms of energy, according to BP's annual economic outlook. But that year may mark the zenith of a brief revolution.

BP said in its report the United States should overtake Saudi Arabia this year in terms of oil production. By Riyadh's own account, that comes as something of a relief as it addresses changes to its own market dynamics brought on by an increase in regional energy demand. For OPEC as a whole, its share in the oil market declines for much of the decade but recovers by 2020 as U.S. oil production slows down. BP's report suggests U.S. oil production, meanwhile, falls by 75% through 2035.

Decline in U.S. shale production, and the inability of other countries to replicate the success, is not so much validation of peak oil theory as much as it is a return to the status quo, where Middle East and North African producers dominate the market. BP's report, meanwhile, said oil shows the slowest growth in long-term market forecasts compared with natural gas. With renewables also gaining strength, a future energy market may count oil as a second-tier fuel source. The shale revolution in the United States, as with any revolution, will be brief. It's what happens after the revolution ends that matters.

2014's top investment 
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Related articles: 

The article What Happens After the Shale Revolution? originally appeared on Fool.com.

Written by Daniel J. Graeber at Oilprice.com. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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The One Fact About CES That Will Astonish You

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The International CES is the world's largest consumer electronics show, and a showcase each year for the biggest new things in consumer tech. This year, The Motley Fool's Rex Moore caught up with one of the world's leading tech columnists at the show, David Pogue of Yahoo Tech, to get a breakdown of the hottest new trends in electronics that could soon be hitting the market.

In this segment, Pogue discusses what he sees as the heart of CES, "nutty, ridiculous expensive experiments," 80% of which will debut here, and then never be seen again. He discusses why curved television screens, such as those exhibited this year by LG, Samsung and Sony , or massive 7-inch phones, or many of the other experimental new ideas at CES sometimes never gain traction, but why the process of bringing 10 things to market so that two of them might take hold is an important one.

The future of television?
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.


The article The One Fact About CES That Will Astonish You originally appeared on Fool.com.

Rex Moore has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Here's How Forest Laboratories, Inc. is Surviving in the Post Lexapro World

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In anticipation of the patent expiration for its best selling anti-depression drug Lexapro, investors knocked 30% off Forest Labs  market value in the final six months of 2011.  Investor concern was understandable given that Lexapro accounted for $2 billion in annual sales, representing more than half of Forest's total revenue. However, as a vivid reminder of why you should take the long view when it comes to investing, shares are now trading at their highest levels in a decade, suggesting investors should have been optimistic about the company's future instead. What has been behind Forest's rally? 

A solid start to recovery
Forest's financials took a big hit after Lexapro lost patent protection, falling from more than $4.5 billion in fiscal 2012 to it's current $3.5 billion a year pace.   But while making up for that lost revenue won't be easy, new drugs and a savvy acquisition appear to have Forest on track to win back market share this year. Sales growth for new drugs, including Daliresp and Tudorza for COPD, and Viibryd for depression, suggest the tide is turning for the company.   These products lifted Forest's quarterly sales 23% year-over-year to $878 million.

While the company's COPD treatments had a larger impact on Forest last year, Forest may find its psychiatry product lineup has a bigger impact in 2014. Sales of Viibryd, which got the green light from the FDA in 2011, climbed 30% to $53 million last quarter as prescriptions increased 16%. That momentum should carry over into this year and the company's latest anti-depression drug Fetzima, which won approval last fall and launched in December, should start contributing meaningfully too.


Fetzima joins Viibryd in a competitive, yet ineffectively treated market affecting almost 16 million adults in the U.S. each year. More than a third of those receiving treatment for depression are considered to be receiving minimally adequate care, according to The National Institute of Mental Health.

That suggests plenty of opportunity for Forest to carve out sales for Fetzima, a drug belonging to a class of drugs known as SNRI's. SNRI's, including  Eli Lilly's  Cymbalta, are designed to slow the reuptake of serotonin and norepinephrine in the central nervous system. Because SNRI's also target norepinephrine, they serve as a valuable alternative to SSRI's like Viibryd that only target serotonin. Thanks to their differing pharmacology, Forest anticipates its sales team can effectively position the two drugs for different patient populations, pitting Fetzima up against Lilly's Cymbalta, which faces generic competition for the first time this year.

