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Is Trex Taking a Play Out of Tesla's Playbook?

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Tesla Motors  and Trex  have almost nothing in common. One is an innovative leader with expertise in a product that reduces greenhouse gas emissions versus its competitors, generally caters to an upscale clientele, and grew like crazy last year. 

The other is, well, Tesla. 

OK, both Tesla and Trex are innovative leaders in products that largely claim to be better for the environment than their competitors -- Tesla through its EVs, and Trex through its alternative wood decking, which is made of a combination of recycled wood and plastic waste. However, recent announcements from both companies paint a picture that goes beyond the boundaries of what we've thought these two companies capable of. 


Tesla's move shouldn't be a surprise
Tesla is apparently going to be much more than just an automaker, if you believe the latest news about its Gigafactory pans out:

Source: Tesla Motors.

With a planned capacity to support the battery needs of a half-million Tesla vehicles annually, the reality is Tesla would still be -- very much -- an automaker. It would also be -- along with its partners -- the world's largest maker of lithium ion batteries. Based on the company's ability to innovate, the market potential is pretty staggering. This actually gets to the heart of Elon Musk's nature. As much as it may sound revolutionary, this is just another example of Tesla's approach to any challenge:

  • There wasn't an existing motor to support Tesla's needs. So they developed one. 
  • There wasn't an existing industrial battery that met Tesla's reliability and distance needs. So they developed one. 
  • There isn't enough existing industrial capacity to meet Tesla's future demand for batteries in a cost-effective way. So they're developing it. 

From the ground up, Elon Musk has used principals based both in science and business to determine Tesla's direction. This isn't really that different. 

The Model X will expand Tesla's market even further. Source: Tesla Motors.

Not so much competing, as converting
Trex's success, like Tesla, is a product of innovation that's outside the norm of the market that it's disrupting. Just as the automotive industry is dominated by very large companies like General Motors and Toyota, Trex competes with giants like Weyerhaeuser , the world's largest lumber producer. But much like Tesla, it's not really competing directly against competitive products so much as it's offering a better alternative to what the competition has. 

Trex's offerings, like Tesla's Model S, are more expensive than traditional choices. And as the Model S frees its owner from gas stations, oil changes, and all of the additional expense of maintenance, while also eliminating tailpipe emissions, Trex gives consumers a superior product to traditional decks, that is more durable, requires almost no maintenance, and is made from 100% post-industrial and consumer waste materials. 

Weyerhaeuser does offer some competition with its Tamko brand of composite decking, but Trex has an enormous lead on the competition:

Source: Trex presentation.

According to management, Trex has expanded its market share in the past two years. Weyerhaeuser's business model and focus doesn't make increased competition in this market significantly likely. 

Like Tesla, Trex makes beautiful products that are better for the environment. Source: Trex.

Moving outside the core, by focusing on the core
Trex's success is largely tied to its product development. The company has figured out a way to combine and extrude waste wood and plastics, into beautiful and aesthetically pleasing wood-alternatives. And just as Tesla will use its developed technical skills to build and operate the Gigafactory, Trex is leveraging its technology to expand outside of the decking business. CEO Ron Kaplan, from the Feb. 24 earnings call:

One of our goals has been to leverage the scope and depth of Trex's core competencies in recycling and extrusion. Today, I want to go a step further and tell you that the funds have been committed, designs completed, and equipment is being installed for the start-up of the first phase of a capacity expansion, into an innovative reprocessing technology. ...This is the first of several new products that have been in development for about a year and a half, that will be focused on commercial applications and markets now not related to outdoor products.

Later in the call, Kaplan made it clear that the new product had nothing to do with home improvement or construction, and that Trex was supplying product to another company that would be using it in their product. This is important, as it means that Trex isn't stepping outside of its core business to try and find a market. It already has another market lined up.

Final thoughts: Investing is about the future
I know that sounds incredibly obvious, but there's a point: Don't get too caught up in looking at what a company has done when evaluating what they could do. Trex and Tesla both rewarded shareholders in 2013 with fantastic growth in their core businesses. With early 2014's announcements of bright new futures and expanded boundaries, these two companies could exceed any of our expectations.  

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The article Is Trex Taking a Play Out of Tesla's Playbook? originally appeared on Fool.com.

Jason Hall owns shares of Tesla Motors and Trex. The Motley Fool recommends and owns shares of Tesla Motors and Trex. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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Target Tech Chief Exits As Exxon Dips on Flat Production Guidance

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After news out of Ukraine dominated the markets for the first two days of the week, trading was calmer today as investors responded to a tepid jobs report from ADP and remarks from the Fed on the current state of the economy. The Dow Jones Industrial Average  finished down 36 points or 0.2%, while the S&P 500 closed essentially unchanged, down 0.1 points from yesterday's record. 

The nation's biggest payroll processor said 139,000 jobs were added in February, short of analyst estimates at 150,000, but up slightly from last month's total of 127,000. Mark Zandi, chief economist of Moody's Analytics, cited "bad winter weather" for the poor growth numbers, and said, "Jobs growth is expected to improve with warmer temperatures." In its beige book report, a survey of the nation's 12 economic districts, the Federal Reserve confirmed Zandi's conclusion, saying that economic activity slowed in New York and Philadelphia due to severe weather, but eight of the districts saw "modest to moderate" growth. Finally, the ISM Services report showed declining activity in that sector as its index fell from 54.0 to 51.6, worse than estimates of 53.5.

Among stocks making news today was Target , as its chief information officer, Beth Jacob, resigned in the wake of the retailer's data-breach scandal, which saw hackers access more than 40 million credit card numbers. Target said Jacob made the choice on her own, but it's easy to speculate that she was forced out. Jacob's departure may be an important step for the company to move past the security failure, and Target also said it would accelerate its roll-out of a $100-million chip-based credit card technology initiative, which is considered more secure that the traditional magnetic strip.  The effects of the data breach have been significant as sales fell off 5.3% last quarter and profits dipped 46%. The stock had fallen as much as 12% in the intervening time period, but has mostly recovered as its earnings report was not as bad as feared. Shares fell 1.2% today.


Back on the Dow, ExxonMobil  was the blue chips' worst performer of the day, falling 2.8% after releasing disappointing guidance for the year. The energy giant said it expects flat output for the year, but sees expenses falling 6%, news that disappointed investors who had hoped to see growth in production return. So-called easy oil has been harder to find for majors like Exxon and Chevron, and production has generally been on the decline for the past few years. While share buybacks and cost-cutting measures should assure investors that earnings per share will grow, flat or declining production is no long-term strategy for success. Still, analysts expect output to increase from 2015 to 2017 at a growth rate of 2%-3% as the company says it has more profitable projects coming on line. 

