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3 Reasons Why Famous Dave's May Break Out in 2014 and Beyond

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Famous Dave's

As you've seen with Chipotle Mexican Grill and Buffalo Wild Wings , when a public restaurant chain gets into rapid-growth mode the Street tends to take notice. Despite the name, not a lot of investors are familiar with Famous Dave's , but if it meets its three expectations for this year and the next that may change in a big way.

Chipotle Mexican Grill and Buffalo Wild Wings have both been huge home runs for investors, rising 800% and 400% respectively over the last five years. This is because these companies kept their costs low, expanded their same-store sales rapidly, and aggressively increased their location counts. Chipotle Mexican Grill and Buffalo Wild Wings have been darlings of Wall Street even among investors who don't normally invest in restaurant stocks. Could Famous Dave's be the next Chipotle Mexican Grill or Buffalo Wild Wings?


The Famous report
On Feb. 12, Famous Dave's reported fiscal fourth-quarter results. Revenue slipped 1.7% to $35.7 million. Same-store sales fell by 2.6%, but this was an improvement over the 6% drop last year. However, that's not what caused the excitement.

More important than sales was that net income exploded up 153% to $1.9 million or $0.25 per share. This was due mostly to Famous Dave's efforts to cut food and beverage costs along with overall operating expenses. This has paid off. The company has been slow to add new locations, as it has a total of 194 now and plans to open just six more in 2014.

Where it starts to really get good
Aside from the soaring net income even in the off-season (Famous Dave's is more of a spring and summer restaurant chain), Famous Dave's took on a new CEO, Ed Rensi, who himself is "famous" for turning McDonald's into a powerhouse in the 1990s.

That all got further clarified during the conference call. Rensi was described as somebody who Famous Dave's "expects great things out of" in "a very short period" and the call showed that he is already on his way toward doing this. As such, Famous Dave's gave no guidance due to the rapid potential changes which have come as a result of Rensi. It almost sounds like he has the Midas touch.

Ed Rensi

Rensi was brought on as an "interim CEO" which left a question mark as to whether the famed executive is only making a brief pit stop at Famous Dave's. The original press release described him as coming on board "for the foreseeable future" to "unleash the potential" of the brand. This implied that he was going to be around for the long term and he was eyeing aggressive expansion and same-store sales growth.

When pushed for answers during the Q&A session, Chairman Dean Riesen said, "We will begin a search, but we are under no pressure since we have such a talented leader with Ed." It sounds like Rensi is here to stay. Don't be surprised if the "interim" is dropped from his title soon.

It's not just Ed. Two more reasons:
The costs for the business have come down and it appears that they will stay down. You saw it with the slippage in sales while net income skyrocketed. This is because in the restaurant business when a company is able to shave its costs, often each dollar it saves finds its way to the bottom line.

Costs had been unusually high for Famous Dave's. CFO Diana Garvis Purcel pointed out that new contracts have been already executed on much of the company's food for 2014. He expects 5.5% food deflation for the year. This extra cost savings should likewise flow right to the bottom line.

Finally, there's a new menu launch coming in April. While it's always a risky venture to change a menu for a restaurant, with Rensi's guidance this venture has an excellent chance of success. When new menus hit restaurants, they can sometimes be game-changers.

Famous Dave's had already tacked on a 2.5% menu increase in the fourth quarter. As long as the new menu can at least maintain current traffic and order levels, that extra 2.5% should fall to the company's bottom line just like the cost savings did.

Foolish final thoughts
New leadership, a new menu, new pricing, and lower costs could be the perfect storm to set up a successful 2014. With a market cap under $200 million, Famous Dave's share price does not price in much long-term success. If Rensi is successful this year, look for a much more aggressive expansion plan, which he is famous for executing. With only an average of four Famous Dave's in each U.S. state, it's hard not to imagine that there isn't a plethora of opportunities to turn this small chain into a much larger company.

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The article 3 Reasons Why Famous Dave's May Break Out in 2014 and Beyond originally appeared on Fool.com.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. 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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Is Silver Wheaton Corp Still a Buy?

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Silver Wheaton has benefited from the recent recovery of silver prices as shares of the company have rallied by more than 26% year to date. Until the company releases its fourth quarter earnings report and 2014 guidance at the end of March, let's examine what Silver Wheaton's investors should expect from the company in 2014. Let's also compare its current valuation to other precious metals streaming and royalty companies such as Franco-Nevada and Royal Gold

Silver and Silver Wheaton
The correlation between Silver Wheaton and the price of silver is very strong and positive; thus, investors who wish to take a position in silver could also consider Silver Wheaton. The chart below shows the progress of the normalized price of silver and Silver Wheaton's stock in the past couple of months. Prices are normalized to the end of December 2013. 


Source: Bloomberg and Google finance

Higher production in 2014
The company has yet to release its guidance for 2014, but due to its decisions in 2013, the company's production is likely to rise again this year. Specifically, Silver Wheaton acquired the Salobo mine in Brazil and the Sudbury mine in Canada at the beginning of February 2013. This year, unlike last year, they will produce for Silver Wheaton for a full year. Silver Wheaton's management also believes these mines have the potential to increase their yield in the coming years. 

The company also purchased from Hudbay Minerals 50% of the life of a gold producing mine from the Constancia Project at the beginning of November 2013. These purchases will increase Silver Wheaton's gold production and thus may improve its precious metals mix. 

Silver Wheaton and other precious metals companies
Silver Wheaton, Royal Gold, and Franco-Nevada have similar businesses -- they purchase the rights to the output of precious metals mines and receive the metals at a relatively low and fixed rate -- and the level of risk they bear doesn't vary too much. The main difference they have is their precious metals mix. Silver Wheaton's revenue heavily relies on silver, while Royal Gold and Franco-Nevada sell mostly gold.

This difference also has an effect on profitability. For example, in 2013 Silver Wheaton's operating profit margin was 56%, Royal Gold's was 50%, and Franco-Nevada's was 48%. These differences in margins are mostly because silver tends to be more profitable than gold for streaming companies, which could translate to higher dividends for investors in silver producers. 

Comparing Silver Wheaton to Silver ETF
Silver Wheaton might be a better investment opportunity not only compared to other precious metals streaming companies but also compared to silver ETFs. Investors who seek to invest in silver might consider a silver ETF such as iShares Silver Trust . But Silver Wheaton has more to offer in return than a silver ETF has, and the risk isn't much higher: 

  • Silver Wheaton pays a quarterly dividend based on the company's performance in recent quarters, while the only return investors of iShares Silver Trust have is the appreciation of the trust;
  • The company is capable of increasing its production, which is another factor that could improve its valuation; 
  • Investors of iShares Silver Trust have to pay a fee of 0.5%, which only reduces the return on the investment. 

Therefore, investors who seek to add silver to their portfolio might be better off considering Silver Wheaton rather than silver ETFs such as iShares Silver Trust. 

Final note
The silver rally has helped pull up shares of Silver Wheaton, and the company has higher operating profit compared to other precious metals royalty and streaming companies. On top of this, Silver Wheaton's potential rise in production in 2014 is likely to further contribute to improving its valuation. 

Good stock, or great 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 Is Silver Wheaton Corp Still a Buy? originally appeared on Fool.com.

Lior Cohen 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.

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

 

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Nokia's X Android Series Fails to Address These 3 Big Problems

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In a humbling move, Nokia recently announced its first ever lineup of Google Android phones, known as the X series.

It's also a surprising move, considering that Nokia has intentionally avoided Android every step of the way -- former CEO Olli-Pekka Kallasvuo stubbornly stuck with Symbian, and his successor Stephen Elop struck a deal with Microsoft to produce Windows Phones instead of Android ones.


Nokia X, the company's first Android phone. (Source: Nokia)

The global market share for Windows Phones rose from 0.9% in 2012 to 3.6% in 2013, but that tiny sliver is still dwarfed by Android's and Apple iOS' respective 81% and 12.9% shares of the market, according to IDC.

Last September, Microsoft acquired Nokia's handset unit -- which produces more than 90% of the Windows Phones in the world -- for $7.2 billion. At the time, many industry watchers believed that the acquisition was aimed at blocking Nokia's production of an Android phone, which makes Nokia's recent decision to produce one even more puzzling.

However, the X series is only a half-step toward Android, since it runs a forked version of Android, which blocks the Google Play Store. In addition, Nokia believes that this forked version of Android, which cosmetically resembles Windows Phone, will boost sales of its Windows Phone devices.

The X series will be positioned between its entry-level Asha, which is popular in developing nations like India, and its higher-end Lumia series -- a strategy that Nokia hopes will defend its lower-end market against Android devices.

In my opinion, Nokia's X experiment is built on some very shaky assumptions about the market. Here are the three huge problems that I feel Nokia overlooked.

1. Forking Android only works when there's exclusive content
The most well-known example of "forked" Android can be found on Amazon's Kindle Fire tablets. This means that although the Kindle Fire runs on Android, Amazon replaced the Google Play Store with its own digital storefront and removed all Google-related apps.

Google Play apps (which have an .apk extension) can still be downloaded from the Internet or another Android device, then subsequently loaded into the Kindle's internal memory and installed in a process known as "side loading." However, sideloading apps into a forked Android system is cumbersome compared to the single-touch installation that can be performed on regular Android devices with unrestricted Google Play access.