If Fetzima wins scripts away from Cymbalta, sales could prove significant given Cymbalta brought in $4 billion in 2012. That means investors should track quarter-over-quarter sales to see if Fetzima is winning converts. Investors should also keep an eye on Saphris. Forest acquired the schizophrenia and acute bipolar mania drug from Merck  in December for $240 million. As part of that deal, Merck will continue to manufacture Saphris and will receive milestones if sales hit certain targets. Forest plans to leverage its existing sales team, which will now have three drugs to pitch to psychiatrists instead of one, to reach those targets.

Sales of Saphris totaled $150 million in the 12 months ending September, but Forrest thinks its team can significantly ramp that number by introducing it to more doctors.  The company estimates just 20% of the 4,000 psychiatrists in the U.S. have prescribed Saphris -- a number it believes it can double or triple.

Fool-worthy final thoughts
Forest's pipeline could yield a fourth psychiatry product, cariprazine for schizophrenia, too. Despite showing efficacy, the FDA opted against cariprazine in November, asking for additional safety data.

Forest expects to report data from a phase 2 study of cariprazine for depression in the first half of this year and will work with the FDA to address safety concerns. In the meantime, growth from Viibryd, Fetzima, and Saphris will help re-establish Forest as a leader in psychiatric treatment. Furthermore, if it's plan to co-market its psychiatry portfolio across one sales team boosts margins, investors may find there's upside to Forest's current $1.25 to $1.35 in expected earnings this year.

The stock pick to watch in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

The article Here's How Forest Laboratories, Inc. is Surviving in the Post Lexapro World originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC.  E.B. Capital's clients may or may not have positions in the companies mentioned.  Todd also owns Gundalow Advisor's.  Gundalow's clients do not have positions in the companies mentioned.  The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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3 Crazy Plans to Save Nintendo

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How much has Nintendo been struggling since the Wii peaked in popularity? Well, a picture (or... chart) is worth a thousand words. 

Data from S&P CapitalIQ


The most recent blow to the company came on January 17th when it announced shipments for the Wii U during its current fiscal year (April 2013 to March 2014) would come in at 2.8 million. That was down from the company's original forecast of 9 million. 

Nintendo walking back expectations wasn't shocking. Between April and September of this year, the company shipped an astonishingly low 460,000 Wii U's over a six-month period. Everyone knew there was no way the company would come close to its target of 9 million systems shipped. However, Nintendo's January 17th announcement did verify suspicion that the Wii U's holiday season wasn't particularly strong. 

The good news for Nintendo? It has over $10 billion in the bank, which is an impressive war chest. Yet, even with vast sums of money, technology companies can quickly fall behind and be forgotten. Microsoft  had a pretty mighty cash hoard of its own across the past decade as rivals in mobile blew by it. 

For that reason, Nintendo needs to act decisively in a few key areas, or risk an astonishingly fast collapse from its golden age in 2009. Below, are three bold moves Nintendo should consider. 

1.) Attack smartphone gaming by creating the "Netflix of Video Games." 

The white-hot core of debate around Nintendo is centered on one issue: should the company put Mario on smartphones? Nintendo President Satoru Iwata addressed the debate head-on at a news conference following the company's pre-announcement of poor Wii U sales. He said that while the company failed to appreciate the full impact smartphones would have on the video game industry, the right strategy wasn't "to put Mario on smartphones." 

Those opposed to Nintendo putting its games on smartphones liken the situation to picking up pennies in front of a bulldozer. App store sales charts have shifted toward games that are free and offer in-game purchases. Think FarmVille or Candy Crush. Games like Angry Birds that charge an up-front cost -- rarely of more than $10 -- have declined in popularity. Nintendo could put its past library, or even new Mario games on a smartphone, but the potential revenues would be minuscule relative to what it gets from selling mobile consoles. In addition, the company selling games on smartphones could depress sales of its still popular 3DS system. 

One suggested alternative would be to think about mobile entirely differently than app stores. I recently put forth the case on how Nintendo could create a very successful Netflix-like video game subscription service. 

If you want more details on the specific plan, the article can be read here. The simple idea is that streaming services can be more appealing than selling a la carte digital sales. Revenues collected by digital film services came in at $3.16 billion in the U.S. last year while sales of individual digital films were $1.19 billion. 

Nintendo has exactly what Netflix has managed to build up, a deep catalogue of classic titles. Renting out its entire library at a fixed, monthly cost (excluding certain areas like recent systems, much like how Netflix's catalogue of newer films is lighter) could prove far more lucrative than selling individual titles. The best part is that advances in cloud-technology make such a service very feasible not only on mobile, but across other devices like television. 

