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Tesla Motors, Inc. (TSLA) Stock Falls Again Today -- What You Need to Know

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In the second day of trading after electric-car maker Tesla Motors unveiled the world's fastest four-door sedan with the built-in technology to eventually drive itself, the stock is down again. Today's 5% decline on top of Friday's stock sell-off has shaved off about $3 billion of Tesla's market capitalization in just two trading days. Here's an attempt at diagnosing Mr. Market's volatile behavior, and why it doesn't matter for long-term investors anyway.

Tesla Model S charging. Source: Author photo.


The Elon Musk Fund takes a tumble
Growth tech stocks with rosy valuations have been undergoing somewhat of a correction for the last several weeks, and Elon Musk's precious children, Tesla (where he is the CEO and chairman) and SolarCity (Musk's big bet on solar power, where he is the chairman) have been no exception to the rule. In fact, they have been subject to some of the more serious beatings.

FB Chart

FB data by YCharts.

While we can peg some of the recent sell-off of the "Musk Fund" to a broader correction of bullishly valued growth stocks, the extent of damage to Tesla and SolarCity clearly shows there is more to the story.

The uniqueness to the bigger sell-off of Tesla and sister stock SolarCity is almost certainly related to the borderline euphoric valuations on these stocks -- ones that even make Facebook stock look fairly valued. Unlike Facebook's lucrative fast-growing bottom line, both Tesla and SolarCity have yet to report a regular profit, yet Tesla stock trades at about half of General Motors' valuation, and SolarCity stock, though it is down meaningfully this year, is still up more than 300% in the past two years.

Sure, these companies are growing rapidly and are expected to continue to do so, making them worthy of considerable premiums. But during a market correction, it's often stocks like Tesla and SolarCity, with their very forward-looking valuations and their three-year track record of triple-digit gains, that get the most severe sell-button treatment from the short-term-obsessed investors running the Street.

But is selling Tesla stock a wise decision?
On Thursday, Tesla announced it is now taking orders for what is arguably the best four-door sedan ever made, with a mind-boggling zero-to-60 mph time of just 3.2 seconds. The new flagship Model S, which Tesla calls the P85D, also has all-wheel drive and an extra 10 miles of range. To top it all off, the company is now including a suite of sensors and cameras in all of its vehicles that will, after a series of software updates in the coming years, eventually enable Tesla's vehicles to drive themselves most of the time.

Model S. Source: Tesla Motors.

Meanwhile, the company has over 20,000 orders for its upcoming Model X SUV and continues to see demand for its Model S sedan outstrip supply. Then, of course, there's the company's $5 billion Gigafactory that it is building in Nevada, which threatens to disrupt the entire auto industry. And Tesla's Model 3, which is the first low-cost model it aims to build with the help of the economies of scale in lithium-ion batteries achieved from the Gigafactory, is only several years away.

So, does selling Tesla stock make sense today? If your investing money is money you need access to in the next five years -- possibly. After all, who knows what forces will drive the market in the short term? But if you're interested in investing in and making money from the best businesses with the biggest prospects, it's probably best to just hold on through all of the ups and downs.

Model S. Source: Tesla Motors.

Sure, there's risk in owning pricey stocks like Tesla. And Tesla specifically is making a risky move by betting the house on just two fundamental themes: battery-powered electric cars and the fast-growing energy storage market -- a move that means that if either of these markets doesn't live up to expectations, Tesla stock may bring more turbulence over the long haul than it is worth. But on the other hand, it's Tesla's intense focus on being the best pure play in electric vehicles that paves the way for great opportunities ahead. And it's the stock's premium market capitalization that is evidence of investors' belief in the business performing exceptionally over the long haul.

Down more than 20% from its all-time high, it might even be time to start buying Tesla stock -- albeit cautiously and in small quantities. At the very least, the stock is a hold in my book.

Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

The article Tesla Motors, Inc. (TSLA) Stock Falls Again Today -- What You Need to Know originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Facebook, Ford, General Motors, SolarCity, Tesla Motors, and Twitter. The Motley Fool owns shares of Facebook, Ford, SolarCity, Tesla Motors, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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3 Companies That Should Benefit From a Rising Dollar

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Don't look now, but the good ol' greenback is on the rise. Over the past few months, despite a correction or two, the U.S. dollar has climbed against some of the world's top currencies, including the euro and the yen. 

This is due to a host of factors, including weakness in key overseas economies and the performance of American stock markets (until recently, anyway).

A strengthening dollar has a great many effects on our economy and its businesses, and we won't get into the complexities here. Suffice it to say that, broadly speaking, it tends to hurt American exporters -- because a rising dollar makes their wares more expensive -- while benefiting multinationals that sell into our markets.


Meanwhile, U.S. companies that focus heavily on selling domestically stand to benefit from a migration to USD assets.

Here's a look at a trio of companies that are poised to take advantage of a bulked-up dollar.

Unilever
Although headquartered in Europe, this consumer goods behemoth specializing in food items and cosmetics has a mighty presence in the U.S. market. Unilever's products -- which include Lipton tea, Ben & Jerry's ice cream, Q-Tips, and Vaseline -- are common items in the American pantry, fridge, and medicine cabinet.

As a result, in the first half of this year the company derived $5.1 billion in revenue from the Americas. That exceeded the $4.5 billion it reaped from its home continent, comprising 32% of its total global take.

That massive U.S. revenue figure is poised to get bigger. Unilever's sales in the Americas grew only 0.4% on a year-over-year basis during the first half of 2014; the company said this thin increase owed to "negative price growth" despite volume increases. Now that the firm has the scope to compete more effectively on price, it has an excellent chance to boost that top line significantly from this part of the world.

Toyota
The Japanese automaker has done an admirable job of swerving around the bad publicity surrounding its vehicles' unintended-acceleration issue -- and the ensuing $1.2 billion settlement earlier this year. In August, it posted its best-ever unit-sales figure for that month.

That follows a 2013 in which Toyota delivered nearly 10 million cars around the world to rank as the globe's top manufacturer in terms of shipments.

No international auto group can be a world-beater without succeeding in the U.S. Toyota has done a fine job maintaining and occasionally increasing its market share over the years, and it's one of the "big five" manufacturers here.

Three of those five -- General Motors, Ford, and Chrysler -- are native companies, so given Toyota's many factories and suppliers abroad, the company will enjoy a nice competitive edge thanks to the strong dollar. The company already has momentum on its side with those encouraging August sales figures; look for that to accelerate now that the exchange rate is tilting in its favor.

Given a rising currency, a natural hedge against the impact of unfavorable exchange rates is to invest in companies that are laser-focused on the domestic economy. A prime example New York Community Bancorp.

The bank's name gives away its game. NYCB is a traditional lender focused mainly on the New York City metropolitan area. It has a solid loan portfolio, as it tends to finance apartments and condominiums (compared to other cities, NYC has a high proportion of such dwellings to its overall housing stock).