Amazon's Kindle Fire HD. (Source: Amazon)

Amazon, however, already had a built-in user base of customers who purchased previous black-and-white Kindles as a e-readers. With its first-generation Kindle Fire, released in November 2011, Amazon added streaming video content as well. Amazon's massive library of e-books and video content offset its initial lack of forked Android apps.

Today, Kindle Fire tablets still control a 7.6% market share in tablets globally with 5.8 million units shipped last quarter, according to IDC. While 7.6% doesn't seem significant compared to Apple's 33.8% market share, it's big enough to convince developers to release apps for Amazon's App Store. It's also easy to port Android apps over to Kindle Fire devices, since they run on the same OS.

In other words, customers forgave Amazon for forking Android on the Kindle Fire for three main reasons -- Amazon offered plenty of exclusive digital content, black-and-white Kindle users didn't care too much about missing apps on the Fire, and it was cheap, with an average price of $130 to $160 (7" versions).

By comparison, Microsoft has a robust library of over 190,000 Windows Phone apps, compared to the 120,000-140,000 for the Kindle, but those apps won't carry over to Nokia X's forked Android store. Microsoft and Nokia also don't have any exclusive media content that justifies forking the system as Amazon did.

Nokia X customers aren't going to be as understanding as Kindle users -- all they'll get is a crippled version of Android, access to far fewer apps than one with Google Play access, dressed up in package that cosmetically resembles a Windows Phone.

2. You're not fooling anyone, Nokia...
That leads us to the second problem -- Nokia and Microsoft's misguided belief that dressing up an Android phone to look like a Windows Phone will boost sales of its Windows Phone devices.

Today, customers who tend to switch smartphones annually tend to read about their purchases, and are well-informed regarding the differences between iOS, Android, and Windows Phone devices. They know that Android devices made by Samsung, HTC, and Sony offer enhanced GUIs (graphical user interfaces), but they are connected to the same shared Google Play universe of over 1 million apps. Apple users know that they can access the same App Store from their iPhones and iPads, although certain apps are specifically designed for tablets.

This is the market that Nokia's X, with its Windows Phone GUI covering up a forked Android machine, is diving head first into. It's a silly, half-hearted effort that will likely remind Android users of various homebrew ROMs such as CyanogenMod, which already allow users to dress up their Android phones to look like Windows Phones or iPhones:

Look familiar? Android phones can already be modified to look like an iPhone (L) and a Windows Phone (R). (Source: Technorms.com)

3. Handing market share to Google on a silver platter
In my opinion, Nokia's strategy will accomplish the opposite of what it intended and actually help boost Android's market share instead. When a customer buys a Nokia X phone, two things will likely happen:

  • The customer loves the GUI, and decides to "upgrade" to a Lumia phone -- only to discover that a lot of their favorite Android apps aren't available on Windows Phone devices.

  • The customer hates the GUI, but likes Android and frequently sideloads apps onto the device. After a while, this becomes cumbersome, so the user decides to "upgrade" to a full Android device instead.

Both outcomes boost Google's market share at the expense of Windows Phone devices.

Nokia can possibly avoid this fate by growing its app store to match Google and Apple's offerings, but it will still be tough to consider the Nokia X as much more than free advertising for Android devices.

The bottom line
In conclusion, Microsoft's lack of exclusive content and the clumsy forked Android approach could doom the Nokia X series. On the other hand, it could experience success in markets like India, where the Asha's streamlined new GUI for Symbian helped Nokia claim 14.7% of the country's mobile phone market.

What do you think, dear readers? Is Nokia X a revolutionary step forward for the company, or will it ultimately embarrass the company? Let me know your thoughts in the comments section below!

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The article Nokia's X Android Series Fails to Address These 3 Big Problems originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, Google, and Microsoft. 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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What Went Wrong at Mt. Gox and What's Next for Bitcoin

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JAPAN-IT-FINANCE-MTGOX-BITCOIN-INVESTIGATION
AFP/Getty Images/Yoshikazu Tsuno
By Joshua Brustein

How Did Mt. Gox Lose Hundreds of Millions of Dollars' Worth of Bitcoins?

Two words: transaction malleability. A hacker can tinker with the code that makes a bitcoin transaction happen, so that it looks like it didn't go through. The person who was supposed to receive a payment then asks again and, in Mt. Gox's case, is paid again automatically. The Tokyo-based Mt. Gox, once the world's largest bitcoin exchange, has acknowledged this. It seems that someone has been slowly bleeding it for months, leaving it without the funds to pay out legitimate withdrawals. But with the company being pretty tight-lipped for now, that's only the best theory.

Was This a Shot From the Blue?

Not quite. Mt. Gox has been having problems for months, and people have been complaining about not being able to get their money out of the system since late last year. The company halted withdrawals altogether in early February, and it went offline this week. So while the number of lost bitcoins is striking, many people have seen the failure of Mt. Gox as imminent for a while.

Who is Affected?

Many people who had bitcoins were relying on Mt. Gox to hold them, and the chances they will get them back at this point don't seem very good. Other bitcoin companies may also be affected. BTC.SX, which allows users to trade derivatives based on the bitcoin market, said Tuesday it couldn't take new orders because of Mt. Gox's problems, although it also said that users' balances were secure and it would continue to honor withdrawals of the virtual currency.

Where Did the Lost Bitcoins Go?

In theory, Mt. Gox could begin to track their path by identifying the fraudulent transactions and searching for the wallets the coins ended up in. But no one is putting much faith in the accounting expertise over there at the moment. In any case, many of the tainted coins have likely moved beyond their initial destinations. If there really has been a slow leak from Mt. Gox for a long time, then the coins could have spread to the ends of the Earth by now. One thing is certain: They are probably all over the place, just based on the sheer number of coins alleged to have been stolen -- they're worth more than $390 million. They'd amount to about 6 percent of the bitcoins in existence.

Is This a Security Problem With Bitcoin Itself?

When Mt. Gox described the issue as a bug in the bitcoin protocol, people didn't appreciate it. The technical issue at the root of Mt. Gox's problem didn't just crop up recently; it seems that Mt. Gox was left vulnerable because it didn't protect itself against the issue.

What's Next?

For Mt. Gox, probably not much. For the rest of the bitcoin world, probably greater scrutiny from regulators, who will want to be confident that this doesn't happen again. And for those who lost their bitcoins, likely a fair dose of cynicism.

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'Arrow' Creators Take Another Big Step in Developing the Franchise

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When Arrow returns from hiatus tonight, fans will not only see the titular character square off against the Clock King. We'll also see the extended team taking practice in the "Arrow Lair," says co-creator Marc Guggenheim in the "producer's preview" below.

Co-creator Marc Guggenheim introduces episode 214, "Time of Death." Sources: The CW/YouTube.


I wasn't exactly pleased to hear that. The "Arrow Lair?" That sounds far too much like history most comics fans would like to forget. Fortunately, Arrow's creators are not only aware of this, but they're also developing the franchise in a manner much different than Walt Disney is pursuing with the superhero-light Marvel's Agents of S.H.I.E.L.D.

A brief history of the metamorphosis of a comic book hero
More on the differences in a minute. First, let's review where we've been, and why the mere mention of the phrase "Arrow Lair" sent my fanboy side into a tizzy.

At one time, DC Comics pitched Green Arrow -- the character upon which Arrow is based -- as a swashbuckler who was like Batman in almost every respect. That character, who first appeared in November 1941 in the pages of "More Fun Comics" #73, went on to:

  • Operate out of an "Arrow Cave."

  • Use an "Arrow-Car" and "Arrow-Plane" to get from place to place.

  • Respond to an "Arrow-Signal" in times of danger.

  • And take a ward, "Speedy," as a partner in crime fighting.

They even shared a similar civilian lifestyle. What billionaire playboy Bruce Wayne was to Gotham City, billionaire playboy Oliver Queen was to Star City. Green Arrow was, in effect, Batman with a bow and arrow -- right up until writer Denny O'Neil and artist Neal Adams changed everything.

Under Denny O'Neil and Neal Adams, Green Arrow went from Batman clone to a formidable defender of the common man, and Green Lantern's nagging conscience. Source: DC Comics.

Adams and O'Neil not only retooled the character's look but also his backstory and attitude. He'd lose his billions in a swindle and go on to become a defender of the poor, battling society's ills as much as crooks. They'd later team him with Green Lantern knowing Oliver's seething thirst for justice would challenge his friend's strict adherence to the law.

In short, the Green Arrow they created -- with notable refinements from the likes of writer-artist Mike Grell in the 1980s and Andy Diggle more recently -- helped form the character Stephen Amell plays on screen. A hero driven by something more than vengeance.

Now, here's the better news ...
Guggenheim and co-creators Andrew Kreisberg and Greg Berlanti know this all too well. In fact, they know the history better than any of us. In creating Arrow, they've taken deliberate steps to set their hero apart from anything else we've seen or read.

Yet I'd say their plan is also bigger than that. The Clock King isn't merely an antagonist. He's Felicity's first real foe as expressed in the Arrow narrative, allowing the creators to further develop Emily Bett Rickards' character as an independent heroine.

