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

January produced the worst stock market performance since May 2012 and February has not gotten off to an auspicious start, as the benchmark S&P 500 index lost 2.3% on Monday, while the narrower Dow Jones Industrial Average fell 2.1%. Small-capitalization issues -- which outperformed their large-cap brethren last year -- fared even worse, as the Russell 2000 Index posted a 3.2% drop.

Meanwhile, the "fear trade" was a winner today, as the SPDR Gold Shares rose 1%. The VIX , a measure of investor expectations for stock market volatility over the next 30 days that is known as "Wall Street's fear gauge." gained 16.5%, to close above 20 for the first time since December 2012.

For the S&P 500, today's decline was the worst since a 2.5% loss registered on June 20, 2011. At the time, Bloomberg explained that "global equities tumbled after the Federal Reserve said it may phase out stimulus and China's cash crunch worsened." Today, Bloomberg highlights "data from China to the U.S. [signaling] a slowdown in manufacturing" as the precipitating factor. The U.S. manufacturing ISM index dropped sharply to 51.3 in January, suggesting a slowdown in manufacturing output (a reading above 50 indicates growth).

Bloomberg's explanation may be true, as far as it goes; however, as the Financial Times' Robin Harding pointed out, "the ISM's weakness was most likely due to freezing weather in January -- so it is not sufficient evidence to declare a new U.S. slowdown" before adding that [my emphasis] "it was enough to rock markets that have become blasé about economic risks."

Which gets us to the core of the matter: Slowing manufacturing is not the underlying cause of today's stock market decline, it is simply a catalyst. Instead, it looks to me as if we may we witnessing the first results of a collision between two (related) factors:

• Stock market values that became overextended after a 30% run-up in the S&P 500 in 2013.
• A market that is rediscovering risk (i.e., normalizing) as the Federal Reserve begins to slow the extraordinary stimulus it has been providing asset markets through its bond purchase program.

Is this cause for concern? Not for genuine, prudent investors -- those who are neither leveraged, nor short-term-oriented. After all, volatility is a normal characteristic of the stock market. Since 1957, the S&P 500 has experienced a 10% correction nearly every one and a half years, on average; the last correction began more than two years ago in the summer of 2011.

Furthermore, for stock-pickers, there are attractive opportunities in this market: Last week, I pointed out one such situation, as the market overreacted to Apple's fiscal first-quarter earnings report. If we get a proper correction, there will be others; if you're a net buyer of stocks, that's a prospect you ought to be excited about.

In an industry as volatile as the airline space, it is best to invest in the highest-quality companies. These are companies that have proven continuously that they operate at higher levels than peers. When it comes to regional airliners, no company has been more consistent than Alaska Air Group . The company's industry-leading fundamentals help it stand out from competitors like JetBlue Airways and Hawaiian Holdings .

Record earnings
Alaska Air Group recently reported record fourth-quarter earnings. The company earned net income of $77 million, or $1.10 per diluted share, which easily beat 2012's comparable quarter earnings of $50 million, or $0.70 per diluted share, and represents year over year growth of over 50%. The results also easily beat the average analyst estimate, which called for $1.07 per diluted share. 

The full 2013 fiscal year earnings results for Alaska Air Group were equally impressive. The company earned a record net income of $383 million, or $5.40 per diluted share. These results easily surpassed 2012's results, which stood at $339 million net income, or $4.73 per diluted share. 

Revenue for Alaska Air Group came in at $1.21 billion, which was in line with consensus estimates of $1.2 billion. However, revenue for the fourth quarter still grew 6.9% on a year-over-year basis. 

Industry-leading fundamentals
It is difficult to not put a premium on fundamentals in an industry where so few companies make them a priority. Alaska Air Group remains the best company in the space in many regards. The following is a breakdown of some of the company's key metrics compared to competitors JetBlue Airways and Hawaiian Holdings: 

As the data above indicates, no other regional airliner is even close to Alaska Air Group in terms of the key listed metrics. Since the airline space is notorious for large debt, it is impressive to see Alaska Air Group stand out in this regard. With only $912.2 million in debt, equal to only 16.5% of the company's market capitalization, Alaska Air Group fares the best. The company's cash hoard of $1.44 billion is also particularly impressive.

However, most important of all is the company's return on invested capital, or ROIC, metric, which stands at an impressive 16.94%, and indicates that management is very efficient at managing capital and investing in company operations. Additionally, Alaska Air Group's net margin leads all other competitors and it remains one of the few companies in the entire airline space to pay a substantial dividend.

With regard to fundamentals, Alaska Air Group is flying first class while its competitors remain stuck in coach.

Future growth
Alaska Air group is set to grow well in 2014. Revenue is expected to increase 5.3% and EPS is expected to grow an impressive 19.1%. This growth is due in large part to the company's continued rollout of new nonstop-flight routes such as Seattle to Colorado Springs, Portland to Tucson, and San Diego to Boise. All told, the company added ten new nonstop flight routes in the fourth quarter. It is planning another seven new routes during the first half of 2014 as well.

Of course, as I've mentioned before, the company's largest asset is its impeccable track record with regard to customer service. As long as Alaska Air Group keeps putting customers first, the company should continue to be one of the most popular brands to fly with and growth is almost assured as long as new routes are added incrementally.

Flying high
Despite a soaring stock in 2013, Alaska Air Group is still a great investment. It is also the only company that I can recommend in the regional airline space. With the best fundamentals by far and solid growth projections, Alaska Air Group should continue to fly above competitors in 2014.

Recently, armored car specialist The Brink's Company announced it was launching Brink's Checkout, a payments processing service that leverages its well-respected reputation in security into online transactions.

With the revelations of security breaches at Target, Neiman Marcus, and most recently arts and crafts store Michael's, a cumulative situation where tens of millions of customers had their private data breached, the opportunity for capitalizing on the need for better, more secure systems is ripe for the picking.

Apparently, Apple feels the same way, because The Wall Street Journal reports that it, too, wants to access the burgeoning payments processing market. Where Brink's will be trading on its name to launch its service -- but use the technologies and systems developed by existing service provider 2Checkout -- Apple believes it can tap into the vast wealth of experience it's already garnered through handling payments via its iTunes store.

Apple handles billions of transactions annually through iTunes. According to Billboard, the online store recorded 1.34 billion units of digital track sales made over the service in 2013, and though that's down 5.7% from the year before (yet another soft number for Apple to go along with disappointing iPhone sales), it marks a rather significant track record for the tech giant. And that's just music; you could also add a few hundred million more units in album sales, movies, and books. So, while Brink's has a name to run on, Apple has the track record to back it up.

The market analysts at Forrester Research expect payment processing volumes to triple over the next three years, growing from $30 billion today to $90 billion by 2017. And though PayPal is far and away the industry leader, the eBay subsidiary is overseeing a fairly fractured and competitive marketplace that has new players entering the space almost daily.

Apple, then, could theoretically catapult itself ahead of the others, maybe even PayPal, too, because where the unit is eBay's fastest-growing business with 143 million active users as of the end of last year -- a 16% increase from 2012 -- Apple has 575 million registered iTunes users.