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The article Target Tech Chief Exits As Exxon Dips on Flat Production Guidance originally appeared on Fool.com.

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

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

 

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Why Is Soros Fund Management Getting Into Zynga?

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Soros Fund, the diversified asset manager and financial-services company headed by well-known value investor George Soros, is not the type to throw money at one-hit wonder game companies. You wouldn't necessarily think that the fund would buy two million shares in Zynga , worth $7.6 million.

Yet according to Soros Fund's recent 13-F filing, in which it is required to report its investment holdings, the company has done just that.

Not everyone is enthusiastic
Zynga provides social game services. It was founded in just 2007, and it is headquartered in San Francisco.


When you buy Zynga, you're not investing in a company that produces tangible goods that people must buy no matter what. If you want customer loyalty, stick to makers of breakfast cereal. Online gaming fans are notoriously fickle, drifting from game to game. Yesterday, Farmville was the rage. Tomorrow, who knows?

Another criticism of Zynga has been its delay in moving to mobile phone platforms with the claim that it has focused for too long on desktop applications, mainly through Facebook.

Zynga's detractors also point out that its cash flow has decreased to $7.7 million -- down from $20.9 million in the same quarter last year. Falling revenue isn't winning fans, either. Fourth-quarter 2013 revenue fell by 43.3% from the year-ago quarter.

Besides, we're talking about a company that was sued by its own shareholders over its December 2011 IPO, after the price fell sharply. Shareholders accused management of misleading them about how well the company was expected to perform.

So why would anyone buy Zynga?
Zynga is still on Facebook, but it's also getting with the program and expanding into stand-alone social games for mobile phone platforms such as Apple iOS and Android. In addition, the company offers games on the Internet through its website, Zynga.com.

Zynga could well pull off this transition. These positive numbers are on its side:

  • Despite a negative net profit margin, Zynga's gross profit margin is still high at 84.84%.

  • Zynga has been drastically cutting expenses. Operating expenses are down 26% since the year-ago quarter.

  • Zynga has practically no debt. The company will have no trouble meeting short-term cash needs.

Recent developments are even more positive
In the time since Soros Fund purchased shares in Zynga, more good news has emerged. Zynga had been dogged by that fraud lawsuit linked to its IPO. On February 25, 2014, U.S. District Judge Jeffrey White dismissed the complaint.

Since the end of 2013, Zynga has also announced that it will buy NaturalMotion, a U.K.-based mobile game and technology company, for $527 million in both cash and stock. NaturalMotion's hit, CSR Racing, is said to be grossing over $12 million per month.

While an investment of .06% of the Soros Fund portfolio is modest compared to some of the fund's other purchases, it's still a vote of confidence in the maker of Farmville, Zynga Poker, Words With Friends, and Mafia Wars. If the Soros Fund is buying shares in a company that sells cutesy virtual cows and tokens that help you win word games against your friends, you might want to give it a second glance, too.

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The article Why Is Soros Fund Management Getting Into Zynga? originally appeared on Fool.com.

Sally Herigstad has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. 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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Macy's Continued to Dominate in Q4

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Investors could not be more thrilled with Macy's fourth-quarter and fiscal-year 2013 performance. Macy's took to the runway with style and sophistication, as it far exceeded analysts' earnings-per-share estimates. According to Yahoo! Finance, Macy's actually secured its "fifth consecutive year of double digit earnings growth."

The savvy yet trendy department store had much to brag about the other week as it announced solid figures across the board, causing other retailers to worry about their own performance and how they will stack up to Macy's. Senior executives at Macy's are convinced their M.O.M. -- My Macy's localization, omnichannel integration, and magic selling -- business model is a winner and cannot be replicated by any other retailer.

Initial reaction
Macy's impressive earnings performance went over well on Wall Street on Feb. 25.  As trading began, investors reacted positively to the news, sending Macy's stock price climbing 5.8% and higher. Results continued to make headlines and gain recognition from Wall Street analysts, whose EPS estimates were lower than Macy's actual earnings.


From market close on Feb. 24 to market close the following day, Macy's stock jumped 6%, or $3.19, closing at $56.25 per share. Surprisingly, it didn't end there. To add to its already solid performance, Macy's stock price increased another 2.7% in early morning trading on Wednesday, Feb. 26. Let's take a closer look at Macy's fourth-quarter and full-year results to see which areas experienced the most growth and improvement.
  
Details of the quarter and full year
For the fourth quarter ended January, Macy's knocked earnings out of the park, reporting increases in comparable-store sales and net income. For example, Macy's fiscal fourth-quarter EPS totaled $2.31, exceeding analysts' estimates by $0.14 and increasing 12.7% from a year ago. 

Despite the fact that quarterly revenue declined by 1.6% to $0.202 billion year over year, Macy's net income jumped 11.1% from $730 million to $811 million. Its good fortune didn't stop there. Comparable-store sales also saw improvement over a year ago, increasing 1.4%; the increase was 2.3% when combined with sales from departments licensed to third parties. Macy's also managed to spend less on cost of goods sold as well as selling, general, and administrative expenses, which is something to brag about. 

Macy's also had quite a successful year overall. Although revenue fell short of expectations, Macy's net sales increased from $27.7 billion to $27.9 billion -- growth of 0.9%. In addition, Macy's achieved an annual profit of $1.5 billion from $1.3 billion in the previous year, an increase of 11.2%. Comparable sales also improved year over year, as Macy's reported a 1.9% increase; it was a 2.8% increase when combined with sales from departments licensed to third parties. These sales represent those in stores through Macy's.com and through Bloomingdale's.com. 

While all of these figures do a fine job of showcasing Macy's continued growth, full-year earnings underscore Macy's success as a leader in the retail industry. For the fiscal year, Macy's earned diluted EPS of $3.86 per share, or adjusted EPS of $4, which when compared with FY 2012 results is an increase of 16%. 

Not only did Macy's exceed analysts' estimates, but it went beyond its own initial full-year guidance of $3.90 to $3.95. According to Macy's CEO, Macy's is on a roll, and the company's M.O.M. business strategy is in large part the secret to its continued success, separating it from other retailers.

Expectations for 2014
With the strength of its M.O.M. strategy along with its recent performance, Macy's offered a strong forecast for FY 2014.  Based on the fact that Macy's has now achieved four consecutive years of continued comparable sales growth, its expectations for comparable sales in 2014 are estimated to increase between 2.5% and 3%. 