Robert Knepper stars as William Tockman, aka The Clock King, in episode 214 of Arrow. Credit: Cate Cameron/The CW.

From what I can tell, it's a similar formula to what we saw in episode 206 ("Keep Your Enemies Closer"), in which David Ramsey's John Diggle is forced to work with arch-nemesis Deadshot. They'll team up again in a forthcoming episode that reveals the team of reluctant villains known as The Suicide Squad. A spinoff wouldn't be out of the question.

Hatching franchises in the 'Arrow Lair' as S.H.I.E.L.D. watches, and waits
We've come to expect as much from the Arrow team. Episodes 208 and 209 brought us Grant Gustin as Barry Allen and a pilot featuring his alter-ego, The Flash, is in development as I write this. No doubt a pleasing series of events for Time Warner and Warner Bros., which need new franchises in order to grow revenue.

Agents of S.H.I.E.L.D. is a different beast. Save for Clark Gregg's Phil Coulson, none of the main characters comes off as an independent hero or heroine capable of birthing an entirely new franchise. J. August Richards' ongoing transformation into the cyborg Deathlok holds some promise, but even that storyline seems destined to be contained inside the world of S.H.I.E.L.D.

Whereas Arrow's protagonists actively shape and change the superhero world in which they operate, S.H.I.E.L.D.'s agents are observers who reflect the Marvel Universe as it unfolds before them. Not necessarily a bad premise, but also infertile ground for spinoffs and special projects.

Now it's your turn to weigh in. How do you rate the current season of Arrow? Do you see the show breathing life into other franchises? Leave a comment in the box below to let us know what you think, and whether you would buy, sell, or short Time Warner stock at current prices.

Don't fail your retirement!
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The article 'Arrow' Creators Take Another Big Step in Developing the Franchise originally appeared on Fool.com.

Tim Beyers is a member of the  Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Time Warner and Walt Disney at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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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Wednesday's Top Upgrades (and Downgrades)

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This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on. Today, our headlines feature an upgrade for LinkedIn and an improved price target for Mazor Robotics . But the news isn't all good. Before we get to those two, let's take a quick look at why one analyst is...

Panning DreamWorks Animation
Shares of cartoonish filmmaker DreamWorks Animation are getting panned by the critics this morning -- and its stock price is getting its hide tanned. All this is in response to Q4 earnings numbers that barely met analyst expectations for profit ($0.33 per share) while missing badly on revenues.

Revenues in Q4 came in at a lowly $204 million, far below the $237 million that analysts were looking for. In response, analysts at Piper Jaffray are standing up and walking out in the middle of the movie, downgrading DreamWorks all the way to "underweight," Wall Streetspeak for sell. Are they right to give up hope?


I think so, yes. And I'll tell you why: Priced at 46 times earnings today, DreamWorks shares are arguably fairly priced after the sell-off -- but only if you believe the analysts who think the stock will grow its profits at the rate of 47% per year every year for the next five years. That's a tough task to try to accomplish, and it seems all the more unlikely to succeed given that over the past five years, DreamWorks has actually shrunk it profits at the rate of about 17% per annum. (Both figures according to S&P Capital IQ data.)

What's more, given that DreamWorks wrapped up 2013 with more than $12 million in negative free cash flow -- its third straight year of burning cash -- I'd say that a turnaround in the business is far from certain. Long story short, there's little original to the plot of this movie. Piper Jaffray is right to walk away.

Praising LinkedIn
A better play, according to analysts from RBC Capital this time, may be professional social networker LinkedIn.

Pointing out that LinkedIn shares have shed 13% of their value over the past six months, and underperformed the S&P 500 by a good 25 points, RBC is suggesting today that it's time for LinkedIn to begin regaining some lost ground. As the analyst explains on StreetInsider.com this morning, "overly aggressive Street estimates" are what did LinkedIn in these past few months, combined with "a heavier than expected investment outlook for '14" and other factors. But RBC notes that analysts have come down on their estimates of late (making expectations easier to exceed). And RBC sees LinkedIn's investments as being aimed at growing the business (expansion capex) as opposed to simply staying in business (maintenance capex) -- so a good thing. "Hence," says RBC, "the Upgrade..."

It seems to be working out well for them, too. While LinkedIn's capital spending more than doubled in size last year, and operating cashflow did a bit less than that, this still worked out to a small increase in free cash flow for the company. LinkedIn brought in $158 million in such cash profits last year -- six times reported GAAP earnings.

Of course, this still leaves the stock selling for a hefty 164 times FCF. That's not as bad as the "970 times earnings" valuation you see on Yahoo! Finance -- but it's still quite a pretty penny. Personally, I think it's too high a price to pay, even given analyst estimates of near-38% annual profits growth at the company. I suspect that while RBC's right about the big picture for LinkedIn's business, it's still wrong about the valuation... and wrong to upgrade the stock.

Amazing Mazor?
And finally, we'll end with a stock I've been meaning to take a look at for some time now: Mazor Robotics. This Israeli manufacturer of medical devices for use in orthopedic and neurosurgery reported its Q4 earnings yesterday -- or, rather, its Q4 losses. The good news, though, was that the $0.04 per share that Mazor lost last quarter was $0.07 better than the $0.11 Wall Street expected it to lose.

This victory of sorts won a pair of price target hikes from two of Mazor's fans this morning, with Ladenburg Thalmann increasing its target to $27.50 and WallachBeth going four bits higher -- $28 a share. But I still don't see any compelling reason to buy the stock.

Problem is, if Mazor lost less money than it was expected to lose last quarter, it still lost quite a bit. Free cash flow ran negative to the tune of $5.3 million, which was more than twice the rate of cash burn seen in 2012. GAAP losses exceeded $20 million -- nearly treble Mazor's loss in 2012.

The analysts may see nothing worrisome in this trend. To me, though, when I see a stock losing more and more money the more stuff it sells (sales were up 64%), that's not a particularly good thing. It's not a good reason to raise price targets -- and it's not a good reason for you to buy Mazor Robotics stock, either.

The article Wednesday's Top Upgrades (and Downgrades) originally appeared on Fool.com.

Rich Smith has no position in any stocks mentioned, and doesn't always agree with this fellow Fools. Case(s) in point: The Motley Fool recommends DreamWorks Animation. It recommends and owns shares of LinkedIn.

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

 

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Clean Energy Fuels Earnings: What to Expect Thursday

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Clean Energy Fuels will release its quarterly report on Thursday, and investors have become increasingly worried about the prospects for the company's network of natural-gas refueling stations. Potential competition from TravelCenters of America and Royal Dutch Shell could give Clean Energy's Natural Gas Highway less of a grip over the industry. But potentially more importantly, the huge gains in natural-gas prices that have showed up in shares of the gas-price-tracking United States Natural Gas ETF raise questions about whether converting to this fuel is worth the cost.

Clean Energy Fuels has long sought to capture the potential from companies looking at cheap and plentiful natural gas as a mainstream commercial fueling source. As diesel prices soared and natural gas prices plummeted, the huge cost savings from the latter fuel made projects like building a nat-gas fueling network look extremely lucrative. Now, Clean Energy Fuels has to establish its superiority even as the economics of conversion are getting a bit less attractive -- at least in the short run. Let's take an early look at what's been happening with Clean Energy Fuels over the past quarter and what we're likely to see in its report.


Source: Clean Energy Fuels.


Stats on Clean Energy Fuels

Analyst EPS Estimate

($0.20)

Year-Ago EPS

($0.23)

Revenue Estimate

$92.59 million

Change From Year-Ago Revenue

(6.5%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

What's next for Clean Energy Fuels earnings?
Analysts have become less enthusiastic about Clean Energy Fuels earnings in recent months, keeping their fourth-quarter estimates steady but widening their loss projection for full-year 2014 by $0.07 per share. The stock has performed badly, falling more than 20% since mid-November.

Clean Energy's third-quarter results showed the extensive changes going on at the company lately. Although overall revenue declined, sales in its core refueling business actually grew, reflecting the company's 2013 sale of its BAF subsidiary to partner Westport Innovations . Even though the high cost of building out the network has weighed on earnings, Clean Energy's overall losses have narrowed, pointing to increased use of existing locations in a 17% jump in gallons sold for the quarter. Strong margins from fuel sales were also helpful, even though the company projected that those margins could drop back down in the fourth quarter.

But Clean Energy isn't just benefiting from its own proprietary network. The company made a deal with UPS to supply natural gas to the transportation giant's private fueling stations in Texas. These type of deals show the potential of Clean Energy's infrastructure know-how for customized applications, as well as in its own network.

Unfortunately, rising natural-gas prices have been bad news for Clean Energy Fuels, Westport Innovations, and other companies seeking to promote natural gas as an alternative to oil-based fuels. With the long winter, nat-gas prices have shot upward, and higher-than-usual drawdowns in inventories could keep prices high for months to come. That in turn will reduce the benefits of commercial fleet conversion, capping growth for Clean Energy's fuel sales.