Activist shareholder Carl Icahn certainly thinks it's a business worth pursuing, urging Apple last week to go with gusto after this "very real opportunity." And why not? It moves a lot of product already, meaning iPhones, iPads, and iPods could allow it to leverage those mobile devices with the 400 million or so credit card numbers it keeps on file. According to eBay, around 40% of new PayPal users last year came from mobile devices. Looking at how both Google and Amazon.com have parlayed their success with content by moving into payments, it seems not so far of a leap for Apple to join them.

The Google Wallet application, for example, allows users to purchase digital goods through Google-hosted marketplaces, plus send money to family and friends. Since it's available on both Apple and Android phones, Apple would have a chance to drive a wedge between its rival's customers on its own device. As for Amazon, one of the selling points of its Login and Pay with Amazon service was how with 215 million accounts in its database, it had a natural edge over PayPal. Yet Apple wouldn't be seen as a competitor for a retailer's customers as Amazon would, so acceptance of an Apple service would likely be better received.

It could also piggyback on its recent iBeacon acquisition that allows users to find products, display product info, and provide indoor mapping services on iPhones at retail stores. And using its iPhone fingerprint reading technology, which it could use to have a customer complete a transaction, it's obvious an Apple payment processing service could go very far in providing a secure milieu in which transactions could be completed.

There's certainly a difference between digital downloads through iTunes and payments processing, particularly since it allows a third party into its transactions, which might not sit well with the insular Apple. Yet having been punished for a disappointing earnings report, a payments processing service could still prove to be a profitable niche useful for partially offsetting slowing business lines, even if it doesn't let it back up the Brink's truck to riches.

This article was written by  Wired.com -- the leading provider of technology and innovation news.

Zynga is in trouble. Five years ago, as it rode the Facebook wave, the Silicon Valley gaming outfit was all the rage, but things are so very different now. On Thursday, it laid off 15 percent of its staff.

But at the same time, in an effort to save its bacon, the company made a big bet on the future. It paid $527 million for a new technology that might just give it an edge on mobile devices, an area where Zynga hasn't traditionally fared that well. It acquired NaturalMotion, a U.K. company best known for doing the background animation for the video games such as Grand Theft Auto and Max Payne.

NaturalMotion has carved out a niche with slick graphics and artificial intelligence software — called Morpheme and Euphoria — and Zynga thinks that this software could give the company an edge as it works on the mobile gaming hit it so desperately needs.

"At their core, they have a breakthrough tools and tech pipeline, which I believe will become more and more valuable as tablets and phones increase in their performance capability," new Zynga CEO Don Mattrick told the tech news site Re/code.

NaturalMotion already has a noteworthy mobile hit with a game called Clumsy Ninja, and Zynga is banking on more. But there's a bigger question here. Can Zynga absorb a company that — at its heart — may be nothing like it?

Buying customers versus blowing them away
Historically, Zynga's special trick has been to advertise like crazy to pick up new users. In fact, last year, NaturalMotion CEO Torsten Reil estimated that this was costing Zynga $120 per user.

The Clumsy Ninja. Source: NaturalMotion

But that's not how NaturalMotion works. It wants to dazzle users with cool technology. Clumsy Ninja uses NaturalMotion's AI algorithms to move in ways that you just don't see in most mobile games. You see it in the way he fights your finger if you hold him in the air too long or struggles to stand when you drop him near the ground.

It's so cool it doesn't need advertising.

"We don't want to make games that other people are already making because we'd be competing for the same audience... A lot of games have ended up being [about] user acquisition optimization. You basically chase a margin of the tiny bit of profit compared to the money you spend to get a user," Reil recently told WIRED. "But to us, that's a fool's business. You can't build an entertainment company like that. Entertainment companies should be about creative risk and creating something people have never seen before."

That's nothing like Zynga operates today. But maybe that's exactly what it needs.

It's hard not to anticipate what technology companies are building, or supposedly building, in the burgeoning wearables space. Google already has Glass, Samsung has its Galaxy Gear smart watch and is rumored to launch a Glass competitor, and Apple is (constantly) rumored to be releasing an iWatch.

 
Source: Google.

With all the current wearables available from the top tech companies, and more on the way, can investors hope to make a pile of cash off these new devices this year?

Probably not. At least not this year anyway.

If you're a tech investor, you're likely looking at which companies are poised to benefit most from wearables, which is logical and likely a wise move. But even though we're just at the beginning of 2014, there's still a lot of ground that needs to be covered before investors see a payoff from wearable tech.

Overcoming the creepy factor
Let's start with two high-profile wearable gadgets currently on the market: Google Glass and the Samsung Galaxy Gear. Google launched Glass last year and has released the device on a limited basis. Google recently opened up Glass to more users by allowing those with unlimited Google Play Music accounts to apply for the device. But, overall, testing of the glasses has been limited. 

Google likely wants to keep a stronghold on supply in order to keep demand high, but also because the device is unlike anything the public has ever tested before. There's a huge learning curve for Google, users, lawmakers, and the general public. For this reason, Google investors likely won't stand to benefit from the revolutionary product just yet.

Even if Google launched a consumer version later this year that cost around $300 to $400, there's still a lot of social etiquette that will have to be overcome before Glass becomes a prolific device. Which means it could take until next year before Google sees its bottom line grow because of device and app sales. Though 2014 may be the year Google Glass launches for the common man, I think the device is still too futuristic for Google's bottom line to benefit this year. The future maybe now, but profits will come later.

Galaxy Gear. Source: Samsung.

Samsung's smart watch fumble
While Samsung deserves credit for trying its hand at a smart watch before Apple, the Galaxy Gear has been, well, sort of a failure.

The Gear proves that the first one out of the gate isn't always the winner. Samsung will need to build a much better product the second time around if they want to see real monetary gains from the device. Samsung says its shipped about 800,000 Galaxy Gears, but hasn't disclosed actual sales numbers from those shipments.

For this reason, investors shouldn't bank on Samsung winning the smart watch market or making big profits from the next iteration of the device, especially this year.

A promising option
If there's a tech company that knows how not to rush to market and get user demand right, it's Apple. At this point, it's hard to believe Apple won't release a smart watch for the masses. CEO Tim Cook has said, "I think the wrist is interesting. The wrist is natural." Though that's obviously not an admission Apple is manufacturing a smart watch, reports are increasing that an iWatch device is in the works.

Here's why I don't think investors will benefit this year from an iWatch, though: Apple sells devices for mass consumption, but smart watches are still a niche product. Macs, the iPod, iPad, and iPhone are all products for everyone. They may be priced at the high end, but they're created for everyone to use. This is part of Apple's product philosophy and it means that Apple won't release such a device until it's figured how to make the device appealing to the mass market.

I think there are two ways to do this: Make it so simple and inexpensive that it makes sense for the millions of iPhone users to pick one up or make it such an incredible stand-alone smart device that users see its usefulness right away.

Either way, I think Apple would release such a device toward the end of the year so it can benefit from holiday sales. If that's true, then Apple investors wouldn't start to see a real benefit form the device until early 2015. In addition to that, wearable smart watches are an unproven segment, so user adoption may be slow and could subsequently keep initial sales low.

Foolish thoughts
Some may think I'm being a bit skeptical of the wearable trend, but it's more that I'm just skeptical that it will skyrocket company revenue, and stock prices, this year. Wearables are definitely a big part of our technological future, but it's going to take a while for the general public to adapt to these devices, which will keep sales relatively low compared other smart devices.

According to IHS, wearable tech shipments will hit 130 million by 2018. I hope investors see those estimates realized, but if you're looking for explosive growth in the industry right now, you may want to wait until next year.