Furthermore, its EPS for the full year are estimated to be between $4.40 and $4.50, which if achieved will mean growth of 10% to 20%. While Macy's announced in January that it will close six stores and cut 2,500 jobs, it also stated that it plans to create around the same number of jobs to support further developments and improvements within its omnichannel initiative. 

In addition, it plans on opening three Macy's department stores and one Bloomingdale's store during fiscal year 2014. With Macy's continued dominance in the retail industry and the lack of success at other retailers, such as J.C. Penney and Sears Holdings, Macy's has the edge. It is more than capable of gaining additional customers and sales traction through its many channels to either meet or exceed all expectations in 2014. 

Foolish takeaway
Foolish investors should definitely keep an eye on Macy's. It continues to dominate the retail industry, stealing customers left and right from other department stores.

Despite the effects of the Great Recession, Macy's annual performance year after year since 2008 tells us that this retailer is not only quick on its feet, but it can take on a challenge with confidence and sail through with flying colors. Its stock will likely climb even higher as its competition begins to release their fourth-quarter and full-year earnings for 2013.  Regardless, Macy's is certainly worth a closer look by Foolish investors looking for a top-notch retailer.

What other great retailers are out there?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

The article Macy's Continued to Dominate in Q4 originally appeared on Fool.com.

Natalie O'Reilly 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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Why Staples, Dot Hill, and Cross Country Healthcare Tumbled Today

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Thursday brought more good news for bullish investors in the overall U.S. stock market, as major-market benchmarks mostly posted modest gains as the good mood on Wall Street continued to push most stocks higher. Yet, even with the direction of the broader market remaining up, many stocks didn't manage to share that positive mood, and Staples , Dot Hill , and Cross Country Healthcare were among those stocks that lost the most ground today, with earnings being the culprit for all three.

Staples saw its shares fall 15% as the office-products retailer posted extremely troubling fourth-quarter earnings results. Same-store sales dropped by 7%, leading to a 4% drop in overall revenue even after adjusting for last year's 53-week fiscal year, and sending adjusted earnings per share down by 28%. Pressure on operating margins contributed to the company's decision to close 225 stores, as more of Staples' business moves away from its bricks-and-mortar operations and more toward its e-commerce offerings. The good news is that Staples already has an impressive presence online, with about half its revenue coming from the e-commerce side of its business. As a result, it doesn't have to worry nearly as much about rivals poaching its business, like so many big-box retail stores have seen in recent years.

Dot Hill dropped 14% after the data-storage device maker's fourth-quarter report. On its face, the company's results looked reasonably positive, with adjusted revenue climbing 29% on particularly strong performance from its Vertical Markets segment. Moreover, for the full 2013 year, Dot Hill posted its first GAAP profit since 2005. But gross margins fell by more than a percentage point sequentially compared to the company's third quarter, and Dot Hill's guidance for the coming year include a range of earnings that tended toward the lower end of what investors had expected from the company. As the storage-systems business gets increasingly competitive, Dot Hill will have to work hard to keep its margins up as larger competitors pose a bigger threat to its business.


Cross Country Healthcare plunged 22%, as the medical-staffing company projected that it wouldn't be nearly as profitable as investors had hoped. Even after adjusting its fourth-quarter loss to remove one-time charges, the company still lost money during the quarter, falling short of the small profit that analysts had expected. Sales also fell short of expectations, and in its first-quarter guidance, Cross Country Healthcare said that even though revenue would be relatively strong, adjusted profit margins before interest, tax, depreciation, and amortization would be just 1% to 2%. For an industry that has demographic tailwinds that should be helping companies like Cross Country, the news was discouraging to shareholders hoping for better future performance.

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The article Why Staples, Dot Hill, and Cross Country Healthcare Tumbled Today originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Staples. 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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Does Staples Have a RadioShack Problem?

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With the number of people filing jobless claims last week dropping to a three-month low, the market may be heading into tomorrow's release of the February employment report with a measure of optimism. The benchmark S&P 500 index rose 0.2% to a new record high, while the narrower Dow Jones Industrial Average gained 0.4%. Retail companies are in the news today, as Staples reported fiscal fourth-quarter results that disappointed, sending the shares down 15%. Meanwhile, RadioShack , which suffered its own 17% drop on Tuesday, lost another 6% on the back of an analyst downgrade.

It's hardly surprising that Staples' earnings report got a chilly reception from the market, with the company missing Wall Street's expectations on adjusted earnings per share (for the third time in the past five quarters) and revenue (for a five-quarter streak). Guidance for the current quarter also fell short of analysts' expectations.


CEO Ronald Sargent outlined the company's predicament during a call with investors and analysts when he observed that "our customers are using less office supplies, they're shopping less often in our stores and more online, and their focus on value has made the marketplace even more competitive." The company is responding, however, with the announcement that it will close up to 225 stores in the U.S. and Canada - 12% of its North American store base (too little, too late, some would argue.)

All is not lost yet for Staples, which has a couple of advantages:

  • Staples is already an e-tailer, generating nearly half of its sales online. Online sales grew 10% in the fourth quarter.
  • It is the largest pure-play operator in the segment of office supplies. If you don't think scale matters, just compare the cash profitability and returns of Staples with those of the number two firm, Office Depot.

Nevertheless, those advantages do not silence every threat, and the company remains in a challenging position. As it increasingly becomes an online retailer, how will it differentiate itself effectively and durably from e-commerce champion Amazon.com? In online retail, the main competitive factors are price, selection, and ease-of-experience; Amazon is very tough to beat across all three. As Staples notes in the Risk Factors section of its 10-K report:

We operate in a highly competitive market and we may not be able to continue to compete successfully... Some of our current and potential competitors are larger than we are, may have more experience in selling certain products or delivering services or may have substantially greater financial resources.

One way Staples can differentiate itself is through its Staples-branded products, which represented 28% of its sales in 2013; but one has to wonder how wide a moat this might constitute.

Staples' earnings announcement is reminiscent of that produced by RadioShack on Tuesday (in nature, although not in severity), in which the electronics retailer announced a huge earnings miss and plans to close 1,100 stores. Unlike Staples, however, RadioShack is not the number one pure-play retailer in its sector (that title belongs to Best Buy.) On Tuesday morning, I concluded:

In two years' time, do you think e-commerce will represent a smaller or larger proportion of retail in general, and electronics items specifically? It would not surprise me if RadioShack had filed for bankruptcy long before then.

Even after Tuesday's 17% drop, there is plenty of potential downside left for RadioShack speculators... err, investors. Today provided evidence of that, with the stock falling another 6%, as Goldman Sachs slashed its price target for the shares to $1 from $2.25, citing an increased probability of default:

The cut primarily reflects the higher probability assigned to default within three years by the CDS market, now about 80% vs. 56% in October. The probability assigned to our $5 turnaround scenario is now 20%.