Financing these kinds of buildings is great business, as demand for living space in places like Manhattan and Brooklyn is high and not likely to drop anytime soon. That means the risk of loan default is modest. As a result, NYCB's percentage of nonperforming assets (essentially, loan defaults) is remarkably low compared to its peers.

The domestic financial sector will likely see an overall boost from investors looking to plow their money into businesses that are fully or almost entirely contained to U.S. dollar markets. Not all financials are created equal, of course, and NYCB is one that really stands out from the pack.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them and see Apple's newest smart gizmo, just click here

The article 3 Companies That Should Benefit From a Rising Dollar originally appeared on Fool.com.

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

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

 

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3 Reasons U.S. Silica Holdings Stock Might Plunge

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In my coverage of U.S. Silica Holdings , as well as the frac sand industry in general, I've explained to readers the long-term growth potential these investments represent. However, recently the market has not been kind to shares of proppant suppliers, such as Emerge Energy Services LP , Hi-Crush Partners LP , Eagle Materials Inc , and Carbo Ceramics Inc

SLCA Chart
SLCA data by YCharts

As this chart shows, in the past few months proppant suppliers have seen their share prices plunge between 13.5% and a painful 64% for Carbo Ceramics, the leading ceramic proppant manufacturer.


Just as I explored the three biggest reasons that U.S. Silica and its peers might soar in the long run, I think it's important to examine the risks, those things that could drive the price lower. In so doing we can see if the recent price drop represents a long-term buying opportunity or a warning from the markets to stay away from an industry in trouble. 

Global economic weakness resulting in declining energy prices

Henry Hub Natural Gas Spot Price Chart
Henry Hub Natural Gas Spot Price data by YCharts

Recently the prices of both natural gas and oil have begun heading lower as increased production from America's historic shale boom has met with concerns over a slowdown in the global economy, which would hurt demand for oil and gas and drive their prices even lower. This in turn would likely force oil and gas producers, which have been purchasing frac sand in record quantities, to slow new purchases, driving down the price of frac sand and hurting producers' margins. 

How big a threat is this to U.S. Silica, Emerge Energy, and Hi-Crush? Well, if the decline in energy services is short-lived then not much, as the megatrend of increasing U.S. oil and gas production is likely to provide a strong long-term growth catalyst for the industry. However, should the world economy slow or even fall into recession for a prolonged period of time, then energy prices could become depressed for several years, which could alter the fundamental investing thesis of these companies. How likely is that? 

Well, on Oct. 7 the IMF released its World Economic Outlook for 2015 and cut its growth targets for global economic growth from 4% to 3.8% for 2015, and 3.7% to 3.3% for 2014. The report highlighted an increased risk of recession in Europe, which the IMF estimates at a 38% probability (double that of April), as well as a 24% chance of a Japanese recession. 

Fortunately, there was good news about the U.S. economy, which the IMF estimates has just a 14% chance of a recession due to our recovery being:

[U]nderpinned by an improving labor market, better household balance sheets, favorable financial conditions, a healthier housing market as household formation gradually returns to levels that are more closely aligned with demographic factors, higher nonresidential investment as firms finally upgrade aging capital stock, and a smaller fiscal drag.

However, the risk of a global recession must always be considered, especially with rising concerns about China's slowing growth and inflating debt bubble. For example, since 2008 China's total debt has surged from 147% of GDP to 251%, as the Chinese government turned to debt to stimulate economic growth through its many state-owned banking institutions. 

However, now China's total bank debt stands at $25 trillion ($11 trillion more than in 2008), with many U.S. economists (52% in a recent survey) concerned that China will experience a debt crisis within the next few years. 

Already signs of slowing growth in China have begun affecting commodity prices, and though the Chinese government is officially predicting 7.5% economic growth this year (down from 10%-plus in recent years), many analysts believe that number will be closer to 5%.

Even if China's debt and real estate bubbles don't pop, resulting in a global recession, slowing economic growth from China could have a detrimental effect on long-term energy prices and result in prolonged weakness in the entire energy sector, including oil services suppliers such as U.S. Silica. 

Market correction is overdue
Another risk factor for proppant suppliers like U.S. Silica is that the stock market is now in the sixth year of a fantastic bull market, and perhaps overdue for a correction (10%-plus decline from recent highs). The S&P 500 usually suffers such a decline about once per year and a 20% decline every couple of years. It's now been 28 months since the S&P 500's last correction. 

Now a market correction is by no means certain. However, it's important to realize that the risk of a downturn is real. Such a market decline could be terrible in the short term because of how fast share prices of companies such as U.S. Silica, Emerge Energy Services, and Hi-Crush Partners have risen the last two years.

 SLCA Total Return Price Chart
SLCA Total Return Price data by YCharts

Another factor to consider is that volatility is a major reason for the massive market outperformance of these companies. For example, Hi-Crush Partners and U.S. Silica Holdings have betas of 2.34, and 3.68, respectively. While that's great when the market is booming, it can make things a lot more painful during a correction. 

Overproduction of frac sand is a risk
Demand for frac sand has been growing at 28.3% annually and is expected to continue growing at over 10% through 2022. 

In fact, U.S. Silica has seen such a surge in demand that it was able to raise prices by an average of 20% this year, and recently announced that it sold out of production through mid-2018. 

This kind of surging demand has resulted in major production expansion throughout the industry. For example here are the growth plans for U.S. Silica, Emerge Energy Services, and Hi-Crush Partners, the three largest suppliers in the industry.

  • U.S. Silica: 102% planned capacity growth over next two years 
  • Emerge Energy Services: 68% increased capacity by the end of 2015
  • Hi-Crush Partners: 325% capacity growth in just one year

The long-term contracts these companies have secured for this increased production means that a short-term decline in energy prices, and thus demand for frac sand, isn't a major concern. However, should slowing global economic growth or recession result in a long-term reduction (three to five years) in energy prices, then U.S. Silica and its peers will face the prospect of their current lucrative contracts expiring and themselves sitting atop literal mountains of frac sand, while demand may have fallen off a cliff. This might result in frac sand prices crashing and could eviscerate these companies' margins and share prices in the long term. 

I view the recent price collapse of U.S. Silica and its peers as a result of overvaluation due to their fantastic recent run-ups, combined with the recent decline in energy prices. I continue to believe that U.S. Silica, Emerge Energy Services, and Hi-Crush Partners remain three of the best long-term ways to profit from America's shale energy boom.

Thus I view the recent corrections in the share prices of these companies as a great long-term buying opportunity, one that may make exceptional long-term capital gains and income generating potential possible. That being said, all investors must take the time to examine all sides of an investment thesis, the potential gains, as well as the potential risks.


As long as investors in frac sand suppliers are aware of the risks of that prolonged depressed energy prices, an overdue market correction, and industry overcapacity pose, then they can adjust their holdings accordingly as part of a diversified portfolio that can minimize the risks of devastating, permanent losses.