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

After a horrible January, the stock market began the new month on an even gloomier note, with the Dow sinking more than 325 points to bring its losses for the year to more than 1,200 points. But even in the worst markets, you can usually find a few brave stocks that managed to gain ground, and Herbalife , TASER International , and Randgold Resources all bucked the downward trend to post decent gains today.

Herbalife (HLF) climbed 7% after the nutritional and personal-care products company released preliminary results for its fourth quarter and full 2013 year. The company said it expects fourth-quarter revenue to rise by nearly 20%, with earnings to come in about 8% to 11% above what investors had projected. Although the company's decision not to raise its full-year guidance for 2014 was a bit disappointing, Herbalife's decision to boost its repurchase authorization by half to $1.5 billion could support the stock's gains going forward.

TASER International (TASR) got good news from an unusual source today, as the stock rose 5% when the stun-gun maker found out that it will become part of the S&P SmallCap 600 Index. The change will take effect after tomorrow's close, and long-term investors hope that the move will be only the first of many such index admissions and promotions in the company's future. More important will be whether the company can boost sales and profits enough to justify its current valuation, which like many newly admitted index stocks is at somewhat lofty levels right now.

Randgold Resources (GOLD) gained 4% as the company managed to issue a reasonably strong earnings report. Predictably, net income plunged more than 35% for the full 2013 year due largely to the massive drop in gold prices. Yet gold production levels climbed almost 15% to 910,000 ounces, and Randgold believes it can boost production by another 25% to 30% in 2014. Randgold also kept its dividend steady, marking confidence that its low cast costs of $715 per ounce will allow it to stay profitable even in a tough gold market.

In the early earnings season, we've seen a trend: Companies are mostly beating estimates but issuing very conservative guidance. For most industries, this rule applies, but enterprise cloud software companies like ServiceNow and Aspen Technology have provided reason to be bullish in this one particular space. And coupled with the weakness from on-premise IT juggernaut International Business Machines , investors might want to take a closer look at the space and upcoming reports from the likes of Salesforce.com and Workday

First indication comes with noted declines
Last year, hedge fund manager Stanley Druckenmiller called IBM a great short, saying that every dollar earned by cloud services takes (multiple) dollars from on-premise IT companies like IBM.

The reason for Druckenmiller's thesis is that cloud services are cheaper than on-premise IT and allow customers to perform many functions under one-single platform. Thus, anything that saves customers money is positive, but in this case, it has been a nightmare for IBM.

For the last year IBM has been showing signs that Druckenmiller's outlook is correct via year-over-year revenue losses. In the company's last quarter, total sales declined 5.5%, while its global technology-services revenue declined 4% year over year.

Hence, IBM is losing business rapidly, and given the growth of these cloud services, there are many reasons to believe that IBM's fundamental woes could continue...and that many cloud services are thriving.

Second indication lies in recent reports
IBM's fundamental woes serve as a first indication that enterprise cloud software companies are thriving, but a second indication comes from those companies that have already reported earnings.

Last week shares of ServiceNow soared 15% after earnings exceeded expectations and guidance called for continued performance.

The company may directly benefit from IBM's demise as it strives to maximize the efficiency of IT operations through the cloud. Therefore, investors should be pleased with its 66.6% revenue growth, but more important is the company's 59% rise in deferred revenue and its backlog balance to $875.1 million, signaling long-term growth.

Then, the following day, peer Aspen Technology -- makes training, presenting, and software integration easier in complicated industries such as energy, chemicals, and engineering via the cloud -- reported very strong earnings.

While Aspen's revenue growth of 27.8% might seem irrelevant compared to peers ServiceNow, Workday, and NetSuite, its performance is made impressive when you consider its profit doubled and that it carries the highest operating margin among cloud-only companies.

For potential investors, Aspen and ServiceNow's earnings serve as a great indication of industry strength and what may come from other companies to report earnings in the next two weeks.

Valuations remain a problem
Clearly, we are seeing a noticeable trend: Growth in enterprise-software companies is accelerating while on-premise loses its appeal. Ultimately, this is a trend that most expected but perhaps not at the rate we are currently seeing.

However, the Achilles' heel of this industry might be its valuation and the expectations that are already in place.

With that exception of Aspen, none of these companies are profitable, including the largest pure cloud-enterprise company Salesforce.com and the most hyped company Workday, which sells HR and payroll-related cloud services.

Yet, one thing this entire space shares, aside from growth, is a pricey premium-to-12-month-sales ratio.

You can see below:

As previously said, all of these stocks are pricey, meaning if you want to invest in the industry, then you are going to pay for it. However, given the impressive growth we are seeing throughout the space, a good assessment of the space, and a selection of the best value, the space might be lucrative for investors long term.

Final thoughts
It's worth noting that despite ServiceNow and Aspen's double-digit price/sales ratios, both saw large intra-day gains following earnings. This implies that despite lofty valuations, it is still likely or possible that such companies as Salesforce.com and Workday trade higher if the trend of strong fundamental performance continues.

With that said, if you're looking to invest long term, then valuation must be considered in order to put you in the best possible situation to produce consistent gains without great downside risks. Currently, even the largest of these companies, Salesforce.com, is unprofitable, with an operating margin of negative 5.4%. Yet, considering the negative 33.3% operating margin from Workday, I suppose many in this space would be happy with Salesforce.com.

However, Aspen Technology, a company with an operating margin of 26.5% and coming off a quarter where its profits doubled, presents investors with a rare combination of growth and efficiency. At 11.2 times sales, it is one of the cheapest stocks in this space, and with near 30% growth, investors might find that long term, Aspen stands a good shot to outperform this very exciting and fast-growing space.

Zynga finished the first month of the New Year on a high note after posting a smaller-than-expected net loss for its fourth quarter. Shares of Zynga were also climbing higher last week on news that the game maker would cut 15% of its workforce in a move to rein in costs in the year ahead. On top of this, Zynga said it would buy NaturalMotion for $527 million -- marking the company's biggest acquisition to date. The perfect storm of announcements pushed Zynga's stock up nearly 20% in after-hours trading on Thursday. 

Now, the question is whether this could be the year Zynga makes a comeback.

Easy does it
With so much ground to cover, let's jump in with a quick rundown of Zynga's latest quarterly results. For the period ended in Dec. 2013, Zynga posted a 43% drop in revenue to $176.4 million, or a loss of $0.03 per share. That was slightly better than analyst expectations for a loss of $186.2 million or $0.04 in the quarter. Additionally, Zynga achieved modest growth in bookings across most of its gaming franchises.

Bookings are an important metric for the social game maker because they represent the total sale of virtual goods sold in the period. Zynga's Words With Friends game, for example, delivered the highest quarterly bookings in the game's five-year history, up 33% sequentially. Zynga Poker was also a standout game for the company in the quarter -- growing mobile monthly active users by 8% sequentially, according to Zynga. 

Source: Zynga.

Zynga's new CEO, Don Mattrick said he expects 2014 to be a growth year for the company. Let's hope he doesn't mean 'growth' by way of acquisitions, after all, we've seen how well that worked out for Zynga in the past.

The past repeated
Flash back to March 2012, when Zynga acquired rival game maker OMGPOP for roughly $200 million. At the time, OMGPOP was the company behind the smash hit Draw Something. However, after being purchased by Zynga, OMGPOP slowly died -- Zynga ultimately shut down OMGPOP just one year after buying it. 

