In January, Beijing-based Lenovo announced its purchase of Motorola Mobility from Google   for $2.91 billion. This deal comes two years after Google purchased Motorola for $12.4 billion, which some Google investors consider a failure in the mobile business. Lenovo CEO, Yang Yuanqing, believes his company can turn around Motorola in four to six quarters after the acquisition.

How can Motorola help Lenovo?
Google's Motorola offers Lenovo an opportunity to access the U.S smartphone market and build its mobile brand outside of China. Motorola has an established global smartphone brand with a product portfolio tapping into all price segments that fits with Lenovo's strategy. Motorola's Moto X, Moto G, and the DROID Ultra series will bolster Lenovo's product pipeline to compete with mobile giants Apple and Samsung.

In 2005, Lenovo purchased IBM's PC business to expand the company's PC offerings in China and gain consumers in the U.S market. With IBM's ThinkPad brand and strong supply chain and distribution channels, Lenovo surpassed Hewlett-Packard and Dell to become the largest seller of personal computers. Motorola, like IBM, will supply Lenovo with strong retailer and carrier relationships to connect with end-users in North America and key markets in Latin America and Western Europe.

Some investors are concerned that Motorola's failure to generate profits may deteriorate Lenovo's bottom line in coming quarters. Google reported operating losses of $393 million and $1.029 billion in fiscal 2012 and 2013, respectively. Yuanqing believes the acquisition will benefit shareholders in the long term, but it could have a negative impact on the company's bottom line in the short term.

"We have already identified areas where we can cut expenses. With the combined scale of Lenovo and Motorola after the acquisition, we can significantly reduce costs in terms of material procurement and supply chain," Yuanqing told the Wall Street Journal in a telephone interview.

Lenovo's uphill battle against Samsung and Apple
In the first quarter of 2014, Samsung topped the global smartphone market with 30.2% market share on shipments of 85 million (+22% YoY), according to market research firm IDC. Strong demand for Galaxy S and Note models, including the company's low-cost offerings, helped sustain Samsung's dominant position. Apple followed and accounted for 15.5% share on 43.7 million units (+16.8% YoY). Apple's growth stems from strong sales of the iPhone 5S in mature markets and continued success of the earlier 4S model in emerging markets.

Source: IDC

Apple's recent partnership with NTT DOCOMO in Japan and China Mobile in China has improved the company's regional sales and market share. According to Apple's second-quarter results, the company reported Japan sales of $3.963 billion, up 26.41% from a year ago. Apple saw China sales increase 13.10% with operating income in the region up 26.44%. Sales in the Americas (+1.84%) and Europe (+4.38%) showed minor growth.

Apple's rumored 4.7-inch and 5.5-inch iPhone 6 models, iPads, and new Mac computers may be released later this year with the new iOS 8 operating system. The new 5.5-inch iPhone 6 will rival Samsung's Galaxy S4/S5 devices and Lenovo's 5-inch Vibe X smartphone, which was released last October in a bid to compete in the premium market.

Lenovo was in the fourth position behind Chinese rival Huawei with 4.6% market share on 12.9 million shipments. The company posted the highest year-over-year change among leading smartphone vendors with 63.3% growth. When the Motorola deal finalizes in late summer or early fall, Lenovo may control approximately 6% of the global smartphone market. It will become the third-largest smartphone vendor ahead of Huawei, and the second-largest Android vendor behind Samsung.

"We expect Lenovo to double its worldwide smartphone market share within two years and achieve double-digit market share by 2015 at the latest," said Canalys analyst Chris Jones.

Bottom line
The acquisition of Motorola Mobility will strengthen and accelerate Lenovo's penetration in the U.S and global smartphone markets. Motorola offers Lenovo a wide range of popular mobile devices that fit well with the company's current pricing strategy. Lenovo's array of mobile devices, with Motorola's brand presence in mature and emerging markets, will add pressure on current market leaders' regional sales and market share. Yuanqing aims to sell 100 million smartphones and tablets in the coming year, but the deal awaits U.S regulatory approval. 

Darden Restaurants revealed its fourth-quarter and full-year fiscal 2014 earnings last Friday. The results mirrored the past several quarters as both Olive Garden's and Red Lobster's poor performance dragged down the company overall.

Despite the casual dining industry growing more competitive each quarter as a whole, several other restaurant companies like Bloomin' Brands and The Cheesecake Factory have been able to maintain or improve on their sales numbers.

Even though Darden Restaurants sold Red Lobster last month, Olive Garden still presents a big problem for the company. In fact, there are many reasons Olive Garden needs to be sold sooner rather than later.

Source: Olive Garden.

Earnings show Olive Garden is still hurting Darden Restaurants
During the fourth quarter, Darden Restaurants saw revenues of $2.32 billion, which were short of expectations of $2.33 billion, but above the $2.30 billion in the fourth quarter of fiscal 2013. However, $666.2 million of fourth-quarter revenues was drive by discontinued operations, mostly in Red Lobster. Overall, net income plunged 35% to $86.5 million.

For the year, net income fell 30.5% to $286.2 million, even though revenues rose 2.4% to $8.76 billion.

The story recently, however, has been same-store sales for Darden Restaurants. Looking at 2014 overall, same-store sales grew 2.7% and 1.6% for LongHorn Steakhouse and the Specialty Restaurant Group, respectively. In contrast, same-store sales for Olive Garden and Red Lobster fell 3.4% and 6%, respectively.

By comparison, same-store sales for Bloomin' Brands were flat despite a 1.6% drop in traffic. In its most recent quarter, The Cheesecake Factory saw same-store sales increase 0.9% despite bad winter weather. Both companies saw their net incomes fall moderately last quarter while revenues rose 6% and 4%, respectively.

Bloomin' Brands and The Cheesecake Factory dealt with the same obstacles Darden Restaurants faced last quarter, including bad weather, increases in commodity prices like beef, and an increasingly competitive environment. Yet, Darden Restaurants performed a lot worse. This is because Olive Garden is still a big cloud over Darden Restaurants.

Why Darden Restaurants needs to sell Olive Garden now
With now 837 locations, if Olive Garden wasn't too big of the Darden Restaurants pie before the Red Lobster sale, it certainly is now.

In fact, if we look at Darden Restaurants' portfolio purely in terms of total revenues, Olive Garden may soon account for just under 60% in total revenues. Even if we factor in recent trends regarding same-store sales, Olive Garden will still account for over half of Darden Restaurants' revenues for the next several years.

Credit: Darden Restaurants' annual financial data.

This introduces another problem -- same-store sales. Olive Garden has not shown any clear signs of a turnaround. Same-store sales for March, April, and May were -4.4%, -2.6%, and -3.3%, respectively.

Yet, Darden Restaurants again reiterated during its conference call last Friday its plans to invest in Olive Garden.

In what management calls a "brand renaissance," near-term plans for Olive Garden include an expanded menu with customization options, despite the desire to simplify operations and recipes. New PIastra grills are supposed to improve the quality and consistency of grilled items. Money is also set aside for new service training for the staff.

Additionally, a partnership with Ziosk will introduce tabletop tablets to begin testing in August. This is at the same time that Olive Garden's new online ordering system is to be completed.

Finally, new plate ware and ongoing remodeling goals are in process. This alone counters not only the recent investments in the new online ordering system, but the fact that management stated that the take-out business is now 8% of total sales for Olive Garden, and growing 10% annually.

Just some of the investments going into Olive Garden's "brand renaissance."  Source: Darden Restaurants.

Lastly, Italian restaurant industry trends show that the segment is currently in the mature phase of its life cycle. Through 2018, it is expected that the segment will increase at an annualized rate of just 1.1%. Carrabba's Italian Grill has been the worst performer of Bloomin' Brands. Despite contributing 17% of last fiscal year's sales, the Italian concept recently saw same-store sales fall 1.8%.

Even The Cheesecake Factory has hedged against Italian entrees for its restaurant concepts by offering a diversified menu. The Grand Lux Café was originally conceived to be mainly Italian, French, and Austrian. However, its menu has become more eclectic and offers a little of everything today.

The biggest reason to sell Olive Garden
Consistency is the biggest problem when it comes to Olive Garden and the other six existing brands within Darden Restaurants. Five of the six brands were created in 1990 or after. LongHorn Steakhouse was actually formed in 1981, a year before Olive Garden. However, the brand has consistently outperformed its segment.

Even Darden Restaurants admitted in a presentation earlier this year that four of the five brands within the Specialty Restaurant Group were aimed at Generation X customers. The Capital Grille instead targets higher-income customers.

Nevertheless, there is a good chance that inconsistency between Olive Garden and the other brands has led to some cannibalization of customers choosing one of the other six restaurants over Olive Garden, differentiation and customer targeting issues, and massive marketing investments annually.

While synergies may be a possibility within the other six restaurants, at this point, Olive Garden just seems too different to make sense for Darden Restaurants going forward.