"As significant as the discovery of oil itself!"
Recent research by the U.S. Energy Information Administration has already tabbed this "Oil Boom 2.0" with a downright staggering current value of $5.8 trillion. The Motley Fool just completed a brand-new investigative report on this significant investment topic and a single, under-the-radar company that has its hands tightly wrapped around the driving force that has allowed this boom to take off in the first placeSimply click here for access.

The article 3 Reasons U.S. Silica Holdings Stock Might Plunge originally appeared on Fool.com.

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

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

 

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Market Wrap: Indexes Slide as Airlines, Energy Stocks Drop

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weather vane
Getty Images
By ALEX VEIGA

The stock market couldn't shake off a case of the jitters from last week and closed sharply lower again on Monday.

Airlines, energy and materials stocks were among the biggest decliners. The market is coming off its biggest weekly decline in more than two years.

Many investors remain concerned that economic growth in Europe and Asia could be slowing. A meeting of Eurozone finance ministers in Luxembourg didn't appear to ease those concerns.

The VIX, a measure of volatility that is commonly called Wall Street's "fear index," climbed 12.7 percent to 23.95, its highest level since June 2012.

"There is a sense that ... the U.S. maybe can't go it alone, that if global growth continues to weaken, the U.S. is not going to be able to sustained the kind of momentum we've been gaining since the first quarter," said Quincy Krosby, market strategist at Prudential Financial. "That's the worry."

A late slide in the last half-hour of trading came after an otherwise calm day of trading. Index futures had pointed to a higher open in premarket trading early Monday, then the market opened lower and wavered for much of the day between small gains and losses.

The late wave selling was likely triggered by automated trading programs that started selling stocks when it became clear that the S&P 500 would close below an important technical level, said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

Many traders follow these levels to give them an indication about the near-term direction of the market.

In this case, the S&P 500 closed below 1,905, the 200-day moving average price for the index. The index had traded above the average since November, 2012, gaining 36 percent.

"We've broken down to a point where we haven't been for a long, long time," Frederick said.

Frederick still thinks the stock market will avoid a correction, that's Wall Street talk for a drop of 10 percent or more, but is expecting the recent volatility to continue for a few more weeks yet.

All told, the Dow Jones industrial average (^DJI) lost 223.03, or 1.4 percent, to 16,321.07. The Standard & Poor's 500 index (^GPSC) shed 31.39, or 1.7 percent, to 1,874.74. The Nasdaq composite (^IXIC) slid 62.58 points, or 1.5 percent, to 4,213.66.

All of the 10 sectors in the S&P 500 fell, led by energy with a decline of 2.9 percent. Utilities, a safe-play sector, fell the least, just 0.1 percent.

Airline stocks also fell sharply.

That sector has received a drubbing from investors recently as worries mount that the outbreak of the Ebola virus will curb travel spending. Concerns about a slowing global economy have also hurt the stocks. American Airlines Group (AAL) fell $2.20, or 7.1 percent, to $28.58 and Delta Air Lines (DAL) fell $2.01, or 6.1 percent, to $30.90. American has fallen 24 percent in the last month, Delta 22.2 percent.

Investors were looking ahead to earnings news from a number of big companies later this week including General Electric (GE), Intel (INTC) and Bank of America (BAC).

The price of U.S. oil slipped slightly and the global oil price fell sharply on expectations that OPEC countries will not cut output in response to lower global demand. Benchmark U.S. crude fell 8 cents to close at $85.74 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $1.32 to close at $88.89 on the ICE Futures exchange in London.

In other energy futures trading on the NYMEX, wholesale gasoline fell 0.3 cent to close at $2.255 a gallon, heating oil fell 0.3 cent to close at $2.557 a gallon and natural gas rose 5.7 cents to close at $3.916 per 1,000 cubic feet

Gold rose $8.30 to $1,230 an ounce, silver rose four cents to $17.35 an ounce and copper was flat at $3.04 a pound.

Bond trading was closed for Columbus Day.

What to Watch Tuesday:
These major companies are scheduled to release quarterly financial statements:
  • Citigroup (C)
  • CSX (CSX)
  • Domino's Pizza (DPZ)
  • Intel (INTC)
  • J.B. Hunt Transport Services (JBHT)
  • Johnson & Johnson (JNJ)
  • JPMorgan Chase (JPM)
  • Linear Technology (LLTC)
  • Wells Fargo (WFC)

 

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Why DryShips, Inc. Stock Dropped More Than 20% Today

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

What: Shares of DryShips  are getting thrown overboard, down more than 20% today on a combination of a continued soft dry-shipping market, the market value of its 78.3 million Ocean Rig UDW shares continuing to decline, an analyst downgrade, and a company announcement that it is withdrawing its public senior secured notes offering.

So what: Shares of Ocean Rig continue to slide from weak energy prices, and the dry-shipping rate market has yet to kick into high gear. Normally the period beginning late in the third quarter and throughout the fourth quarter is a seasonally strong one for shipping rates. That hasn't been happening, as rates have been sinking instead due to oversupply of the global fleet along with softer-than-expected (by most industry experts) demand.


The disappointing rate environment is having a domino effect that is hurting DryShips today in two other areas. First, in the press release, DryShips stated it is withdrawing its $700 million offering due to "market conditions," although the company did score up to $350 million in other financing.

However, when all is said and done, DryShips expects to have $100 million in net cash, which isn't much. The weak market conditions referred to aren't just in the general area of lending, but also in the rate environment, which substantially raises the risk of lending specifically to dry shipping companies.

Second, in reaction to disappointing news, Imperial Capital downgraded DryShips from "outperform" to "underperform" while severely slashing the price target from $4 to just $1.40. That's 65%, and far below the $1.85 price at which the stock closed on Friday.

Now what: DryShips is not in great financial shape, and with its Ocean Rig UDW rapidly declining in value lately, raising money has become more difficult, as those shares have less strength to use as collateral. $100 million isn't going to last the company very long, and now its very survival, at least for the common shareholder, is in question.

The daily spot market needs to make a serious and dramatic rally -- and fast -- to turn things around for DryShips, especially in the Panamax market. Last year, CEO George Economou and his management team made the decision to float its Panamax fleet based on daily spot prices instead of the safety of fixed-rate contracts. It was a gamble that the shipping market for these vessels would be red-hot by now. That gamble so far has been a huge bust.

What's worse is that January is not too far off anymore -- it tends to be the seasonally worst period for the dry shipping market due to the Chinese holidays. Since around 70% of the iron ore shipping market is exported to China, that single country plays a dominant role.

With the stock so severely beaten down, it may be tempting to take a gamble yourself, but it's difficult for me to see a favorable risk-reward situation even at these levels. If you want to gamble, I say stick to the casino, because the odds are probably better there than with DryShips stock.

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The article Why DryShips, Inc. Stock Dropped More Than 20% Today originally appeared on Fool.com.