Will Zynga's latest purchase of NaturalMotion share the same fate? Last week, Zynga said it would acquire the mobile game developer for $527 million in cash and equity. That seems a bit pricey for a company that's laying off 15% of its workforce in an apparent effort to cut costs. However, Mattrick hopes that buying NaturalMotion will give Zynga better footing in the all-important mobile gaming space. Specifically, Zynga will gain exclusive rights to the developer's mobile game engine called Euphoria. 

In addition to $391 million in cash, NaturalMotion's shareholders will get approximately 39.8 million shares of Zynga Class A common stock. A third of those shares will be issued to continuing employees to be vested over a three-year period, according to a press release. Unfortunately, given Zynga's past performance, there's no guarantee those shares will be worth much in the years ahead. Cynical as this may sound, Zynga has been in a downward spiral since its public debut in 2011.

There's no doubt 2014 will be a telling year for the San Francisco-based game maker. The latest onslaught of layoffs will save Zynga between $33 million and $35 million this year. However, firings and hasty acquisitions will only get the company so far. Ultimately, Zynga needs to find a way to consistently create new products and crank out hit games. Whether or not NaturalMotion will prove a natural fit for the game maker, only time will tell. For now, it seems premature to call this a Zynga comeback.

It's no secret that there seems to be a big rush toward low-power, high-density servers, also known as micro-servers, particularly within the ARM camp. Intel , believe it or not, was first to market with a very competitive solution, known as Avoton. However, even though Intel seems to be jumping into this nascent market with both feet -- in stark contrast to its mobile snafu -- there is a big concern that margins will be worn down.

The bear argument
The idea behind these micro-servers is that instead of using a bunch of hefty processors with beefy cores to do work for which these processors may be overkill, a data-center operator would instead want to buy chips with very high integration, less brute CPU power, and lower-power envelopes, leading to a total cost-of-ownership savings.

The notion, then, is that even if Intel is successful here, it will be selling lower-ASP Atom processors into this market. Many confuse lower ASP with lower margin, which isn't the case. The idea is that if these chips are smaller and lower-power, they're probably cheaper to make, too. So, on a raw margin-dollars-per-unit, they may be "lower-margin." But on a gross margin percentage level -- and given that more of these processors will usually be purchased for the given workload -- it actually turns out to be a wash.

Intel proves the point
While the claim above seems plausible, the key is that Intel actually confirmed this at its analyst day:

Source: Intel

In fact, in the presentation, CFO Stacy Smith actually hinted that the Atoms -- not the higher-end Xeons -- generated higher gross-margin dollars per wafer than the Xeons. This would seem to be contradictory to the bear argument that a mix-shift down to Atoms would be detrimental to profit growth.

No, this probably isn't going to end up like smartphones
Another argument that Intel bears often cite is that this market is destined to become very price competitive. There will be a ton of players coming online here, and this space will, indeed, become more competitive. However, very few will have the scale or wherewithal to actually drive a price war -- and the ones that do aren't going to do so simply for the sake of doing so.

Further, as the unit volumes in this market are likely to be measured in the hundreds of thousands to low millions, rather than the billions that mobile apps processors drive, gross margin percentage will be very important here to recoup the development costs -- 40% gross margin probably won't cut it, and would put many of these smaller players out of business quickly. As with most data-center chips, these will be 60%-plus gross margin devices.

Foolish bottom line
While this market will get competitive, thanks to ARM's continued push, it is going to be very difficult for the smaller ARM-based players to gain traction unless they're targeting a niche/design point that Intel isn't going to be interested in -- or can't service with its current Atom or Xeon cores. Samsung, Qualcomm, and some of the specialty network players will certainly have a good chance here. But even then, Intel is deeply entrenched and has beaten out many larger, more powerful chip players in the server market over the years. 

Facebook's  mobile usage is growing at a rapid rate and its fundamentals are following suit. Facebook's leading position is surging as the company now has more than 1.23 billion users.

And the company's users remain very engaged with roughly 62% of total users using Facebook every day. The company has diversified its social media presence well with Instagram, which now has has an estimated 180 million MAUs, doubling its user base in 2013.

Strong numbers across the board
Facebook enjoyed accelerating revenue growth in 2013, which is rare for a big company. The company's sales stood at $7.9 billion which was a 55% year-over-year increase. Its diluted earnings per share for 2013 stood at $0.60 a huge increase from 2012. Facebook's cash balance grew to $11.5 billion, as the company raised an additional $1.5 billion with an additional offering, and this gives the company more flexibility to pursue inorganic growth opportunities through M&A activity.

The company's margin expansion has led to strong growth in free cash flow, which grew to $2.85 billion in 2013. Facebook's revenue growth from the payments business has not been growing and stood at $241 million last quarter. However, advertising revenue grew by more than 65% in all its geographic segments.

The number of ad impressions on Facebook's platform declined by 8% but were easily offset by a 92% increase in ad pricing. Ad impressions declined because the company shows fewer ads on mobile relative to desktop, but the pricing of ads increased because of higher engagement and click-through rates on mobile devices. Facebook's average revenue per user, or ARPU, grew to $6.81, which represents a 28% increase from 2012. 

Mobile growth is phenomenal
The pop of the stock was not only due to the big beat of estimates, but also because of the company's solid growth on mobile devices. Total number of users logging on through mobile devices stood at 77%, which is a big increase from the 59% last year. For the first time in Facebook's operating history, advertising revenue on mobile devices surpassed desktop ad sales.

Twitter  also has a strong foothold on mobile devices. Roughly 76% of Twitter's total user base, (232 million users), access the site through mobile devices. As a result, Twitter earns 70% of its advertising revenue from mobile. On a comparative basis, Facebook earned 53% of its advertising revenue from mobile devices, and should earn more from mobile in the future.  

Facebook's quarterly revenue on mobile devices crossed $1 billion dollars for the first time as mobile ad sales grew roughly 306% year over year to $1.24 billion. In the last quarter, Facebook's Mobile MAUs grew 39% year over year to 945 million, and the company's mobile audience is a lot more engaged relative to its desktop members.

Facebook's CFO disclosed that the number of daily users on mobile outnumbered desktop users by roughly 200 million. And the company's CEO Mark Zuckerberg seems to be very excited about coming out with more engaging mobile experiences.  In fact, Facebook just announced Paper, which is an app that aggregates and brings together different stories in one layout. 

Advertisers are diving in
The number of small and medium businesses with an active Facebook page have surged to more than 25 million, and the company is offering more simplified advertising options to these businesses to convert them into paying marketers.

Facebook is aiding more developers to acquire new customers through mobile app-install ads and it remains a growing revenue stream. In addition, the company is working with various brand marketers and helping them to reach their desired consumer groups. Facebook is testing video ads with select brand marketers to determine the impact on sales and this will likely be rolled out on a much broader scale.

The company's measurement and targeting tools have been crucial for its strong revenue growth in 2013. Facebook's custom audiences product is enabling marketers to choose their target customers in a very precise way and is generating strong ROI for advertisers. Ads placed on the Facebook newsfeed have done very well for marketers on both mobile and desktop. This is appealing to newer advertisers.