Retail is a brutal business undergoing massive change -- it's not an industry that is favorable to identifying low-risk, long-term investments. As far as betting on the disrupters goes, that presents a set of challenges all its own.

You can make money on retail stocks... if you know who the "cash kings" are
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

The article Does Staples Have a RadioShack Problem? originally appeared on Fool.com.

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

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

 

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Why SINA Corp Shares Soared Today

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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 SINA Corp rose more than 10% early Thursday, then settled to close up around 8.5% following reports an IPO of its Weibo microblogging site could come soon.

So what: Specifically, a PrivCo report cites sources familiar with the situation saying a Weibo IPO might happen as early as June. In addition -- based on its own analysis and considering Twitter's IPO and Facebook's acquisition of WhatsApp -- PrivCo claims Weibo could command a valuation of up to $8 billion.


Now what: That means the offering could raise at least $1 billion for Weibo's owners, which, as of last April, include 18% stakeholder and Chinese e-commerce specialist Alibaba. But at the time, SINA also granted Alibaba an option to increase its ownership to 30% -- something that would almost certainly happen before an IPO.

This also mostly meshes with a Wall Street Journal report last week, that suggested SINA was planning to raise around $500 million by listing Weibo sometime in the second quarter. 

As I also noted last week, we should also keep in mind Weibo has faced political uncertainties from the Chinese government, which, in the past, launched an "antirumor campaign" aimed at stemming the influence of such mediums. In the end, the market may very well be willing to look past this risk, but I'm still not personally compelled enough by Weibo to dive into shares of SINA today.

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The article Why SINA Corp Shares Soared Today originally appeared on Fool.com.

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

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

 

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Why 3-D Printer Arcam AB's Stock Popped More Than 12% Today

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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.

If you've been following the 3-D printing space, you know considerable daily swings in share price are par for the course in this hot sector. That said, shares of Sweden's metals 3-D printing specialist Arcam AB were particularly strong today, soaring 12.6%, to close the day at $35.55.

The impetus for Arcam's pop was surely Wall Street firm Jefferies' rating upgrade to buy from the hold that Jefferies assigned Arcam when it initiated coverage in mid-December. While Jefferies upped Arcam's rating, it simply maintained its price target of 300 SEK ($46.93, using today's conversion rate).


I don't always put a lot of stock (no pun intended) in analysts' ratings, as most analysts are notorious for being late to the party, as well as late to leave the bash. In this case, however, I'm onboard Jefferies' call.

Jefferies: Arcam has shot at large metals 3-D printing orders
Jefferies noted that its supply chain checks "indicate that 6-12 large industrial groups are in deep discussion with metal 3D printing companies on larger orders that will be integrated into existing production lines. We believe that GE, Stryker, JNJ, EADS, Airbus, BMW, Medtronic, and others are likely to place large orders in 2014." Jefferies is speculating that Arcam has a good shot at receiving new orders for its electron beam melting, or EBM, 3-D printing systems from one or more of these companies, stating that, "We believe that EBM can create products with titanium that surpasses any other process."

Stryker, Medtronic, and Johnson & Johnson are big players in the medical implant space, which is one of Arcam's two target markets. EADS and Airbus are in the aerospace industry, Arcam's other target market. General Electric, of course, has an aerospace division, and has received much press for its big push into 3-D printing, which I'll explore further below.

Currently, Arcam doesn't have customers outside its two target markets, to my knowledge, and there is more than enough potential business in those industries to keep it busy. So I don't view high-end automaker BMW as a likely potential customer. Additionally, titanium's high price precludes mass market automakers from using it in their production processes. That said, it's certainly within the realm of possibilities that a high-end automaker might include titanium components within one of its more upscale models.

My take: EBM and laser sintering are more complementary technologies
I agree with Jefferies' take that Arcam could receive new orders from one or more of the above-noted big companies and, in fact, have written positively about Arcam before Jefferies even initiated coverage.

However, I don't believe there is a blanket "best" technology to create all titanium products. EBM and laser sintering, which is the predominant metals 3-D printing technology, both have strengths and weaknesses, and should generally be considered complementary processes. The "best" technology largely depends upon the specifics of the titanium product being made, as well as how many of them are needed.

It's quite likely, in my opinion, that some very big companies will end up using both technologies. General Electric, which is the world's largest user of metals 3-D printing technology, is a good example. While GE now predominantly uses laser sintering, it also uses EBM, though there's been little written about it. GE's planned 3-D printing capacity ramp-up could very well include both technologies. For those not familiar with this topic, here's part of what I recently wrote:

In mid-2013, General Electric announced it planned to use 3-D printing to produce the fuel nozzles for its new Leap jet-engine, each of which will contain 19 nozzles. This is a huge undertaking, as GE needs to fabricate 85,000 nozzles for the engine orders it has in hand, and expects its annual production to eventually require 45,000 nozzles, according to a Bloomberg article.

The company's massive nozzle production goals would require it to buy at least 60 very pricey 3-D printers, which isn't cost effective. So GE plans to use current technology to ramp up its production while also working with supply chain manufacturers to develop new higher-capacity systems.

GE's reportedly been testing laser sintering systems from both 3D Systems and privately held Concept Laser. Given this fact and that Morris' facility is composed primarily of EOS's DMLS systems, it certainly appears GE plans to primarily use laser sintering technology in its 3-D printing ramp-up. It's worth noting, however, that Avio Aero, which GE acquired last year, has been a major buyer of Arcam's EBM systems for many years.

Given Avio's long-standing use of EBM, I'd imagine GE would likely stay the course on that front if Avio has been satisfied with the components its EBM systems have produced. Additionally, if Avio has been especially pleased, GE could well consider using EBM to produce other aerospace components that it needs.

Foolish final thoughts
There's no doubt that 3-D printing in metals to make production parts is in the early stages of what's likely to be a very big market. Arcam's sole focus on metals and its unique patented technology should certainly make it a strong candidate for some new large orders in 2014 and beyond.

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The article Why 3-D Printer Arcam AB's Stock Popped More Than 12% Today originally appeared on Fool.com.