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

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

 

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Ebola.com Owners Hope to Sell the Site for $150,000

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Liberia Ebola
Abbas Dulleh/APHealth workers in Liberia wait to carry the body of a suspected Ebola victim.
The Ebola virus outbreak in West Africa has been brutal. There have been 8,400 cases, according to the Centers for Disease Control and Prevention, and 4,033 confirmed deaths, and the outlook is only getting more grim, according to the World Health Organization. But the scary statistics could mean a windfall for some foresightful investors who figured that someday, we'd all be worried about this deadly plague.

Nevada-based Blue String Ventures bought the domain name ebola.com in 2008 and hopes to sell it now for $150,000, according to CNBC. "We've had many inquiries on the domain over the years," Jon Schultz, president of Blue String Ventures, said.

Blue String Ventures buys domain names that it thinks will eventually grow in value when companies or organizations suddenly want to be associated with an idea or topic. The firm owns domain names like Fukushima.com, referring to the nuclear plant meltdown in Japan, as well as health- or dietary supplement-related ones, including GreenCoffeeExtract.com and BirdFlu.com

For now, the page ebola.com includes various links. One is to an ebook claiming that nutritional supplements might help cure the disease; another is to a site that sells that supplement.

Commercial Interest Said to Be Unlikely

"Having seen the movie 'Outbreak,' I was entranced by the subject and couldn't resist buying the domain," Schultz told CNBC.

Large pharmaceutical firms and smaller biotech startups working on treatments or cures for Ebola have reportedly been approached about buying the site, but so far there have apparently been no takers.

That isn't surprising. Pharmaceutical companies generally focus on diseases with a much larger rate of incidence or where the patients have health insurance or enough personal wealth to pay well for help. Ebola requires government subsidies to combat it, and it likely won't generate commercial interest otherwise.

In case you're interested, ebolacure.com is also taken, although it's owned by a company that uses a service to keep its actual name out of official Web records.

 

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Siri vs Cortana vs Dom: Is Domino's Virtual Assistant A Game-Changer or Ridiculous?

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Domino's  recently ran a series of commercials which proclaimed that "failure is an option." Those commercials were referencing the company's chicken bites with pizza toppings, but the philosophy certainly applies to its new pizza ordering virtual assistant.

The tool, named Dom, has been added to the latest update of the Domino's app for Apple  iPhone and Android. It's an interesting novelty that lets customers order by voice rather than the traditional method of making a phone call or hitting a few keys on the company's website.

"Mobile customers are not only going to love the ease of this landmark ordering experience, but they now have the opportunity to have some fun with Dom himself," said Patrick Doyle, Domino's Pizza president and CEO in a press release.


Dom is playful, prepared to answer silly questions, and essentially works like a pizza-ordering specific version of Microsoft's  Cortana or Apple's Siri.

The only problem is that Dom may be a clever solution to a problem nobody has.

How Dom works  
The app is accessed via a button which looks like a microphone in the bottom left corner of the Domino's app. I used it Tuesday to place a lunch order for my office with the caveat that my coworkers would accept whatever pizzas were delivered -- even if it was not the large chicken and mushrooms and a gluten-free sausage pizza we intended to order. Here is how the interaction began (all commands are verbal unless otherwise noted).  

Dom: Hi, welcome back to Domino's, will it be delivery or carryout today?

Kline: Delivery

Dom: That we can do, after all, we are the delivery experts.


(The app then prompted me to enter an address via typing)

Dom: "What would you like to order?

Kline: A large pizza with chicken and mushrooms.

This caused a small hiccup as the app froze for around 30 seconds before correctly adding the pizza to my order. Dom then prompted me to continue ordering and it added the gluten-free sausage pizza without delay. Closing out the order involved a few non-verbal steps, but Dom was easy to work with, and our pizzas showed up about 25 minutes later. The need to input my address and log-in by typing rather than verbal commands was frustrating and overall the experience took longer than placing an order on Domino's excellent website.

The Domino's app, with Dom at the bottom of the screen. Source: Author screenshot

How does Dom compare to Siri and Cortana?
Telling Apple's Siri, "I would like to order a pizza," brings up a comprehensive list of local pizza places. Cortana does the same thing. In the case of both personal assistants a specific pizza place can be called, in a single step if the pizzeria is in your address book, but no actual ordering help is offered. 

Dom is built to help you order a pizza (or even place a complex Domino's order) while the other two voice assistants are more broad in focus. 

For what it's supposed to do Dom performs well, but it remains hard to imagine a scenario where using the voice tools is easier than simply calling or ordering through the web or app. Dom is better at helping you order from Domino's than Cortana or Siri, but none of the three are an improvement on the traditional way one procures pizza.

What is Domino's trying to do?
In recent years Domino's has changed its image. The company has poked fun at its own pizza through its "Pizza Turnaround" ad campaign where it essentially admitted its product was lousy. It continued those efforts in the "failure is an option" ads where the company playfully showed off its failed Cookie Pizza product. Through those efforts the brand went from being perceived as a last resort pizza option for college kids or when no other (i.e. better) pizzeria would deliver, to an earnest company trying to do well by customers.

As this was happening Domino's chief rival Papa John's International  has stuck with its "Better Ingredients, Better Pizza" tag line which, if you have eaten there, begs the question, better than what? Worse yet, as Domino's was making people think of it fondly, Papa John's got involved with no-win political issues, including President Obama's health care package and the minimum wage.

That's where Dom fits in for Domino's. It's not meant to revolutionize the way people order pizza, it's meant to be a fun, semi-useful tool that makes people think fondly of Domino's. Much like Siri, the app is programmed to be a bit witty and continue the Domino's rebranding that has resulted in same-store U.S. sales steadily climbing growing by 3.5% in 2011, 3.1% in 2012, and 5.4% in 2013. 

While its competitor is being mired in a political debate Domino's has shown off its fun side, featured employees (not its owner) in its ads, and Dom continues that dialogue with consumers. The voice assistant may answer a question nobody is asking, but it does so in a fun way. Domino's should benefit from the publicity the app generates and the continued goodwill created by something that, while silly and unnecessary, is still pretty cool.  

$19 trillion industry could destroy the Internet
One bleeding-edge technology is about to put the World-Wide-Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party— click here for 1 stock to own when the web goes dark.

The article Siri vs Cortana vs Dom: Is Domino's Virtual Assistant A Game-Changer or Ridiculous? originally appeared on Fool.com.

Daniel Kline owns shares of Apple and Microsoft.  He thinks Domino's makes an excellent gluten-free pizza by the standards of gluten-free pizza. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, Microsoft, and Papa John's International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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eBay, Inc. Looks to Trump the Market Once Again

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When rumors surfaced in August that eBay was thinking about splitting off its PayPal business as early as 2015, it initially came as a surprise. As I noted at the time, not only had Carl Icahn just backed down from his PayPal-centric activist investor role a few months earlier, but such a move would also seem to contradict the stance eBay CEO John Donahoe voiced during the company's most recent quarterly call in July.

But Donahoe did mention that the company will "continue to be open-minded to alternatives." And considering eBay just confirmed its intentions to do just that through a tax-free spin-off of PayPal in late 2015, you can bet management will come prepared to field plenty of questions on the topic when eBay announces third-quarter results Wednesday after the bell.