At the end of the day, a Nintendo streaming service could not only be a big revenue generator on its own, but also increase awareness of Nintendo games, providing a boost to newer systems. 

2.) If sticking with new hardware, abandon the Wii U faster than expected.

Suggesting Nintendo abandon the Wii U already might seem like madness. After all, the system was just released in late 2012. However, sticking with the platform too long could leave Nintendo doomed to repeated its mistakes when it next releases a system. 

A huge reason for the Wii U's failure is that it doesn't feature enough extremely popular first-party games. Sure, a full-fledged 3D Mario game hit the system with the release of Super Mario 3D World this holiday season. However, buyers of a Wii U are still waiting on new Mario Kart, Zelda, Metroid, Donkey Kong, and other major franchises to hit the system. Nintendo says the games are coming, with a new Donkey Kong slated for a February release and Mario Kart 8 slated for Spring. 

There are reports that Nintendo has already begun prepping for its next-generation system. While you don't want to look too far into unconfirmed rumors, Nintendo's own comments do seem to indicate the company is conducting a rethink of its overall business strategy. Such soul-searching is likely caused by a realization the Wii U missed the mark. If reports are correct, that's a difficult, but necessary move on Nintendo's part. 

If Nintendo is expecting to launch a next-generation console faster than expected, it'd be wise to shift developers on some of its best franchises toward the new system as fast as possible. The company has already lost third-party support from developers like EA with the Wii U. If Nintendo wants the chance to bring third-party developers back to its camp and have strong initial sales of a new system, the company needs to have a very strong slate of game releases near the system's launch. If that means most major franchises get only one (or zero) games released on the Wii U and game releases dry up after 2014? That's a tough pill to swallow for current Wii U owners, but it's the kind of difficult decision Nintendo needs to make if it wants to give its next system the best shot at succeeding possible. 

3.) Do something really crazy. 

I was at CES earlier this month, and the one product everyone was talking about was Oculus VR. The company is still small, with its last funding round at about $75 million. With the company's newest VR set winning a barrel of "best in show" awards, isn't that precisely the kind of "reinventing video games" product Nintendo would love to invest in? Nintendo should consider investing in some proven innovation outside its walls with just a fraction of its total cash. 

Or, if Nintendo's situation continued to worsen, and it looked at leaving the home console market more seriously, why not strike a major deal? Between the launch of the Xbox and the first quarter of 2012, the financial units at Microsoft that contained its Xbox division lost a cumulative $4.1 billion. The red-ink around Xbox has largely turned black in recent years, but the bottom line is that Microsoft also has a lot of money, and is open to big-spending to win the war for the living room. 

What if Nintendo signed an exclusive agreement with Microsoft to produce video games for Xbox, in exchange for a big payday? Microsoft would get an ultimate trump card over Sony. If the deal was structured properly, Nintendo could pour its payments from Microsoft back into its valuable mobile gaming console business as well, while moving past console gaming. If rumors surrounding Nintendo's next-generation "Fusion" gaming system are correct, the company might be moving in this direction anyway. 

Would such a move ruffle feathers? Of course it would. Yet, the major point isn't that Nintendo would need to do that specific deal. Instead, it's that Nintendo has valuable enough franchises, and its name means enough that it could command some pretty incredible deals. If Nintendo were to enter smartphones, could it negotiate with Apple  to go exclusive to the iOS and get a default main screen link to a "Nintendo Hub?" Such an arrangement would keep Nintendo away from the cutthroat world of App Store best-seller lists. Also, two of the markets where iOS has its best market share -- Japan and America -- happen to be areas of strength for Nintendo. 

Maybe Apple would never go for such a deal, or maybe it would see an exclusive pact with Nintendo as a fantastic way to stay differentiated from Android. 

Either way, Nintendo's name still means enough it could dare to dream big. Those that compare Nintendo leaving hardware to Sega underestimate what a kingmaker Nintendo could play between Sony and Microsoft in the console wars, or even in something like smartphones. Sega never had the kind of leverage Nintendo possesses. The house of Mario would be wise to at least explore what kind of deals it could get. 

Some ideas beyond video games
Nintendo is the gold standard when it comes to a respectable name in video games. There are hundreds of companies in different fields that are very "Nintendo-like" in how beloved they are by consumers, yet their near-term future is much brighter. Our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." Three companies, beloved by their users, who are built for the long-run. These picks are free today! Just click here now to uncover the three companies we love. 

