Don't be surprised if the share prices of LED manufacturers pop in the coming years. The LED lighting industry -- worth about $4.8 billion in 2012 -- will continue to grow 45% annually until 2019, according to Wintergreen Research. The research firm believes that sliding LED prices and rising environmental concerns will be the key drivers of growth. Which companies stand to benefit from this expected change in light bulb consumption? Let's find out. 

Leveraged growth
Cree is one of the leading LED manufacturers in the world. It has played a vital role over recent years in pushing down LED bulb prices to practical price points below $20. Its efforts have in turn sparked the demand for LED bulbs that has stimulated growth in the industry.

Regarding market exposure, in the previous quarter Cree generated about 58% of its overall revenue from the sales of its LED bulbs, with about 9% global market share. The LED maker leads the industry not only by market share, but also in terms of innovation and growth. 

Despite intensifying market competition and sliding LED prices, Cree recently managed to expand its quarterly gross margins by 180 basis points on a year-over-year basis. This margin expansion was driven by its low-cost products and high factory utilization rate. Its LED sales also increased 3% over the same period. 

Management expects its factory utilization rate to remain at elevated levels, which should theoretically translate into sustained cost benefits. Additionally, Cree's LED cost reduction measures, which were just implemented in its previous quarter, should further add to its cost benefits in its next quarter. 

Cree is looking like a great way to tap the expected explosive growth in the global LED lighting industry.

Diversified growth
General Electric is another LED-focused lighting solutions provider. The conglomerate solidified its foothold in the industry by acquiring key LED lighting and fixture companies over the recent years. Its investments in the field, in turn, are driving its top-line growth.

GE's appliance and lighting division posted sales of $1.857 billion in the first quarter of fiscal year 2014, representing about 5.4% of its overall revenue. More importantly, the segment posted a spectacular growth of 33% on a year-over-year basis -- faster than GE's most mature business divisions. 

The conglomerate unveiled six new LED bulbs over the recent months. Management expects these launches to further propel the growth of its lighting division in the next quarter. 

Risk-averse investors looking for diversified growth should therefore consider investing in GE. It has established operations and distribution channels in about 150 countries, which suggests that the LED maker won't have to struggle to find willing buyers. Plus, its diversified operations will result in balanced growth. 

Growth from retail operations
Amid this war of LED manufacturers, Wal-Mart stands to benefit as well. The retail giant has tied up with China-based lamp vendor TCP to bring LED bulbs to the U.S. at price points below $10. 

Since these bulbs are priced well below equivalent offerings from Cree and GE, Piper Jaffray's Jagadish Iyer concluded last year that OEMs like Cree will lose their competitive edge. Things have changed since then, though. 

After months of usage, consumers have reported that Wal-Mart's relatively inexpensive LED bulbs have flickering and flashing problems. Needless to say, the retailer's pricing advantage will fade away if consumers continue to face such problems. 

Foolish final thoughts
The LED lighting industry has become hyper-competitive over the recent months. In such scenarios, it's rewarding to invest in industrywide leaders. Investors therefore might want to consider investing in GE and Cree to hedge their risks and balance their rewards.

The Mosaic Company (NYSE: MOS) has been one of the most active North American fertilizer companies in the last year. The company issued $2 billion in new debt last November, completed the acquisition of CF Industries' (NYSE: CF) Florida phosphate assets, executed an agreement to buy back a large number of shares, and agreed to acquire Archer Daniels Midland Co.'s fertilizer distribution business in Brazil and Paraguay for $350 million. 

Despite the structural challenges that the nutrient markets have been facing after the break-up of Belarusian Potash Company (BPC), it's impressive what Mosaic has been able to pull off both strategically and financially in the last few quarters.

The company reported first quarter adjusted EPS of $0.52, missing sell side estimates of $0.60. While shipments for both phosphate and potash were stronger, higher S&G and interest expenses contributed to the earnings miss. 

Improving global demand for potash and phosphate
Despite the earnings miss, the company saw better than expected shipments for both phosphate and potash, with phosphate shipments notably ahead of the company's guidance range. As highlighted by other fertilizer companies, improving global demand for potash and phosphate fertilizers was supportive and should be for the rest of the year.

After reaching a floor in late 2013, stability in pricing, particularly in potash, has brought buyers back to market. This has served as a tailwind for Mosaic and other potash producers including Potash Corporation (NYSE: POT) and Agrium (NYSE: AGU). On the other hand higher grain prices have also been supportive. Going forward, the company believes that Chinese, Indian, and Brazilian demand is likely to stretch deep into the second half of 2014 and offer support to potash and phosphate netbacks.

Brazil the shining star
In a move aimed at tapping the promising Brazilian agriculture market, Mosaic announced last month its decision to buy Archer Daniel Midland's fertilizer distribution business in Brazil and Paraguay for $350 million. As part of the deal, the company will acquire four blending and warehousing facilities in Brazil, one in Paraguay, and additional warehousing and logistics service capabilities. 

The acquisition will increase the company's distribution capacity in Brazil by 50% to 6 million tons, the majority of which are phosphate and potash. Brazil is one of the largest importers of fertilizers in the world. Due to the country's nutrient-deficient soil, the fertilizers needed for the country's huge annual crops of corn, soybeans, and sugar cane are largely met through imports. According to the company's CEO, James Prokopanko, the acquisition gives the company "a critical distribution platform in one of the world's fastest growing agricultural regions." 

While the Brazilian agriculture market continues to grow at one of the fastest growing rates in the world, it can be difficult to move crops and nutrients in the country because the transportation system is prone to bottlenecks.

Prokopanko commented on the acquisition:

Brazil is a very challenging country to get product from an offshore position into the farmer's hands ... they have issues with logistics, they don't have a great rail system, they don't have a Mississippi flowing through the country, and having access into the direct farm markets or into the farming region is an important part of getting our product to the marketplace ... Having port access, which is just terribly congested in Brazil, having our own facilities, having control of our own facilities is important and the expansions that we've put in place, both our internal expansions and the ADM acquisition will allow us to get product and be assured of getting our product to the market. 

Mosaic believes that given the structural constraints of the Brazilian fertilizer market the best way to gain additional market penetration is via build-out of storage, transport, and blending/bagging capacity. The company sees greater opportunity in phosphate in particular. Brazil is a heavy user of phosphates and has already become a good consumer of Mosaic's high-margin fertilizer, MicroEssentials. Additional production capacity for MicroEssentials (3.5 million tons by 2016) combined with greater distribution opportunity in Brazil is a healthy combination, as it would allow the company not only to capture the producer's share of profit but the distributor's share as well. 