What Darden Restaurants should look like to maximize profits and growth. Source: Darden Restaurants.

Bottom line
One could say that Olive Garden is the Achilles Heel of Darden Restaurants. However, its size makes it more of the heart of the overall company.

Instead, LongHorn Steakhouse should be the heart of the company going forward in order to take more market share away from companies like Bloomin' Brands.

The Specialty Restaurant Group needs to be the future. This is because based on recent earnings, these are the types of restaurants customers are willing to spend money in. This is especially highlighted when we consider the fact that visits to midscale and casual dining restaurants dropped last quarter on a year-over-year basis by 4% and 2%, respectively.

If you're a pessimist the past couple of years haven't given you much to cheer about; but today's move lower in the S&P 500 just might be a start.

Overall, today's economic data releases were generally positive and wouldn't have been expected to cause a major downswing in the market. However, after seeing just a handful of down days over the past five weeks a profit-taking sell-off was likely overdue.

The Commerce Department's release of new home sales for May surged 18.6% to a seasonally adjusted annual rate of 504,000, its fastest pace in six years. The surge isn't a huge surprise given how the polar vortex constrained sales in February and March, however the magnitude of the gains (18.6%) came as a surprise to almost everyone. What we might be witnessing is a resurgence of homebuyers with interest rates bumping up against their lowest levels in a year. The big question now is whether or not this is sustainable beyond just a single month.

By a similar token, U.S. consumer confidence rose to a six-year high according to the Conference Board to a reading of 85.2 in June from 82.2 in the prior month. Most economists had been forecasting a reading between 83.5 and 84. Higher consumer confidence readings mean citizens feel more confident about their short- and long-term economic outlook, which, in turn, could mean they're more apt to spend. Since roughly 70% of U.S. GDP is dependent on consumer spending this bodes well for continued economic growth.

Lastly, the Case-Shiller 20-city Index for April delivered mixed results with prices for homes up 10.8%. On one hand a 10.8% year-over-year increase in prices is nothing to sneeze at and should encourage existing homeowners and home-buying investors. On the other hand, this was down from a 12.4% price increase in March and could be a direct reflection of more homes for sale hitting the market. Homebuilders have to be careful not to flood the market with new properties otherwise their pricing power could go down the drain.

By days end profit-taking was the name of the game with the S&P 500 dipping 12.63 points (-0.64%) to close at 1,949.98, its worst loss is almost two weeks. Despite the dip, three companies really stood out to the upside.

The biggest surprise, by far, came from Vertex Pharmaceuticals , which advanced 40.4% after announcing late-stage results from two studies (TRAFFIC and TRANSPORT) involving its investigational combo of VX-809 and FDA-approved Kalydeco to treat cystic fibrosis patients with two copies of the F508del mutation.

Source: Vertex Pharmaceuticals.

All four treatment arms in the 24-week study demonstrated a statistically significant improvement in forced expiratory volume in one second (FEV1), resulting in a mean absolute improvement in percent predicted FEV1 of between 2.6 and 4 percentage points from baseline. Vertex plans to use this positive data, which also met a number of statistically significant secondary endpoints, to apply for approval in the U.S. and Europe in the fourth quarter. While I see this combo's shot at approval being good in both the U.S. and EU, I would caution that at a valuation of $22 billion there isn't much value left to be squeezed out of this stock, and would suggest you to wait for a significant pullback before considering Vertex as investment material.

Print management and promotional solutions provider InnerWorkings jumped 10.8% after receiving an early morning upgrade from research firm Craig-Hallum to buy from hold. Specifically, Craig-Hallum anticipates that InnerWorkings' core business and European demand should improve throughout the remainder of the year. The firm also raised its price target 11% to $10 from $9.

Source: InnerWorkings.

As the global economy has rebounded so has the corporate promotional environment, so today's upgrade does make sense. However, as is often the case with analyst ratings, they tend to be more rearward looking that long-term focused. With advertising and promotional efforts moving toward a digital platform InnerWorkings could find growth difficult to come by later this decade. At 20 times next year's earnings estimates I'd opine that the company is fairly valued here.

Source: Jon Russell, Flickr.

Finally, China-based online media company SINA rallied 6.6% after research firm Zacks reported that Weibo , which SINA still owns a majority stake in, had 22 million visitors on the first day of the World Cup, as well as 83 million published posts within the first two hours. This interest bodes well for Weibo which is trying to make a name for itself as the next great social media platform. Higher levels of traffic leads to pricing power when it comes to orchestrating collaborations and garnering more lucrative advertising deals.

For SINA, if Weibo benefits it will benefit. SINA ended its latest quarter with a whopping $1 billion in net cash and could essentially liquidate its Weibo stake for a little over $2 billion. In other words, SINA is being valued almost entirely for its cash on hand and its Weibo stake with little regard for its other existing operations. I believe this could represent a good buying opportunity for investors, but would suggest you dig a bit deeper first as this isn't a stock for the faint of heart.

Walgreen  shares dropped Tuesday after the pharmacy chain's fiscal third-quarter report missed Wall Street's expectations on sales and earnings missed.

However, results were actually pretty good. Sales and earnings both grew in the past year. And given that both Walgreen and Rite Aid have indicated that health-care reform is supporting prescription volume, investors may want to consider using stock weakness to buy pharmacies this summer.

Source: Walgreen.

Sales continue higher
Walgreen's total sales grew by nearly 6% in the quarter from the same period last year. Sales growth was supported by a 2.2% lift in front-end same-store sales and a 6.3% jump in same-store pharmacy revenue. That's impressive given that the dollar value of branded drugs losing patent protection is higher this year than it was this time last year.

Offsetting generic price headwinds, sales grew thanks in part to insurance enrollment increases driven by the Affordable Care Act.

Newly insured patients covered by private plans and Medicaid expansion increased the number of prescriptions Walgreen filled last quarter by 4.1%, year over year. That outpaced the 2.3% script growth reported by Rite Aid during the three months ending in May.

Source: Walgreen.

Big and getting bigger
Walgreen is the goliath in the pharmacy market. The company opened or acquired a net 39 stores in the quarter, bringing its location count to 8,683 and solidifying its lead as the nation's largest pharmacy operator.

The store growth and solid results in prescription volume at existing stores helped Walgreen boost its market share by 20 basis points in the quarter, to 19%, according to IMS Health.

Prescriptions for patients covered by Medicare Part D jumped more than 11% year over year in the quarter. Given that the number of prescriptions filled annually increases with age, and baby boomers are turning 65 at a rate of 10,000 per day, volume should continue to provide tailwinds over the coming years.

Impacting the bottom line
Similar to Rite Aid, Walgreen blamed its earnings miss partially on lower reimbursements for generic drugs and generic-drug price increases.

As a result, the company's year-over-year cost of sales in the quarter increased by 40 basis points, to 71.9%. That uptick masked the company's cost savings success, which helped reduce selling, general, and administrative expenses from 23.8% of sales a year ago to 23.5%.

Despite higher costs of sales, Walgreen in the quarter generated shareholder-friendly operating cash flow of $1.3 billion.

That consistent cash flow is helping Walgreen continue to invest in growth. The company is renovating stores to its new "Well Experience" format, opening in-store clinics, and rolling out new private label products such as Boots No7.

Source: Walgreen

Those investments should help future earnings grow, suggesting that while Walgreen earnings were light this quarter, headwinds may ease considerably over the coming year.

That could be particularly true given that Walgreen expects to make an investor presentation this summer regarding income-friendly moves tied to its link-up with Alliance Boots. That deal is already providing a better than predicted impact on Walgreen's bottom line, adding $0.15 to earnings per share this past quarter.

Fool-worthy final thoughts
If those reasons aren't intriguing enough to put Walgreen on your watchlist, the company is also improving its balance sheet. In the past year, Walgreen has reduced its long-term debt from $4.5 billion to $3.7 billion. If Walgreen can continue to grow its sales, and generic headwinds on profit ease, a better balance sheet may allow the company to boost its dividend, which makes this investment even more compelling.

Whenever short-sellers start jumping into a stock with both feet, it's generally a good idea to understand why. 

VIVUS has seen its short interest skyrocket this year to over 35% of the float, while the company's share price has subsequently dropped more than 40% year to date. With that in mind, let's consider three reasons why shorts are taking aim at this once high flying biotech. 

VVUS data by YCharts

Reason No. 1
The commercial performance of both of VIVUS's approved drugs, Stendra and Qsymia, have been lackluster to date. In the first quarter, Qsymia generated only $9.1 million in sales and Stendra brought in a mere $0.8 million in royalties.

Although Qsymia sales have more than doubled year over year, they are still on track to generate less than $40 million in annual revenue for the company. For a drug that was once believed to be a potential blockbuster, that's certainly not a good sign. And because VIVUS' drugs haven't performed well commercially, the company isn't close to becoming cash flow positive any time soon, with cash decreasing about $27 million sequentially from fourth quarter 2013 on a net income loss of almost $16 million.