The article 3 Crazy Plans to Save Nintendo originally appeared on Fool.com.

Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Johnson & Johnson's Prospects in 2014

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The recent earnings results from Johnson & Johnson were met with a near 2% sell-off on the day. As ever, a lot of journalists and commentators immediately searched for a negative in the results or guidance in order to justify the drop. There was nothing significantly wrong with the results. However, the company's stock looks fairly valued and it probably needs to surprise the investment community on the upside in order to move significantly higher in 2014.

The running story with its divisions in 2013 was one of strong pharmaceutical sales, weakening medical device & diagnostics, and moderately growing consumer products. The fourth quarter results stuck to the script, and it's hard to see how things will change much in 2014.

Pharmaceuticals (39.4% of 2013 sales)
Johnson & Johnson's pharmaceutical performance stood out because it had a number of new drugs in early marketing stages, while continuing to generate strong growth with its Remicade (rheumatoid arthritis) treatment.


Remicade sales grew by nearly 14% in the fourth quarter, and generated more than 23% of pharmaceutical sales and over 9% of total company sales in the quarter. Meanwhile, some of its newer drugs achieved very strong growth:

Drug Treatment Forth Quarter Sales ($m) Fourth Quarter Growth
Stelara psoriais 417 55%
Simponi rheumatoid arthritis 254 40%
Invega Sustenna anti-psychotic 350 54%
Xarelto anti-coagulant 271 n/a
Zytiga castration-resistant prostate cancer 495 87.5%

Source: Company Presentations

Together, these fast-growing drugs generated 24.4% of total pharmaceutical sales in the fourth quarter. Growth should continue at a strong pace in 2014 as the company's sales reach is expanded.

However, one potential problem could be Hospira's  biosimilar for Remicade, called Inflectra. Hospira's drug was approved by the European Commission in late 2013, and has proved to be comparable to Remicade in a large-scale trial.   Johnson & Johnson's patent protection for Remicade will run out in most countries in Europe in February 2015, and in February 2018 in the United States. Given the importance of Remicade, Hospira's Inflectra could turn out to be a challenge to Johnson & Johnson in future.

Medical Device & Diagnostics (40% of 2013 sales)
Pharmaceuticals did well, but the medical device & diagnostics division is facing another difficult year. The whole indusrtry has found it tough. Medical device sales are not often seen as economically sensitive, but when the economy is slow patients tend to make fewer visits to the physician. Ultimately, this results in fewer surgical procedures. Throw in a climate of austerity in hospital spending, and the outlook for medical devices looks moderate in mature markets. Indeed, Johnson & Johnson's management outlined on the conference call that surgical lab procedures were "flat over the last 12 months" in the United States.

Consumer Products (20.6% of 2013 sales)
The 2.8% increase in consumer products sales for the fourth quarter was disappointing to some, but Foolish investors should note four things about the division.

First, the consumer products division is probably the most visible of its operations, though it's actually the least important in terms of sales. Second, it's also the division with the largest reliance on international markets, and currency effects reduced sales by a significant amount. In fact, on a constant currency basis, consumer products sales were up 4.4% in the fourth quarter.  Third, the company achieved its aim of getting 75% of its over-the-counter brands (previously affected by production problems) back onto the shelves. Indeed, its U.S. OTC sales rose 21.6% in the fourth quarter. Finally, if you exclude the effects of the sales of the manual toothbrush (oral care) and women's sanitary protection (women's health) businesses then U.S. sales were actually up 10%, with global operational sales growth up 6%. 

Johnson & Johnson in 2014
Looking into 2014, investors should focus on three things:

  • Acceleration in the economic recovery so medical device sales can pick up inline with an increase in surgical procedures.
  • Ongoing development of pharmaceutical sales, and activity to protect future market share for Remicade in Europe.
  • An improvement in its international consumer products sales, as they only grew 3.1% operationally in 2013.

Achieving two of the three things should provide for some upside surprise, and Johnson & Johnson needs it. On current analyst estimates, it trades on a valuation of 16 times forward earnings. The company also has only 6% and 7.4% earnings-per-share growth estimated in the next two years. This makes it look like a fairly valued stock.