Bottom line
As mentioned earlier, keeping in mind the structural changes the fertilizer industry has gone through in the past few quarters, it is very impressive what Mosaic has pulled off both strategically and financially in the last few months.

While the potash market is expected to remain oversupplied in the foreseeable future, the most promising driver for better than expected earnings and a breakout for the company's stock would be material, consistent improvement in phosphate profitability via synergies with CF, market share opportunities in Brazil, and increasing volumes of higher-margin MicroEssentials blends.

The markets have taken a walloping today, with the Dow Jones Industrial Average  sinking 178 points into the red as of 2:30 p.m. EDT. Upbeat earnings data from Cisco , the only Dow stock making a serious run into the green today, hasn't kept the price-weighted index afloat -- particularly not after Wal-Mart's own disappointing results took down the big retailer's stock. Let's take a look at what you need to know.

Cisco bounces, but Wal-Mart takes a hit
Cisco's recent earnings history hasn't been anything to get excited about, but the networking giant's stock has certainly excited investors today. Shares have jumped more than 6.7% so far today, by far the biggest mover on the Dow, after the tech company posted fiscal third-quarter earnings that beat on both the top and bottom lines. Cisco reported a per-share net profit of $0.51, topping analyst expectations by $0.03, and recorded revenue of more than $11.5 billion. Still, the company's overall revenue continued its downward track by declining 5.5% from the same quarter a year ago, while earnings without one-time items fell by more than 3%.

Despite that drop, Cisco is striking an upbeat tone heading forward. The company projects a drop in revenue of only 1% to 3% for the current quarter, better than the 5% that Wall Street expects. However, this company's fight isn't over yet. Cisco has faced big struggles in the emerging markets recently, particularly in China; it'll need to battle back in those promising economies to secure greater worldwide growth even with its fantastic results in the U.S. market, where orders jumped by 7%. Cisco is also still searching for answers in its core switching business, which saw sales fall 6% in the quarter. The company is taking a long-term view of its turnaround as it focuses on the Internet of Things and other promising growth niches. Cisco's window is one of years, not of the next quarter. Don't get overly excited by one quarter's good results; the safest bet is to wait until Cisco shows consistent signs of progress.

Source: Wikimedia Commons

Fellow Dow member Wal-Mart is bereft of smiles today, the stock down 2.5%, after its own earnings took a winter-related beating. Much has been made about the season's severe weather impacting consumers, and the effect hit Wal-Mart's net profit with a blizzard, dropping the mark by 5% for the quarter. Revenue ticked up by 0.8%, but Wal-Mart suffered a disastrous 1.4% drop in international sales.

Even worse for the big retailer, same-store sales at locations open at least a year dipped by 1.3%. Still, there are signs of optimism that bode well this stock's long-term future. The company's online business continues to thrive, with Internet sales up 27% for the quarter. Neighborhood Market locations, smaller stores looking to compete with the likes of drug stores on a local scale, also saw revenue gain 5% for the quarter and have emerged as a particularly bright spot in Wal-Mart's U.S. initiatives. The company's sales sluggishness remains concerning, but in light of the terrible winter and the certain gains, particularly in online sales, Wal-Mart is not yet in troubling territory. The retailer does expect U.S. same-store sales to fall flat in the next quarterly results, however; keep an eye on whether this trend continues throughout the rest of 2014 -- it could mean change is needed for this consumer giant.

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 WuXi PharmaTech have fallen more than 14% lower today after dropping by as much as 18% in early trading. The Chinese-based medical research company reported disappointing earnings and provided weak guidance after yesterday's closing bell.

So what: WuXi's first quarter produced $146.7 million in revenue, which was up 11% year over year and slightly ahead of the $145.4 million Wall Street consensus. However, earnings of $0.30 per share fell $0.09 short of what analysts want, and both top- and bottom-line guidance for the second quarter and the whole year now come in below Wall Street's expectations.

WuXi's second-quarter guidance expects revenue to range from $160 million to $162 million, with EPS in the $0.46 to $0.48 range. Wall Street had been seeking $164.5 million in revenue and $0.49 in EPS. WuXi's full-year guidance calls for revenue in the $660 million to $670 million range, with EPS in the $1.80 to $1.85 range. Wall Street had expected $670.7 million in revenue and $1.95 in EPS. WuXi's EPS guidance anticipates losses of $0.20 per share in foreign exchange forward contracts.

Now what: WuXi's EPS guidance still looks to top its 2013 EPS by about 14%, and revenue is expected to grow by roughly 39%. This divergence between top and bottom lines might worry investors somewhat, but a more reasonable assessment of this situation would simply highlight the divergence between WuXi's EPS and its share price over the past year. Over the past five years, WuXi's share price has grown nearly twice as much as its EPS, and the correction that began in early 2014 could simply be a return to trend. There may be a good bargain here, but with WuXi's P/E ratio still near multiyear highs, it's tough to say so right now. I'd watch cautiously for a better opportunity, which may arrive before too long.

According to a study by Morgan Stanley and Rystad Energy, by 2035 the world's oil demand will increase by 13%-26%, causing prices to increase to $125/barrel-$150/barrel. 

To meet the massive demand in the face of aging and depleting land-based oil fields, oil companies are having to increase their E&P (exploration and production) budgets enormously. In 2013, total global E&P spending was almost $650 billion. To put that into perspective, according to the CIA world factbook, in 2012 the entire global economy was $85 trillion. This means that $1 of every $130 in the world is spent on finding and producing oil. 

The location of new oil fields is the key to this article and the investment opportunities it presents. Between 2012 and 2030 conventional, land-based oil production is expected to grow at just  a 1% CAGR. In contrast, ultra-deepwater production will grow at a 19% CAGR. 

Recently a series of negative articles and opinions by Wall Street's leading analysts have maximized negativity about the offshore drilling industry: 

• An article in Barron's argues that oil will fall 25% to $75/barrel over the next five years.
• Barclays predicts up to 40% downside for offshore oil drillers due to a glut of new rigs causing plummeting day rates.
• Morgan Stanley and Citigroup predict falling day rates over the next two years will cause a collapse in the stock prices of offshore drillers.