For now, however, eBay and PayPal are still being reported as one cohesive unit. So let's review what the market is expecting headed into Wednesday's report:

Analysts' EPS Estimate $0.67
Change from Year-Ago EPS 4.7%
Revenue Estimate $4.37 billion
Change from Year-Ago Revenue 12.2%
Earnings Beats / Past 4 Quarters 4

Source: Yahoo! Finance

For reference, analysts seem to be growing accustomed to eBay's habit of exceeding their models; both their EPS and sales estimates sit at the high end of eBay's own guidance, which calls for revenue in the range of $4.3 billion to $4.4 billion, and adjusted earnings per share of $0.65 to $0.67. Even so, eBay stock has still fallen around 7% over the past year and currently looks enticing to value seekers trading at just 15 times next year's expected earnings.

In theory, some of that value should be unlocked through the separation of these two businesses, which originally came together when eBay acquired PayPal for a measly $1.5 billion in 2002. Since then, the synergistic relationship between eBay and PayPal has enabled them to collectively grow both revenue and earnings at impressive 26% and 25% clips, respectively:

CAGR calculated from 2002 to last 12 months. Last 12 months from Q3 2013 to Q2 2014. Credit: eBay.

That said, PayPal is no longer the dependent business investors knew when it was first acquired. In 2002, a full three-quarters of PayPal's transactions came through eBay. By 2008, that number had fallen to 51%. Over the 12 months preceding the end of Q2, only 29% of PayPal's transaction volume came from its auctioneer parent. And last quarter, PayPal's merchant services total payment volume jumped 33%, which translated to 20% growth in net revenue to $1.95 billion. Investors should keep their eyes peeled on Wednesday, then, for whether PayPal is able to continue sustaining that impressive growth as it prepares to go solo. 

But eBay's core Marketplaces business is no slouch, either. In Q2, Marketplaces grew gross merchandise volume by 12%, which led to revenue growth of 9% year over year, to $2.17 billion -- and that was despite the effects of a nasty cyber attack that affected 233 million customers, as well as negative search engine optimization updates from Google. Assuming the fallout from those two issues has largely passed, don't be surprised if eBay's Marketplaces segment shows signs of picking up steam.

Investors should also look for other signs that both PayPal and eBay will be able to thrive and accelerate that growth as independently managed businesses. One would hope, for example, the subsequent conference call will include new hints at post-spinoff opportunities each will be able to pursue -- say, for instance, the possibility that other online retailers such as Amazon.com might consider embracing PayPal once it's no longer tethered to a perceived competitor.

In any case, you can bet we'll be there to touch base and add perspective once the report hits the wires. In the meantime, feel free to chime in with your thoughts using the comments section below.

$19 trillion industry could destroy the internet
One bleeding-edge technology is about to put the World-Wide-Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party— click here for 1 stock to own when the web goes dark.

The article eBay, Inc. Looks to Trump the Market Once Again originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, BMW, eBay, Google (A and C shares), and Nike and owns shares of Amazon.com, eBay, Google (A and C shares), and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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3 Reasons Why CenturyLink Is a Top Dividend Stock

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Source: CenturyLink.

Dividend investors love big yields, but they also rely on companies that won't slash their payouts when times get tough. By that measure, one might conclude that no self-respecting dividend investor would want anything to do with CenturyLink , which reduced its dividend by 25% in early 2013. Yet even after the cut, CenturyLink still pays a healthy yield of 5.5%. And more importantly, what the company is doing with the money it saved from cutting its payout is arguably even more valuable to long-term shareholders than receiving more dividend income would have been.

CenturyLink has joined several other telecom stocks, including Frontier Communications and CenturyLink , in paying impressive dividend yields. But CenturyLink isn't simply clinging to a dying segment of the industry -- it is instead looking for new ways to grow. Let's look at three reasons CenturyLink still deserves to rank among the top dividend stocks in the market.


1. CenturyLink's dividend cut was for all the right reasons.
Across the telecom industry, investors have learned the hard way that dividend cuts are almost always bad. Frontier, for instance, has cut its dividend not once but twice in recent years, now paying only 40% of what it paid five years ago. Windstream has been rewarded for not cutting its dividend, but its proposed corporate restructuring will likely lead to major changes in the way its investors get paid.

When CenturyLink slashed its payout early last year, investors initially panicked, sending the stock down more than 20%. But in the aftermath of the move, investors have discovered that CenturyLink has made progress it otherwise wouldn't have made. By diverting money away from dividends toward share repurchases, CenturyLink actually took advantage of dividend investors' panic, picking up shares on the cheap and cutting its share count substantially. That gives CenturyLink a competitive advantage in earnings growth over Frontier and Windstream, as lower share counts mean higher earnings per share for those who held onto their stakes in the company.

2. CenturyLink has done well with its product mix.
The biggest challenge CenturyLink faces, along with Frontier and Windstream, is how to manage the inevitable decline in their legacy landline businesses while still making progress in higher-margin, cutting-edge services. Even though CenturyLink hasn't found a solution to declines in its landline revenue, it nevertheless has done a better job than its peers in stemming the tide of customers away from its obsolescent offerings.

Source: CenturyLink.

Moreover, strength in CenturyLink's newer offerings has helped keep overall operating revenue on the rise. Specifically, CenturyLink's Prism TV video service picked up 16,000 customers during the second quarter, weighing in at a total of 215,000. Moreover, CenturyLink has managed to retain substantial pricing power for its service, and overall, that helped CenturyLink's broadband, video, and wireless sales climb by 5% and represent more than half of the company's total sales. The more that CenturyLink can stop relying on its legacy assets at all, the more likely it'll be to weather the long-term storm and come out stronger on the other side.

3. International growth could give CenturyLink a key edge over its competition.
Late last month, CenturyLink announced that it would make its global managed hosting services available in China, expanding the international footprint of its hybrid cloud and IT infrastructure services. Even before the move, CenturyLink had almost five dozen data centers across the globe, with five in Asia helping to give the company a presence around the world that distinguishes it from its domestic-focused rivals.


Source: CenturyLink.

Indeed, CenturyLink's efforts to widen its offerings in the cloud-computing show just how dedicated the company is to going beyond traditional telecom services. By identifying an important trend in information technology, CenturyLink hopes to catapult itself into an international growth engine that could make it easier for the company to raise dividends long into the future.

CenturyLink still has a long way to go before it can declare victory over Windstream, Frontier, and other smaller rivals. For now, though, CenturyLink is doing everything it should to cement its place as an attractive stock for dividend investors.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

The article 3 Reasons Why CenturyLink Is a Top Dividend Stock originally appeared on Fool.com.

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

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

 

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Why the Container Store Group Inc.'s Growth Story Will Continue

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The Container Store's 10-month run as a public company was recently described as "intense," "stressful," and "a little bit illogical." And that was coming from the company's CEO, Kip Tindell. I'm sure investors have some choice words of their own after watching this stock crater 53% year to date.