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

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Pentagon Awards $388 Million in Defense Contracts Thursday

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The Department of Defense awarded 16 separate defense contracts Thursday, worth $388.2 million in total. Among the major publicly traded defense contractors winning contracts:

  • General Electric won the day's largest award, a $79.7 million firm-fixed-price contract to repair 20 T-64 engine components used to power U.S. Navy CH-53D/E Sea Stallion and MH-53E Sea Dragon helicopters. GE will also provide manufacturing, engineering, and technical support to the U.S. Navy's Fleet Readiness Center East in Cherry Point, N.C., with the goal of improving monthly output. This contract will run through Sept. 30, 2015.
  • Textron won a $17.2 million firm-fixed-price, five-year requirements contract to supply the U.S. Air Force with up to 21 ICBM Flight MK 12A Mod 5F midsections over the course of a five-year ordering period running through March 5, 2020.
  • L-3 Communications was awarded a $6.8 million option exercise to provide the U.S. Navy with Sea Shore Interface Installation, Highly Accelerated Life Test, and integrated logistics services in support of the Navy's Undersea Warfare Training Range, which is located off the coast of Jacksonville, Fla. This work is expected to be completed by May 2019.

The article Pentagon Awards $388 Million in Defense Contracts Thursday originally appeared on Fool.com.

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company, L-3 Communications Holdings, and Textron. 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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Medtronic Wins European Patent Fight Against Edwards

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Medtronic has won an intellectual property victory on the other side of the Atlantic Ocean. The company announced today that the European Patent Office has invalidated and revoked a patent, the Spenser, held by Edwards Lifesciences for an aortic valve replacement system. The decision represents a sort of reversal; last August, Edwards won an injunction in Germany that Medtronic's CoreValve transcatheter aortic valve infringed on the Spenser patent.

In the press release announcing the news, Medtronic quoted its Senior Vice President John Liddicoat as saying that the court's decision "will ensure that patients across Europe who need aortic valve replacement will have access to this life-saving therapy."

The two companies have been battling over transcatheter aortic valve patents for some time. This past January, a federal court jury in Delaware found that CoreValve infringed on a different Edwards patent, the Cribier. Medtronic was found liable for over $393 million in damages; the firm has said it will appeal the decision.

The article Medtronic Wins European Patent Fight Against Edwards originally appeared on Fool.com.

Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. 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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Pentagon Hires 4 Defense Contractors for Space and Naval Warfare Work

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On Thursday, the Department of Defense awarded a series of four different defense contractors supporting roles in a project to provide training for a range of program offices within the U.S. Navy's Space and Naval Warfare Systems Center Pacific's Training Development and Support Center.

Privately held Salient Federal Solutions of Fairfax, Va., won one of these awards, an indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee, multiple-award contract valued at approximately $34.6 million.

Mantech won a similar indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee, multiple-award contract with an estimated value of $33.6 million.


Kratos Defense & Security won a similar indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee, multiple-award contract with an estimated value of $35.2 million.

Science Applications International Corp won the fourth award -- also an indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee, multiple-award contract, and this one was worth $35.3 million.

Each of these four contractors will have the opportunity to compete for task orders under the respective contracts between now and March 4, 2017. Because different estimated values are assigned to the different contracts, however, it would appear that the specific dollar figures named are the values, out of total funds available, that the respective defense contractors are expected to win -- rather than rote recitations of a single "pot" of funds to be divided among the four contractors.

Additionally, SAIC won a second, unrelated contract on Thursday. Valued at $33 million, this contract modification will exercise an option to have SAIC perform "anti-terrorism/force protection global sustainment" services for various Navy offices around the world. SAIC will be responsible for preventative and corrective maintenance, repair and replacement, service calls, and systems/software upgrades for anti-terrorism/force protection ashore equipment. This contract will now run through March 2015. Its total value, including today's option award, has increased to $60.2 million.

The article Pentagon Hires 4 Defense Contractors for Space and Naval Warfare Work originally appeared on Fool.com.

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

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Raytheon Wins 3 Defense Contracts Thursday

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The Department of Defense awarded 16 separate defense contracts Thursday, worth $388.2 million in total. Raytheon was the big winner of the day, bagging no fewer than three of the contracts on offer:

  • A $12.8 million firm-fixed-price contract to supply the U.S. Navy with 16 turret units and eight electronics units for the Multi-Spectral Targeting Systems aboard Navy MH-60 Seahawk helicopters. This system is an airborne, electro-optic, forward-looking infra-red, turreted sensor package that supports long-range surveillance, high-altitude target acquisition, tracking, range-finding, and laser designation for HELLFIRE missiles, and for other tri-service and North Atlantic Treaty Organization laser-guided munitions. Delivery is due July 2015.
  • A $10 million firm-fixed-price contract to supply the U.S. Air Force with 10 of these same Multi-Spectral Targeting Systems for use aboard Air Force HC-130J Combat King II search-and-rescue aircraft and MC-130J special ops Commando II aircraft. Delivery of these systems is due April 2015.
  • A $7.3 million modification of a foreign military sales contract to provide technical assistance to the United Arab Emirates' (UAE) Hawk Missile System program through Feb. 28, 2015.

In unrelated news, smaller defense contractor Leidos won a $7.8 million sole-source, firm-fixed-price contract to provide systems engineering and integration support for the U.S. Air Force's GPS Directorate through Sept. 2, 2014.

The article Raytheon Wins 3 Defense Contracts Thursday originally appeared on Fool.com.

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Raytheon Company. 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 Tonight: Pfizer Issues Recall as AT&T Touts Its Network Spending

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On Thursday, the Dow Jones Industrials closed the day up almost 62 points, closing to within 1% of the record level it set on the last day of 2013. Throughout the market, investors have looked closely at recent U.S. economic data to assess the economy's ability to keep expanding, and even though today's figures on jobless claims and other related data gave some hints on how the job market is performing, Friday's Labor Department report for February will have the potential to move the Dow if it surprises in either direction. Meanwhile, today, Pfizer was among the rare decliners in the Dow, while AT&T managed to gain ground as it tries to convince customers that it is working hard to boost its quality to fight rival Verizon .

For Pfizer, today's loss of almost 1% made the pharma stock the worst performer in the Dow Thursday. Given the impressive gains that the stock has seen so far in 2014 despite the Dow's lackluster performance, Pfizer's decline today was likely nothing more than simple trader-induced profit-taking. But the company got bad news after the bell, as it revealed that it would recall some of its Effexor antidepressant capsules as well as those of subsidiary Greenstone's Venlafaxine. Pfizer said that a pharmacist had reported that one bottle of Effexor also contained a capsule of anti-arhythmia drug Tikosyn, and with the company warning that the two drugs can be fatal for certain patients if taken together, Pfizer decided that the precaution was warranted. The stock actually gained ground after hours, as the recall only affects two lots of Effexor, and one lot of Venlafaxine.