Seadrill has a fleet of 49 rigs (34 UDWs), with another 20 to be delivered by 2016 (11 UDWs). With the most modern UDW fleet in the world (average age 3.2 years), concerns over falling day rates shouldn't apply to Seadrill. Ten out of Seadrill's eleven latest UDW contracts have been for higher day rates, including its highest rate ever ($653,000/day) signed in the fourth quarter of 2013.

With an almost 12% yield that even Barclay's calls "rock solid" and the stock trading at just eight times cash flows (25% below historical average), Seadrill is massively undervalued. In addition, management has recently undertaken a balance sheet strengthening plan to secure the dividend (and grow it gradually during the short-term weakness) while paying down debt.

Combine this with the 20% CAGR EBITDA growth management is projecting through 2016 (due to the fleet growth) and you have the potential for a great investment over the next decade, combining an already sky-high yield with the potential for dividend growth and substantial capital gains. 

Ensco plc  is my second favorite offshore oil driller for two key reasons.

First, it has the second most modern UDW fleet in the world (average age 3.9 years) with six new rigs to be delivered by 2016 (three of them UDW). Unlike Seadrill, which finances its new rigs with cheap debt, Ensco likes to mostly fund new rigs with cash flow -- a major reason why it has the lowest leverage ratio in its industry (27%).

In addition to a fast growing, super-modern UDW fleet, Ensco has the second highest yield in the industry -- 6%. With a payout ratio of 49% and cash flows predicted to grow by 12% annually, this dividend is not just safe but likely to grow in the future.

Noble Energy  is my third favorite offshore driller for three reasons.

First, the yield of 5% is the third highest in the industry, yet represents only a 25% payout ratio. 

Second, cash flow growth after 2015 (due to completion of its new build program) will fund dividend growth. 

Finally, it's spinning off standard rigs into a separate company (Paragon Offshore), leaving Noble a pure premium rig play. This will minimize exposure to short-term day rate weakness and further secure the dividend.

In addition, the Paragon IPO (summer 2014) will likely see Noble sell 20% of Paragon, resulting in further liquidity to pay down debt, secure the dividend, and grow it in the future.

Foolish takeaway
The current concern over offshore oil rig day rates is greatly overblown. The current price weakness is a terrific opportunity for long-term income investors to cash in on one of the strongest megatrends of the next few decades and achieve the trifecta of investing: high yield, fast growing dividends, and superior capital gains.

The Dow Jones Industrial Average was trading 173 points lower, or 1%, by midafternoon even after the latest Labor Department reported that initial jobless claims fell sharply by 24,000 to a seasonally adjusted rate of 297,000 in the week ended May 10. An explanation for the steeper than expected drop was the late Easter holiday, which makes it more difficult to seasonally adjust the numbers. Even with the holiday partially to blame for volatile numbers, claims have been hovering near post-recession lows throughout 2014, and that's a good sign.

With that in mind, here are two companies making headlines today.

Inside the Dow, General Electric's $17 billion bid for Alstom's energy business is on rocky ground after the French government on Wednesday gave itself the power to block foreign takeovers in industries it believes to be strategic for national health and security. That includes areas such as transportation, equipment, plants, and, of course, energy.

While Alstom has vocally backed General Electric's bid for its energy business, France would prefer that the German company Siemens come back a better offer. Paris would prefer more of an alliance between companies such as Alstom and Siemens, rather than General Electric potentially "absorbing" and perhaps dismantling the business.

"The French government is going to great lengths to intervene," said Bernstein analyst Steven Winoker, according to Bloomberg. "This particular announcement is not a positive one from GE's perspective. At the end of the day, I think you still will have a deal, I just don't know that it will be with GE."

General Electric has since voiced its opinion that the industrial project presented to Alstom is good for the company, its employees, and France. In a statement, GE also said it intends to preserve and even create jobs in France. General Electric investors would be wise to watch this situation -- this is a very valuable deal that would add to earnings immediately, as well as further GE's progress in returning to its industrial and energy business roots.

General Motors CEO Mary Barra in front of a Senate panel earlier in 2014. Source: General Motors.

Outside the Dow, General Motors is making headlines for yet another round of recalls. The automaker today announced an additional five recalls covering 2.7 million vehicles with problems ranging from windshield wipers, to tail lamps, to brakes. That brings General Motors' total recall this year to 18,  which covers more than 11 million vehicles.

If you think that number sounds absurdly high, you'd be right. Consider that so far in 2014 General Motors has recalled roughly six times the number of vehicles it has in recent full years. From 2009 to 2013, GM averaged 19 recalls covering 1.8 million vehicles per year, according to Automotive News.

To take it a step further, General Motors has single-handedly put the entire automotive industry on pace for the worst year of recalls ever. The previous record was set in 2004 at 30.8 million vehicles recalled.

General Motors investors, who no doubt hoped to put last quarter's $1.3 billion charge in the past and focus on a more profitable year ahead, will have to digest an additional $200 million charge in the second quarter for costs associated with today's recall announcement.

Investors who own a stock with an almost-11% yield need to be hyper-focused on whether that yield is sustainable. Windstream Holdings has repeatedly said it is focused on keeping its dividend, and investors want to believe that. However, there are three questions investors should ask, but they may not like the answers.

How do you transform while sliding down a hill?
Windstream's management says that it wants to transform into an enterprise-focused company. That sounds good, but the company can't ignore the rest of its customers. In the local telecom industry, CenturyLink appears to be setting the standard. Of the three big local companies, only CenturyLink reported either flat or positive growth in both its residential and business divisions.

By comparison, Frontier Communications reported a decline of at least 3% in both residential and business revenue. Windstream reported a 4% decline in its residential business, but the larger business division reported flat revenue growth on a year-over-year basis.

On the surface, it would seem that Windstream did well to just maintain its business revenue, but behind the numbers there is a far more troubling trend. Windstream reported that total business customers declined by 5%. So, the first question facing Windstream is, how do you transform your business when your customers are leaving?

Though revenue growth was flat, customer losses means that Windstream raised prices to offset these lost customers. In an industry that is essentially a commodity business, raising prices while losing customers would seem to be a sure way to fail in the long-run.