Reason No. 2
The obesity drug space has proven to be a tough nut to crack, and competition is only expected to increase in the near future. For instance, Arena Pharmaceuticals' competing drug, Belviq, appears to be on track to fall below $50 million in sales this year and Orexigen's experimental drug Contrave is looking to gain approval in the third quarter.  

And adding to this malaise, Novo Nordisk could have an obesity drug approved soon and Zafgen is developing an injected obesity treatment that could be more potent than any of the currently approved therapies. In sum, Qsymia is facing a number of tough challenges in its quest to increase sales and gain market share. 

Reason No. 3
Despite Qsymia's anemic sales, generic drugmakers are already knocking on the door. Specifically, Actavis filed an Abbreviated New Drug Application, or ANDA, with the FDA earlier this year for a generic version of Qsymia, resulting in a lawsuit being filed by VIVUS in an attempt to block a formal review of the application.

Why Actavis is interested in this drug is somewhat puzzling, but this is yet another threat to VIVUS' core business that will cost the company precious resources. Looking ahead, VIVUS' lawsuit will delay a formal review of Actavis' ANDA until either a ruling is made regarding Qsymia's patents or 30 months from VIVUS' receipt of the application. 

Foolish wrap-up
VIVUS presently boasts of one of the highest short interests in the biotech industry. And while such a scenario lends itself to a possible squeeze type situation, it's hard to imagine a catalyst coming into play that would scare shorts away en masse. 

Although we heard rumors of a potential takeover by Aspen Investment awhile back, the proposed deadline for a tender offer has come and gone. And as things stand now, I don't think we'll see other suitors lining up for this struggling biotech.

The overarching problem is that doctors, by and large, simply haven't bought into this new generation of obesity drugs. At the end of the day, none of these drugs provide more than modest weight loss and their side effect profiles in the real world are still being understood. Put simply, I don't think VIVUS is setting up for a major turnaround and the company's rising short interest shouldn't be taken lightly moving forward. 

Large pharmaceutical companies are pouring billions worth of funding into a new generation of anti-cancer drugs that use a newly discovered biological mechanism to trigger a strong immune response against tumors. This mechanism is centered around the interaction of two proteins known as PD-1 and PD-L1.

Given the data that have been released so far, it appears that the discovery of the PD-1/PD-L1 mechanism could be a huge leap forward in the immunotherapy space. Realizing the commercial opportunity of this mechanism, big pharma companies are now rushing to get an PD-1/PD-L1 drug onto the market.

The current leader in this race appears to be Merck , the parent of anti-PD-1 drug pembrolizumab (also known as MK-3475). MK-3475 is currently in 21 clinical trails and received the FDA's "Breakthrough Therapy" designation for advanced melanoma in April 2013. This designation may allow Merck to accelerate the FDA approval process for MK-3475, which means that Merck is probably going to launch the first anti-PD-1 drug.

The drug also demonstrated early signs of tumor-shrinkage and survival-based efficacy in a variety of other cancer types (renal, brain, etc.), but many investors are now fixated on its unexpectedly potent activity against non-small cell lung cancer (NSCLC).

The interim data readout in October 2013 showed that MK-3475 had median OS of 51 weeks for patients with refractory NSCLC. Although the NSCLC patient population in this trial is quite small (meaning that the results are highly speculative) it is very encouraging to see such a noticeable survival benefit in a very sick patient population.

Other PD-1 drugs to watch include nivolumab (BMS-936558) and RG7446 (MPDL3280A), which are being developed by Bristol-Myers  and Roche  respectively. While these drugs have been overshadowed by the early momentum of MK-3475 (especially with its breakthrough therapy designation), these competitors still have the potential to surpass MK-3475 in one more more cancer indications later on. Bristol and Roche are running their own trials in non-small cell lung cancer, melanoma, renal cell carcinoma, and other important cancer types that will be hotly contested between PD-1/PD-L1 drugs later on. 

How does Anti-PD-1/PD-L1 work?
Unlike traditional cancer treatments like chemotherapy, which look to destroy cancer cells directly, immunotherapies attempt to strengthen the immune system's ability to attack tumors. To target cancer, the immune system uses T-cells (and other cells closely related to T-cells) on literal "search and destroy" missions against mutated cells.  

PD-1 acts as an "emergency brake" that is used by the body to "turn off" aggressive T-cells (to prevent autoimmune conditions). It turns out that cancer cells have been exploiting this emergency brake to avoid destruction by T-cells. Another protein, known as PD-L1, is the actual protein that triggers this emergency brake. By putting PD-L1 on its surface, a cancer cell can shut down a T-cell that is trying to destroy it.

Merck's MK-3475 and Bristol-Myers' nivolumab prevent use of the emergency brake by physically blocking PD-1 with an antibody. Roche's MPDL3280A targets PD-L1 instead, blocking the PD-1 and PD-L1 interaction from the opposite end.

Will immunotherapy succeed commercially?
Based on the stellar performance of a skin cancer drug known as Yervoy (ipilimumab), marketed by Bristol-Myers, the prognosis looks good for immunotherapy. Yervoy generated over $960 million in sales for Bristol-Myers Squibb in 2013 (just from metastatic melanoma), and continues to grow at a double-digit pace. And with peak sales that could clear $2 billion, it's a drug to watch. 

I think immunotherapies will also be very cost-effective from a marketing perspective due to their high price, and the aversion that many oncologists now have to chemotherapy. Although Yervoy is somewhat toxic and very expensive (at $120,000 per patient), I think the patient need in metastatic melanoma will keep pushing uptake.

Considering that PD-1 and PD-L1 inhibitors are expected to outperform Yervoy, it's not hard to understand big pharma's eagerness to get these drugs onto the market.  

lululemon athletica's founder, Chip Wilson, is shaking things up at the company again -- only this time, it could actually benefit shareholders. Lululemon's stock price climbed nearly 3% yesterday on rumors that Wilson may attempt to take the yoga apparel retailer private. The Canadian native is reportedly consulting Goldman Sachs about possible options to gain more influence over the company's operations, according to The Wall Street Journal.

Separation anxiety
Perhaps Wilson is feeling a bout of separation anxiety from the athletic apparel company he started 16 years ago. He was, after all, pressured into resigning from his post as chairman of the board following a slew of missteps that included an offensive comment in which he argued that some women's bodies simply don't work in yoga pants. In fact, aside from founding the beloved athletic apparel brand, it is difficult to find any significant positive contributions made by Wilson in recent years.

Wilson is no stranger to controversy. Unfortunately, his antics have turned Lululemon into one of the most controversial retail stocks on the market today. Just two weeks ago, he publicly attacked Lululemon's management by using his 28% stake in the company to vote against two of its board members.

In regard to his opposition of Lululemon's new chairman, Michael Casey, and the re-election of another board director, Wilson said, "Change is now needed at the board level to increase shareholder value." The company fired back, saying, "Contrary to Mr. Wilson's assertions, Lululemon's board members are aligned with the company's core values and possess the necessary expertise to successfully lead Lululemon forward."

These are just a few of many examples in which Wilson's actions or comments have gotten him, and by association Lululemon, into trouble. However, this time around, his options are much more limited and thus could result in a positive outcome for Lululemon shareholders.

When bad leaders happen to good brands
Having Chip Wilson in the equation has been bad news for the retailer in recent years. Yet current Lululemon shareholders could receive a premium to where the stock trades today, at around $41 a share, if Wilson were to work with a private equity firm to purchase Lululemon in a buyout deal.

Nevertheless, taking the company private would mean paying a premium above Lululemon's current market value of $5.9 billion. That would be a sizable buyout, despite the stock's 30% decline so far this year. There is also a chance that Wilson could sell his stake in the company, according to the Journal. This would most likely send Lululemon's stock soaring, as it would sever the retailer's ties with its controversy-ridden founder. Ultimately, Lululemon can expect further controversy as long as Chip Wilson is nearby. The board has not received a specific proposal from Wilson at this point. However, one thing that shareholders can be sure of is that change is coming.

Lululemon has new leadership at the top, and appears to have a fresh perspective on what consumers want. Moreover, now that the company's new chief executive, Laurent Potdevin, has had a few quarters to settle into his new role as CEO, investors should start to see a turnaround in Lululemon's operations. For now, shareholders will want to keep an eye on how the company's latest drama pans out and whether Lululemon can rid itself once and for all of Chip Wilson.

Looks quite inviting, right?  Source:  Wikimedia Commons

For a company with nearly 11,000 restaurants in 33 countries, the announcement of just four new Dunkin' Donuts in California would seem barely worthy of a footnote. However, that announcement may actually be one of the most important yet.