The biggest hit to Clean Energy Fuels stock came earlier this month, when skeptics challenged the company's emphasis on liquefied natural gas and argued that new compressed-natural-gas technology could prove superior to LNG. Clean Energy Fuels responded by challenging assertions that CNG-based solutions could work efficiently and practically for typical refueling needs. Moreover, with substantial CNG operations of its own, Clean Energy Fuels CEO Andrew Littlefair believes the company can adapt no matter which form of fuel is best for a particular use.

In the Clean Energy Fuels earnings report, watch to see how the company moves forward with some of its more ambitious projects, including early efforts to build LNG terminals so that cargo ships can use the fuel for propulsion. With so many different potential uses for natural gas, Clean Energy Fuels has plenty of avenues for growth as long as the fuel remains economically viable as an alternative to conventional fuels.

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The article Clean Energy Fuels Earnings: What to Expect Thursday originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels, United Parcel Service, and Westport Innovations. The Motley Fool owns shares of Westport Innovations. 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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Acadia Pharmaceuticals: Here's What You Should Know About Its Surging Shares

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If you're caring for someone with Parkinson's disease or Alzheimer's, you should be watching Acadia Pharmaceuticals . Acadia plans to file its novel compound for Parkinson's psychosis, or PDP, later this year, a move which could significantly change how patients are treated.

Last year, the FDA agreed to consider the use of just one late stage study as the basis for approving Acadia's new drug, pimavanserin. That news sparked a rally in Acadia's shares, resulting in Acadia being among last year's best performing biotechs.

ACAD Chart


ACAD data by YCharts

Why is this drug better than anti-psychotics?
Doctors treating PDP are stuck in a tough spot. They can use currently available anti-psychotic medication off-label; however, those medications possess black box warnings against use in elderly patients. Or, they can opt against treating the hallucinations and delusions recognizing the decision may speed patients more quickly into institutional care. Sadly, both choices could have significant impacts on patient morbidity.

Another drawback of using anti-psychotics in PDP patients is that they are designed to block dopamine receptors. However, those receptors are key targets of current Parkinson's treatments like generic Levodopa -- marketed by drugmakers including Mylan -- that boost motor control by manipulating the amount of dopamine in the brain. As a result, prescribing anti-psychotic drugs can effectively reduce Levodopa's benefit. 

Given anti-psychotics' poor profile, some doctors have shifted to prescribing atypical anti-psychotic medication like AstraZeneca's blockbuster Seroquel or Eli Lilly's  former blockbuster drug Zyprexa; however studies haven't demonstrated efficacy for Seroquel or Zyprexa in PDP.  

Importantly, atypical anti-psychotics like Seroquel and Zyprexa may still reduce motor ability; they just do so less than first generation anti-psychotic medication. Additionally,Seroquel and Zyprexa remain contraindicated for use in elderly patients and dementia patients.

That suggests doctors may welcome pimavanserin with open arms. The drug not only lowered the number of psychotic events in trials, but its different mechanism of action showed it didn't interfere with Levodopa either.

Why should Alzheimer's patients care?
The troubles facing doctors treating PDP are similar to the challenges they face treating psychosis in Alzheimer's patients.

Anti-psychotic medication isn't recommended for use in elderly patients prone to the disease, and may increase mortality; however, not prescribing them could mean patients move more quickly into nursing homes.

So, Acadia is advancing pimavanserin through mid stage trials designed to determine whether the drug can successfully reduce psychotic events in Alzheimer's too. If the company's phase 2 trial is a success, it will launch into phase 3, and since the FDA has already indicated a willingness to consider a filing without multiple late stage studies for PDP, the company believes it will take a similarly favorable stance for ADP. That means less money spent on trials, and a quicker path to market.

How big is the need for this treatment?
Both PDP and ADP affect significant populations, without approved medications. Up to 40% of the 1 million Parkinson's patients in the U.S. will develop PDP and as many as half of the 5.4 million Alzheimer's patients may also be diagnosed with ADP during their lifetime.

While it's tough to gauge how much money drug makers are making from off-label scripts for anti-psychotics, it's potentially big given how much money anti-psychotic drugs are bringing in.

Before losing patent protection, Lilly was selling more than $800 million worth of Zyprexa each quarter. Astra sold more than $300 million worth of the extended release version of Seroquel XR in Q4, making it the 46th best selling drug in the U.S.,  and the original formulation of Seroquel was producing more than $1 billion a quarterly sales for Astra prior to losing exclusivity in 2012.

Fool-worthy final thoughts
As baby boomers age, there are likely to be more cases of Parkinson's and Alzheimer's. Currently, more than 50,000 patients are diagnosed with Parkinson's each year, and 11% of those over 65 years old are diagnosed with Alzheimer's.

Since so many of those patients will develop psychosis, and given there aren't any approved treatments for those that do develop it, it appears there may be a significant unmet need. Whether Acadia can tap into that need and produce enough sales to justify its current $2.6 billion market cap remains to be seen; however it isn't beyond possibility that an approval of pimavanserin would make the company attractive to a larger company, particularly to one of the makers of the anti-psychotics it seeks to displace. Regardless, Acadia remains a developing and speculative play.

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The article Acadia Pharmaceuticals: Here's What You Should Know About Its Surging Shares 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 shares in the companies mentioned. Todd also owns Gundalow Advisor's, LLC. 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.

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Why Aegerion Pharmaceuticals Inc. Shares Briefly Tumbled

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

What: Shares of Aegerion Pharmaceuticals , a biopharmaceutical company developing therapies to treat rare and fatal diseases, tumbled briefly by as much as 18% after reporting its fourth quarter earnings results before the opening bell. Shares have since recovered and are down approximately 7% at the time of this writing.

So what: For the quarter, Aegerion delivered $24.5 million in net product sales of Juxtapid, an LDL-cholesterol-reducing treatment for patients with homozygous familial hypercholesterolemia. Aegerion noted that 430 total patients were on the therapy, including 37 outside the U.S., with Juxtapid's U.S. revenue accounting for 87% of total sales. Adjusted net loss shrank considerably to just $0.14 per share from a loss of $0.71 per share in the prior year. By comparison, Aegerion's loss was narrower than Wall Street's estimate by $0.18 per share, but revenue was a smidge light with the consensus at $24.9 million. Looking ahead, Aegerion's forecast of $190 million-$210 million in net product revenue perfectly bracketed the $203.3 million consensus estimate and disappointed shareholders looking for an upside surprise.


Now what: On one hand, it's pretty clear that Juxtapid is still demonstrating solid growth in treating HoFH patients and that Kynamro by Isis Pharmaceuticals and Sanofi is a distant second. Then again, with Aegerion's share price having more than doubled over the past year, I'd expect more than just revenue meeting expectations. At its current valuation, Aegerion is worth about nine times the midpoint of next year's sales forecast and more than 200 times its projected EPS. That still seems like a particularly high price to pay for a limited market potential drug.

Aegerion may have more than doubled over the past year, but it'll likely have a hard time keeping up with this top stock moving forward
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The article Why Aegerion Pharmaceuticals Inc. Shares Briefly Tumbled originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool recommends Isis Pharmaceuticals. 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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Dow Drops Despite Housing's Surprising Jump

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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.

The market has been having having a good week so far, but the major indices have fallen into negative territory in midafternoon trading. The Dow Jones Industrial Average has is down 21 points as of 2:30 p.m. EST, though a fair number of its 30 blue-chip member stocks are still in the green. Strong housing data kicked things off this morning and has propelled shares of Home Depot , higher, adding to the stock's gains after its latest earnings report, while JPMorgan Chase has sunk to near the bottom of the Dow despite announcing a new round of cost-cutting. Let's check in on what you need to know.

Housing firms up the foundation
The housing market has boomed over the past year, but it hit another strong mark today after the government reported that single-family home sales jumped 9.6% in January. The gains outpaced economist average projections and marked the fastest monthly growth in five years, a great result that managed to overcome the bad weather that plagued the nation this winter. While housing prices have continued to rise, dampening some of the optimism around the sector's future prospects, supply has also fallen. Look for supply to open back up if housing demand continues to surge.


That's nothing but good news for Home Depot, whose shares have surged nearly 1% today. The company has already built up a strong week for investors despite reporting yesterday that sales fell in its most recent quarter, a casualty of bad weather and one less week for the quarter compared to last year's same quarter. One thing Home Depot has managed to excel at, however, is dominating the competition: The company has held onto its No. 1 spot in the home retail market with a vise-like grip as of late.

But competition won't give up easily. Today, top Home Depot competitor Lowe's delivered strong earnings of its own. Lowe's sales climbed 5.6% for the quarter, outpacing Home Depot and narrowing the gap between these two fierce rivals while swatting aside concerns over how the weather would affect the company's performance. While Lowe's remains the No. 2 player in this game, the company is gearing up for a strong 2014 in which it projects 5% sales growth. Lowe's stock has jumped 5.3% today, and if the housing market continues to gain steam -- and if Home Depot's forecast of a strong spring season holds true -- look for a great showing from these two close competitors in the coming months.

Meanwhile, JPMorgan's stock has fallen about 0.8% to tumble to the bottom of the Dow today. That comes despite JPMorgan announcing it will slash 8,000 jobs. The bank is slimming down its consumer and community banking operations, as the mortgage business has hurt the financial sector's growth as of late, and JPMorgan forecasts likely increasing interest rates in the future only further scaling back mortgage demand.