These measures are rising and that's not a good thing
The second question investors need to ask is, how long can Windstream support its dividend while debt and interest are rising? On a relative basis, Windstream carries significantly more debt compared to its peers. CenturyLink shows the least relative leverage with a debt-to-equity ratio of just 1.2. By comparison, Frontier's debt-to-equity ratio sits at almost 2. Windstream takes debt to a whole new level with a debt-to-equity ratio of almost 12.

It would be one thing if Windstream carried more debt and was growing faster, but that isn't happening. Even more disturbing, Windstream's interest cost as a percentage of operating income is higher than its peers as well.

In a not surprising turn, CenturyLink carries lower interest as a percentage of operating income at 49%. While Frontier carries a bit higher interest percentage at 76%, Windstream again takes this to a whole new level at 85%. So, it's not hard to imagine that a company paying more in interest could run into trouble supporting its dividend.

Don't assume this is for real
Windstream investors are likely clinging to the fact that the company's core free cash flow payout ratio came in at less than 75%. For a company that spent the last year or so with a payout ratio over 100%, 75% must look much better.

However, the third question investors need to ask themselves is, what will happen to the company's payout ratio under normal capital expenditures? CenturyLink and Frontier already boast much lower payout ratios at 48% and 54%, respectively. The difference between Windstream and these two gets much larger when you consider the company's plans for capital expenditures in 2014.

Windstream has already said it expects to spend between $800 million-$850 million on capital expenditures this year. In plain English, Windstream spent 30%-40% less on capex in the current quarter than it intends to for the year. This means the company's roughly $200 million in core free cash flow wouldn't be the same under normal circumstances.

If nothing else, this is the big risk facing Windstream investors. Under the company's own planned capex for 2014, the payout ratio would rise well above 100%. For a company that carries relatively more debt than its peers, and is losing customers, spending this much on capex may be the final blow to the sustainability of its dividend.

Everyone likes to play Cupid, and a Wall Street Playbook article on Seeking Alpha this morning argues that AT&T should pursue a match with Sirius XM Radio . Instead of spending $50 billion on widely reported plans to snap up DIRECTV , why not spend just $25 billion for Sirius XM?

It's not going to happen. 

For starters, unless Sirius XM's shares plunge sharply in the coming weeks and months it's going to take a lot more than $25 billion to take it over. It's not enough of a premium. Wall Street Playbook offers up Sirius XM's $19.4 billion market cap as a springboard for a buyout at $25 billion, but that ignores the satellite radio provider's substantial net debt position. Sirius XM's enterprise value is actually north of $22 billion, and that's before accounting for any of the additional shares and vested options that would kick in under a buyout scenario. Even if none of that existed, why would Sirius XM investors accept a 10% buyout premium to its $22.4 billion in enterprise value?

I know that the past few months have been disappointing for Sirius shareholders. The stock has shed 23% in value since peaking in October, and it's trading 8% lower year to date. However, is a 10% buyout premium really going to be enough for a stock that has been one of the market's biggest winners over the past five years? Sirius XM shares climbed more than 20% last year after soaring nearly 60% the year before. The company closed out its latest quarter with a record 25.8 million subscribers.

Liberty Media holds a controlling stake in Sirius XM. It calls the shots here. Liberty Chairman John Malone loves to trade assets, but he's not getting out of bed for anything short of $30 billion in this scenario. As long as the fundamentals don't start to crumble there's no pressing need to hand over the country's satellite radio monopoly for a pittance of a premium.

However, it's not just a matter of Sirius XM being too good for AT&T's theoretical $25 billion parachute. The deal also wouldn't make financial or strategic sense for AT&T. It may be gearing up to pay twice as much for the leading satellite television provider, but DIRECTV generated $5.2 billion in operating profit last year on $31.8 billion in revenue. Sirius XM clocked in with an operating profit of $1 billion on $3.8 billion in revenue. Paying twice as much for a company generating eight times the revenue and five times the operating profit isn't outlandish. Even if we turn to free cash flow, where Sirius XM's sweet scalable model really begins to narrow the valuation gap, DIRECTV is still generating nearly three times as much as Sirius.

Where would Sirius XM exactly fit in with AT&T? It may be a provider of premium satellite-based services, just like DIRECTV, but there's a big difference between video at home and audio in the car (and it's not just about pricing). DIRECTV offers to bundle its pay TV platform with Internet and telephone services, a market AT&T would love to corner.

It's also fair to say that antitrust regulators -- the same ones that AT&T and Sirius XM have already run into problems with in earlier corporate combinations -- would be very dubious here. At the very least it would cost Sirius XM shareholders' time, and that's not worth the hassle for a 10% premium.

Sirius XM doesn't need a buyout partner. It's better off on its own. AT&T doesn't need Sirius XM. It's better off with DIRECTV. A combination would be a lose-lose situation for both camps. Let them both win by remaining independent.

Legacy Reserves (NASDAQ: LGCY), a master limited partnership, or MLP, recently made a big, gas-oriented acquisition of property in the Piceance Basin in a deal with WPX Energy (NYSE: WPX). This acquisition signified a new strategic partnership between Legacy and WPX because Legacy acquired a working interest in the Piceance acreage that can be ratcheted up over time. 

The initial deal was for a 29% working interest in 276 billion cubic feet equivalent of proved reserves, 83% of which is natural gas. Net production is estimated to be 63 million cubic feet per day, with a reserve-to-production ratio of 12 years.

The deal was executed for $355 million in cash and 10% of incentive distribution rights, with the possibility of 20% incentive distribution rights should WPX continue to drop more assets down to Legacy. In plainer English, WPX can exchange more working interest rights to its Piceance properties, and in turn will get the rights to more of Legacy's distributions. This deal is expected to be immediately accretive despite the newly minted incentive distribution rights given to WPX.

Drilling for natural gas in the Piceance Basin. Source: Wikipedia

But isn't oil better?
At a time when most upstream MLPs are rushing to acquire oil-producing properties while de-emphasizing natural gas, it seems a bit peculiar to see Legacy going in the other direction. But the contrarian strategy is oftentimes the one that works out best in the end.

During the company's latest conference call, management confirmed that its strategy was not to designate a percentage of production as oil or gas, but to acquire properties that were the most accretive and carried the best value. Since many North America-based corporations are eager to get gassy assets off their balance sheets, Legacy was able to pick up a working interest in the Piceance for a reasonable price.