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The article Johnson & Johnson's Prospects in 2014 originally appeared on Fool.com.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of General Electric Company and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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How to Think About 2014

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Last year was nothing short of astonishing for the major indexes. The Dow Jones Industrial Average closed up 26.5%, while the S&P 500  ended the year 29.6% higher and the Nasdaq saw a 38.32% gain. Because of the extreme nature of these moves, many investors were calling for continued strength in 2014. That may or may not happen, but I think it's important for investors to readjust their expectations of what the markets may do this year.

Why? Well, toward the end of December, market pundits were calling for the major indexes to grow by double digits again in 2014. Most were predicting around a 10% gain for the Dow and S&P 500 on the basis that the housing market was continuing to improve, unemployment was falling, and economic indicators for the U.S. were for the most part looking good.

The problem, as we've seen in the past few weeks, is that it's not just about what happens here at home. In our interconnected world, what happens in Europe affects the United States, a slowdown in China will hurt multinationals, and weak growth in emerging markets means businesses have to find new markets to expand to. While on the surface the U.S. looks to be getting stronger each month, the world at large appears to be stalling out. Last Thursday, for example, China's manufacturing numbers indicated that the country's growth is slowing, and that news came on the heels of Monday's report showing 7.7% GDP growth in 2013. Although that number beat the government's 7.5% target, it still equaled China's worst showing since 1999.


So what's going on?
At the end of 2013, most investors were more focused on how they did during the year and wide-eyed about the future. They weren't looking at China or at emerging markets and thinking a slowdown there could hurt them here, regardless of their exposure to those markets. Granted, it would have been difficult to predict that a few weak economic data points from around the world would have hurt the Dow as much as they did this past week, and it was perhaps even more difficult to predict that after the first four weeks of 2014, after such a great 2013, the Dow would be down 4.21% year to date.

Now, with that thought fresh in your mind, take a moment to think about what could happen in the next four weeks -- or the next three months, or nine months, or the entire year. A million different situations and scenarios can pop up.

So why worry about it?

The only thing we as investors should expect is that over time -- and I'm talking about extended periods of time, not just weeks, or months, or even a single year -- the markets will go higher. Readjust your expectations so that if the major indexes fall 10% this year, or if you just break even, you're OK with that. Last year was not a normal year, and investors shouldn't be disappointed if 2014 isn't similar -- because it most likely won't be.

So for the remainder of 2014, just know that you've bought good companies, that you're going to hold them regardless of market fluctuations, and, most importantly, that their values will rise higher than they are today regardless of what happens in the meantime. All it takes is some patience.

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The article How to Think About 2014 originally appeared on Fool.com.

Fool contributor Matt Thalman and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Texas Industries, Inc. May Be Cementing a New Growth Plan

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Driven by a recovery in the housing market that saw builders start work on more than 900,000 homes in 2013, up 18.3% from the year period and the most since the 1.36 million starts recorded in 2007, the cement industry is looking for 2014 to be the year that, well, cements its own turnaround prospects. 

To play into the expected rally and give itself entrance to markets where it previously had none, construction materials giant Martin Marietta is said to be close to acquiring leading cement maker Texas Industries in what could be an all-cash deal. While the companies themselves aren't commenting, rumor has it an announcement could be come as soon as this week, and shares of the building supplies company jumped more than 12% at one point on Friday before settling at just above $75 a share. Considering I think the housing stats are actually a warning sign, I'd use the gains to pocket any profits I had.


Texas Industries supplies cement and aggregates, such as sand, gravel, and crushed limestone, primarily to the Texas and California markets, the two largest markets in the United States. Based on production capacity, it is the largest producer in Texas, with a 32% share, and California is in the midst of a housing boom that has many hopeful the cement industry is ready to pave the way to new heights.

Some analysts are expecting cement consumption to increase 6% to 8% this year, and where TXI was able to push through price increases of 8% and 8.5% in the two states, respectively, it anticipates that annual demand for cement in Texas will rise on average 6% over the next five years, with California realizing an annual 9% increase in demand. Mexican cement giant Cemex has also pushed through price increases, with U.S. prices rising 5% in 2013.

Martin Marietta, the second largest producer of sand, gravel, and crushed rock used in construction behind Vulcan Materials , has been on an expansion program for a few years now in a bid to become more vertically integrated so as to gain better access to these growing markets. It's been those regions that suffered the greatest meltdown during the recession that are leading the housing industry back. Most of the best growth being seen is in the southern and western states of California, Florida, and Nevada, with The Wall Street Journal pointing out that 17 of 20 hottest markets of 2013 could be found west of the Rockies, with 12 of them in California alone.