Going forward
Facebook's scale and reach has hit unprecedented levels. The social media site is the only platform where more than 750 million users tune in everyday, and this provides the company with a lot of useful data for their advertising clients.

Facebook's strong growth in revenue was driven by more newsfeed ads, higher consumer engagement, and both these drivers are likely to continue to grow. In addition, it still has a number of future earnings drivers like Instagram and video ads that will propel the business. 

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

It was a sea of red on Wall Street today, as the markets continue January's sell-off during the first trading day of February. The Dow Jones Industrial Average ended the day down 326 points, or 2.08%, while the S&P 500 fell 2.28%, and the Nasdaq slid 2.61%. The big declines came after the Institute for Supply Management released data indicating that the Purchasing Managers Index, essentially an indication of how purchasing managers feel about the economy, fell from a 56.5 in December to 51.3 January. Analysts expected  a figure of around 56 for January.

Is it time to run for the hills and get out before things get worse? Well, we at the Fool believe in long-term investing, and I'm here to say that now is the time to do nothing, just as if the markets were up, rather than down, by 7% year to date. In fact, if you must make a move, buy more of the companies you love. There's no need to sell. For more about the market sell-off, read a few of my more recent articles about how to think about what's happening in the markets right now: "The Challenge of Fighting Your Emotions" and "How to Think About 2014."

Now, back to day's moves.

Pfizer was the only one of the Dow's 30 components that ended the session in the black. The stock rose 0.66% after the company announced that its breast cancer treatment palbociclib in clinical trials has successfully met its goals of delaying progressive symptoms in women who have locally advanced or newly diagnosed metastatic cancer. Some analysts believe this drug could top $5 billion in sales if the FDA approves it. If that happens, it could become Pfizer's next blockbuster drug.  

Two other winners may simply have had great days because of their Super Bowl ads. Shares of RadioShack increased more than 3.3% today, while CarMax saw a 1.44% rise. Neither company had any real news pertaining to it today, so it looks as if shelling out millions for a Super Bowl spot paid off, at least temporarily, for these companies.

Elsewhere, Apple rose 0.19% as some analysts are now calling the stock a correction protection trade. Shares are currently trading at 12 times past earnings and under 11 times future expected earnings. The stock pays a 2.4% dividend yield, and while the company is set for a $100 billion buyback, many investors, including Carl Ichan are pushing for even more. The buyback plan alone should act like a backstop for shares to fall dramatically lower, which may be one reason the stock rose today, as many on Wall Street think a more substantial correction of 10% or more is on its way.

The term "shareholder friendly" has become synonymous with dividends and share buybacks. Investors generally like returns of capital, and oftentimes these initiatives do help to increase the value of shares. Airlines are starting to get into the business of being "shareholder friendly," so the question is: How far should airlines go in these initiatives?

Dividend bidding war
Until last year, Southwest Airlines was the only major U.S. airline to pay a dividend. This wasn't too surprising, since the preceding several years had been racked with airline bankruptcies and recession. Southwest's dividend was a mere penny per share per quarter, but in an industry without any other dividend-paying competitors, Southwest was king of airline dividends.

Following the reduction of billions of dollars in net debt, Delta Air Lines launched a plan to return $1 billion to shareholders through $500 million in dividends and $500 million in share buybacks. The yield on Delta's dividend was around four times that of Southwest's dividend, and shortly after, Southwest quadrupled its dividend.

Last July, Alaska Air Group , parent company of Alaska Airlines, joined the dividend party by initiating a payout comparable with Southwest and Delta on a yield basis.

Future initiatives
United Continental has noted its intention to begin a dividend by 2015 even as the carrier continues an aggressive fleet modernization strategy. Further speculation exists that American Airlines Group could begin some sort of "shareholder friendly initiative" in the near future, as reports note tht the airline is sitting on more than $10 billion in cash.

The right time for initiatives
Major airlines managed to handle the 2008 recession rather well with no bankruptcies, except for the bankruptcy of AMR, parent company of American Airlines, where shareholders ended up better off than before the bankruptcy. Furthermore, thanks to a wave of consolidation and reorganizations that have resulted in more cost-effective labor structures, airlines are posting strong profits, with most analysts expecting even larger profits for 2014.

But it would be unreasonable to assume that all airline risks have just disappeared and to adopt a "this time is different" approach to airlines. The airline industry has a number of factors that inject above-average levels of risk into the business. Factors including exposure to oil prices, cyclical effects, high capital costs, and vulnerability to world events such as a health pandemic or terrorist attack, mean airlines must still be prepared for a rainy day. Because of this, there's a need for a sensible balance between "shareholder friendly" initiatives and preserving the health of the airline.

I see Southwest, Delta, and Alaska as the most qualified airlines to launch such initiatives at this point. Southwest has a decades-long history of consistent profitability (something extremely difficult to achieve in this industry), Delta has committed to reducing costs and has undergone major debt reduction, and Alaska has been able to remain relatively stable in this rather turbulent industry.

United Continental has been in a situation of expecting big earnings growth for next year for a couple of years now. A turbulent merger has been much to blame, but there is a bright spot in that the final touches are being placed on the merger, and we will soon see just how well an integrated United Continental can operate.

Before United Continental begins paying a dividend, I'd like to see some of these big expected profits come to fruition. But if the airline can live up to expectations, a modest dividend on par with other major carriers should be considered reasonable.

American Airlines Group has an interesting situation, where a large pile of cash sits on its balance sheet as it prepares to integrate American Airlines with US Airways. As integration risks still loom here, coupled with the airline's massive fleet modernization plans, I see American waiting longer before initiating a dividend.

But American could opt for share buybacks. Indeed, it already has, noting in its Q4 2013 results that it has repurchased approximately 14 million shares for more than $300 million in cash. At this time, I like a modest share buyback program from American for three main reasons: (1) shares trade at the lowest forward price-to-earnings ratio among major airlines, (2) buybacks from American Airlines Group helps to balance out the selling pressure from AMR creditors that saw their AMR bonds converted to common stock, and (3) a share buyback can be turned off if the airline has more trouble than expected with the merger integration.

The bottom line
Airlines have regained their footing and are posting strong profits once again. Although the industry's future does look bright, airlines shouldn't ignore the risks inherent in their industry. If industry trends continue, we could see United Continental join the dividend club, possibly followed by American Airlines Group.

While airlines are paying dividends, you shouldn't expect them to become high-yielding stocks, as the business model requires a large cushion of cash and significant reinvestment. As investors, we must remember to look at the fundamentals of a company and determine whether "shareholder friendly" initiatives really are good for shareholders.

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

After the stock market's worst month in nearly two years, February began even more forebodingly, as last week's jitters and a disappointing manufacturing report combined to send stocks tumbling today. All three major indexes finished down at least 2%, the second time in seven sessions that's happened. The Dow Jones Industrial Average lost 326 points, or 2.1%.

What helped spark today's sell-off was a weaker-than-expected manufacturing report from the Institute of Supply Management, which said manufacturing activity barely expanded last month, with a rating 51.3, down from 56.5 in December and worse than expectations of 56.0. It was the lowest reading in the past eight months, and new orders declined the most in 33 years. The ISM Index is one of the most widely watched manufacturing gauges, and investors were dismayed as concerns were already swirling about weak factory reports from China, emerging-market currency woes, and the Federal Reserve's stimulus taper. As many companies have said, the ISM report blamed part of the slowdown on bad weather, and carmakers also said January sales were poor as Americans stayed indoors and away from dealerships.