Source: Investor relations

The above chart shows just how relatively big this acquisition is. Production from the new Piceance acreage will account for almost a third of total production. Piceance acreage will account for over a third of the partnership's total reserves, too. This acquisition brings the partnership's total production to 47% oil, 46% dry gas, and 8% natural gas liquids. 

Because this deal really marked the beginning of a new strategic partnership, we should expect more deals between Legacy and WPX in the future. There are plenty more deals to be had: WPX has significant acreage in the mature, gas-rich San Juan Basin of New Mexico and yet more high-margin horizontal drilling acreage in the Marcellus shale, both of which Legacy may at some time be interested in acquiring a working interest in.  

Some final thoughts
Legacy finished this quarter with distributable cash flow at exactly 1 times the partnership's generous 8.6% distribution yield. That actually puts Legacy at the high end of its peer group. However, Legacy's hedging policy is rather weak compared to that of other upstream MLPs: Relatively little production is hedged past 2015. If you believe that oil and gas prices will go higher, however, Legacy may be the best choice among upstream MLPs for that same reason.

Overall, Legacy's contrarian 'value-oriented' strategy may prove to be the right one in the end, especially if natural gas prices reach and remain over $5. In such a case, Legacy would not only have more drilling inventory, but its net acreage would also have more value. 

Next Tuesday, Staples will release its quarterly report, and shareholders haven't been certain whether the office-products retailer will be able to produce long-term success under tough industry conditions. Even as it deals with brick-and-mortar rival Office Depot and its efforts to restructure itself to become more efficient, Staples has had to work hard to bolster its online presence to fight poaching from Amazon.com and other online-retail competition.

Staples has a long history of catering to business professionals with vast offerings of different types of office equipment, ranging from expensive technology and office furniture to everyday items like paper and pens. Yet the move toward online retail has left Staples working hard to build up its e-commerce presence even as Office Depot and other big-box rivals work to shore up their own competitive failings. Let's take an early look at what's been happening with Staples over the past quarter and what we're likely to see in its report.

Source: Wikimedia Commons, courtesy Anthony92931.

Stats on Staples

Source: Yahoo! Finance.

Can Staples' earnings recover?
Investors have gotten a lot less excited about Staples' earnings in recent months, cutting their views for the fiscal first quarter and the full year by about 20%. The stock has responded negatively as well, falling about 2% since mid-February.

Staples stock plunged after the company released its fiscal fourth-quarter results in March. Revenue plunged 12% on a 7% drop in same-store sales, as reduced traffic and lower amounts of spending from customers combined to disappoint shareholders. Staples CEO Ron Sargent said that customers were using fewer office supplies and migrating to online shopping, reducing the ability to sell add-on items and making them more value-conscious. In response, Staples will close about 225 stores by 2015, with expectations to cut costs by $500 million as a result.

Source: Nicholas Eckhart on Flickr.

The biggest threat to Staples comes from e-commerce, as Amazon unleashes its power to seek out and capture business customers. Fortunately, Staples already has a considerable online presence, and it plans to boost its online product availability fivefold by the end of this year compared to two years ago. Online sales jumped 10% in the fourth quarter, showing just how badly the physical stores are doing.

Yet Office Depot is also a sore point for Staples investors, as the rival office-products retailer seeks to boost its margins and integrate its merger with OfficeMax. Just last week, Office Depot shares soared when its first-quarter results showed better-than-expected earnings. Falling sales remain a problem for Office Depot, but cost savings from the merger have already started to appear. As Office Depot closes stores, Staples could see temporary bumps in business in those areas -- but there's no assurance that they'll prove to be long-term havens of customer activity even if Staples has exclusive access to them.

One interesting area for Staples involves the opportunity to have in-store post offices in conjunction with the U.S. Postal Service. The Staples deal with the USPS would utilize its physical-store presence and draw more customers into stores. The move has drawn the ire of labor groups, who don't want their jobs endangered by a shift away from government-owned post offices, but with massive losses at the USPS, the trend might well continue and help to boost Staples' flagging sales.

In the Staples earnings report, compare the performance of online and conventional-retail sales figures to see if the move toward e-commerce continues. To succeed, Staples will have to find ways to use its stores efficiently while also beating Amazon.com at its own e-commerce game.

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

If there was any doubt that Ballard Power Systems was a better bet on the fuel cell market than Plug Power , this quarter helped put that arguemnt to bed. Sure, both companies struggled to grow sales, but the one thing that Ballard has been able to do is something that continues to elude Plug Power: the ability to generate a gross profit on the sales of its product. This past quarter, Plug Power's gross margins slipped all the way to a negative 42%. 

This probably has investors in the company scratching their heads, and by the reaction on Wall Street, there aren't too many who were impressed with Plug Power's results, either. In the video below, find out more about whether this quarter was a hiccup before better times come and what investors should watch for in the coming months.

The Dow Jones Industrial Average  was hovering just eight points under breakeven at 1 p.m. EDT Friday after suffering a triple-digit loss on Thursday.

A ray of sunshine on the Dow this morning was Home Depot , which was up 1.1%.

But, lest we forget, just yesterday Home Depot led the Dow lower.

For investors in the home-retail giant, the past 48 hours of whipsaw trading represents a perfect microcosm for the stock's behavior over the last 12 months. Let's step back from the day-to-day movements for a moment, take the long view, and ask ourselves, "To buy, or not to buy?"

The roller coaster
Home Depot is a big-box hardware store that sells refrigerators, lawn care equipment, building supplies, and general wares for home improvement. It's no surprise that the company's fortunes took a hit during the real-estate crisis. 

From those depths, though, the company rebounded strongly. Investors lucky enough to buy when others were fearful have thus far been handsomely rewarded, as the stock is up 215% over the past five years.

However, that trend from the lower left to the upper right has largely ended over the past 12 months. Take a look at the price chart over that time period (Warning: beware of whiplash as you track the price):

HD data by YCharts.

Why is it that Home Depot has been both up over 6% and down over 6% from one year ago today? More importantly, where is it going next?

Some big-picture considerations
Home Depot's stock price will always have some correlation to the overall market sentiment toward the housing sector. That's just the reality for a giant corporation with such a large presence in a specific industry. 

The stock fell as rates rose last year and investors saw the refinance boom come screeching to a halt. 

Then sentiment changed through the end of the fall and into the early winter. We were all writing about how the housing market was finally gaining some momentum and turning a corner. Some of us, ahem, even thought it might be the last chance to buy.