The Golden State news
On June 10, Dunkin' Donuts made it official. The company has been teasing for several quarters now with plans to expand into California and throughout the West where it scarcely has a presence. Now, the locations of the first four were revealed with plans in place for another 54 more and agreements in place for a total of 200.

Currently, California is the largest market of Starbucks with over 2,000 locations who has enjoyed having barely any direct competition. It's obvious that Dunkin' Donuts, which actually sells more coffee than food, would love to get a piece of Starbucks' coffee pie out there, but the donuts themselves may do well too.

Californians loves doughnuts. Krispy Kreme Doughnuts says that its California stores are showing some of the best growth across its chain. There are also smaller chains seemingly on every corner such as Yum-Yum Donuts and Winchell's Donut House.

Not so inviting. Source: Wikimedia Commons

Next time you're in California, give them a try. They may remind you of your grammar school cafeteria quality. If Californians like the doughnuts currently available in the state, they are literally in for a real treat when Dunkin' Donuts lands. Despite the  low quality of the smaller chains, people love them.

In the announcement, Dunkin' Donuts stated that it expects to start construction in late June, months ahead of schedule. The reason for the time pressure, according to Dunkin' Donuts President Paul Twohig, is due to the "strong interest of prospective franchises and consumer across the state." Sounds promising.

What's perhaps more important is twofold
First, it's not about the revenue or profits from these four restaurants or even the next 54 restaurants. It's about a model, a test, a pilot in the eyes of the investing community about the potential profitability of Dunkin' Donuts expansion on the Left Coast.

The preliminary results could very well telegraph the next large wave of openings. If it's successful, it may lead to acceleration of the rollout just like these first four. Currently according to the release the company believes the state can eventually have as many 1,000 locations. If the tests go as well as the company hopes, however, you have to think that the number could be greatly lifted above 1,000 locations.

The company may be sandbagging this somewhat low target of 1,000 locations.  In many areas where Starbucks is located throughout the country, there are around two Dunkin' Donuts for every one Starbucks within the same market. 

During a presentation in October of last year, Paul Carbone, CFO of Starbucks, mentioned a survey that found 21% of consumers in Los Angeles said they get their morning coffee from Dunkin' Donuts.  The brand is so immensely popular already there that consumers are buying it by the truckload at grocery stores.  Carbone added, "We sell the most coffee poundage in California."  

2,000 Starbucks in California means potentially let's say room for 4,000 Dunkin Donuts in that single state alone, in a best-case scenario if the company is truly sandbagging.   While it will likely take many years to build out, that also means many years of expanding top and bottom lines. Again, this assumes the initial stores are as successful as many hope.

Remember that Dunkin' Donuts is almost entirely a franchise model and only uses franchisees for its expansion going forward.  This means each $1 increase to the top line, all things being equal, is roughly a $0.77 increase in gross profit. There will be then be some overhead expansion as the company grows in order to cover things such as quality control monitoring of its franchisees.  At the risk of oversimplifying the unknown, let's assume what I think is conservative is that increased same store sales growth (and its franchisee royalties) and its associated gross profit covers increased overhead.

Over time, earnings and cash flow become one in the same since the business model of a franchisee-based company is rather simple.  It owns few to no liquid tangible assets and income streams other than cash owed to it and cash coming in both from franchisees which makes the accounting earnings and cash flows rather similar.

Dunkin' Donuts currently has 11,000 worldwide locations with a target of another 7,500 domestically.  In 2013 Dunkin' Brands Group earned $362 million in royalties alone just for its Dunkin' Donuts segment.

In again an effort to remain conservative, let's ignore other forms of income including for example initial franchise fees for each new store and just assume those are at break-even levels.  $362 million is $33,000 per location. 

Dunkin' Donuts plans to double its domestic store count including those 1,000 California locations.  If we use 6,000 California locations instead as explained above, that means another 12,500 total locations domestically.  $33,000 times 12,500 is  $412.5 million.

Using say 100 million diluted shares outstanding (after stock buybacks) and a 33% tax rates based on history, this adds $2.76 earnings per share.  Considering Dunkin' Brands Group the company only earned an adjusted $1.53 last year, that's a significant jump to $4.29 per share using conservative numbers and assumptions but an optimistically executed roll out.

Based on the current share price, that puts the P/E at less than 10 which seems like a fantastic opportunity for any solidly earning and growing company is a healthy industry such that Dunkin' Brands is in.  True, it's many years into the future and you'd need to include a rate of discount to account for the time value of money, but it's hard to pinpoint how far into the future this will be.  Dare I say the growth in international and Baskin-Robbins makes up for that?  While I hate to make assumptions, as with any company, there will be all sorts of unknowns and opportunities that neither you nor I can account for at this time.  

The second thing...
Aside from the company's stock itself possibly starting to price in (AKA move higher) on investor confidence of Western expansion,  the expansion itself would help Dunkin' Donuts diversify its operations geographically. The currently very high Northeast concentration puts its results at higher risk.

Not very appetizing looking either. Source: Wikimedia Commons

Dunkin' Donuts, or at least its investors, learned this the hard way this past winter. Same-store sales for the overall company were barely in the black. The company's executives blamed the weather for interrupting the ritualistic nature of its core customers who stop by Dunkin' Donuts on the way to work or school.

Those who got snowed in at home stayed home, and didn't buy double the donuts and coffee the next day. Those lost sales for the snowed-in days were lost forever. The more regions Dunkin' Donuts can spread out to the better, so that when geographic-specific disruptions due to natural or other disasters happen it won't have as devastating an effect. Case in point, Starbucks was able to brush off the snow and report its 17th quarter in a row of same-store sales greater than 5%.

Foolish takeaway
Look for comments and details on how these first four California locations are doing, as these may give you a tiny but good enough sample on what to look forward to in the years ahead. Just be careful to take with a small grain of salt the initial honeymoon period that most restaurants experience in the first three months of opening. Regardless, it will be interesting to see how these four do and what kind of disruptions it causes to the local doughnut chains and even the local Starbucks locations.

In a new report from Piper Jaffray (via AppleInsider), Apple investors get a closer look at the potential for the company's alleged iWatch -- or do they? While the results are intriguing, can the study be trusted as having any predictive power? Probably not. The most important takeaway of all from the study is simple: Guessing the potential of Apple's iWatch is an very difficult task.

iWatch concept design (as seen on the right) shown next to iPad Air, iPad mini, and iPhone 5s. Image source: 9to5mac, used with permission.

Getting the major drawback to this Piper Jaffray survey out of the way, it's important to note that only about 100 individuals were surveyed. The irrefutably small sample size obviously limits its application.

Then, of course, there is the other limiting major factor in any survey of Apple's upcoming iWatch. While Apple-branded smartwatch rumors have certainly been turned up a notch in recent weeks, even the ever-active Apple rumor mill is still fairly clueless on what the device will look like or even what sensors exactly the device will sport.

Sure, the iWatch may end up matching the description of some of the recent reports to surface about the device. For instance, it may have more than 10 biometric sensors, work with Apple's HealthKit app by piggybacking the iPhone, and have a 2.5-inch touch display -- all recent reports. But even if all of these claims end up being true, there is still too much up in the air to enable investors to envision how compelling (or not) the device's value proposition could be.

$350 or less?
Summing up the results to Piper Jaffray's survey, 14% of a fairly high-end group of individuals, with an average household income of $130,000, would buy an iWatch priced at $350.

Taking the study further, Piper Jaffray surveyed the buyers who said they wouldn't buy at $350 to see how they felt about iWatch pricing in general. At what price would this subset consider buying the iWatch? It would be far more popular if it were priced under $200, the results suggested. Thirty six percent of these respondents said they would buy in the $100 to $200 price range -- a higher percentage than any other surveyed category.

Unfortunately, the anchoring bias, in which an individual irrationally "latches" on to the first piece of information (in this case, $350), could have had a large influence on these results.

But combining the fact that only 14% of individuals who were interested in the iWatch initially at $350, and only 36% of the at-first-uninterested consumers would pay between $100 to $200, the study may have a sliver of a chance of indicating Apple will have to do an exceptional job in educating consumers on why they may want to pay up for the device.

iWatch pricing? No clue.
Guessing the pricing of Apple's products, however, is incredibly difficult. Going into the iPad launch, it was a common guess for the entry-level version of the device to be priced at $1,000. As we know very well today, the entry level pricing for the flagship iPad has been $499 from the beginning -- and remains so today.

iPhone 5c. Image source: Apple.

There was also incredible confusion going into Apple's alleged low-cost iPhone 5c launch. The most common guess for the phone's pricing was around $400. Instead, the phone was priced at a premium-like $549, only $100 less than the flagship 5s.

Apple investors should take studies that try to predict the success of an upcoming Apple product with a truckload of salt -- especially one that only surveys 100 individuals. Piper Jaffray, of course, shouldn't be blamed. No matter how exhaustive a study, predictive power for an entirely new product in a nascent category will be lacking in unforgivable overabundance.