However, the company is optimistic about its coming few years. JPMorgan noted that it could see up to $27 billion in net profit in the near future after dealing with pricey legal woes in the recent past and with expectations for better performance from its investment and loans businesses.

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The article Dow Drops Despite Housing's Surprising Jump originally appeared on Fool.com.

Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Home Depot. The Motley Fool owns shares of JPMorgan Chase. 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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The Real Reasons Behind Netflix's Deal with Comcast

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Netflix announced Sunday an agreement to pay Comcast for direct access to the Internet service provider. The news inspired a flurry of headlines questioning the timing of the deal around two hot-button issues: net neutrality and Comcast's purchase of Time Warner Cable . What does the new deal mean for the companies involved?  

Financial details of the deal weren't disclosed, but it does carry a multi-year term that keeps Comcast from hiking the price as Netflix gains more streaming customers. Netflix has a multi-tiered and complicated delivery method for its streaming content, but part of this deal has involved Netflix paying middlemen companies to connect the service to Internet service providers, or ISPs. The Comcast deal would cut out those middlemen. According to the Wall Street Journal, Comcast won't allow Netflix to place its own servers at the cable company. Comcast will instead connect to Netflix's servers at third-party data centers.

Comcast customers will receive improved Netflix streaming. But why was this deal made now? Was it because of the recent net neutrality court decision? Or Comcast's bid for Time Warner Cable? Or did Netflix simply cave to a long-term standoff over direct access?  


Source: Netflix

Improving Netflix's streaming service

Netflix has tried to avoid paying ISPs for direct access and instead used middlemen to make the connection. But the middlemen have had trouble keeping up -- especially during usage surges that come during the release of original Netflix content, such as the new season of House of Cards. Netflix doesn't want to make streaming customers unhappy with slow or unreliable service. Domestic streaming has become the core of Netflix's business, accounting for 63% of total revenues in the fourth quarter.

Comcast's scale means that Netflix is likely paying less for direct access than for the middleman services. And the direct access provides better throughput, which passes on to the consumer as better quality. So Netflix potentially saves money while appearing to save the day.   

Netflix has tried for years to convince the larger ISPs to grant the company free direct access -- as an added incentive for potential subscribers. But that argument fell on deaf ears. So a deal like Comcast's was bound to happen. And even without Time Warner Cable added to the fold, Comcast is the largest Internet and cable provider in the United States with over 19 million high-speed Internet subscribers in the fourth quarter.  Time Warner Cable had about 11 million residential Internet subscribers in the same period.  

But why would Comcast prove eager to make this deal? 

What's in it for Comcast? 

Besides the payments the company will receive from Netflix, Comcast wants to attract more Internet subscribers because that's the best retaining segment. And boasting an improved Netflix could lure in said subscribers. 

Source: company filings 

The video subscriber trend looks unhealthy while voice is at least maintaining. But Comcast wants to take on Time Warner Cable's business, and the video subscriber losses look even worse on that side while the Internet segment again provides the most stability.

Providing Netflix with direct access will allow Comcast to (somewhat technically inaccurately) boast that subscribers will have access to a streaming service with improved quality and speed. And the additional customers have the potential to offset some of the video subscriber losses -- some of which might result from cord-cutters turning entirely to streaming services such as Netflix.  

Why make the deal now? 

The timing raised eyebrows due to Comcast's desire to buy Time Warner Cable, a deal that could still fall through without the necessary regulatory approval. But the Wall Street Journal reports that Netflix and Comcast have conducted serious talks about a deal since early this year and Comcast simply came forward with an improved offer.  So the Time Warner Cable acquistion likely wasn't a factor on Netflix's side of things. 

Netflix and Comcast's deal also kicked back up controversy surrounding a net neutrality-related federal appeals court decision last month. The court overturned parts of a ruling related to a battle between Verizon and the FCC, a decision that essentially made it possible for ISPs to run certain services faster or slower, but only if the companies disclose the action to consumers.

But net neutrality doesn't apply in this situation. Netflix was already using -- and paying -- a third party to connect to Comcast. And now Netflix will simply pay Comcast. This wasn't a case of Comcast purposefully handicapping Netflix streaming to cut a lucrative deal or earn back some video subscribers. It's two companies acting out of financial best interest and the potential for some celebratory public relations spinning.

Foolish final thoughts

Netflix and Comcast have entered into a mutually beneficial relationship. The former cuts out middlemen, potentially saves money, and offers an improved service to some customers. And Comcast receives a new payment and bragging rights. Often big, complicated news stories boil down to one basic principle: it's all about the money. 

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The article The Real Reasons Behind Netflix's Deal with Comcast originally appeared on Fool.com.

Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of 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.

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Hostess Bankruptcy Exposes Peril to 10 Million U.S. Pensions

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Hostess Snack Cakes
Associated Press/Brennan Linsley
By Lorraine Woellert

When Hostess Brands went bankrupt in 2012, it triggered anxiety among employees at Ottenberg's Bakery, a family-owned enterprise in Maryland. The companies shared a pension plan, and if Hostess couldn't pay its retirees, Ottenberg's would have to pick up the tab.

Gary League, 53, who has delivered Ottenberg's bread for almost three decades, worried he might lose his nest egg, maybe even his job. "If you have all these guys out on retirement and you only have Ottenberg's paying into it, the math doesn't add up," he said. "I was thinking I would have to work forever."

Last week, he got the good news -- the U.S. government saved his benefits by sacrificing those of Hostess' drivers, who will now get a reduced payout financed by the government. League is one of 10.4 million Americans with retirements tied to multiemployer pension plans, large investment pools long considered low risk because they don't rely on a single company for financing. Two recessions, industry consolidation prompted by deregulation and an aging workforce have funds facing a $400 billion shortfall that has some near insolvency. Dozens already have failed, affecting 94,000 participants.

Things are dire enough that a coalition of employers and labor unions is asking Congress for permission to cut benefits to retired truck drivers, miners and others as a last resort in order to prevent plans from going under. The proposal has divided unions and their allies, triggering a lobbying battle as a legislative deadline approaches and retirement security looms large as a growing economic concern.

$2 Billion LIability Leads to Plan Being Carved up

Hostess, maker of Wonder Bread and Twinkies, was one of two employers contributing to the Bakery and Sales Drivers Local 33 Pension Fund. When Hostess went bankrupt, Ottenberg's was left to foot the bill. President Ray Ottenberg didn't respond to requests for comment.

Hostess had about $2 billion in liability to its multiemployer plans. Because of the bankruptcy, those pensions will get nothing from the company, said David Rush, chief financial officer of the Hostess estate, known as Old HB. "You have to repay your secured creditors first," he said. "It was an unfortunate situation."

The Obama administration acted last month, taking 342 Hostess truck drivers out of the plan to rescue benefits for League and about 360 others. It was the third time in its 40-year history that the Pension Benefit Guaranty Corp. had carved up a fund. The PBGC engineered a merger of Ottenberg pensions into another plan. Since 2005, the agency has paid about $722 million to people in similar failed plans.

A coalition of 40 labor and employer groups, including Bechtel Group, United Parcel Service (UPS) and -- at the time -- the International Brotherhood of Teamsters last year said pension trustees should be allowed to cut benefits to current retirees. The once-unthinkable idea is now gaining support as funds falter and unemployment, student debt and longer life spans leave people less financially prepared for retirement.

"It's the first attempt by an industry or a sector of the economy to really address what's going to come back and bite us as a country," said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans in Washington and an author of its "Solutions Not Bailouts" report. "If you allow some of these plans to have flexibility, they can take action instead of waiting until the assets are depleted."

Slippery Slope for Plans, Federal Agency

Others disagree. Giving pensions that option would make the problem worse, and not just for retirees, said Teresa Ghilarducci, an economist at the New School for Social Research in New York. Multiemployer payments are low and concentrated in economically distressed regions, including the industrial Midwest, she said.

Once some pensions get the flexibility to cut benefits, others will want it, too, she said. It's a slippery slope that could lead to changes at single-employer pensions, which have 30.4 million participants. "It's bad for households, but it's also bad for the economy," Ghilarducci said. "In some of these communities, it's the retirees that are the mainstay."

The PBGC, created in 1974, is on uneasy financial footing itself. The agency charges companies in multiemployer plans an annual insurance premium of $12 per plan participant, less than one-fourth of what other pension plans pay. The agency projects 173 multiemployer plans will exhaust assets, costing it an estimated $10 billion and leading to the insurance program's insolvency in 10 to 15 years. The agency is asking Congress for an increase in insurance premiums and more ability to intervene before funds are insolvent.

Although the Hostess partition will cost the agency an estimated $22.5 million, it could ultimately save money because the entire pension plan likely would have failed without it, PBGC Director Joshua Gotbaum said.

The agency partitioned its first pension in 1983 to save benefits for restaurant workers and manufacturers in and around Detroit. In 2010, it split a Chicago plan, protecting 3,700 truckers and putting 1,500 on government payouts. Now it's weighing carving up a second Hostess-related fund.
"After we announced the Hostess partition we got calls from folks in other plans saying what about us?" Gotbaum said. "If we had a lot more money, we could do a lot more plans."