Then came the polar vortex and an abnormally cold winter, and the opinion du jour is now that the housing market is once again fragile and on the ropes.

That was the story until today's housing starts data showed a strong rebound in April. And so the whipsawing continues.

The zigs and zags in Home Depot's value are likely just a reflection of these broadly held, and admittedly short-term, views on the housing market. 

Forget the zigs and the zags, where's this stock going in five years?
It may take five years or longer, but the U.S. housing market will, with certainty, find stability. People need somewhere to live. It's that simple.

To put Home Depot into context, we'll compare it against top rival Lowe's .

Over the past five years, quarterly revenue at Lowe's and Home Depot have tracked very closely. 

HD Revenue (Quarterly) data by YCharts.

However, looking at the numbers on a percentage basis indicates Home Depot may have found a slight edge since the first quarter of 2013. Sales at these companies' stores decline or rise on a seasonal basis every year. Since the first quarter of 2013, Lowe's falls have been deeper than its rival in the off seasons and have not reached Home Depot's peaks for the spring and summer highs.

You can clearly see this effect by comparing the change in the companies' annual revenue totals. Over the past five years, Home Depot sales are up 19%, versus just 13% at Lowe's.

For mature companies such as Home Depot and Lowe's, it's not enough to just make a ton of sales. Those sales have to translate into profits. 

Once again, Home Depot sets itself apart from Lowe's in this metric. It doesn't matter if it's a high season or low, Home Depot has outperformed quarter after quarter after quarter.

HD Profit Margin (Quarterly) data by YCharts.

What's even more impressive is how that margin is widening through time. Home Depot today squeezes out more profit per dollar of revenue than ever before compared to Lowe's. 

Let's talk value
After this cursory analysis of the earning power driving Home Depot and Lowe's, it seems clear that Home Depot is the better profit machine for investors interested in exposure to the home improvement industry. It even has a better dividend yield: 2.4% versus 1.6%.

But does its price today represent a value worth buying?

Home Depot currently trades at a price-to-earnings ratio of 20.5 times, per data from Yahoo! Finance. Lowe's trades at 21 times earnings. 

This all bears repeating: Home Depot has better sales, better profits, and a better dividend than Lowe's. And Home Depot is cheaper.

But this is just a snapshot in time. We still need to determine how Home Depot is priced relative to its historical value. 

Looking at the two companies' P/E ratios over the past 11 years, it seems Home Depot is overvalued, even as the P/E ratio has declined over the past six to eight months.

HD P/E Ratio (TTM) data by YCharts.

The last time Home Depot traded at these levels was in mid-2010, and before that it was at the onset of the real-estate bubble in 2004. 

So despite Home Depot's strong performance, particularly relative to Lowe's, value investors have probably missed the opportunity to buy the retailer at an attractive valuation -- at least for now.

Even though I'm not buying today, I'll keep my eye on this stock. As we established at the beginning of the article, Home Depot shares have been on a roller-coaster ride the past 12 months. There may be an oppportunity to buy soon at a valuation that can get you excited.

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When Molycorp was a hot stock in 2010, it was because rare earth mineral prices were through the roof as China cut back exports. As the theory went, if Molycorp could open its mine in a timely manner, it could take advantage of those high prices and make a mint for investors. 

But the inelastic demand for rare earth minerals that led to high prices in 2010 also resulted in a rapid drop in prices when Lynas in Australia and Molycorp opened their mines. Suddenly, the tiny rare earth mineral market was fully supplied and buyers didn't have to pay high prices for the materials they needed. 

The resulting impact on Molycorp has been falling revenue, even with increased production and massive losses quarter after quarter. There seems to be no end in sight to the financial challenges and, before long, another share offering may be needed to stay afloat. In the video below, specialist Travis Hoium covers Molycorp's challenges and why this is an investment you should stay far away from. 

Warren Buffett's Berkshire Hathaway just inked a deal to buy power-line owner AltaLink in Canada. That extends Buffett's bet on the power sector in a big way. You can follow his lead by adding U.S. electric transmission company ITC to your portfolio.

What's the deal?
SNC-Lavalin Group and Berkshire Hathaway just agreed to a nearly $3 billion deal whereby Berkshire will acquire SNC's AltaLink. AltaLink owns 7,500 miles of electric transmission lines in Canada. This adds on to Buffett's already big energy division, which was recently renamed Berkshire Hathaway Energy from MidAmerican Energy.

This is an interesting purchase because of what it says about the power industry. It's easy to get lost inside of $200 billion market cap Berkshire Hathaway, but the energy group has been growing via acquisition and now has around $70 billion worth of assets under its control. It serves 8.4 million customers. For reference, Duke Energy  has 7.2 million customers.

In other words, Buffett is betting big on utilities. That alone is worth notice. However, the industry is in a state of flux. Indeed, companies like SunPower are making utility customers into utility competitors.

(Source: Emmanuel Huybrechts, via Wikimedia Commons)

Customer/Competitor
How's that? SunPower not only makes top-notch solar power cells, but it's increasingly selling and installing them on the roofs of homeowners and businesses. For example, SunPower just inked a deal with Pajaro Valley Unified School District in California to install 1.2 megawatts of solar power at five schools. That's expected to offset nearly 75% of the electricity used at the schools.

The interesting thing, however, is that California is a net metering state. That means that any excess power generated during the day can, essentially, be sold to the power company at government-mandated subsidized prices. This is a virtual gold mine for a company like SunPower because it puts what would otherwise be expensive solar installations within reach of the average (or at least affluent) Joe.

While Pajaro Valley's installation is a huge one, most are smaller. But, the company started 2014 with 20,000 customers in its residential lease program. With that kind of scale, small installations start to add up to a potentially big problem for utilities.

(Source: Lucas Braun, via Wikimedia Commons)

After two years of red ink, SunPower turned a profit of $0.70 a share last year. And, according to CEO Tom Werner, "generated significant cash to fund our growth." Increasingly that includes not only selling the solar cells that utilities need to meet environmental mandates, but also the rooftop solar installations that are turning customers into erstwhile competitors.

Getting ready for the shift
So Berkshire Hathaway's move to by Canadian transmission lines fits well with a future where owning the "pipes" that move power around is a more reliable business than owning power plants. And that is exactly ITC's business. ITC owns 15,000 miles of transmission lines across seven states.