Perhaps this is why Piper Jaffray doesn't see the need to survey thousands of consumers. After all, Steve Jobs has said, "People don't know what they want until you show it to them."

The best indicator we have is Apple's historical record of entering new product categories. The last three major new products in new categories were the iPod, iPad, and iPhone. Does the iWatch have potential to be a success? Absolutely.

The restaurant industry can be tough and competitive, but it also allows for exceptional opportunities for growth when you're investing in well-run companies that know how to keep their customers happy and coming back for more. Chipotle Mexican Grill , Buffalo Wild Wings , and Zoe's Kitchen are three particularly promising options for investors looking to position their portfolios in restaurant companies delivering extraordinary growth rates.

Chipotle Mexican Growth
When it comes to growth companies in the restaurant business, Chipotle is second to none. Burritos made with fresh and healthy ingredients resonate with consumers, and that's reflected in the company's impressive financial performance.

Source: Chipotle Mexican Grill.

Year-over-year sales during the first quarter of 2014 jumped 24.4%, to $904.2 million, while comparable-stores sales increased 13.4%. Chipotle opened 44 new restaurants during the quarter, bringing the total count to 1,637 locations.

Management estimates the company has enough room for approximately 4,000 restaurants in the U.S., and there is no reason to doubt that possibility, considering how strong demand has remained over the years.

The company has barely taken its first steps in international markets: Chipotle has seven locations in London, three in Paris, and one in Frankfurt. Initial response has been quite promising in those restaurants, according to management: Locals -- and not only expats -- are regularly eating at Chipotle's international restaurants, so the menu seems to resonate in those locations, too.

Opportunities for expanding the Chipotle restaurant store base are still substantial, both in the U.S. and abroad. In addition, the company is experimenting with new concepts such as Asian cuisine at ShopHouse and pizza at Pizzeria Locale.

If the company can achieve with ShopHouse and Pizzeria Locale at least a fraction of the success it has obtained in its main Chipotle concept, the door could be open for gigantic opportunities in the years ahead.

Buffalo Wild Wings is simple and effective
Buffalo Wild Wings goes for a simple and effective customer proposition: tasty chicken wings, plenty of beer options, and widely available TVs on which to watch sports. The company is focused on providing a comfortable and fun customer experience, which is working out quite well.

Source: Buffalo Wild Wings.

Buffalo Wild Wings announced an explosive sales increase of 20.9% to $367.9 million during the first quarter in 2014. Same-store sales increased 6.6% at company-owned restaurants and 5% at franchised locations, and the company had 46 more company-owned restaurants and 55 additional franchised restaurants at the end of the period in comparison to the same quarter in 2013.

Buffalo Wild Wings has 1,018 restaurants across the U.S., Mexico, and Canada. This encompasses 574 franchised locations and 444 company-owned restaurants. Management believes it has enough room for more than 3,000 restaurants on a global basis in the long term.

Unlike Chipotle, Buffalo Wild Wings relies heavily on franchises for international growth, and this allows for rapid expansion in a capital-efficient way. Franchise partners in coming months are opening nine restaurants in countries including Mexico, Saudi Arabia, the United Arab Emirates, and the Philippines.

Zoe's Kitchen: the new kid on the block
Zoe's Kitchen went public in April, and returns for investors have been quite tasty since then. From an opening price of $26.65 on April 11, the stock has risen to approximately $32.70, an impressive performance for such a short period of time.

Source: Zoe's KItchen.

This fast-casual restaurant is focused on "fresh, wholesome, Mediterranean-inspired dishes delivered with southern hospitality," and sales growth has been truly impressive over the last several years.

The latest financial report was no exception: During the 16 weeks ended on April 21, Zoe's Kitchen delivered a 47.4% revenue spike, to $46.3 million. Comparable-restaurant sales increased 5.7%, while Zoe's Kitchen opened 13 company-owned restaurants and acquired two franchised locations.

Source: Zoe's Kitchen.

Zoe's Kitchen today has 120 restaurants in 15 states, so the company is materially smaller than both Chipotle Mexican Grill and Buffalo Wild Wings. Although this can be seen as an additional source of risk, it also means that Zoe's Kitchen offers exceptional opportunities for growth, since it's usually easier for smaller companies to expand rapidly over long periods of time without saturating the market.

Foolish takeaway
When investing in competitive industries such as restaurants, sticking with the best names in the business is of utmost importance. Chipotle Mexican Grill, Buffalo Wild Wings, and Zoe's Kitchen are generating extraordinary performance for investors, and they are well positioned to continue making both customers and shareholders happy in the years ahead.

Rather than relying on Windows Phone, Nokia's X2 runs a version of Android. Credit: Nokia.

Just as Google is preparing to tell the world about its newest geekery at its I/O developer conference in San Francisco, Microsoft is making a bigger bet on Android. Oh, irony. You never disappoint, do you?

Meet the X2
Nokia's devices team, which officially joined Microsoft in April, pitches the new X2 smartphone as blending the best of Android "apps" with built-in Windows "experiences," such as Skype, OneNote, and Outlook. Mix in dual SIM slots for adding storage, a 4.3-inch display, and a 5-megapixel camera, and you've a decent (if unspectacular) mid-range phone.

That seems to be exactly the way Microsoft wants it. Nokia hasn't yet brought the X2 to U.S. shores, choosing instead to focus on the Windows Phone-based Lumia line. There's good reason for that. Despite its relatively meager market share, IDC expects shipments of Windows Phone handsets to grow 29.5% annually through 2018. Average selling prices also remain above that of Android alternatives.

An affair to remember
So why add more Android to the mix? The Nokia brand matters in emerging markets ,where selling prices are lower by design. Having a mid-range Android handset could help Microsoft to be competitive in territories where Apple is either weak or nonexistent.

India is a good example. Apple has spent years trying, and largely failing, to win iPhone converts on the subcontinent. Premium pricing has killed demand, leaving everyday consumers to seek alternatives. (Google's OS accounts for 91% of handsets in use in India, versus 5.4% for second-place Windows Phone, researcher IDC reports.)

Meanwhile, earlier this month, ZDNet's Mary Jo Foley reported that Mr. Softy is pushing back the release date of the touch version of Office for Windows 8 to give space for an Android version to reach market. Introducing an Android-powered tablet to take advantage strikes me as the next logical step.

Will it happen? Not soon, I'd wager. Yet every step Satya Nadella and his team take to reduce the company's overall dependence on Windows -- while painful in the short term -- is probably good for Microsoft stock over the long term.

Now it's your turn to weigh in. What do you think of the Nokia X2? Would you buy, sell, or short Microsoft stock at current prices? Leave your take in the comments box below.

The Dow Jones Industrial Average fell sharply today, posting its largest intraday decline in more than a month. Curiously enough, today's slump comes after two straight days of great news for the real estate market. New home sales in May soared, rocketing nearly 19% higher, to finish at an annualized rate of 504,000, according to the Commerce Department. Yesterday also saw existing home sales in May advance. Alas, these blowout numbers weren't enough for Wall Street, and the Dow fell 119 points, or 0.7%, to end at 16,818.

Wal-Mart was one of just four Dow components to finish with gains on Tuesday, tacking on a meager 0.2%. Coverage of Wal-Mart stock was just initiated at Morgan Stanley; the investment bank gave shares an "overweight" rating and a price target of $87 a share. Morgan Stanley cited food price inflation and popularity with lower-end customers in its bullish call. Wal-Mart, though its subsidiary, Sam's Club, is also getting into the online travel booking business, it announced today. Sam's Club Travel will allow members to book flights, hotels, car rentals, cruise lines, and more, either in packages or a la carte. Watch out, Priceline!

Five Below might also want to keep an eye out for Wal-Mart. Shares of the unique retailer, which carries teen and pre-teen clothing and accessories retailing for $5 or less, lost 4.4% today. Although Five Below's model has proven itself a success thus far -- annual sales have surged from $125 million in the 2010 fiscal year to $535 million in the 2014 fiscal year -- its rapid growth may well be its biggest risk. My colleague Dan Moskowitz cautions investors that Five Below's co-founders have already run one company into the ground with the "growth at any cost" strategy.

Melco has several properties in China's Macau, including Studio City. Source: Melco Crown

Melco Crown Entertainment , on the other hand, along with others in the gaming industry, got word today that a huge new market may be offered to them on a silver spoon. Melco Crown shares added 2.1% after Japanese Prime Minister Shinzo Abe said he and his ruling party would attempt to legalize gambling in Japan, a strategy he hopes will bolster the country's economy and increase tourism before the Tokyo Olympics in 2020. If the new initiative successfully makes its way through parliament, Melco Crown and other casino operators will likely jump at the opportunity to increase their global presence.