Support for 'Solutions Not Bailouts'

The nation's second-largest multiemployer fund, the Central States Southeast and Southwest Areas Health and Welfare Pension Funds, is also among the most troubled, with five retirees for every active employee. Covering 410,000 truck drivers, sanitation workers and others, the Teamsters plan paid out $2.1 billion more than it took in in 2012, with the average retiree receiving $15,000. In 2006, Congress passed the Pension Protection Act, giving funds such as Central States temporary leeway to cope with shortfalls. The law expires at the end of this year, and congressional lawmakers have no plans to renew it.

Central States is one reason unions, including the Teamsters, lined up behind "Solutions Not Bailouts" last year. James P. Hoffa, then Teamsters president started hearing from his rank-and-file. He retreated in October, calling the proposal he helped craft a "mad rush to destroy what little semblance of retirement security exists in this country." "This issue is about basic economic fairness," Hoffa wrote in an Oct. 28 letter to House lawmakers. He called on labor unions to "ensure that the right to a dignified retirement remains sacrosanct." Hoffa spokesman Galen Munroe declined requests for comment.

Cutting retirement income would be "a ticket to poverty," for some, said Bruce Olsson, a lobbyist with the International Association of Machinists, which has aligned with the Teamsters. "It puts the burden on people that are the most vulnerable. Retirees don't have the ability to make up that lost income."

The last time Congress tried to rescue unfunded pensions, the move was attacked as a union bailout and failed, said former Representative Earl Pomeroy, a North Dakota Democrat who now advises the employer-labor coalition. Absent congressional action, more companies will abandon their obligations and leave retirees dependent on government aid, he said."You've got the hole getting bigger and bigger," Pomeroy said. "A haircut now beats a beheading later."

Trustees at distressed funds can do only so much because the law dictates what benefits they can and can't cut. Had they been able to reduce accruals to retirees, they may have been able to save the Millwrights & Machinery Erectors Local Union No. 1545 Pension Fund.

Stories of Two Men With Lower Benefits

Peter Scarmozzi, a retired millwright living in Bear, Del., is among those willing to sacrifice. Scarmozzi, 66, is one of 179,000 participants in the millwrights' fund, about half of whom are retired. While the plan had suffered shortfalls before 2008, after the financial collapse, trustees calculated it would cost $23 per hour worked to restore it to health, up from less than $15. Some employers, including General Electric Co., want out and are now in court. "For 10 years we petitioned the trustees to cut the benefits back so the fund would survive," Scarmozzi said. "Now, it's going to fail."

Kent Cprek, a lawyer for the Local 1545 fund, said trustees reduced what benefits the law allowed. Pension payments to existing retirees are off limits. "You're not allowed to cut every benefit," said Cprek, a shareholder at Jennings Sigmond in Philadelphia.

Sacrificing part of Scarmozzi's pension a decade ago may have helped him and preserved benefits for younger millwrights today, including Thomas Hall, 55. Hall, who has installed turbines, generators and other large equipment for 33 years, began preparing for the worst in 2008. He and his wife cut spending and abandoned work on their unfinished house in North East, Md.

Now the millwright fund could be insolvent as soon as next month, Scarmozzi said, and his $3,600 monthly pension will be replaced by an $800 check from the PBGC. "If I could find a part-time job, I'd take it," Scarmozzi said. "There's no golden years -- that stuff's gone."

Hall said he will get $980 a month from the agency instead of his $4,000 pension. He's accrued another $226 so far from a separate fund he joined four years ago. "How healthy will that pension fund I'm contributing to now be in 10 years?" Hall said. "I'm stuck in a bad storm."

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Shares of Caterpillar Inc. and Manitowoc Hit 52-Week Highs: Has the Rally Just Begun?

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Construction equipment stocks are on a roll. Caterpillar hit its 52-week high on Monday and Manitowoc shares zoomed to levels not seen in nearly five years. There were no company-specific announcements or any major economic news; the excitement actually spilled over from last week after Deutsche Bank turned bullish on both stocks and sent them soaring.

But wait, it's a lot more than an analyst upgrade. Good news seems to be pouring in from several sides for Caterpillar and Manitowoc, and investors just can't wait to get a piece of the action. But is the momentum here to stay, or will the two stocks give it all up before it is fully realized? A look at the factors that are bidding the shares up may give you an answer.

On solid ground
The recent uptick in construction activity in the U.S., especially nonresidential construction, is the biggest factor that's fueling optimism in both Caterpillar and Manitowoc. Caterpillar gets about a third of its revenue, and Manitowoc more than half its sales, from that region. 

A strong U.S. market lifts Manitowoc crane sales. Image source: Manitowoc


Caterpillar confirmed the strength in domestic markets last week when it released its retail machine sales data: North America was the only market where the company reported a percentage improvement in sales for the quarter ended January. Sales from every other geographic region fell by double-digit percentages. But the market is probably expecting things to turn around.

Hopeful signs, but...
Economic data released earlier this month showed that the six biggest eurozone economies expanded during the quarter through December 2013 -- something we haven't seen in nearly three years. The eurozone crisis has been a major drag on Caterpillar's and Manitowoc's sales for several quarters, so any sign of improvement bodes well. The Europe, Africa, and Middle East region contributes nearly a quarter to revenues of both companies.

In another development last week, China reported record imports of coal and iron ore for the month of January. Caterpillar investors, in particular, got excited since the company is heavily exposed to the mining industry and is betting big on the Chinese market for future growth.

Unfortunately, it may be too early to rejoice. Europe isn't out of the woods yet, and higher ore imports from China do not necessarily mean greater mining activity. In fact, January's manufacturing report out of China was a bummer. Persistent challenging business conditions in the nation even compelled Manitowoc to offload its 50% stake last month in a joint venture set up in 2008 with a Chinese company, after having already exited another venture late last year.

In other words, you may have to wait some more quarters before these markets revive. And until then, neither Caterpillar nor Manitowoc can grow their top and bottom lines as you would want to see.

So, what is Deutsche Bank betting on?
Why did Deutsche Bank initiate coverage on the two stocks last week, rating Manitowoc a hold and Caterpillar a buy with a price target of $122 a share?

Strong power systems sales isn't enough for Cat.

For Caterpillar, Deutsche opines that investors shouldn't overlook the growth potential in the company's construction equipment and power-systems businesses even as the mining sector remains weak. That makes sense, but investors should also remember that mining has traditionally been Caterpillar's highest-margin business.

That explains why the company suffered a huge blow on its bottom line last year despite good demand for its construction and power systems machines. Moreover, while Caterpillar expects revenue from the two businesses to improve 5% each in 2014, a projected 10% drop in its mining division could mar growth.

For Manitowoc, a sluggish mining market may not be a major issue, but it runs a parallel business of equipment that caters to the foodservice industry which hasn't been doing too well lately. But the company sprang a surprise last quarter when its food-service equipment division reported strong growth in revenue as well as margins. Manitowoc also sounded optimistic about the business for the rest of the year, which played a huge role in driving its shares up to a multiyear high.

Where are the two stocks headed?
After a super run in 2013, I don't see a reason why Manitowoc shares shouldn't continue to head higher this year. But at 27 times earnings, the stock currently trades at a wide premium compared to most peers, so upside may be limited.

Caterpillar shares, on the other hand, are slowly getting back to their feet after facing a rough 2013. While headwinds remain, the company may have already left the worst behind. The stock may have a bumpy ride ahead, but at 16 times earnings, it's certainly cheap enough to excite long-term investors.

Caterpillar may tank if the market crashes; these stocks will keep your capital safe
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now. Make sure you get those names before the market starts losing its grip. 

 

The article Shares of Caterpillar Inc. and Manitowoc Hit 52-Week Highs: Has the Rally Just Begun? originally appeared on Fool.com.

Neha Chamaria 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.

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

 

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Boeing Wins $2.4 Billion Navy Contract and Tesla Motors Wins Yet Another Award

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The Dow Jones Industrial Average was 0.04% higher during midafternoon trading after the Census Bureau reported that home sales in the U.S. increased by 9.6% last month and most regions recorded improved figures. The seasonally adjusted sales rate hit 468,000 homes for January, which is significantly higher than the expected annual rate of 401,000. That's good news for investors, as unexpected strength in the housing industry will benefit the overall economy. With that in mind, here are some companies making headlines today.

Boeing dropped 0.15% by 3 p.m. EST even after the company announced a $2.4 billion U.S. Navy contract for 16 additional P-8A Poseidon aircraft that will bolster the service's maritime patrol capabilities.

Boeing's P-8A, which is based on the company's next-generation 737-800 commercial aircraft, will enhance the Navy's anti-submarine, anti-surface warfare and intelligence, surveillance, and reconnaissance capabilities, according to Boeing.


"This contract reflects the success of the program and enables us to continue delivering an advanced, cost-effective maritime patrol aircraft to the Navy," said Rick Heerdt, Boeing vice president and P-8 program manager, in a press release. "We delivered eight P-8s, all on or ahead of schedule in 2013, and we intend to keep that streak going in 2014."