A decade's worth of top line growth shows the stability of the business. With a dividend that's been increased every year since being initiated in 2005 backing that up. Earnings haven't gone up every year, but the trend has been a steady, if not annual, upward march: ITC earned $0.03 a share in 2004 and $1.47 last year—the seventh consecutive bottom line advance.

Doing it the Buffett way
No one can invest just like Buffett because only Buffett controls Berkshire Hathaway. However, that doesn't mean you can't follow his lead. ITC is essentially a U.S. version of AltaLink. By utility standards, ITC's dividend yield of around 1.5% is paltry (Duke, for comparison, yields about 4.3%), but the company is probably among the best positioned to succeed in an energy future where power plants aren't the reliable revenue generating assets they once were. SunPower isn't a bad bet either, but government clean energy mandates are, at present, a key to its success that need to be closely monitored.

Yesterday Warren Buffett revealed a stake in Verizon that is pushing the stock higher today as the Dow Jones Industrial Average treads water. As of 1:30 p.m. EDT the Dow was down 16 points to 16,431. The S&P 500 was at breakeven.

On a slow day for the Dow Jones, the big news is that Warren Buffett's Berkshire Hathaway took a stake in Dow component Verizon. Berkshire revealed in its 13-F that it had bought 11 million shares of Verizon, worth just over $500 million. Additionally, Berkshire added 17% to its stake in fellow Dow stock Wal-Mart, buying 8.6 million shares to bring Berkshire's total holding to 58 million, or 1.8% of Wal-Mart.

Verizon is up 2.3% on the day. Over the years Buffett has had a strategy of buying companies with large moats at fair prices and holding them forever. This strategy was encompassed in one of his most famous quotes: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Studies have shown that Buffett's definition of a "fair price" is generally 10 times pretax earnings. The purchase of Verizon fits that bill perfectly.

Verizon's moat comes from three main places. First, Verizon has large holdings of spectrum, without which no competitor can arise. Second, there are large switching costs for consumers in the mobile space, particularly because of Verizon's history of requiring two-year contracts. Third, Verizon is part of an oligopoly that controls the U.S. mobile market -- AT&T, T-Mobile, and Sprint are the only companies that can be considered competitors. The biggest risk to the oligopoly is increased regulation or a price war among telecoms, which could well be sparked by T-Mobile or Sprint. Sprint in particular is now backed by Softbank, and its billionaire president Masayoshi Son has promised to start a "massive price war" if allowed to merge with T-Mobile. Price wars are detrimental to the entire industry, so the odds are small but present.

Fair price
Verizon also meets Buffett's definition of fair price now that it controls all of Verizon Wireless, having bought out Vodafone's stake in the former joint venture.

VZ Pre-Tax Income (Annual) data by YCharts.

With a market cap of $203 billion, Verizon's stock currently trades at seven times pretax earnings, so if history is any guide, we can expect to see Buffett purchasing shares again in the future.

Last January, the FTC halted Fortune Hi-Tech Marketing, froze its assets, and charged its executives with operating an illegal pyramid scheme. This week, the FTC reached a settlement with Fortune Hi-Tech, shuttering the company permanently, seizing assets, and banning its operators from the multilevel-marketing industry.

A similar fate could soon befall Herbalife . With an FTC investigation ongoing, shareholders could, at virtually any moment, have their investment completely wiped out. Although such an outcome remains highly uncertain, the language used in the FTC's most recent news release should frighten Herbalife shareholders -- since much of what the FTC found disturbing about Fortune Hi-Tech Marketing applies equally to Herbalife.

Getting rich quick:

The FTC and the states charged the Fortune Hi-Tech Marketing (FHTM) defendants with deceiving consumers by claiming they would earn significant income through selling various products and services if they signed up as FHTM representatives.

Although Herbalife freely admits that few of its distributors actually earn any money selling Herbalife's products, its management team has a long history of making grandiose promises. Herbalife's founder, the late Mark Hughes, was perhaps the most aggressive when it came to selling the Herbalife dream:

Let me tell you how much money you're gonna be making... write this down. Put down your total income that you're making per month, right now. Write that down. Minimum, five times what you're making at this moment. Write that figure down. Stare at it. Get a feeling of it. Where could you be living? Some of you are going to be making 10 times ... what you're making right now.

Hughes is long gone, but Herbalife's top management, including board member John Tartol, have continued his legacy. In a video freely available online, Tartol tells distributors just how much money they could be making:

You could become a Millionaire Team member ... Wow! Can you imagine getting to tell people that you're part of the Millionaire Team! Such an honor! ... it's possible to earn a total of $5,500 or more [per month] ... Those who have reached the President's Team level ... could potentially be earning a total of $13,000 and up, every month!

Targeting Spanish-speaking immigrants:

In recent years, [Fortune Hi-Tech Marketing]  targeted Spanish-speaking and immigrant communities.

Ultimately, if Herbalife is found to be a pyramid scheme, the ethnicity of its victims shouldn't matter. Still, it's interesting that the FTC would choose to note this in its Fortune Hi-Tech Marketing release. The majority of Herbalife distributors in the U.S. are Hispanic (Herbalife's management reported in 2010 that almost two-thirds of its net sales in the U.S. were from Hispanics). The Hispanic Federation, a group that provides grants to Latino nonprofit agencies, urged the FTC to investigate Herbalife last year, noting that the promise of Herbalife riches could be of particular appeal to poor, Hispanic immigrants.

Start-up costs and renewal fees:

[Fortune Hi-Tech Marketing p]articipants were required to pay substantial start-up costs and monthly fees to retain their positions with the company. 

Fortune Hi-Tech Marketing required new participants to pay $249 up front. Herbalife's official start-up fee is less -- $59.50 or $92.25 -- but the company operates with the same basic structure. After purchasing am "Herbalife Member Pack," Herbalife distributors must earn a set number of "volume points" to retain their positions in the company.

These volume points are earned when the Herbalife distributor, or people the distributor has recruited to become new distributors (to a limited extent), purchase products from Herbalife. Each product (Herbalife's Formula 1 shake mix, for example) has a certain set volume point value that does not vary by region. In the U.S., one volume point roughly corresponds to $1 in terms of products purchased.