The activist investor who urged Warren Buffett to vote against Coca-Cola's compensation plan is now speculating that Berkshire Hathaway is conspiring to take the beverage giant private in a sweetheart deal. David Winters, CEO of Wintergreen Advisors LLC, which operates the Morningstar four-star-rated Wintergreen Fund , says Buffett's recent behavior suggests that he could team up with private equity firm 3G Capital to complete the deal. Is Winters crazy, or could Buffett shock the investing world with the largest leveraged buyout in history?

Winters says Buffett and 3G want to take over Coca-Cola. Image source: Coca-Cola.

Where there's smoke, there's fire
Winters gave an interview with Maria Bartiromo to explain a letter he sent to Coca-Cola's board earlier this week. He explained how odd it is that Buffett, a stickler for reining in excessive compensation, was slow to speak out against Coca-Cola's excessive compensation package. Even when he did express displeasure with the plan, Buffett made a point to express his approval of management.

Winters says Buffett's comments at Berkshire's annual meeting provide further evidence that something is happening behind the scenes. At the meeting, Buffett held up the Heinz leveraged buyout, or LBO, by Berkshire and 3G Capital as the new model, suggesting that Buffett would like to do similar deals in the future. Winters also held up Buffett's remark that Berkshire "hasn't bought Coke yet" as another clue.

Buffett's and Coca-Cola's actions create a lot of smoke, Winters argues, and says, "Where there's smoke, there's fire."

Ordinarily, shareholders of an acquisition target should rejoice, not write angry letters to the board. However, Berkshire's 9% stake in Coca-Cola, Buffett's close relationship with management, and the presence of Buffett's son, Howard, on Coca-Cola's board make Winters concerned that shareholders could get a raw deal. "Coke should be full and fair auctioned, [with] maximum and full disclosure for all bidders around the world," Winters argued, not pre-negotiated behind the scenes.

Largest LBO in history
As soon as the buyout speculation reached her, CNBC's Becky Quick dialed Buffett to see if there was any truth to it. "Absolutely no chance of that," Buffett replied after asking her to repeat what seemed like an outrageous idea.

Of course, if Buffett said he had "no comment," it would only fuel speculation that the rumor was true, making the acquisition more expensive. Was Buffett forced to deceive the public in order to keep the target in play, or is the Coca-Cola acquisition as unlikely as it seems?

Coca-Cola may be too big, even for Berkshire. Image source: Coca-Cola.

My bet is on the latter. Although Buffett is on the lookout for large companies to acquire, Coca-Cola may be too large. Berkshire's largest acquisition to date was its 2010 acquisition of Burlington Northern Santa Fe in a deal worth $44 billion including acquired debt. Coca-Cola's enterprise value is over $200 billion; even before a takeover premium, Coca-Cola would be Berkshire's largest acquisition by a factor of four.

Believers in the speculation might argue that the Heinz acquisition provides a blueprint that could make the Coca-Cola acquisition feasible. Berkshire and 3G used just $12.12 billion in cash to make an acquisition valued at $28 billion. If Berkshire and 3G pay a 15% premium to Coca-Cola's market capitalization, or $210 billion, plus assume $25 billion in net debt, the acquisition would be valued at $235 billion. Funding the deal with 40% cash would require $75 billion after subtracting Berkshire's existing 9.1% stake.

The biggest LBO of all time was valued at $55 billion. This means that Buffett and 3G would have to come up with more cash than the entire value of the largest LBO in history. Berkshire could conceivably come up with the cash, but it would have to dismantle its equity portfolio and insurance regulators may object.

What about other possibilities?
There are numerous other ways that Buffett could wrest control of Coca-Cola. Berkshire and 3G could make a tender offer for a large percentage of shares, Berkshire could gather a larger consortium of bidders that could take the company private, or Buffett could simply speak his mind and he'd be able to effect change at Coca-Cola.

Investors looking to make a quick buck should know that none of these scenarios is likely to ever happen. Buffett is not one to meddle in the affairs of his investments, whether wholly owned subsidiaries or publicly traded stocks. If he thought Coca-Cola's management couldn't deliver for shareholders, Buffett would not own the stock.

Foolish final thoughts
If Buffett was ever considering a buyout of Coca-Cola, I doubt he still is now. Not only would the acquisition be enormous, but it would tarnish Buffett's reputation as an honest and transparent businessman. David Winters' wild speculation keeps him in the news, possibly boosting investor interest in his mutual funds, but investors would be wise to ignore the speculation. There's no fire here, just a mutual fund manager blowing smoke.

Lincoln's MKZ Hybrid was the most expensive mpg adjustment for Ford. Source: Ford Motor Company.

The cynics were out in full force after Ford Motor Company's recent announcement to reassess its fuel economy ratings on six vehicles. Some cynics suggested that if these recent adjustments in fuel economy made by multiple automakers were honest mistakes, then why is it that no automaker has been pleasantly surprised to find that its vehicles actually got a higher miles-per-gallon rating after recalculating? After all, errors happen on both sides of the equation, right?

I suppose that's fair, but let's take a look at the details and decide how big an effect that this will have on financials and brand image for Ford and its investors.

The downside
Make no mistake, there is potential downside to Ford lowering its fuel-economy ratings on certain models -- especially as it did so to a significant degree.

The biggest error was found on Lincoln's MKZ Hybrid, which despite representing only a fraction of the MKZ's overall 15,986 sales through May, has been a more popular option than Ford had anticipated. Part of that popularity is no doubt because its combined highway and city miles-per-gallon rating checked in at 45. That dropped to 38 after Ford corrected its fuel-economy rating.

As an example of how that could effect Ford's claims about this vehicle, consider that a previous commercial had claimed the MKZ Hybrid has the best fuel economy of any luxury hybrid in the U.S. market -- a statement that is now false, as it fails to top the Lexus ES 300h Hybrid, according to Automotive News.

Ford's 2013 Fusion Hybrid model, made more popular with the automaker's Super Bowl ad, also had its combined mpg rating dip from 47 to 42. Another model is actually suffering a second correction of its fuel-economy rating -- Ford's 2013-2014 C-Max Hybrid was adjusted from 43 to 40.

Considering that J.D. Power and Associates rates fuel economy as the most important reason consumers purchased a Ford hybrid model last year, these miles-per-gallon corrections could negatively impact sales. In fact, sales of Ford's C-Max Hybrid are down nearly 40% through May compared to last year, after its miles-per-gallon rating was corrected last year for the first time.

Will Ford's other vehicles now suffer the same issue? Perhaps, but in the grand scheme of things, it won't matter.

Niche vehicles
The vehicles affected by overstated fuel-economy are niche vehicles, except the 2014 Fiesta, and if sales of these models decline significantly, it still won't move the needle on overall sales. Furthermore, the only non-hybrid with a downgraded mpg rating, the Fiesta, didn't experience nearly as drastic a change. Of the four powertrains the Fiesta is sold with, two of them have been revised only one mile per gallon lower in combined mpg. Another powertrain was revised downward by two mpg, and the last powertrain wasn't affected in combined mpg because the corrected calculation caused a gain in its city rating, which offset its highway rating decline.

Of the six Ford vehicles with corrected miles per gallon ratings, the best-selling vehicle on the list by far was affected the least. Furthermore, the biggest potential damage that could come from this looks to be a negative reflection on Ford's brand image. However, Ford's brand has a lot going for it in terms of improved fuel economy, and that will outweigh the negative headlines surrounding this recent mishap.

Ford's EcoBoost engine has been a huge hit with Escape owners. Source: Ford Motor Company.

Consider that a decade ago, Ford's cars had the lowest average fuel-economy ratings among the six largest automakers in the U.S. market at a combined miles-per-gallon rating of 21, well behind Toyota's and Honda's 26 combined miles-per-gallon. Fast-forward to today, Ford's passenger cars combine for a 29 mpg rating, helping it jump two competitors in the rankings and narrowing the gap between the leading automaker to just a three mpg difference.

Sure, Ford overstated a handful of its Hybrid models' fuel efficiency, but Ford has made substantial progress on mainstream models' fuel economy.

Also, investors should consider that Ford's massively successful marketing concerning its EcoBoost engines and  fuel economy is very effective. Ford's EcoBoost engines have been a huge hit with consumers, and the take rate for its turbocharged engines on three of its most popular vehicles are a whopping 89%, 52%, and 42% on its Escape, Fusion, and F-150, respectively. I couldn't decide whether or not to wipe the last two sections out, starting with "Also, investors should consider" through here. The piece is ~ 850 words, its kind of a helpful paragraph, but not detrimental. What do you think? I think keeping the first and cutting this last one works out.

Bottom line
The financial implications for Ford and its investors are also negligible. Ford is beginning to write out its "goodwill" checks to owners of the estimated 200,000 vehicles affected by these miles-per-gallon adjustments. The maximum possible cost that Ford would pay is approximately $210 million (assuming that every customer owns an MKZ Hybrid and is owed $1,050).