After hours today, Yum! Brands shares were heating up as the KFC-parent gained 4% after reporting fourth-quarter earnings. Per-share earnings fell from $0.72 a year ago to $0.70, though adjusted earnings came in at $0.86, beating estimates of $0.80. Many analysts had been concerned about the effects of bird flu in China, Yum!'s primary market, so investors were pleased that sales in China fell only 4% in the quarter. Yum! also stuck with its full-year forecast, further reassuring the market that the bird flu that sent a scare through China in 2013 won't affect sales, saying it expects EPS to grow 20%.

AT&T shares, meanwhile, were getting banged up, falling 4% as Ma Bell continued to feel the heat from a T-Mobile promotion, particularly aimed at luring AT&T subscribers by offering to buy out contracts. AT&T responded, saying it will end its own offer to do the same but will cut its fee on high-data plans. The move seemed to be a sign of the price wars to come in the uber-competitive telecom industry, as Verizon shares fell 3%. AT&T's decision also shows that it may lack a compelling value proposition to keep subscribers from fleeing to the smaller T-Mobile.

Google  wants out. Of wireless hardware. The Internet giant will sell most of its mobile hardware manufacturing arm, the former Motorola Mobility, to Chinese company Lenovo  for much less than what it paid for it.

How will the deal affect investors?

1. Google might see an upside as the drag of poor mobile-hardware sales eases and it can focus on software, making money from selling mobile ads and other ventures. 
2. The world's No. 1 supplier of phones, Samsung, might have to deal with better products from an invigorated Motorola unit, which could eat into its leading market position.  
3. The No. 2 maker of smartphones, Apple , probably won't be affected by the deal unless Motorola starts competing in the high-end of the market where the Cupertino, Calif.-based company shines, Lenovo starts cutting into Apple's already-declining overall market share, or some other innovation arises. 

Google this
The move to divest an underperforming business by Google is probably a smart one. Motorola's share of the smartphone market has deteriorated to about 1%, and the business was losing money. The company recognizes that it needs to branch out from its cash-cow business, desktop web search, as growth there could slow down someday. However, it won't be in wireless hardware.

The company will instead focus on such things as generating more revenue from mobile ads, cloud computing, driverless cars and robots, smart-home and auto gadgets, and wearables. One or more of these ventures would probably pan out for the company down the road. Google has some room left to run.

Is Apple finished?
While Apple may not be affected that much by the Motorola deal, it does have a few worries. The company just announced record iPhone unit shipments of 51 million for the October-December period. However, analysts expected 55 million, and that along with reduced revenue guidance for the current quarter drove down the stock price.

The company probably needs to ensure that it can grow in developing countries, like China, and release a new product to buffer the "downtimes" when iPhone sales come in lower than expected.

Rumors abound that a smartwatch, Internet-based TV, and a mobile-payment system are imminent. Even die-hard Apple bulls recognize this must happen soon or more investors will run away.

The next few months could be make-or-break time in Cupertino, Calif. Investors need to keep on top of things. 

No. 3 with a bullet
In 2005 Lenovo scooped up the consumer-PC business of International Business Machines, and the deal propelled the Chinese company to the No. 1 spot in the industry. However, with the PC industry slowing down, Lenovo probably needed to act.

The combined Lenovo/Motorola handset business will be No. 3 in the market. The Chinese company would like to duplicate the success of its PC business after the IBM deal and leapfrog both Samsung and Apple in the rankings. It could take a fairly long time to pull that off. Samsung and Apple investors shouldn't panic yet, and Lenovo shareholders would need to be patient.

Foolish conclusion
The proposed Motorola deal could be a win-win situation for both Lenovo and Google over the long term. Lenovo gets a company which can help it charge ahead in the smartphone market and balance potential impacts due to the general decline of the PC industry. Google sheds a less-than-stellar performer in its portfolio, freeing it up to pursue more profitable ventures.

Samsung needs to pay attention to the suddenly bigger Lenovo mobile business, although it could be several years before an impact would be felt. Apple has more immediate worries, including finding a new product line to help it get through the "lean" times when iPhone sales do not meet expectations and grow in developing markets like China.

If you've never tried a pair of Google Glass, it's probably hard to understand what all the fuss is about. Heck, even if you have tried Google Glass, it can be tough to figure out. At this early stage of development, the product is just an interesting mini-computer worn as eyewear, with very limited applications.

The future, however, is so bright you'll have to wear shades on those things. The real promise lies in the imagination of third-party app developers.

Kyle Samani and Patrick Kolencherry founded Pristine and developed two applications for Glass. Pristine Eyesight streams real-time audio and video to authorized devices, allowing doctors and other professionals to show others exactly what they're seeing -- whether in surgery or in the field. Pristine CheckLists allows health professionals to launch life-saving checklists with a simple voice command. These two apps are the only HIPAA-compliant, hands-free, voice-controlled video streaming and checklist solutions available.

The Fool's Max Macaluso and Rex Moore caught up with Kyle at the recent mHealth Summit near Washington, D.C. In this video, Kyle explains the vast promise in this sector.

A full transcript follows the video.

Max Macaluso: Kyle Samani, CEO of Pristine, can you tell us first of all what Google Glass is?

Kyle Samani: Sure. In the most simplistic terms, Google Glass is a computer. To provide a frame of reference, your laptop is a computer on your desk, your iPhone is a computer in your pocket, and now Google Glass is just a computer on your face.

It has all the same basic components as any computer -- RAM, CPU, storage, battery, Wi-Fi -- all those things, and it runs an operating system like your phone does. It runs Android so you can program it to, theoretically, do anything. It's really just a computer.

There are some creepy factors associated with just the form factor, and the fact that there's a camera facing you, all the time. But once you get used to those, or get comfortable with those, you realize that it is no different, fundamentally, than your laptop or your smartphone.

Macaluso: When you first saw this new technology, what made you think of the health-care sector?

Samani: I come from a health/IT background. I spent the last three years in the health/IT world, working at an EMR company out of Austin, Texas, called VersaSuite. They build EMRs for rural hospitals. I got a broad range of experience there, in engineering, sales, and product management.

I saw that Google announced the Glass beta earlier this year and I thought to myself, "We're already using computers as laptops, and we're already using smartphones. This is a hands-free computer, and medical people are always doing stuff with their hands. It just makes sense that they're going to have a hands-free computer."

Pretty much from the moment Google announced the Glass beta, I started looking for the right opportunities and places to go and get into. I quit my job, got my co-founder, and raised some money, and we're on our way.

The most important thing that investors should note about leading mobile chipmaker Qualcomm is the company's uncanny ability to correctly anticipate how things are going to turn out in the mobile-devices space. This is a company that was quick to change gears when it started to bear the brunt of the slowdown in profits due to the dwindling number of customers for high-end smartphones in developed markets.

On one hand, Qualcomm started to focus more on emerging markets such as China and on making low-end chipsets for less costly handsets preferred by customers in these regions. And on the other, it also curbed operating expenses in order to maintain profitability. The results played out as expected during Qualcomm's recent first-quarter performance. While the company's revenue at $6.6 billion fell slightly short of Street expectations, thanks to a lower profit margin from sales of its high-end chipsets, its EPS $1.26 per share managed to stay ahead of analyst estimates of $1.18 per share.