Herbalife requires that its members "requalify" on an annual basis in order to retain their positions within the company. In order to requalify, they must pay an annual fee and earn a set number of volume points every year. In an Herbalife instructional video, Tartol and Herbalife distributor Leslie Stanford explain:

To requalify as a qualified producer, all you have to do is accumulate at least 2,500 volume points within a 1- to 3-month period each year ... [To requalify as a] supervisor, achieve 4,000 volume points in one month ... or achieve 2,500 volume points in each of two consecutive months ... the third way you can requalify as supervisior is with a 12-month requalification method ... you have two options, you can accumulate 4,000 volume points within the 12-month requalification period ... all of those volume points must be unencumbered.

If this sounds confusing, it's because it is (note: the SEC warns would-be multilevel-marketing participants to beware complex commission structures). Suffice it to say, if you're a Herbalife distributor with any sort of downline, you will need to purchase potentially thousands of dollars of Herbalife product on an annual basis to retain your position within the company. 

Most lost money:

The overwhelming majority of people -- more than 98 percent -- [who bought into FHTM] lost more money than they ever made. At least 88 percent of consumers did not even recoup their enrollment fees.

Herbalife freely admits in its statement of average gross compensation that 88% of Herbalife distributors receive no income from the company whatsoever. Herbalife argues that these members receive "economic benefits" from the products they purchased through Herbalife at a discounted rate, but assuming they bought into the company with the intent to make money, then roughly the same percentage of Herbalife members as Fortune Hi-Tech Marketing distributors lost money.

Nearly all quit after one year:

... [a]t least 94 percent of [Fortune Hi-Tech Marketing] consumers did not renew their membership after their initial year.

Duke Energy Corporation announced today that it plans to build a 750 MW natural gas power plant at the site of an existing South Carolina coal-fired facility.

This announcement is the latest in a long series of modernization moves by Duke Energy. Just three days ago, the utility revealed plans for three new natural gas-fired Florida plants totaling nearly 2,000 MW of generation capacity.

"Natural gas-fired combined cycle plants are a good match to meet the significant energy needs of our customers over the next 15 years, and are expected to be an important part of the future Duke Energy Carolinas generation portfolio," said Clark Gillespy, Duke Energy State President of South Carolina, in today's press release. "They are very efficient in the production of electricity using natural gas as fuel and have very low plant emissions."

Unlike single-cycle plants, combined-cycle technology allows energy producers to capture additional power from wasted heat previously considered unharnessable. This results is more electricity at less cost.

Duke Energy also plans to take advantage of existing infrastructure to cut costs and reduce its environmental impact. Construction is expected to begin next summer, with full commercial operation by late 2017.

In some ways, Merck is the most generous dividend payer on the Dow Jones Industrial Average . That's obviously great for Merck investors -- unless the pharma giant is going too far, of course.

Is Merck simply serving shareholders to the best of its ability, or is this generous dividend unsustainable in the long run? Let's see.

The basics
Today, Merck is looking back at $1.74 of trailing dividends per share over the past year. At current run rates, the payouts should be about $1.76 over the next year. That's a silver star to Merck for raising its payout, which is always good news for income investors.

Merck has generally been good at this kind of thing, though the company took a long break between 2005 and 2011 (no gold star for you!). Who wouldn't, with cash flows undergoing such a massive roller-coaster ride in that period? The mid-2000s were kind of rough for Merck:

MRK Dividend data by YCharts.

On the downside, Merck is looking back at just $1.74 of earnings per diluted share in the past year. That's in line with its dividend payout, setting the payout ratio at an elegant yet scary 100%.

It's the Dow's highest payout ratio by a long shot, and the index's only dividend budget that completely exhausts the company's reported earnings.

Whoa! What's going on?
So far, so frightening. No company can afford to spend its entire earnings on dividend checks, right? There are other costs to consider, and this policy will surely eat up Merck's cash reserves in the long run.

But those were Merck's generally accepted accounting principles earnings. It's an accounting artifact that stems from tax-related calculations, and it's actually a good idea to keep this number as low as possible. The tax man is never a popular sight, and the less money he takes out of your operating income, the better.

Non-GAAP earnings tend to back out some of the accounting acrobatics companies do to get away from high taxes, and often look a lot stronger as a result. In Merck's case, trailing non-GAAP earnings currently add up to $3.54 per share.

Source: Merck.

Set against that backdrop, Merck's non-GAAP payout ratio drops to just 49% -- a perfectly reasonable and sustainable figure. It's still a bit high in context of the Dow, where the median ratio stands at 39%, but it's not outrageous at all.

Adjusted earnings can sometimes reflect a truer picture of a company's profitability -- but they're also prone to chicanery. High earnings impress investors and often boost executive bonuses. And since these figures aren't truly reported to the IRS or the SEC, there's all kinds of room for manipulation.

That's why free cash flow often gives you the best measure of real profits. We're back to strictly defined figures with accountability to regulatory bodies, and this time we're looking at the actual cash that moved in and out of the company in the reported period. At this point, it's really hard to hide unwanted expenses or inflate your profits. And on this basis, Merck comes through with flying colors:

MRK Cash Dividend Payout Ratio (TTM) data by YCharts

Merck actually pays a smaller portion of its free cash flow as dividends than your average Dow stock. The median Dow ratio stands at 62%.

The Foolish takeaway
As you can see, Merck's seemingly unsustainable dividend payouts are actually just a mirage. It's an accounting artifact, created by tax-effective accounting practices. When you refocus on the non-GAAP numbers that Merck itself prefers to talk about, or even the underlying cash flow, the company actually has plenty of room for further dividend increases.

So Merck isn't perfect, given its fairly recent return to regular dividend boosts. But the payout policy is also not destined for an inevitable collapse, as the GAAP payout ratio might have you believe. Don't let Merck's sky-high payout ratio scare you away from an otherwise attractive income stock and its generous 3.1% yield.

Valeant Pharmaceuticals  is on the hunt again, and its latest target is Botox king Allergan .

Like many would-be acquisitions, Allergan isn't going down without a fight. Taking the position that Valeant's offer not only undervalues its business but it is too risky for shareholders given the "unsustainability of Valeant's business model." Ouch!

In this episode of "Market Checkup," Motley Fool health-care analysts David Williamson and Michael Douglass discuss Valeant's latest offer, why Allergan finds it offensive, and what is next for shareholders.

Also stay tuned for Michael's in-depth interview with Motley Fool Stock Advisor analyst Brendan Mathews on Valeant and why investors need to get excited about this unique pharma stock.