Since the MKZ Hybrid will not account for all 200,000 models, or even close, the total amount Ford will end up paying out to consumers in its "goodwill" checks will be far less than $210 million. Considering that Ford's 2013 pre-tax result was $8.6 billion, it's not going to be a problem for the company.

Ultimately, with no major financial or sales impacts, as well as Ford's overall image being well supported by its mainstream vehicles and EcoBoost engines, the cynics can take a hike -- this isn't a big deal.

Google is on a wireless buying spree. Credit: The Motley Fool.

Chalk up another wireless win for Google . According to GeekWire, the search star acquired Alpental Technologies weeks ago for an undisclosed sum. Early backers had poured $850,000 into the company.

Why should Google stock investors care about this deal? Alpental was experimenting with 5G wireless technology that has been known to connect buildings a mile apart at speeds of up to 7GB per second. For perspective, consider that my home XFINITY service doesn't even reach 35MB per second.

A portfolio of big wireless ideas
Reading that you might think investors would be bidding Google stock to new highs. That they aren't is a sober reminder that 5G wireless remains in the early stages of development. A national rollout could take years. I'm perfectly willing to wait.

As an investor, what matters to me is what the Alpental deal represents. Namely, that Google is committing resources to improving wireless infrastructure in the U.S. and abroad even as it slowly expands its fiber network beyond Kansas City, Missouri.

You know the list. A year ago, Google unveiled "Project Loon" for placing broadband-serving balloons to remote corners of the globe. In April, the search star acquired drone maker Titan Aerospace to expand Internet delivery to hard-to-reach regions of the globe. Then, earlier this month, Google took the next step and revealed plans to put as many as 180 satellites into low-Earth orbit. To these efforts you can now add Alpental's 5G technology. Google is wiring the world with wireless.

Meanwhile, back in Kansas City ...
Google's planned merger of fiber and Wi-Fi is where this plan starts to get really interesting. In Kansas City, the search star is working on a free public Wi-Fi network that's anchored to its fiber network.

Now imagine that same setup on a grand scale. Drones, balloons, satellites, and 5G wireless extending fiber "hubs" in major cities so that everyone who wants fast access to the Internet, gets it, producing oodles more data for Google to monetize in the process.

Sound crazy? I think that day is coming, Fool. Maybe not tomorrow, or next year, or even a few years from now. Heck, it could take a decade or more to realize pervasive wireless connectivity. But that's the future as I see it, and it's why I'm hoping to never sell my shares of Google stock.

Now it's your turn to weigh in. What do you think of the Alpental deal? Would you buy, sell, or short Google stock at current prices? Leave your take in the comments box below.

GM's Opel Mokka is a close cousin of the small Buick Encore SUV, and it has turned out to be a much-needed hit for GM in Europe. Source: General Motors Co.

Lately it seems as though General Motors  has been drowning in bad news. But behind the blaring headlines, the company continues to make solid progress on its turnaround.

The latest evidence: Sales are up in Europe. As Motley Fool senior auto specialist John Rosevear explains in this video, GM's much-needed European turnaround is lagging rival Ford's , but it's moving in the right direction, and GM recently hit some important milestones.

A transcript follows the video.

John Rosevear: Hey, Fools. It's John Rosevear, senior auto specialist for fool.com. General Motors is finally -- maybe -- making some progress in Europe after years and years of losses.

GM has lost close to $20 billion in Europe since 1999, and they've already been through a couple of turnaround plans that didn't quite manage to turn things around. The problem was really structural and really familiar, GM's German subsidiary Opel had too many factories and rich labor deals and models that really weren't all that competitive with the big regional rivals -- Volkswagen and Ford and so on -- and it needed a lot of work.

But under former CEO Dan Akerson, that work finally started to happen.

A lot of cuts were made at Opel, its product-development was more fully integrated with GM's global product plan, and it got a whole new management team led by a very sharp former Volkswagen executive, and now there are signs that things are moving in the right direction.

Auto sales in Europe continue to be sluggish because of the ongoing recessions in several key European countries. New vehicle sales actually hit 20-year lows for a time last year. They've rebounded a bit since, and Opel has started to get a little traction as the market has improved.

Through May, Opel's sales are up 3.6%. That's not as good as the 7.7% gain that Ford has posted over the same period, but it's progress for Opel, and it's a cautiously good sign for GM. Opel is having a lot of success with a small SUV called the Mokka.

It's a very close cousin of the Buick Encore. Under GM's global product plan, Opel and Buick are sharing a lot of products -- the same vehicles with different grilles and badges. That sounds like what GM did a lot of in the bad old days -- what we called "badge engineering" -- but it's different in that these vehicles are sold in different markets and don't compete side by side.

GM is also making progress in Europe on another front. The company said this week that it had finally reached a severance deal with the union at a German factory that the company has wanted to close for some time. This was a big, contentious thing. No auto factory has closed in Germany since the 1940s, and the labor union has a lot of political clout in Germany, and it has been quite a battle for GM.

This is the GM factory in Bochum, Germany, one of four Opel factories in Germany, and it's slated to wind down over the next year or two as part of GM's restructuring of Europe. GM wouldn't say how much these severance deals would cost, but Reuters has reported that they will cost at least 550 million euros, or a bit over $750 million.

That's expensive, but it seems to be worth it: GM had been saying for a while that they hoped to break even in Europe by mid-decade, but CEO Mary Barra raised that guidance a little earlier this month, when she said that GM now expects to report a profit in Europe during that same time frame. So GM isn't exactly setting the European market on fire, but the company is making progress, and I know that every GM shareholder will be happy to see these ongoing losses in Europe finally start to turn into profits. Thanks for watching.

The oil and gas services market doesn't always spring to mind when considering General Electric Company , but the company has made a number of strategic investments in the sector. Indeed, oil and gas is a key part of its strategy to realign itself as an industrial company. However, General Electric will have to be careful over its growth plans, because the industry has a number of long-term trends driving it, and companies like Baker Hughes Inc. and Dresser-Rand Group are seeing mixed fortunes in dealing with them.

The importance of oil and gas to General Electric Company
A quick look at 2013 industrial revenue by segment demonstrates that oil and gas is still only its fourth largest industrial profit center.

Source: General Electric Presentations

On the other hand, due to a combination of acquisitions and organic growth, the oil and gas segment has grown profits by 51% over the last five years.

Source: General Electric Presentations

General Electric's deal making
Acquisitions have played a large part in the segment's growth, and the following deals have also proved emblematic of the changing trends in the industry.

• In December 2010, General Electric agreed a takeover of flexible pipemaker Wellstream for $1.3 billion in a move designed to expand its deepwater offerings. 

• In early 2011, the company agreed the purchase of the well-support division of John Wood Group for $2.8 billion, a move intended to add pumping technology used to extract reserves from brownfield shale sites. 

• The 2013 acquisition of Lufkin Industries for $3.3 billion added Lufkin's artificial lift technology -- used particularly in shale oil and gas plays -- to General Electric's underground pumping technology. 

• Early this year, General Electric bought Cameron International's reciprocating compression division for $550 million, which gives the company the compression technology to transport gas from shale plays. 

All told, these deals demonstrate General Electric's commitment to investing in growth areas like shale oil and gas technology, whether it's upstream or downstream. In fact, it has become a truly integrated supplier to the shale industry. Pumping technology is particularly important for shale gas plays, because the pressure tends to quickly recede once the extraction starts.

Moreover, and in common with Baker Hughes, the company continues to invest in other growth areas like deepwater and subsea based technologies. Baker Hughes's management has made substantive investment in new products in these areas as they anticipate a greater intensity within wells -- good news for technology solution providers.

While, shale gas is an obvious growth area, General Electric has also been busy in developing its business in subsea. For example, the company's Vice President, Subsea Systems, Rod Christie disclosed the following in the first quarter conference call: "In 2011 we were executing a handful of small projects and two Subsea production EPC projects, the largest of which was around $600 million. Today we're executing 8 EPC projects, the largest of which exceeds $1.3 billion."

Long-term opportunity, near-term risk
In short, the decision taken by the U.S. government to allow the private sector to engage in shale gas exploration has created a situation where U.S. firms, like Baker Hughes and General Electric, are poised to take leadership in servicing the sector. Moreover, should the Europeans finally decide to take up large-scale shale gas exploration then General Electric will be able to sell its technology in a new market.

However, in the near term there are some worries about the capital expenditure spending plans of the major integrated oil companies. For example, Shell has already cut its capital expenditure plans by $9 billion this year and oil services company Dresser-Rand has already given disappointing results this year primarily due to delays in upstream oil projects.

The bottom line
All told, General Electric's aggressive moves in its oil and gas segment have positioned it to take advantage of good long-term growth trends within the industry. Near-term risks remain, as demonstrated by Dresser-Rand's performance this year, but the outperforming companies this year -- like Baker Hughes -- are those who have realigned themselves to areas like deepwater, subsea, and shale gas solutions. Moreover, the shale gas revolution is creating significant downstream opportunities as well. The segment looks set to be a major part of General Electric's growth in future years, and the measures taken will ensure string contributions from the segment in years to come.