Indeed, the National Association of Realtors says existing home sales in the West were up 4.8% in December and 3% in the South while falling everywhere else. TXI rebooted an older kiln at a plant in Texas to meet demand, and Vulcan announced last week that it's selling its cement and concrete assets in Florida for $720 million to Cementos Argos.

Still, NAR points to last year as the best year for housing in the past seven, and it blames poor weather for December's downturn. While that may be part of the problem, existing home sales missed expectations for the fourth month in a row, and the organization was forced to admit housing's growth momentum lost steam as the year wore on.

Much of the buying that's been going on has been as a result of institutional purchases sweeping up homes in previously depressed markets and flipping homes for gains. Blackstone Group's Invitation Homes has become the country's biggest homeowner, with 30,000 homes in its portfolio and most of them located in Tampa and Orlando in Florida, as well as in Las Vegas, Phoenix, and California. That means demand might not be as strong as what it appears, particularly as RealtyTrac says 16% of all residential sales last year were as a result of short sales and foreclosures. 

Texas Industries reported a wider loss $17.64 million or $0.62 per share for the second quarter, despite net sales growth of 25% to $208.9 million. It recorded a $0.40-per-share loss on sales of $167.7 million in the year-ago quarter.

With institutional shareholders Southeastern Asset Management and NNS Holding owning a combined 51% of the materials supplier, this bid could be their ticket to get out of TXI, which saw its stock soar 35% in 2013 but is flat so far this year. Considering construction might not be as robust as it otherwise seems, investors might want to follow the institutions and get out of Texas Industries and other construction materials suppliers.

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The article Texas Industries, Inc. May Be Cementing a New Growth Plan originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Valmont Industries. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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C'mon, Smartphone Designers, Step It Up!

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After several years of dramatic growth, high-end smartphone makers are struggling to find new approaches to stimulate demand. From quirky form factors to questionable features, smartphone "innovation" was disappointing at this year's 2014 International CES in Las Vegas. Even Apple's  iPhone and models based on Google's  Android OS are making only incremental improvements.

Motley Fool analysts Rex Moore and Eric Bleeker discuss the problem from the floor of the world's largest consumer electronics show.

A full transcript follows the video.


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Rex Moore: What about the worst of CES?

Eric Bleeker: You know, across the past four or five years, everything's been about smartphones, tablets. The growth has been there. It has probably been the most dramatic field of growth in technology history.

It's totally boring now. You look at phones; they are black and white rectangles of varying sizes, and it shows, with what these companies are doing. Yeah, sorry about that!

Moore: Yeah.

Bleeker: But the thing about Apple even, on that front, it's all about the ecosystem that's being built off. I know that sounds hackneyed, but people are buying Apple for a reason. They like iOS, they're very built-in.

Getting people to want to buy a phone based on any kind of hardware changes is just a dead game. The LG G Flex ...

Moore: Curved screen?

Bleeker: The curved screen, 6" ... I could not get behind that. Huawei had a phone that charges other phones. What percent of the population is commonly carrying two phones?

You look at the kind of parlor tricks they're trying to use to stimulate demand on the high end; it's just essentially tapped out. You've got Apple playing against Android vendors who ... it's a very competitive market, and that's tough.

You see Samsung struggling right now for a reason. Their most profitable areas, there's just not a lot of sex appeal there anymore.

The article C'mon, Smartphone Designers, Step It Up! originally appeared on Fool.com.

Eric Bleeker, CFA has no position in any stocks mentioned. Eric Bleeker, CFA has no position in any stocks mentioned. Rex Moore has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Richard Sherman's Rant: Millions in Endorsements, and Eyeing a Record Contrat

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The entirety of Richard Sherman's rant after last week's Seahawks and 49ers game lasted no more than 25 seconds, and that's a generous count of the time that includes a confused Erin Andrews' questions.

We've all seen the rant, seen the talking heads of the sports world either laud Richard Sherman or denounce him. I'm not adding to that chatter. 


What I do find fascinating is the ramifications of the interview from a cold dollars-and-cents calculation. After Sunday's game, we've seen the following happen to Richard Sherman:

  • His Twitter follower count quickly more than doubled, and now sit at more than 700,000. He now has 82% more followers than Darelle Revis, the highest-paid cornerback in football. 
  • Jersey sales exploded. Sherman's jersey is now the tenth most popular NFL jersey since April 1st of last year. He's the only defensive player in the top 10. 
  • Advertising started flowing in. According to Sherman's agent, upward of $5 million in endorsements are on the table after last week's game. He currently makes slightly more than his $550,000 per year rookie contract in endorsements.  
Clearly, while Sherman has his detractors, his adrenaline-fueled rant is leading to a big pay day. 