Thus far, it has undoubtedly been a painful ride for shareholders (myself included). But as long-term Foolish investors, let's not get bogged down in the short-term hiccups and ignore the underlying business. The Container Store's self-proclaimed "funk" could subside by the end of winter, and it's good to see a management team stay the course in a desperate retail environment.

The "funk" that's sidelined Container Store's same store sales could subside with a strong holiday season. Source: The Container Store


With time, this funk will fade
For any retail business, "same store sales" is a critical metric that gauges both demand for its products and the effectiveness of its pricing strategy. Early on, healthy retailers tend to excel in this category.

So when The Container Store revealed that same store sales declined for the second quarter in a row, most of the financial media went berserk. Wall Street analysts were mighty cynical as well.

From their perspective, a single quarter blip could be an accident, but two is a sign that something is seriously wrong. Morgan Stanley analyst Simeon Gutman remarked, "For an immature chain with a long growth runway, persistent soft traffic is a clear disappointment."

Here's a look at how soft traffic turned a positive same store sales trend to a negative in the last two quarters.

Source: The Container Store quarterly filings

Investors would like to see the opposite trajectory, of course, but this could be a matter of unfortunate timing rather than permanently disappearing customers.

The Container Store seems to be uniquely suffering from a lingering "funk" that was brought about by the nasty winter weather earlier this year. It was, as Tindell put it, "[T]he worst weather we've ever seen in our 35-year history, which affected nearly all of our stores throughout the country."

While most retailers suffered from the fierce winter storms, the blow was particularly brutal for The Container Store. So much of its annual results depend on holiday and post-holiday season shopping, including 60%-70% of earnings. On the conference call, Tindell elaborated on the situation:

We're the only retailer I know that gears up for its two peak seasons simultaneously. We have to gear up for the holiday season and the elfa sale in the fourth quarter. That's why last year's weather had more of an impact on The Container Store than it does most people because, let's face it, January and February are the two worst months of most retailers' business, and January and February are even bigger for us than December.

The worst part is that the company's lackluster annual Elfa® storage sale has thrown a wet blanket on the overall business so far in fiscal year 2015. This is because Elfa products are like "potato chips," according to Tindell: Customers don't buy just one, they tend to come back for more.

And even though Tindell extended the Elfa® sale this spring, the winter's damage was done. A crucial lever could no longer be pulled, and the weather-driven traffic lull seems to have sealed The Container Store's same store sales fate for at least a few quarters.

Now, I'm not one to give retailers a pass when they blame the weather, but there's little evidence that something else is awry. Average ticket amounts are inching upward to roughly $60 a pop. According to management, new stores are opening to higher demand than ever before. And pricing remains firm, which helped lead to an increase in adjusted net income of 38.7% year over year.

According to most media outlets and analysts, The Container Store appears to be facing an existential crisis. I would characterize their current problem as a temporary but potentially reversible traffic trend. The third quarter will probably not offer much relief, but there's reason to believe that things will return to normal if the fourth quarter witnesses a calmer winter than the last.

Source: Flickr/Angie Six

Pricing power will prevail
Another reason I'm less concerned about The Container Store's short-term slump is that management's holding firm on pricing to preserve margins. In a highly promotional environment, this will lead to sluggish traffic (as witnessed) but will ensure branding and pricing integrity over the long haul.

In the latest quarter, gross margins (sales less cost of goods sold) actually increased from 58.4% to 58.8% year over year. This figures towers over retailers like Target or Bed Bath & Beyond, which generate 30% and 40% gross margins, respectively. These lucrative margins, in fact, are one of the key reasons I looked into purchasing the stock. As Warren Buffett has pointed out, healthy margins stem from pricing power, which is what really matters in the long run.

Now, The Container Store's management team could have easily looked at ongoing trends and resorted to "blowout" sales to get customers in the door. In the short term, that might have worked out well for same store sales, but discounting can become an all-too-slippery slope.

Just consider the situation that the notorious discounter JCPenney found itself in a couple years back. In 2012, an article in the Harvard Business Review noted that JCPenney's brand became so synonymous with "sales" that it offered 590 sales events in a single year during 2011. That's 1.6 events per day!

JCPenney had completely lost its identity. It found itself in a jumbled bargain bin that was impossible to climb out of. In one decade, JCPenney customers went from demanding a 38% discount to get them to pull out their wallet to requiring a 60% off sale to even bat an eye. Like I said, promotions can lead down an incredibly slippery slope.

As a long-term Foolish investor, I'd rather The Container Store didn't venture down that path. It's one thing to pick yourself up and dust off a few lackluster quarters. It's an entirely different undertaking -- as JCPenney has found -- to convince price-obsessed customers that you're a brand worth paying for.

The takeaway for investors
Right now, the spotlight is shining bright on The Container Store. It's a newly minted IPO stock that attracted hype -- and high expectations -- from the market and the media. Its CEO also happens to be on a well-publicized tour right now for his leadership-focused book, Uncontainable. In light of all the hoopla surrounding the company, is it disconcerting to see shares tumble more than 60% from their all-time high? Of course it is.

However, investors need to separate the noise from the long-term sustainability of The Container Store's business. A combination of inflated expectations, ill-conceived sales guidance from management, and a lingering weather-related slump has caused the stock to take a nosedive. But The Container Store seems poised to get back on track, and I expect this growth story will continue in the years to come.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

The article Why the Container Store Group Inc.'s Growth Story Will Continue originally appeared on Fool.com.

Isaac Pino, CPA owns shares of The Container Store Group. The Motley Fool recommends The Container Store Group. The Motley Fool owns shares of The Container Store Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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J.C. Penney Tries to Put Its Failure Behind It

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With the flick of a pen, J.C. Penney has severed its past and moved things toward a new and -- potentially -- shining future. CEO Mike Ullman has announced that he is stepping aside for the second time, putting former Home Depot Executive Marvin Ellison in charge of the company next year. The last time Ullman left, J.C. Penney ended up with visionary leader Ron Johnson, who ran the business into the ground. Fortunately for shareholders Ellison's background should give investors more hopethat the mistakes of the Johnson era won't be repeated. 

Ellison comes from Home Depot, where he the last spent twelve years. Most recently, he was vice president of stores. The solid, no frills style of Home Depot should fit well with J.C. Penney's overall strategy, and should give the company a clean break from its ugly past. The retailer has been marching steadily forward, as of late, and Ellison's arrival will be the final act in J.C. Penney's relaunch.

Struggling sales have leveled off
There's no reason to dig too deep into the mire -- it should be enough to say that Johnson made a mess of things while he was at the helm. J.C. Penney was in a place where sales looked like they might never recover, good brand name or not. This time last year, for instance, the company was in the middle of a quarter that would see comparable store sales fall by 26.1%.