Carnival  surprised Wall Street this week by posting an increase in profits for its fiscal second quarter. But the stock fell anyway, as investors are demanding evidence that a real rebound is under way.

With that in mind, let's see how the cruise ship operator did this quarter, and whether shareholders can expect a quick turnaround for the business.

Image source: Carnival

Better-than-expected earnings
Broadly speaking, the quarterly results were better than most people expected. Profit improved by $0.03 a share from last year's $0.07 figure. Wall Street was instead bracing for another drop in earnings. Sales came in higher than expected as well: Carnival posted $3.63 billion in revenue while analysts had targeted $3.61 billion. 

There were a few key drivers behind that outperformance. For one, the European business saw solid demand growth thanks to a "gradually improving economic environment," as Carnival put it in a press release. That's especially good news for the company because it has a much bigger growth opportunity there than in its North American business, where a higher percentage of the population has already tried out a cruise vacation.

The second factor behind this quarter's profit beat was fuel costs. Those dove by almost 4%, which helped pull overall cruise expenses lower by 1%. That helped push earnings up to $0.10 a share as compared to the zero cents that Carnival had forecast back in March. 

A turning point?
CEO Arnold Donald said in a press release that the profit growth Carnival managed represents a financial "inflection point" toward higher earnings in 2014 and potentially bigger profits in the years ahead. Investors have to hope that's true: Carnival has seen its annual earnings crater by more than 50% from a high of almost $3 per share in 2008.

CCL EPS Diluted (Annual) data by YCharts

The good news is that the company is finally seeing an end to those sinking results. In its updated guidance, Carnival said that profit should reach about $1.70 a share this year, above the $1.58 it posted in 2013. Crucially, bookings for the rest of 2014 are tracking at slightly higher ticket prices than last year, the company announced.

Not an easy ride
Still, a quick recovery isn't in sight, even assuming more improvement in the global economy. Fuel costs should tick higher next quarter, which will pinch profits. And revenue is set to fall slightly as more competition in the Caribbean puts pressure on sales results. In fact, earnings for the summer months may come in well below Wall Street's estimates, according to the company's updated guidance.

That weak outlook for the upcoming vacation season means that it is still too early to call this week's earnings beat the start of a sharp turnaround. Carnival's management has plenty of work ahead in getting profitability back up to where it was just a few years ago.

Source: Wikimedia Commons

After reporting revenue and earnings for the third quarter of its 2014 fiscal year on Jun. 24, shares of Walgreen fell nearly 2%. Despite the fact that management reported top line and bottom line results that fell short of analyst estimates, Mr. Market's decision to send shares of the drugstore chain down modestly suggests that it's still optimistic about the company's prospects. Moving forward, will Walgreen prove that it has what it takes to deliver attractive returns, or will CVS Caremark or Rite Aid make better long-term plays?

Walgreen couldn't please analysts
For the quarter, Walgreen reported revenue of $19.4 billion. Although this represents a 6% gain over the $18.3 billion management reported the same quarter a year earlier, it missed the $19.5 billion forecasted by analysts. This growth was due, in part, to a 1.5% rise in drugstore count from 8,097 locations last year to 8,217 this year, but the biggest contributor was the company's comparable store sales, which jumped 4.8%.

In its press release, the company attributed this rise in comparable store sales to a 6.3% jump in comparable store sales in its prescription category, while total prescription sales rose 8.4%. Front-end comparable store sales also increased, up 2.2% year-over-year.

Source: Yahoo! Finance

From a profitability perspective, Walgreen's results were even better, but the company still fell short. For the quarter, the company reported earnings per share of $0.75, 15% above the $0.65 reported last year. After accounting for various adjustments, such as a change in its LIFO provision and store closure costs, earnings came in at $0.91, 7% above last year's adjusted earnings of $0.85 but shy of the $0.94 Mr. Market anticipated.

In addition to benefiting from a rise in revenue, Walgreen saw its bottom line grow because of reduced costs, primarily in the form of its selling, general and administrative expenses, which fell from 23.8% of sales to 23.5%. These cost improvements were, however, partially offset by rising costs in its cost of goods sold category, which rose from 71.5% of sales to 71.9% as generic drug inflation and fewer brand-to-generic introductions took their toll on profits.

But Walgreen still appears to have the engine for success
Although Walgreen's performance this quarter wasn't superb, the company's strategic advantages appear to be in place better now than ever. In 2012, Walgreen purchased a 45% stake in Alliance Boots for $6.5 billion with the agreement that it could acquire the 55% of the business it doesn't already own during a six-month window in 2015 for $9.5 billion.

After completion of the deal, Walgreen will have a strong footprint in Europe and the consolidated company's revenue is expected to rise from $72.2 billion to $110 billion. While this isn't as high as the $126.8 billion reported by CVS in 2013, it's significantly greater than the $25.5 billion on Rite Aid's financial statements.

Source: Walgreen

Even better than revenue growth is what the acquisition of Alliance Boots will mean for Walgreen's profitability if Walgreen goes for the deal. The tax savings associated with reincorporating to Switzerland where the acquiree is based would be substantial, which would give Walgreen a solid profitability edge over CVS and Rite Aid.

Another good edge that Walgreen has over the competition is its Walgreen Balance Rewards loyalty program. By signing up, customers can receive discounts and other perks that makes shopping at the company as rewarding as possible. As of this past quarter, the company boasted 81 million active members under the program. This is larger than the 70 million members listed on CVS' website for its ExtraCare program and far bigger than the 25 million members who use Rite Aid's wellness+ program.

Foolish takeaway
Based on Walgreen's earnings release, Mr. Market was disappointed but not horrified about the company's results. What this suggests is that the company isn't growing as rapidly as investors might like to see, but the fact that it is growing at all and that it has some things that could play to its advantage in the years to come, means that Mr. Market hasn't lost hope in the pharmacy. Moving forward, there is no guarantee that Walgreen can continue to do well, but given its considerable size and profitability, it makes for an interesting prospect for the Foolish investor to analyze deeper.

Source:  Wikimedia Commons

Is Tesla Motors making a move for the good of humanity, or does the company have other ideas in mind? Maybe it's a little of both, but make no mistake about it: Tesla opening up its patents is unlikely to help the competition catch up.

Come and get it
On June 12, Elon Musk, CEO of Tesla, posted on his company blog a note for the public: "Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." He went on to remark how little is being done to advance acceptance of vehicles that don't burn hydrocarbons by any of the major auto manufacturers.

The true competition for Tesla, Musk reasons, is the 100 million gas-powered vehicles produced every year and not electric cars. Therefore he invites more research and development by allowing, even encouraging, others to take a look at Tesla's patents and use what they need in their own vehicles.

Why it's a short lifeline
What much of the media seems to be missing about this announcement is that while it could be a big help to competitors, patents will only get them so far. Musk even states that patents are "small protection indeed against a determined competitor." If you say that line out loud a few times and let it sink in, he's saying that competitors will find a workaround for the patents anyway so there is no point is trying to stop them.

Furthermore, Tesla is not revealing its trade secrets. There often is only so much information that you can get from a patent. Only Tesla knows how to put it all together in a cost-effective manner. Besides, by the time the competition digests the patents, some of them may have become outdated, and Tesla likely will have advanced to the next generation of its technology.

Publicity is gold
You've probably figured out by now that Tesla's leaders are publicity hounds that love to be in the spotlight. They kind of have to be. Tesla has never spent a single penny on advertising and relies only on word of mouth to sell its vehicles. Word of mouth, and media exposure. Let's face it -- Tesla being in the headlines helps sell vehicles. Sure, the electric-car company already has its hands full of orders, but that may not last forever. Demand is only a function of consumers' awareness and attention.

Under the pretext of trying to further a good cause -- fighting climate change and reducing fossil fuel use -- Tesla is yet again creating a positive, altruistic image of itself for consumers through the guise of "open source" good will toward the people, business, and governments of earth.

It's a move similar to the one the company announced when it entered China. Tesla announced that it would price its cars the same everywhere, including China, even though it could list them at a 50% or higher mark-up, as is typical for automakers in the Chinese market. Potential short-term profits were sacrificed for a positive, "we're different" image.

Foolish takeaway
All of this news about patents has transpired without any serious threat of Tesla's competition taking advantage of what it offers. How is that possible? Because a blog post by a CEO promising not to sue infringers of Tesla's patents "in good faith" is not a legal document. It's not enforceable and doesn't forbid Tesla from suing anybody. Considering the amount of time and effort that goes into vehicle development, no major car company would be foolish enough to use Tesla's patents based on some undefined words in a blog post by one executive who may not even be working at Tesla in five years. Take this is as a publicity stunt, but quite a clever publicity stunt.