Meanwhile, AT&T climbed two-thirds of a percent on a busy day for the telecom giant. The company issued a long series of press releases touting the billions of dollars it has spent on enhancing wireless networks across the country. Of particular note was the company's $1.6 billion investment in the Seattle/Tacoma area, which includes some of the most influential technology companies in the nation. Along with other tech-heavy areas like Silicon Valley, Seattle is an important focal point for wireless networks in trying to establish their reputations. With Verizon having long boasted of its greater coverage area and arguing that its network quality is also higher, AT&T's investments will need to prove themselves out in better coverage in order to convince potential customers that it offers a superior product. As AT&T and Verizon fight each other and their smaller rivals in what's becoming an increasingly tough price war, the entire industry will have to find ways to differentiate themselves from their competitors.


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The article Dow Tonight: Pfizer Issues Recall as AT&T Touts Its Network Spending originally appeared on Fool.com.

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

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Apple's A8 Probably Won't Be a Quad-Core

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As the next-generation iPhone and iPad products draw nearer, it is interesting to see the rumors surfacing about the next-generation A8 system-on-chip that Apple plans to power these devices with. It seems pretty clear at this point that Taiwan Semiconductor has gotten most, if not all, of this business with its next-generation 20-nanometer manufacturing process. However, the details get a little bit hazy from there.

Some intelligent speculation is likely worthwhile at this point. So, what will the A8 feature?

Probably still a dual core CPU
Before the A7 chip made its debut in the most recent crop of iOS devices, many had suspected that it would feature a quad-core CPU -- a natural extension of the dual-core A6 system-on-chip powered by Apple's custom-designed CPU core called Swift. However, Apple surprised everybody with yet another brand new CPU core called Cyclone. Per core, it was a substantial improvement over the previous-generation A6, and much to everybody's surprise, it implemented the ARMv8 64-bit instruction set that offered some powerful new extensions.


The next-generation A8, which will be built on an improved 20-nanometer process, is likely to offer an enhanced version of the Cyclone core and could potentially clock much higher. Since most applications on iOS are very lightly threaded, the user experience is affected much more noticeably by improving per-core performance rather than by blindly chasing more cores. Unlike the Android crowd, Apple can focus on delivering the best user experience rather than the most marketable specs to those unfamiliar with CPU technology.

What about graphics?
It has been pretty clear for some time that Apple has at least been pursuing the development of in-house GPU IP. That being said, Apple and its longtime GPU IP licensing partner, Imagination Technologies recently announced an extension of the multi-year IP licensing agreement that they have in place. This suggests that Apple will continue to use Imagination's IP for at least the A8 and quite possibly for several generations more. It is probably too early for an implementation of Imagination's recently announced Series 6XT IP, so a six-core variant of the Series 6 IP, known as the G6630, is probably the best bet for Apple.

Foolish bottom line
This is speculation, albeit of the reasonably informed variety, so Apple's A8 may be wildly different from the guesses outlined here. On top of that, there are many other aspects of the SoC that will need to be updated and enhanced, depending on the kinds of features that the new phone supports. Expect a faster system-level cache and potentially a wider LPDDR interface, an improved image signal processor, and perhaps other dedicated blocks to support features that we don't even know about yet. In short, the A8 should be a chip fit for the world's best smartphone.  

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The article Apple's A8 Probably Won't Be a Quad-Core originally appeared on Fool.com.

Ashraf Eassa owns shares of Imagination Technologies. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Imagination Technologies. 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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Can These Coming Moves Keep Zynga's Turnaround Going?

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Social game developer Zynga has engineered a respectable comeback of late. After one of the most spectacular post-IPO crashes in recent memory, its shares are trading hands today some 60% higher than they were just three months ago.

However, as Zynga's new management team sees it, the company is just getting started. And recently, it announced a coming set of moves that are aimed at supporting and sustaining its plans for a more prosperous future.

Zooming Zynga
Under recently minted CEO Don Mattrick, Zynga plans to solidify its core gaming audience in the coming months by launching revamped tablet versions of three of its most popular gaming titles: Words with Friends, Farmville, and Zynga Poker

Source: Zynga.


The hope is that by keeping its core constituency as engaged as possible, Zynga will be able to develop newer titles that could help it gradually expand its overall presence in the gaming space. And while the moves do little to address some of the more fundamental issues with its business model, this should all the more imperative given mobile gaming power King's coming IPO as well.

In the video below, tech and telecom analyst Andrew Tonner looks at Zynga's big-time plans and what they mean for investors.

A better way to invest in growth stocks than Zynga
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The article Can These Coming Moves Keep Zynga's Turnaround Going? originally appeared on Fool.com.

Andrew Tonner has no position in any stocks mentioned, and neither does The Motley Fool. 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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Down 30%, Worth a Look

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It's never a good sign when the first paragraph of a press release announcing clinical trial results for one disease starts talking about the other trials where the drug is being tested. Investors didn't buy the smokescreen XOMA put up on Tuesday when it announced the results of the phase 2 trials testing gevokizumab in patients with erosive osteoarthritis of the hand, or EOA. Shares ended Wednesday down 28% and it's fell a little more today.

While XOMA is still testing gevokizumab in multiple indications, the loss of EOA is a big blow given the market potential for the disease. The failure could also be a sign that gevokizumab isn't as active as XOMA and investors have hoped, although I think that negative view might be a bit of a stretch.

In one of the phase 2 studies, gevokizumab seemed to be performing well after 84 days of treatment, but then, in the latter half of the trial, the placebo group improved, negating the difference seen in the first half. By day 168, the difference wasn't statistically significant.


This type of placebo effect -- patients getting placebo shouldn't improve -- is all too common for diseases where patients report how they're feeling. For example, in one of Pfizer's trials of Xeljanz, its rheumatoid arthritis drug, 27% of patients reported a 20% improvement in their symptoms despite having taken nothing that should help their disease. Pfizer was still able to show statistical significance because Xeljanz works so well, but not every rheumatoid arthritis drug has been so lucky.

Glimmer of hope
When XOMA looked at patients with more severe disease, the placebo group didn't fair nearly as well, which supports the placebo effect hypothesis; it's harder to trick your mind into thinking you've improved when you're in severe pain.

Fortunately, the company doesn't seem to be latching onto the subset of data. XOMA has decided not to move gevokizumab into a phase 3 program in a broad EOA indication, and seems to be downplaying the potential in severe EOA in the press release: "It is possible these observations, as well as further analyses, could provide a reasonable group to study in future trials but it is too early to tell at this point."