Now, J.C. Penney is riding its last quarter's comparable store sales increase of 6%. The company is finally clawing back some of the loss that it's experienced over the last two years. In doing so, J.C. Penney has also managed to keep its gross margin up. In the first half of this year, gross margin has come in at 34.5% -- a four and a half point increase from 2013's first half.

In short, the top line is looking like a solid place once again. J.C. Penney is finding ways to get people into the store, and there is less reliance on sales to do so, helping to push that gross margin up.

J.C. Penney's cost concerns
While the top line is growing, the bottom line is still sunk. In the first half of the year, J.C. Penney has lost $524 million -- ouch. That's still better than last year, though, when the company was sitting on a $934 million loss halfway through. Unfortunately, management has forecasted more spending to round out the year. An increase in advertising is scheduled for the third quarter, and that could keep eating away at profits.

The hope is obviously that advertising turns into more traffic, giving J.C. Penney the momentum it needs to make this year's holiday season a success. The company earns almost a third of its total revenue in the fourth quarter. That quarter happens to be the first full quarter with Ellison on board in the president's seat -- he'll take over as CEO next August.

The proving ground is set. While Ellison won't have much say in how things go during the holidays, he will be the new voice and leadership on the frontlines. J.C. Penney is on the right track, it just needs to keep its momentum up for the next few months.

If it can do that, it should be able to inch its way toward a positive earnings result, and by the time Ellison takes over as CEO, the hardships of the part might be fading from memory. That would be an incredible cap to an impressive turnaround, all managed by Ullman. It would certainly be a fitting final end for a man who left the company on poor terms the first time. Look out for comparable store sales in the fourth quarter, as that's when this turn around will be made or broken.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

The article J.C. Penney Tries to Put Its Failure Behind It originally appeared on Fool.com.

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

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

 

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How Does Microsoft Corporation Really Feel About Surface Pro 3?

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Long before the introduction of its cutting-edge, pseudo-tablet, Surface Pro 3, rumors swirled that new-ish Microsoft CEO Satya Nadella wasn't enamored with the notion of entering the hardware business. On the surface, Nadella's "mobile-first, cloud-first" mantra would seem to contradict his earlier non-hardware assertions, but his mobile-first focus isn't necessarily about building devices, it's about enabling mobile units with Microsoft's suite of systems and software.

It's said that Nadella eventually "saw the light" and has since embraced devices, but by then, the groundwork had been laid for Microsoft naysayers. The most recent example is the back-and-forth surrounding Microsoft's Surface Pro 3. By most accounts, the Surface Pro 3 enjoyed a successful launch. But you don't have to go far to find industry pundits who claim the complete opposite, even suggesting that Nadella's lack of support for Microsoft's tablet hybrid, along with poor sales, will mark the end of the Surface altogether.

Nadella's take on the Surface Pro 3
A recent statement issued by Microsoft Surface general manager Brian Hall should put an end to the questions regarding the future of the Surface Pro 3. Whether it actually does or not is another matter, but Hall's announcement makes it pretty clear: "We are here to stay." Hall went on to explain all the benefits of the Pro 3 to businesses, and he took a jab at one the company's longtime rivals and current king of tablets, Apple , saying Surface is perfect for employees that need a laptop, but "want to avoid having to buy and carry an iPad, too."


If Hall's statement that the Surface Pro 3 is "here to stay" wasn't enough to allay fears that Microsoft will cut the cord on its new form factor, a note issued by Nadella himself, included in the announcement, should.

Here's Nadella's take on the future of Surface:

We believe a strength of the Microsoft platform for enterprise is the rich ecosystem of hardware and applications developed by our partners, the community at large, and some of our own teams at Microsoft. In particular with Microsoft Surface Pro 3 we are now offering an enterprise-class device that can deliver great end user productivity. Microsoft is putting its full and sustained support behind the ongoing Surface program as one of a number of great hardware choices for businesses large and small.

That ends that discussion, right?

There's (at least) one in every crowd
Despite what was a clear indication that the Surface Pro 3 isn't going anywhere, you don't have to look far to find Microsoft naysayers. In fact, one report issued right around the time of Hall's and Nadella's announcement claims Microsoft will "terminate its Surface tablet line" altogether. How is that possible, particularly considering Nadella's recent statement? The "insight" comes from the now infamous upstream supply chain "sources" that are the basis of so many tech rumors.

The latest claims from the supply chain insiders also cite Surface Pro 3's less-than-expected sales since its roll-out, and even goes so far as to suggest Microsoft has suffered losses of $1.7 billion due to its poor adoption rates. The supposed losses Microsoft has endured are the result of selling less than 1 million Surface units, so says the report. Interesting that even as Microsoft is rumored to be killing off the Surface Pro 3, scuttlebutt abounds that its old nemesis Apple is rumored to be preparing the roll-out of its own larger screen, pseudo-tablet at a special event later this month. Interestingly, Apple's new device has been dubbed the iPad Pro.

Final Foolish thoughts
As is the case with any tech leader today, especially as it relates to mobile devices, there's never a shortage of rumors, pro and con. Will Microsoft's earnings call, scheduled for the 23rd of this month, shed any light on Surface Pro 3 unit sales? Unfortunately, if past calls are any indication, specific unit sales results aren't likely. But Microsoft investors should hope that the Pro 3 is here to stay, because the "laptop that can replace your tablet" opens the door to a whole, new market.

Apple's own product, if industry insiders are correct, could be partly responsible for the success of the Surface -- and explain the rumored iPad Pro. Word has it the iPhone 6 Plus, Apple's recently released phablet, is flying off the shelves. Industry pundits have long predicted the demise of the tablet, due in part to consumers moving to phablets, or larger-screen pseudo tablets like Microsoft Surface Pro 3. As for the future of Surface, Nadella's own statement makes it pretty clear: The Pro 3 is here to stay, which should be music to the ears of Microsoft investors.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early, in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

The article How Does Microsoft Corporation Really Feel About Surface Pro 3? originally appeared on Fool.com.

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

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

 

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Is It Time to Buy VMware, Inc. Stock?

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Source: VMware.

Virtual computing pioneer VMware is set to report third-quarter results after the closing bell on Tuesday, October 21. VMware's share prices are back where they started in January, and activist investors hope to separate the company from majority owner EMC .

Is this a good time to buy VMware stock?


VMware's valuation
There's no gentle way to say this, so let's just get to the point: VMware shares are expensive.

It doesn't really matter which way you slice it. The stock trades at 41 times trailing earnings, 7 times trailing sales, and 18 times free cash flows.

These ratios have held fairly steady over the last two years, so there's no positive momentum going on.

This goes with the virtual computing territory to some extent. Sector rivals Red Hat and Citrix Systems tend to play in the same valuation ballpark:

VMW Normalized PE Ratio (TTM) Chart

VMW Normalized P/E Ratio (TTM) data by YCharts

So if you want to invest in the virtual computing and cloud computing spaces, you'll have to hold your nose and live with sky-high starting prices. There's simply no way around this issue.

Do you get what you pay for?
Then again, investing in high-growth phenoms has never been cheap. And VMware most certainly qualifies for that title.