Investors will be happy with the contract amid U.S. government defense budget cuts that continue to dampen revenue from Boeing's defense, space, and security business segment. Every defense contract will be important for Boeing to maximize revenue and profit from the segment, taking at least some pressure off the company's commercial aircraft side as it seeks to offset potential revenue declines from federal budget cuts.

Tesla's Model S. Source: Tesla Motors.

Outside of the Dow, Tesla is again making headlines with its Model S fully electric vehicle. Consumer Reports, widely considered to be the single most effective and influential magazine for retail car buyers, announced the Model S was its all-around top-rated car for the 2014 model year. The magazine last year also called the Model S the best car it had ever tested.

Tesla remains one of the hottest stories on Wall Street and hit record highs yesterday as this information, as well as an upgrade from Morgan Stanley, added to investor confidence regarding the company's future. The week still holds much promise for the young start-up automaker, which is expected to soon announce plans for the battery factory to be built in the U.S. The battery factory will enable the company to lower costs dramatically and set the stage for its Gen III vehicle, which is intended to cost about half of the $70,000 (or more) you'd pay for a Model S.

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The article Boeing Wins $2.4 Billion Navy Contract and Tesla Motors Wins Yet Another Award originally appeared on Fool.com.

Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. 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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Just How Important Is the United States' Oil Surge?

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Source: wikipedia

Will the United States once again emerge as an oil swing producing country with the capacity to fill supply gaps when emergencies hit, or unexpected demand picks up in the short term? Will the United States overtake Saudi Arabia as the world's largest oil producer by 2020?

Both of these issues are cleverly debated in a recent article titled, Saudi America, from The Economist, and while the United States has a legitimate shot of being the world's largest oil producer, being a swing producer and having the ability to limit oil price spikes will likely never come to fruition. To become a swing producer again, the United States would need ample capacity to bring oil to market in a timely manner, and have either a large supply of conventional oil reserves, which we do not, or significantly increase the size of our strategic oil reserves.   

OPEC's last stand
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


This segment is from Tuesday's edition of "Digging for Value," in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy and materials sectors @TMFEnergy.

The article Just How Important Is the United States' Oil Surge? 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.

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Whole Foods Market Is Still a Good Buy

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Whole Foods Market's  recent first-quarter earnings announcement revealed reduced earnings and sales expectations for the 2014 fiscal year. However, this should not come as a surprise. The organic grocer previously decreased earnings expectations in its fourth-quarter report released last November. In my view, however, Whole Foods remains a good long-term investing opportunity.

Whole Foods' year-end numbers at a glance
The company reported that earnings per share increased by 7.7%, while revenue also rose by 9.9% to $4.2 billion. While these figures were lower than expected, $4.2 billion in revenue is still pretty wholesome. Whole Foods said softer shopping patterns coupled with harsh December weather contributed to the earnings miss.

Whole Foods also lowered its earnings and sales forecast for fiscal-year 2014, and this may have left some investors chilly. The company now expects sales to grow in a range of 11% to 12% for the year -- down from the previous guidance of 11% to 13% stated in its fourth-quarter announcement. Furthermore, the company now says earnings per share will be in the range of $1.58 to $1.65 per share -- down from previous expectations of $1.65 to $1.69 per share.


New store openings are a bright spot
Whole Foods reported 10 new store openings during the first quarter of the 2014 fiscal year. The company also plans to roll out new stores going forward to add to the 370-plus stores now operating in the U.S. Whole Foods contends that demand for new stores remains solid.

In fact, Whole Foods' co-chief executive said, "With a base of 373 stores today, and a record 107 stores in our development pipeline, we expect to cross the 500-store mark in 2017."

The company also believes there is enough demand for 1,200 stores in the U.S. On the other hand, Whole Foods' focus on the U.S. organic market leaves it vulnerable to a persistently weak economy as well as threats from its competitors. However, the grocer has long-term plans to find green grass in the organic markets in Canada and the United Kingdom.

Other sunny spots
Whole Foods is still the leader in the organic market in the U.S. even though its revised guidance may have sent some buyers to the express checkout line. Investors should also remember that Whole Foods continues to pay a dividend. Finally, the company has a $300 million stock-repurchase program in play in the coming year. And this will be followed by an additional $500 million buyback by Dec. 31, 2015.

In short, these repurchase programs will support earnings results over the next two years. The buybacks will also allow Whole Foods to continue paying dividends -- another wholesome sign for long-term investors.

Competition is a challenge
Whole Foods' biggest challenge comes from competitors like The Fresh Market and, to a lesser extent, Kroger .

The Fresh Market's performance suffered in 2013 as consumers grappled with the weak economy. The company reported in the third quarter an "unanticipated sales slowdown across its store base." The Fresh Market blamed this on changing economic conditions and softening consumer confidence.

While the company boasted of new store openings, sales from stores in new markets were mixed. The Fresh Market also announced an increase in expenses as a percentage of sales. This was the result of higher store-level compensation expenses connected to the new store pre-opening costs as well as employee health-care claims costs.

In any event, investors have been punishing the company's shares -- currently trading at about $33 -- well off the 52-week high of $52.17.

Meanwhile, Kroger is a larger operation than both Whole Foods and The Fresh Market. But it caters to different consumers because it offers a more regular supermarket trip with less emphasis on organic groceries. Kroger also intends to open new stores over the next two years, especially in North Texas, which is one of the largest metropolitan regions in the U.S.

Kroger's third-quarter announcement reported net earnings totaling $299 million, or $0.57 per diluted share, compared to $317 million, or $0.60 per diluted share, in the third quarter of the prior year. For the first three quarters of 2013, net earnings were $1.1 billion, or $2.09 per diluted share, compared to $1.0 billion, or $1.89 per diluted share, for the same period of 2012.

These are impressive numbers, but again, Kroger is not focused squarely on the organic market, and the food chain appeals to a different consumer base than Whole Foods and The Fresh Market.

Final wholesome thoughts
Whole Foods Market is still a good buy for investors with a long-term view. The share price currently hovers at about $53, lower than the 52-week high of $65 and change. Whole Foods remains strong in many ways, including a solid history of revenue and earnings-per-share growth.

Finally, the company believes there is continued demand for its stores and plans an aggressive campaign to roll out new locations. In sum, the revised guidance could turn out to be management underpromising followed by its share price outperforming. And this is a good reason for investors to add Whole Foods to their shopping cart.

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The article Whole Foods Market Is Still a Good Buy originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market and Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. 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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Did the Market Get This One Right?

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Despite slightly lower dayrates from ultra-deepwater floaters this past quarter, and flat EBTIDA expected in the first half of 2014, Seadrill decided to increase its quarterly dividend by $0.03, pushing its current yield over 10%. Fourth-quarter earnings did not meet analyst estimates and, with flat cash flows and a heavily levered balance sheet, Seadrill shares solid off Tuesday. With only short-term softening in the offshore rig industry, did the market get this one right? 

Seadrill is a dividend aristocratic, but not the only one
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


This segment is from Tuesday's edition of "Digging for Value," in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy and materials sectors @TMFEnergy.

The article Did the Market Get This One Right? originally appeared on Fool.com.

Joel South has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. 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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ExxonMobil Corporation's Latest Bid to Boost Production

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Following a disappointing fourth quarter that saw earnings plunge 16% year over year as production slid 1.5%, ExxonMobil , the world's largest publicly traded oil company, is eager to boost profits and production through a wave of new oil and gas projects slated to start up over the next few years. Let's take a closer look at the company's most recent new start-up and how it may, along with a wave of other new projects, help arrest the decline in its oil and gas output.

Exxon kicks off gas drilling in Malaysia
Exxon announced that it has commenced production at the Damar field offshore Malaysia -- a vast natural gas field located off the east coast of Peninsular Malaysia with a projected capacity of 200 million cubic feet of gas per day.

Exxon serves as the operator of the Damar field with a 50% interest, along with joint venture partner Petronas Carigali Sdn. Bhd., which owns the remaining 50% stake. The start-up at Damar follows on the heels of another major project in Malaysia -- the Telok gas project, which commenced production in March of last year.


These projects will not only be crucial in helping meet Malaysia' domestic power and industrial needs, but will also contribute to Exxon's global production over the next few years, as the oil giant attempts to grow its oil and gas output by 2%-3% annually.

Exxon's ongoing challenge
Despite its unparalleled global footprint and peer-leading capital efficiency, Exxon has failed to meaningfully grow its oil and gas production over the past few years. Fourth-quarter output fell by 1.5%, or 64,000 barrels of oil equivalent per day, as new projects such as Kearl in Canada were unable to offset declining production from existing fields.

The quarterly data mark the continuation of a worrying trend: Exxon's production is down by about 15%  since 2010, the year it acquired XTO Energy, and is only slightly higher than it was in 2009. However, the company is eager to reverse this trend by bringing online a wave of new projects over the next few years.

In its fourth-quarter earnings conference call, Exxon highlighted the Kearl oil sands project and a liquefied natural gas project in Papua New Guinea as key drivers of near-term production growth. It also cited onshore U.S. shale fields in Texas, Oklahoma, and North Dakota and international opportunities in Russia, Argentina, Tanzania as additional drivers of output growth.