"Possible," "could," "too early," all sound good to me, given that XOMA is older than dirt (in biotech years), having produced failed idea after failed idea and a few not-so-profitable successes. XOMA doesn't need to be taking any long shots at this point.

Other opportunities
While the decline in XOMA's stock price is deserved given the decrease in sales potential if the company isn't going to pursue EOA, gevokizumab is far from dead. It's shown pretty good phase 2 results in two different indications.

Phase 3 trials in two related eye diseases, Behcet's uveitis and non-infectious uveitis, have already begun. The trial for Behcet's uveitis, run by XOMA's partner Servier, should read out in the middle of this year. Enrollment in the two trials for non-infectious uveitis has been slower than expected, but XOMA will have data eventually.

For pyoderma gangrenosum, a rare inflammatory skin disease, XOMA is scheduled to have an end-of-phase-2 meeting with the FDA to help design a pivotal trial. Given the unmet need, a single phase 3 trial should be sufficient to gain approval. And there's potential for gevokizumab to work in other inflammatory diseases, such as severe acne, autoimmune inner ear disease, and other diseases that are mediated by interleukin-1 beta, which gevokizumab inhibits.

At a market cap of $600 million, XOMA looks like a decent orphan drug company investment for investors willing to hold for a few years.

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The article Down 30%, Worth a Look originally appeared on Fool.com.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools 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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2 Tech Stocks Trading Lower for Your Watchlist

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Have new money to invest? Two market-leading tech stocks -- Apple and LinkedIn  -- have sold off recently. Trading lower, they're looking enticing.

Apple and LinkedIn are down about 7% and 8%, respectively, in the past three months.

AAPL Chart


AAPL data by YCharts

Not only do the reasons for both stocks' sell-offs have very little merit, but both stocks have great opportunity ahead.

LinkedIn

Image source: LinkedIn.

Shares fell sharply when the company reported fourth-quarter results. The likely reason for the sell-off was slowing revenue, member, and engagement growth -- all very important metrics for a company with so many forward-looking assumptions priced into the stock. But as the world's leading pure-play in online professional networks, 47% year-over-year revenue growth in the quarter is still robust and exciting.

Further, LinkedIn could be extraordinarily profitable over the long haul considering its massive gross profit margin of 87%, putting even Google's coveted 57% gross profit margin to shame.

Finally, LinkedIn's recent launch of its Chinese-language website has given management confidence that it can grow its members in the major market from just 4 million to 140 million. That would boost LinkedIn's total members by about 50%.

Apple
 

Apple shares also sold off sharply when it reported its most recent quarterly results, with shares falling from levels around $550 to about $500. The reason for the sell-off can likely be attributed to less iPhone sales than expected. With just 7% year-over-year growth in iPhone unit sales, the Street is concerned that Apple's largest and most profitable business segment may slow even further. Though shares have recovered slightly since, the stock is still looking enticing.

Still boasting the lion's share of smartphone and tablet global profits, Apple looks poised to continue to be a leader in mobile hardware going forward. And with Apple CEO Tim Cook promising new product categories this year, investors who buy shares now are getting a stock priced for very little growth with the added bonus of potential upside from new categories.

Then, of course, there's Apple's opportunity in China. With a recent arrangement to sell its iPhone at the world's largest carrier, China Mobile, Apple has greater access to the world's largest smartphone market -- a market IDC predicts to grow 20% and 10% year over year in 2014 and 2015, respectively.

Both powerful and proven brands in their respective industries, these companies are worth a closer look at these lower levels.

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The article 2 Tech Stocks Trading Lower for Your Watchlist originally appeared on Fool.com.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Google, and LinkedIn. The Motley Fool owns shares of Apple, China Mobile, Google, and LinkedIn. 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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1 Key Reason the Rite Aid Rally Should Continue

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Rite Aid Corporation has been on a tear lately, with the stock climbing more than 33% year to-date. Shares of Rite Aid were swapping hands near the stock's 52-week high on Wednesday, with shares priced at $6.74 apiece in mid-day trading. While the stock took back some of those gains today to trade around $6.61, that's still a refreshing change of pace from where Rite Aid traded last April at around $1.70 per share.

Nevertheless, the question on many investors' minds now is whether shares of Rite Aid have more upside from here. Let's take a closer look at what has been driving the stock higher in the past year, and what investors can expect from Rite Aid in 2014.

Choosing the rite path
Rite Aid's decision to renew its longtime partnership with drug distributor McKesson is one of the more recent catalysts fueling the stock's price gains. Earlier this month, Rite Aid said it would extend its partnership with McKesson through 2019. McKesson will provide the sourcing and distribution of brand and generic drugs to Rite Aid stores during this five-year period.


Rite Aid is confident that the arrangement will create supply-chain efficiencies, as well as help the pharmacy retailer provide better service to its customers. Investors seem to agree with this verdict. The stock jumped more than 5% on this news last month. Fellow Fool Daniel Jones is confident that strategic partnerships such as this are the key to Rite Aid's future success.

The drugstore chain has done a phenomenal job of turning its fortunes around during the past year. In fact, fiscal 2013 marked one of the best years in Rite Aid's 50-year history, as the company was able to return to profitability. To get there, Rite Aid's management aggressively closed underperforming stores, and focused on transforming the company into a wellness destination. Rite Aid operated 4,587 locations as of March, down from 4,623 stores a year ago.

With the chain's recovery on track, let's look at one key reason its stock should continue to move higher in the quarters to come.

Taking care of customers
One catalyst going forward is the company's push to offer more pharmacy services outside of prescription refills. Rite Aid was able to grow its immunizations program as much as 60% in fiscal 2013, as the company administered nearly 2.4 million flu shots. This is important because immunizations like flu shots often carry profit margins of up to 50%, according to the Wall Street Journal. On top of this, administering flu shots gives Rite Aid the opportunity to sell customers on its other health-care services, such as diabetes screenings. Additionally, Rite Aid now offers Medication Therapy Management services, which it hopes will help attract more customers that are 65-years and older who suffer from multiple chronic conditions such as heart disease, arthritis, and diabetes.

More than 800 Rite Aid stores have now been remodeled into Rite Aid Wellness centers. This strategy appears to be paying off. The retailer announced today that pharmacy same-store sales increased 3.1% last month, while total drugstore sales in February spiked 2.4%, to $2.5 billion. Looking to the year ahead, the company plans to continue reinvesting in its store base by converting another 400 locations to the Wellness format in 2014.

Ultimately, by reformatting its store layouts around health and wellness, Rite Aid is transforming people's perception of its brand. If these turnaround efforts are able to drive more traffic to its stores, the rally in Rite Aid's stock could also continue.