Salary vs. sponsorships 


The past week surrounding Richard Sherman -- and his potential pay day from it -- highlights the role of endorsements across sports figures and celebrities. 

According to a 2011 Harvard study, between 14% and 19% of all commercials featured a celebrity that endorsed a product. For the best athletes, endorsements are extremely lucrative. For example, according to ForbesTiger Woods and Roger Federer tied for the highest endorsement income in 2013 at about $65 million each. Their income from winning competitions was pegged at "just" $13.1 million and $6.5 million, respectively.

The total business of endorsements is huge, and saw tremendous growth last decade. Nike (NYSE: NKE) discloses future endorsement obligations in its financials. In 2002, the company reported just over $1 billion in endorsement obligations, but by 2009 that figure had risen to over $4 billion! While the company has cut back on endorsement deals in recent years, they're still a lucrative source of additional income for many athletes. 

Since football is America's most popular sport, you might expect several football players to be among the highest-paid endorsement deals. After all, a Harris poll published today showed 35% of Americans list football as their favorite sport. Baseball sits far behind in second place at 16%. 

Football-Not the endorsement gold mine you'd expect


Yet, there are a couple very key areas that prevent football players from cashing in on huge endorsement deals. While the sport is a top advertising draw in America, commanding Super Bowl ad rates of about $4 million for every 30 seconds, players are more anonymous. Football is a team sport where 22 players are battling on each play. Not only that, but they're anonymous warriors hidden behind helmets. Also, football is a niche sport away from America. Contrast that to golf, or tennis, both sports that are global. Not only that, but they're also sports where fans are known for high disposable income. 

The global popularity of sports is a key concept. The titans of endorsement deals, such as Nike and Adidas have long been focused on international sales growth. The world's biggest cricket star, Mahendra Singh Dhoni, makes 133% more in endorsements than the NFL's highest-paid endorser, Peyton Manning. The Indian market has 1.2 billion potential consumers multi-national brands want to reach. Also checking in before Manning are four different golfers and Chinese tennis player Li Na. Global reach, demographics, and international markets matter. A lot. 

Not surprisingly, the biggest football endorsers are quarterbacks. They're the face of teams, the center of each offensive play. By Forbes' estimates, Manning makes $12 million annually. Following him is Drew Brees ($11 million), Tom Brady ($7 million), Aaron Rodgers ($6 million), and Tony Romo ($3 million). 

Sherman, the anti-quarterback


Endorsement deals beyond well-known quarterbacks tend to be regional in the NFL. Seattle's Marshawn Lynch, known for his hard-nosed play and "beast mode" nickname, is most-known in the Seattle area for his poorly acted commercials with a local plumbing company (worth a watch). 

Pierre Garcon, a wide receiver who led the Redskins with 113 catches last year, fills up local advertising as the face of a local pizza chain. 

These are deals that generously could top out in the low six-figures. They also show the disparity between two very well-known positions (running back and wide receiver) and the kinds of national endorsements quarterbacks can command. 

For defensive players, who anonymously form a unit and rarely make Sportscenter Top 10 highlights, getting endorsements can be even more challenging. As was noted near the top, Richard Sherman is the only defensive player in the top 10 of jersey sales. Ask an average fan to name a cornerback from 20 years ago, and you'll likely get only one answer: Deion Sanders. 

Like Richard Sherman, Deion Sanders wasn't known for his subdued nature. His brashness, style, and self-confidence allowed him to overcome the inherent anonymity of his position. 

If Sherman's agent is correct, and he does have $5 million worth of potential endorsements on the table, his end-of-game rant will have pushed him into a unique space: among quarterbacks as the highest-paid endorsers in the NFL. 

Yet, there is also another benefit to the recent attention heaped upon him. Richard Sherman will be on the last year of his rookie contract next year and will be expecting a big pay day. Analysis from Spotrac shows Sherman should expect a 6-year contract worth about $92 million, with $48.9 million of that contract guaranteed. 