In fact, Qualcomm's newly found confidence in emerging markets was enough to boost management to raise the profit guidance for the entire year, which in turn bumped up the stock price by around 3%. But then, is Qualcomm's current level of confidence truly justified?

Why China in the first place?
One of the crucial deciding factors for Qualcomm to focus on China was the government's decision to award licenses to wireless providers for the launch of 4G LTE mobile-network operations. Out of these, Qualcomm zeroed in on China Mobile -- the nation's and also the planet's largest wireless provider, with around 763 million subscribers -- due to a number of reasons.

Qualcomm derives its sales and profits in two distinct ways. While one of them centers on sales of its smartphone chips, the other is based on royalty fees derived from smartphone makers and providers that use the CDMA mobile-networking standard that Qualcomm pioneered. However, with China Mobile's 3G network standard running on an indigenously developed TD-SCDMA platform, most of the handset makers that use the former's 3G network avoid paying royalty fees to Qualcomm.

Given that the company's growth is slowing elsewhere, Qualcomm's urgent need to tag onto China Mobile's 4G initiative hence becomes all the more apparent. On the other hand, a large percentage of China's mobile-phone users still possess basic-feature phones and are fast upgrading to the smartphone variety, translating into a goldmine of opportunity for companies like Qualcomm.

Geared up for challenges
Qualcomm is certainly well-equipped for China's expected LTE boom, given that it accounts for almost 97% of global LTE market revenue and has been making LTE-enabled chips for nearly two years now. That has also enabled it to widen the gap with fellow competitor Intel , which is still fumbling to gain a foothold in the mobile-devices arena. With less than 1% share of the global smartphone chip market, Intel now also has to contend with the problem of idle production capacity.

On the other hand, despite being a late entrant, Qualcomm's smaller industry peer Broadcom also seems to be benefiting from the global LTE upgrades, having reported estimate-beating sales and profits during its recent fourth quarter.

All the right moves
Qualcomm's dedicated efforts to focus on the Chinese market indeed seem to be part of a well-directed strategy. Two of China's leading phone makers, Huawei and Lenovo, recently delivered stellar quarterly performances. While Huawei recorded a whopping 57% increase in phone shipments during its fourth quarter, Lenovo's handset unit sales went up by a substantial 47% over those of the year-ago period. Incidentally, Huawei and Lenovo happen to be the world's third and fourth biggest smartphone manufacturers, respectively .

Points to ponder
Despite its huge potential, China may prove to be a tough nut to crack for Qualcomm that is already at the forefront of a recent antitrust investigation by the region's government. The company is also likely to face stiff competition from local chipmakers such as MediaTek, whose rock-bottom prices may be hard to match.

Some Foolish parting thoughts
Having said that, the single-biggest factor that should work in favor of Qualcomm in China is its dominance in the LTE arena. The company's efforts in that region should pay off handsomely in terms of volume sales and licensing revenue sometime later this year, as providers upgrade their LTE networks and usage patterns start to grow.

Many Chinese phone makers have global ambitions as well, as evidenced by Lenovo's recent decision to acquire the Motorola Mobility handset division from Google, which again translates into important opportunities for chipmakers like Qualcomm. And with Japan's NTT DoCoMo recently tying up with Apple to offer iPhones on its network, it seems Qualcomm can still reap some gains from developed markets. This is certainly the time to help yourself to a large portion of this stock, and then sit back and enjoy the benefits a couple of quarters later.

Arch Coal will release its quarterly report on Tuesday, and investors are bracing themselves for another scary earnings report from the coal producer. Even though fellow coal producers Peabody Energy and Alpha Natural Resources are also having to deal with ongoing weak coal prices, Arch in particular has some operational challenges unique to its particular mining properties that could weigh even more heavily on its earnings.

Coal companies in general have performed badly in recent years, as cheap new supplies of natural gas have encouraged coal's heaviest users to shift their energy consumption to the cleaner-burning fuel. As a result, Peabody, Alpha Natural, and Arch have all had to look toward alternative sources of demand for their products. Yet most investors still foresee ongoing losses for Arch Coal unless the market for coal around the world finally recovers more sharply. Let's take an early look at what's been happening with Arch Coal over the past quarter and what we're likely to see in its report.

Stats on Arch Coal

Source: Yahoo! Finance.

What will happen to Arch Coal earnings this quarter?
In recent months, analysts have gotten even more pessimistic in their assessment of Arch Coal earnings prospects. They've widened their loss projections for the fourth quarter by $0.04 per share, and they now expect $0.20 per share more in losses for the full 2014 year. The stock has reflected those concerns, falling another 1% since late October.

We've already gotten a sense of what Arch Coal's fourth quarter will look like, as the company gave a preliminary warning about its coming results. Arch said that its metallurgical coal sales for the year came in below the lowest end of its expected range. Moreover, the company pointed to challenges at its Mountain Laurel facility that resulted in a 40% drop in production due to factors related to the geology of the mine, and it also cited difficulties in obtaining rail service at its Powder River mines as weighing on its ability to ship coal.

Photo credit: Flickr/Alison Christine.

Ongoing weakness in coal prices is the main culprit for Arch Coal. In its third quarter, Arch did a great job of cutting its operating costs by almost 12% to just $19.37 per ton. Yet average sales prices fell even further, with discouraging volumes in both thermal and metallurgical coal shipments. Even as the company follows the lead of Alpha Natural Resources and Walter Energy in trying to shift more of its production toward higher-priced met-coal, Arch Coal will still get about 95% of its production volume from the thermal side of the business.

Even stronger players in the industry are having trouble producing good results. Peabody Energy has historically been more profitable than Arch and most of their coal peers, but last week, Peabody reported adjusted results that roughly broke even, suffering the same problems from plunging coal prices despite its strategically located reserves in areas like the western U.S. and Australia.

The big question for Arch is whether it can take advantage of rising overseas demand for coal. China and India have seen huge increases in coal use recently, with China having set an import record last month. Yet until other coal producers become unable or unwilling to keep operating in the industry, price increases could be long in coming.

In the Arch Coal earnings report, watch closely for signs of how long the company can sustain losses of this magnitude. Without a turnaround and continued cost-cutting measures, Arch Coal will likely continue to see its stock price remain under pressure for the foreseeable future.

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

Genworth Financial will release its quarterly report on Tuesday, and investors are expecting earnings at the insurance company to fall slightly from year-ago levels. Yet even as the insurer has seen its mortgage-insurance division boost its results in the same way that Radian Group and MGIC Investment have come back from the brink of failure, Genworth still needs to handle AIG and other big competitors that have the capacity to play a big role in all of the markets Genworth aims to serve.

Genworth's strategy in recent years closely mimics AIG's, in that both companies have sought to get out of money-losing or less profitable businesses while seeking out those insurance lines that have the most profit potential going forward. In Genworth's case, the mortgage insurance industry has rebounded sharply thanks to rising home prices. But as interest rates rose, some worry that the housing market's best days are ending. Let's take an early look at what's been happening with Genworth Financial over the past quarter and what we're likely to see in its report.

Source: Flickr, courtesy Andrew Bain.

Stats on Genworth Financial

Source: Yahoo! Finance.

Can Genworth earnings finally impress investors this quarter?
Analysts have gotten just a bit more optimistic about Genworth earnings in recent months, adding a penny per share to their fourth-quarter estimates. But the stock has failed to make any progress, falling 2% since late October.