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The article 1 Key Reason the Rite Aid Rally Should Continue originally appeared on Fool.com.

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

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This 149-Bagger Has Been Selling Chimera, Fusion-io, and SanDisk

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The latest 13F season is commencing, when many money managers issue required reports on their holdings. It can be worthwhile to pay attention, as you might get an investment idea or two by seeing what some major investors have been buying and selling.

For example, consider Appaloosa Management, founded by investing giant David Tepper, and known for investing in the debt of companies in distress. Tepper's investing history includes debt and stock in companies such as Enron and Worldcom. He made billions on bank stocks in 2009, after they had imploded and before they recovered. More recently, he invested in many housing-related companies. In a letter to shareholders last year, Tepper noted that, if one had invested $1 million in his hedge fund in 1993, it would have grown to $149 million during the past 20 years. Investing in the S&P 500 instead would have left you with $5.3 million. Tepper's performance reflects an average annual net gain of 28%. Wow.

Appaloosa Management's latest 13F report shows that it reduced its positions in Chimera Investment Corporation , Fusion-io, , and SanDisk Corporation .


Chimera Investment is a mortgage REIT (mREIT) that profits from mortgage-backed investments, and yields a whopping 11.3%. Bears worry about its vulnerability to interest-rate swings, but Chimera got a boost recently when new Fed chair Janet Yellen said that she aims to keep rates low for the time being. Chimera's stock has been in penny-stock territory lately, and it may not be able to maintain its listing on the New York Stock Exchange. It has also been the subject of some accounting-related head-scratching. A recovering housing market can help Chimera's prospects, but it might still not be the best bet in that arena.

Fusion-io is focused on technologies such as flash memory and solid-state drives, and has been turning itself around following lowered expectations and the departure of some key executives. Its second quarter featured estimate-topping revenue and earnings that sent shares up, but both numbers have been shrinking. Management noted: "As cloud computing and web services continue to grow, our customers invest in flash in tandem with their own customer growth. These investments are often substantial, but as we've said in the past can be non-linear in nature." With its industry consolidating, some see Fusion-io as an acquisition target .

Flash-memory specialist SanDisk reported a strong fourth quarter, with revenue up 12% over year-ago levels, and non-GAAP earnings surging more than 50% thanks to a profit-margin expansion. Its solid-state drive (SSD) business is growing briskly, and has benefited from the spread of mobile technology. Bulls like its prospects in China, as it supplies mid-market smartphones, among other things. Bears worry about pricing pressures and whether SanDisk can keep costs under control. The company initiated a dividend last year, and it recently yielded 1.2%.

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The article This 149-Bagger Has Been Selling Chimera, Fusion-io, and SanDisk originally appeared on Fool.com.

Selena Maranjian, whom you can follow on Twitterhas 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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Is This Goldman Conviction Buy Really a Buy?

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Electronics manufacturing services company Jabil Circuit was down in the dumps late last year after issuing a horrible outlook. But 2014 has started on a positive note for Jabil after Goldman Sachs upgraded the company from Neutral to Conviction Buy. Goldman analyst Mark Delaney is of the opinion that Jabil could be a good long-term buy and the stock's cheap valuation was one of the reasons behind the upgrade.

Delaney has a price target of $20 for Jabil, and believes that the company is in for steady earnings growth after a period of weakness last year. Jabil had to contend with numerous tailwinds at the end of 2013 due to weakness at key customers such as BlackBerry, Apple , and Cisco . However, given the company's cheap trailing P/E of less than 10 and the prospects of its clients engineering a turnaround, Jabil might prove to be a value play going forward.

Apple goodness on the way?
Jabil suffered when BlackBerry's latest turnaround effort -- the BB10 -- failed to take off. As such, Jabil decided to disengage with BlackBerry and instead focus on more profitable propositions. So, the company can now move forward without carrying the baggage of a failed client in the form of the Canadian smartphone maker.


Now, Jabil can focus on better opportunities from Apple. Apple taps Jabil for manufacturing plastic cases for the iPhone 5c and the metal exteriors of the iPhone 5s, according to WSJ. However, the company saw an unanticipated shift in demand from Apple as the iPhone 5c didn't turn out to be as successful as expected. But, Jabil management remarked that "[w]e're well-positioned with this customer, and our relationship is strong. We'll reallocate assets and resources to different revenue streams for the same customer over the next 2 to 3 quarters." 

So, it can be assumed that Jabil is working with Apple for its upcoming products, and the two to three quarter timeline suggests that the company can turn in a strong second half this year. Going by rumors, it is expected that Apple has a strong and innovative pipeline for 2014. Last year, Apple CEO Tim Cook indicated that consumers can expect new (read: innovative) products in 2014, and recent rumors corroborate this claim.

According to the South China Morning Post, Apple could release the next iPhone in two versions with two different screen sizes.  Cupertino is reportedly working upon 4.7- and 5.5-inch versions of the iPhone 6, both of them armed with sapphire displays. Numerous sources across the web carry the same view as Apple is looking to fight the likes of Samsung, LG, and HTC, all of which have been arming their flagships with large screens.

If Apple indeed follows this path, it could bring new buyers into its fold. Bigger screen phones are quite popular in Asian markets such as India and China (20% of smartphones shipped in China last year had at least 5-inch screens), and Samsung expects this trend to carry over into the U.S. and Europe. So, as Apple probably works on better devices and generates higher demand, Jabil's diversified manufacturing segment (DMS) will see better business.

Jabil's DMS segment accounts for half of its top line, and this is the segment that serves Apple. So, with a potential uptick in Apple's prospects this year with bigger phones and a probable iWatch, Jabil can count on this customer for growth.

Another big opportunity
The next important segment which can see an uptick in the long run is enterprise and infrastructure. This business closed the year on a weak note as Cisco, another of Jabil's key customers, reduced its growth forecast. However, Cisco is working on something big in the form of the Internet of Things.

Cisco believes that there will be 50 billion connected objects by 2020, generating a huge stream of data as objects such as alarm clocks and coffee makers communicate with each other. The expected boom in connected devices due to the Internet of Things will result in higher demand for communication equipment, resulting in more business for Jabil.

Final words
Jabil has seen difficult times of late, with shares down close to 20% in the last six months. However, this has made the stock extremely cheap as we saw above. If the company's business gradually picks up going forward, driven by the prospects of its clients, Jabil will be a good buy at current levels.

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The article Is This Goldman Conviction Buy Really a Buy? originally appeared on Fool.com.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple and Cisco Systems. The Motley Fool owns shares of Apple. 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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