Challenges to growing production
However, even as new projects come online, they may not be enough to offset natural declines from the company's existing fields, as well as the loss of production due to regulatory and other reasons. In addition to its base decline, Exxon will lose a significant amount of production this year in the UAE, Netherlands, and Iraq.

In the UAE, the expiration of a 75-year contract to drill in Abu Dhabi's onshore oilfields will result in the loss of approximately 150,000 barrels per day for Exxon, as well as for BP , Shell , and Total , which also each maintained a 9.5% interest in the Abu Dhabi National Oil Co., the state-owned company developing the oilfields.

In the Netherlands, Exxon expects to lose 100 Mcf per day net production this year because of the mandated reduction in gas production at the Groningen field, while in Iraq, the company's net production will be slashed by about 150,000 boe/d as its stake in Iraq's West Qurna 1 field is reduced from 60% to 35% following a sale to PetroChina .

Even for a company of Exxon's size, these are meaningful numbers, with the loss of Iraq production alone representing a 4% decline from fourth-quarter production volumes of 4.22 million barrels per day. Further, future production growth is subject to a great deal of risk and uncertainty, including geopolitical risk in countries such as Russia and Argentina, as well as execution and budgetary risks for large, capital-intensive, and technically complex projects.

The bottom line
Despite new project start ups such as Damar in Malaysia and dozens more over the next few years, growing oil and gas production at a targeted 2%-3% per year remains a tenuous proposition for Exxon, as well as for most of its peers. However, given Exxon's peer-leading capital efficiency, superior returns on capital, and extensive investments in long-lived LNG and oil sands projects, it may be better positioned to surmount this challenge than less efficient peers such as Shell and BP.

While Exxon and its integrated oil peers struggle to offset declining production from mature fields, one energy company continues to mint profits. Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

The article ExxonMobil Corporation's Latest Bid to Boost Production originally appeared on Fool.com.

Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Total SA. (ADR). 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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What's the Story Behind SolarCity Corp's Superb Execution?

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SolarCity recently reported fourth quarter earnings that demonstrate the company is firing on all cylinders.

For the quarter, revenue was $47.3 million, up 87% year over year, while total megawatts deployed was 103 MW, up 115% year over year, both numbers exceeding expectations. While SolarCity delayed complete 2013 GAAP reporting until March 3, the market liked what it heard and bid the stock up to new 52-week highs.

Superb execution
SolarCity's execution has been superb. The company is just grabbing market share left and right from competitors. Last year, SolarCity's market share was 19% of the U.S. residential solar market -- it's now 32%.  


Source: SolarCity Investor Relations 

With that larger market share, SolarCity is realizing greater economies of scale and more savings. In 2013, the company reduced cost per watt by 30%. 

The 30% cost reduction was well ahead of the company's 2012 cost reduction foercast:  

Source: SolarCity Investor Relations 

The lower costs are helping SolarCity grow faster, which in turn is boosting its stock price.

Another positive trend is that distributed solar will be more competitive going forward. Distributed solar accounted for 9% of all first-half 2013 U.S. new electricity generation.  

That percentage should only increase this year because wind and natural gas, which currently make up the majority of new U.S. electricity generation, will likely be more expensive than last year. Wind costs will be higher because the generous 2.3 cents per kilowatt hour wind tax credit expired at the end of 2013, while many market participants expect natural gas to be range-bound between $4 to $5 in 2014 versus the $3-$4 level in 2013.

Lastly, Tesla's  recent strength should help SolarCity as well. Because Elon Musk owns a significant part of both companies, any battery breakthroughs that Tesla achieves will likely to flow to SolarCity. Some of Tesla's technology is already showing up in SolarCity's energy storage product, DemandLogic. In Tesla, SolarCity has a competitive advantage that no other solar company has. 

The bottom line
So far, SolarCity has executed very well. The company is grabbing market share, reducing costs, and accessing low-cost capital through securitization. If it can continue, SolarCity has a lot more growth ahead of it. Solar finance companies may be the new electric utilities of the future.

Initial data shows that most people are more likely to lease rather than buy solar panels. In 2012 and 2013, over two-thirds of residential installations in the California Solar Initiative, the largest solar incentive program in the United States, were third-party owned. For those people who do not own their solar panels, a company like SolarCity is the electric company. 

Looking forward, SolarCity is very optimistic about the future. The company expects to be cash flow positive in 2014, and to have 475 MW to 525 MW deployed. 

The company is on track to be on one million rooftops by 2018. 

SolarCity is currently benefiting from a positive feedback loop where growth increases the stock price, the rising price lowers the cost of capital, and the lower cost of capital drives growth. Because the end markets are so big and sentiment is so bullish, this cycle could continue for a while yet.

Wish you could have invested in SolarCity before the crowd?
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The article What's the Story Behind SolarCity Corp's Superb Execution? originally appeared on Fool.com.

Jay Yao has no position in any stocks mentioned. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. 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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Cummins, Paccar, and Navistar: Why They Surged

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If there is such a thing as an investing based game show, then heavy engine manufacturer Cummins is a strong candidate for a trivia question. The stock is up over 30% in the last year, after recording flat revenue and an operating income decline of 6.7% in 2013.  In addition, customers in its truck engine segment Paccar and Navistar (also a rival) are up around 40% and 50% respectively. What exactly is going on, and can it continue?

Cummins, Paccar, and Navistar
The answer to the trivia question above isn't as obvious as it may seem. A surging stock market has certainly helped pull these stocks higher, but they also rose for some stock-specific reasons. The main thing they have in common, is that the outlook for the North American trucking market is better than in 2013. Investing Fools will already know how aluminum producer Alcoa views the global heavy truck and trailer market in 2014. While, Alcoa's forecast of 1%-5% growth in the segment might not look exciting, it's a lot better than the double-digit declines recorded in 2013.

Starting with Cummins, a breakdown of 2013 segmental earnings before interest and taxes, or EBIT.


Source: Company presentations

Its engine segment manufactures diesel and natural gas engines for heavy- and medium-duty truck manufacturers. Paccar is its largest customer, and represented around 12% of its total company sales in 2013. Cummins also has long-standing heavy-duty engine supply agreements with Navistar and Volvo, and supplies mid-range engines to Daimler, Navistar, and Ford. In addition, Chrysler is a key customer for its light-duty engines.

The bad news is that Cummins predicts that industry on-highway engine units will actually decline overall in its key geographic markets in 2014. However, the good news is that it generates around 60% of its sales from the U.S. and Canada, and its NAFTA region heavy- and medium-duty units are forecast to grow 8.3% and 7.1%, respectively. For reference, Cummins currently generates 27%, 22%, and 13% of its total engine sales from heavy-, medium-, and light-duty engines, respectively.

Source: Company presentations

Moreover, Paccar (which has 28% of the U.S, and Canadian heavy-duty-truck market) forecasts that U.S. and Canadian heavy-duty-truck sales will be 210,000-240,000, compared to Cummins' forecast of 236,000 for NAFTA. Paccar also forecasts European industry truck sales will be higher this year as well. Paccar's story is relatively simple: Truck sales are likely to be stronger this year.

Navistar's improvement has come about partly due to the anticipation of better market conditions, but it's also due to some stock-specific issues. Navistar lost market share to Paccar in recent years, partly as a consequence of the troubles it had with its exhaust gas recirculation technology that fell foul of emission standards. However, Navistar has appreciated on the hopes that its cost-cutting measures (including cutting plants and buying engines from Cummins) will result in a turnaround at the company.

Cummins squeezes out growth
Cummins' management forecasts 4%-8% overall revenue growth this year, but it's far from a simple matter of better truck engine demand. Investing Fools should bear three points in mind.

First, according, to the management on the conference call, 2.5% (of the mid-point of guidance of 6% revenue growth) will come from the acquisition of distributors, 2% is due to emissions regulations and new products, only 1% from market growth, and the rest from market share gains and pricing.

Second, its revenue growth in the first half is forecast to be "closer to 4%" with the "second half of the year closer to 8%". Given, that the first quarter is likely to be the low-point, Fools should not panic if the first quarter comes in at a slower pace than the 4%-8% forecast for the year.

Third, certain areas of its business remain weak. For example, weakness in emerging markets hurt power generation sales in 2013, and its forecast for power generation sales is for a range of -3% to 3%.  Moreover, the engine segment growth is only expected  to grow by 4%-6%, because demand from areas like mining and marine continues to be weak.

The bottom line
On a positive note, a combination of favorable market conditions (emissions regulations and some North American trucking growth) and its own execution (increasing truck engine market share and acquiring distributors) means that analysts have earnings per share growing 12% and 23% for the next two years.

On the other hand, there are no major changes in emission standards in 2015, so Cummins can't always rely on regulations to spur growth. Also, a lot of its growth is coming from internal execution and winning market share, trucking is always a cyclical industry, and its power generation segment looks weak. On a forward P/E ratio of 16.5 times earnings, the stock looks fairly valued.

North American trucking is growing, and so is energy
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The article Cummins, Paccar, and Navistar: Why They Surged originally appeared on Fool.com.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Cummins and Paccar. The Motley Fool owns shares of Cummins and Paccar. 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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