NFL GMs are smart enough to know Sherman is a top-flight player without all the media attention from the past week. However, the endless loops of his amazing final play and the potential for him to be a huge factor in the Super Bowl as the foil to Peyton Manning could be worth some extra oomph to that long-term contract. 

Sherman is a surprisingly calculating player. While the spotlight is shining on the endorsement outcomes from his rant, the bigger picture might be what few are paying attention to: Sherman says he's the best cornerback in the game, his next goal is to get paid like the best. 
 

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The article Richard Sherman's Rant: Millions in Endorsements, and Eyeing a Record Contrat originally appeared on Fool.com.

Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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3 Reasons to Seek Out More Stable Stocks

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Stability is something that's arguably not at the forefront of investors' minds at the moment. With 2013 being such a great year for the stock market, it seems as though many market participants are very much in "risk-on" mode and are keeping both eyes firmly fixed on growth prospects and whether a company can hit that all-important double-digit growth rate.

However, the large fall in the S&P 500 on Friday could be a timely reminder that markets don't always go up, and, as such, it could be the case that investors begin to seek out one or two more stable companies in case the market trades sideways or experiences a further dip.

So what is stability? Of course, different investors will have different viewpoints on what defines a stable company, but it could be reasonably expected that a stable company has a good track record of delivering profits, because this could indicate that it is more likely to continue to have a healthy bottom line -- even if economic conditions worsen in future years.


In addition, a stable company should have a relatively generous yield, so that if capital growth is not forthcoming in the future, investors in the stock can still rely on an income in the form of a dividend with which to pay the bills, or to invest in other stocks at suppressed prices.

Furthermore, a stable business may have a beta of less than 1. This means that it has been less volatile than the wider market over a specific time period (usually six to 12 months) and should, in theory, fall by a smaller amount than the wider market in the future.

Of course, the flip side is that it should (in theory) also gain by less than the market in the future, meaning it should outperform the rest of the index in a downturn but underperform in an upturn.

So here are three businesses in the health-care space that could fit the bill for investors seeking more stable stocks:

1. Pfizer -- over the past four years it has grown revenue at an annualized rate of 5.1%, with profits growing by 5.7% over the same period, as the company was able to grow the top line ahead of its cost base. In addition, it pays a yield of 3.2%, which is well above the S&P 500 yield of 2.2%. Furthermore, Pfizer's beta is 0.8, which further highlights its credentials as a more stable stock.

2. Merck -- although revenue growth has been highly impressive in the past four years (growing by 18.7% per annum), profits have been fairly volatile. Although profits have been made in all years, they have ranged from $1.6 billion to $15.3 billion, thereby highlighting that Merck's performance as a business isn't quite as stable as that of Pfizer. However, as a stock, it offers a lower beta than Pfizer (0.6 versus 0.8) and a slightly higher dividend (3.3% versus 3.2%).

3. Johnson & Johnson -- although revenue is only slightly higher now than it was four years ago and profits are slightly lower than in 2008, Johnson & Johnson remains among the most stable stocks in the health-care sector, with the historical revenue and profit range being relatively narrow. Its beta of 0.8, combined with a yield of 2.8% (versus the S&P 500 yield of 2.2%), mark it out as a potentially more stable option for risk-conscious investors.

So while 2014 could be another great year for the S&P 500, the events of Friday showed that growth and recovery is not a given. Therefore, keeping an eye on stability could prove to be a worthwhile counter to further market turbulence.

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The article 3 Reasons to Seek Out More Stable Stocks originally appeared on Fool.com.

Fool contributor Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Volatility Explodes -- Is the "Old Normal" Back for the VIX?

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Volatility, as measured by the CBOE Volatility Index , jumped more than 40% over Thursday and Friday, as turmoil in emerging markets began to rattle investors globally. The index, commonly known as the VIX, is a measure of investor expectations for volatility of the stock market (more specifically, the S&P 500 ), looking ahead over a 30-day period.

Yet despite this pop, the VIX remains 10% below its historical average going back to its inception in January 1990. In fact, volatility was unusually low in 2013. In the following video, Motley Fool contributor Alex Dumortier points out the elephant in the room -- markets that brought volatility down in the post-crisis period -- and suggests that investors shouldn't expect the "new normal" of depressed volatility to last. Indeed, Thursday and Friday's increases could be just the start of a recalibration to a higher range for the VIX, one that is closer to its "old normal" historical average.

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The article Volatility Explodes -- Is the "Old Normal" Back for the VIX? originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. Mike Klesta has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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