Genworth's third-quarter results showed the extent to which investors have built in high expectations for the insurance company's profits. Net income more than tripled from year-ago levels, with strength coming both from the company's global mortgage-insurance unit as well as from its life-insurance division. Yet with total revenue down 6%, the stock actually fell after its earnings report, as investors who had bid up shares throughout much of 2013 had wanted to see even more growth.

Investors face an interesting conundrum with Genworth right now. Even though the stock has performed so strongly over the past year, it still trades at just about half of its book value. That discount reflects the ongoing turnaround that Genworth is going through, and given that AIG also trades at a substantial book-value discount, investors' concerns aren't limited just to Genworth in particular.

Yet Genworth knows it could take a lot longer for it to recover fully. In terms of long-term returns on equity, the company has said that it's only in the early stages of realizing all of its future potential. Moreover, Genworth hasn't yet reinstated its buyback, as it and its peers Radian, MGIC, and AIG all seek to build up their capital reserves to more stable levels before rewarding patient shareholders with payouts.

Still, Genworth is working hard to introduce attractive new products. Last month, Genworth introduced an index universal life insurance product that offers a benefit-rider for long-term care services. By offering innovative protection in various forms, Genworth hopes to gain a competitive advantage over AIG while also broadening its diversification to give it exposure to more than just the mortgage-insurance area that MGIC and Radian have seen recover so well.

In the Genworth earnings report, watch to see whether the company can finally do better than investors think it will. After a couple of less-than-perfect earnings reports, more solid growth could finally get Genworth moving forward more forcefully in 2014.

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

Merck will release its quarterly report on Wednesday, and investors expect to see mixed results from the pharmaceutical giant, as profits could rise even as sales decline. That's a similar pattern to what we've seen from Pfizer , Teva Pharmaceutical , and other pharmaceutical companies, but Merck faces the longer-term challenge of getting both revenue and profits to hit bottom and start growing at a more consistent pace in the future.

Merck remains a colossus in the health-care industry, even as Pfizer, AbbVie , and some other competitors have made moves to slim down their extensive operations and instead focus on key growth areas. Yet even though it has been slower than its rivals to consider major corporate moves, Merck nevertheless has a lot of potential to make strategic shifts that could unlock the value of some of its business divisions. Let's take an early look at what's been happening with Merck over the past quarter and what we're likely to see in its report.

Source: Wikimedia Commons.

Stats on Merck

Source: Yahoo! Finance.

Which way are Merck earnings headed this quarter?
In recent months, analysts have been a bit less upbeat about Merck earnings prospects, keeping fourth-quarter estimates stable but cutting about 1% from their projections for the full 2014 year. The stock hasn't held back, though, climbing 15% since late October.

Merck's third-quarter earnings told a story that investors in Pfizer and many other branded-pharmaceutical companies can understand all too well. Even though its adjusted net income beat expectations, Merck's sales fell short of what investors wanted to see, as the loss of patent protection on asthma treatment Singulair and weak sales of its diabetes drug Januvia weighed on its overall results. A reduction in GAAP earnings guidance and continuing expectations for a year-over-year revenue drop of about 5% to 6% between 2012 and 2013 weighed on the stock.

Moreover, a big part of Merck's trouble is that just about all of its business segments have been performing poorly. Pharmaceuticals make up about 86% of Merck's total sales, but during the third quarter, revenue fell at its consumer-care and animal-health segments, as well as for its catch-all "other revenues" category. Problems in maintaining focus are a big part of why Pfizer, AbbVie, and other companies have joined the trend toward breaking up big health-care conglomerates rather than trying to maintain a firm grip on a sprawling set of businesses under one roof.

Still, drug development is a key driver of overall results for Merck, and the bulk of Merck's share-price gains over the past quarter came in mid-January, when the drug company said that it began its FDA submission process for its MK-3475 melanoma and cancer therapy. With expectations of completing the application by mid-2014, Merck hopes that the drug will live up to huge potential, with many analysts looking for MK-3475 to treat not only melanoma but also other types of cancer and hit peak sales levels of $3 billion or more. That would go a long way toward replacing lost revenue from Singulair and other patent-cliff losses.

Merck is also working hard to find strategic alliances. The company said just this week that it would invest $2.3 billion in Belgium's Ablynx, a biotech company that could help Merck develop its cancer-fighting pipeline even more quickly. Perhaps more importantly, some believe that Merck might make a deal with Novartis to swap Merck's over-the-counter consumer products business for Novartis' animal-health line. That at least would make Merck a bigger player in animal health while divesting itself of one minor business, even if it wouldn't represent a full solution that Pfizer's and AbbVie's complete spinoffs addressed more efficiently.

In the Merck earnings report, watch for two things: the latest on its drug pipeline, and any news on the corporate restructuring front. Having held out for so long, a decision from Merck to make a major shift in structure could make the stock soar if investors like what they see.

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

On a day when it seemed like just about every stock on the planet was "in the red," and lost money, TASER International was the exception.

News that TASER has gotten its stock included into the S&P 600 SmallCap Index sent TASER shares flying in early trading Monday. Although TASER stock wasn't completely immune to a broad market sell-off, and ended the day with only a 5.2% gain, the stock was up nearly twice that amount at one point.

But is TASER really worth the nearly $17 a share that Wall Street now charges for it?

Well, no. But it's awfully close.

Valuation matters
On the surface, TASER shares seem steeply valued at 52 times earnings. Even if analysts are right about the company's ability to grow earnings at 30% annually, every year, for the next five years, that looks like a pretty rich valuation. But looks can be deceiving.

TASER, you see, may report GAAP financials showing that it earned only $16.7 million over the past year. But the company's cash flow statement shows that TASER generated real cash profits nearly 50% higher -- $24.7 million.

When you factor in the company's cash-rich balance sheet, which shows TASER sitting on $44 million in cash, with no debt to speak of, TASER winds up with an enterprise value-to-free cash flow ratio of just 32. That's almost cheap enough to be worth buying, given the company's 30% growth rate.

The business matters, too
The big question, of course, is whether TASER can grow at 30%. After all, TASER grew at "only" 25% over the past five years. As a general rule, companies tend to slow as they age -- not speed up. So expecting TASER to grow faster over its next five years than it did over its last five, requires quite a leap of faith.

Yet it's a justifiable leap. Over just the past few months, this company's business model has changed significantly, and it's done so for the better.

Recently, TASER introduced a new product called the AXON on-body camera. CEO Rick Smith thinks that AXON cameras, paired with TASER's EVIDENCE.com video evidence storage service, "will become standard equipment [with police forces] within the next 5-10 years." Already, Smith says TASER is "approaching a tipping point where the deployment of both body-worn video [is] moving beyond early adopters into the mainstream of policing."

Going forward, therefore, TASER will rely less and less selling new $1,000 stunguns to grow its business, and more and more on its AXON/EVIDENCE products -- which cost only $300 to $500 apiece to start, then generate $10 per month in recurring revenues for the company, for as long as a constable keeps using the product. Extrapolating that out, EVIDENCE revenues should equal or exceed the value of an entirely new camera every four years -- automatically (and with the added benefit of not having to build and sell a camera to win the revenues).

That's a very nice way to grow a business, and the single best reason I know of, for believing that TASER can achieve 30% growth.