VMware has grown its sales at a 22% annual pace over the last 5 years, while free cash flows increased by 21% a year. These growth rates are about 4% ahead of Red Hat and 8% faster than Citrix.

Plug VMware's cash flows into a discounted cash flows calculator, using Wall Street's average estimate of 15.4% growth for the next 5 years, and the stock should be worth about $95 per share today. So if you're willing to pay a premium for rapid growth, VMware trades at a reasonable price right now.

But wait -- there's more!
The numbers rarely tell the whole story. In VMware's case investors must weigh the company's tremendous growth opportunities against the threat of a blisteringly competitive industry.

VMware isn't resting on its laurels, but developing and releasing new products in new categories at a breakneck pace. R&D expenses have soared 134% higher over the last 5 years while capital expenses doubled. That's the way to keep innovation engines humming in a bleeding-edge technology business like VMware.

VMware CEO Pat Gelsinger. Source: VMware.

As a result, VMware CEO Pat Gelsinger hopes to stake out a lot of land in the mobile cloud markets that lie ahead. "We are in the early stages of tectonic shift," Gelsinger said in the second-quarter earnings call. "Customers are realizing the dramatic benefits of the new software-defined model for IT, and VMware delivers exactly that."

Red Hat and Citrix will certainly challenge VMware's mobile cloud ambitions -- and that's just the start of a very long list. This "tectonic shift" will unleash a veritable horde of computing specialists, all chasing some part of the same market.

I believe that the market is large enough to support a large number of winners, and that VMware should carve out a bigger slice of it than most of its rivals. This company has been doing software-defined everything for more than a decade, giving VMware a head start. And while many competitors may settle for clearly defined niches -- Citrix, I'm looking at your one-on-one app delivery expertise -- VMware can play the mobile cloud market on many levels.

In the end, I wouldn't be surprised to see VMware out-executing the IT market at large, thus beating analysts' long-term growth estimates. In that case, VMware should be worth more than $110 per share today.

Do keep in mind that we're talking about virgin territory within the unpredictable tech sector, so there's always some chance that my assumptions might miss the mark 5 years down the road.

But if you agree with my analysis of VMware's target markets and the company's place therein, then the stock looks reasonably attractive right now. And, if activist investor firm Elliott Management gets what it wants, you could even see a quick jump as the separation from EMC unlocks new value and accelerated growth prospects.

$19 trillion industry could destroy the Internet
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The article Is It Time to Buy VMware, Inc. Stock? originally appeared on Fool.com.

Anders Bylund owns shares of Red Hat. The Motley Fool recommends VMware. The Motley Fool owns shares of EMC and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Market Wrap: U.S. Stocks Stabilize After a Three-Day Sell-Off

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Nodding donkey oil pumps operating, California
Inga Spence/AlamyIt was a bad day for energy stocks as oil prices took their steepest plunge in years.
By ALEX VEIGA

A slump in energy stocks stymied a rebound in U.S. indexes Tuesday as the price of oil plunged the most in two years.

The decline in oil prices followed forecasts for weaker global demand this year and next, a sign of slowing economic growth. Chevron (CVX) fell 2 percent, helping to drag down the Dow Jones industrial average in the waning moments of trading.

Even so, corporate earnings provided some encouragement to investors, helping to close the gap on losses after a three-day slump.

Domino's Pizza (DPZ), Citigroup (C) and Johnson & Johnson (JNJ) reported results that were better than analysts were expecting. The market also got a boost from airline stocks, which rebounded after sliding the day before.

For the time being, at least, the panic selling is over.

The modest rally provided a breather for investors. The Standard & Poor's 500 index has fallen 6.7 percent since hitting a record high on Sept. 18. Investors are worried that economies in Europe and Asia might be slowing.

"The bank earnings this morning certainly made people feel a little bit better," said Joe Peta, managing director at Novus Partners. "For the time being, at least, the panic selling is over."

The major stock indexes remained in positive territory until the last hour of trading, when they began to fade, threatening to deliver the second last-minute slide in two days.

By the end of the day, the Dow Jones industrial average (^DJI) had lost 5.88 points, or 0.04 percent, to 16,315.19. The S&P 500 index (^GPSC) added 2.96 points, or 0.2 percent, to 1,877.70. The Nasdaq (^IXIC) rose 13.52 points, or 0.3 percent, to 4,227.17.

Six of the 10 sectors in the S&P 500 rose, led by industrials, which gained 1.3 percent. Energy fell the most, 1.2 percent.

The Dow went negative for the year on Friday. It's now down 1.6 percent for 2014 and 5.6 percent below its September peak. The S&P 500 index is up 1.6 percent for the year.

Six of the 10 sectors in the S&P 500 rose, with industrial stocks posting the biggest gain at 1.3 percent. Energy stocks fell the most, sliding 1.2 percent.

Several major banks kicked off the third-quarter corporate earnings season.

JPMorgan Chase (JPM) returned to a profit, but missed Wall Street's expectations. The stock fell 17 cents, or 0.3 percent, to $57.99. Wells Fargo's earnings matched analysts' expectations, while Citigroup's results came in better than expected. Wells Fargo (WFC) fell $1.37, or 2.7 percent, to $48.83. Citigroup rose $1.57, or 3.1 percent, to $51.47.

Domino's Pizza jumped 11.3 percent on better-than-expected earnings and revenue. The pizza delivery chain operator's stock rose $8.58 to $84.30.

Several airline stocks surged a day after the sector got pummeled amid mounting worries that the Ebola virus outbreak could curb travel spending. Delta (DAL) jumped $1.89, or 6.1 percent, to $32.79, while Southwest (LUV) climbed $1.12, or 3.9 percent, to $30. American Airlines Group (AAL) gained $2.93, or 10.3 percent, to $31.51.

Johnson & Johnson raised its 2014 earnings outlook, partly due to revenue gains from its new blockbuster hepatitis C drug. But shares in the world's biggest health care products maker slipped 2.1 percent as investors worried about looming competition for the drug. The stock shed $2.11 to $97.01.

"The earnings are sufficiently good to justify a higher close on today's market, however the market is a forward looking mechanism and what I think the market is concerned about is a gravitational pull downward due to slower global growth, particularly from Europe," said Jim Russell, senior US equities strategist at USBank.

The price of oil suffered its biggest drop in nearly two years after the International Energy Agency reduced its forecast for demand for this year and 2015.

Benchmark U.S. crude fell $3.90 to close at $81.84 a barrel on the New York Mercantile Exchange. That was the biggest drop since November of 2012, and it's the lowest closing price since June of 2012.

Brent crude, a benchmark for international oils used by many U.S. refineries, fell $3.85 to close at $85.04 on the ICE Futures exchange in London. Brent is at its lowest level since November of 2010.

In metals trading, gold rose $4.30 to $1,234.30 an ounce, silver rose six cents to $17.40 an ounce and copper rose five cents to $3.09 a pound.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.20 percent.

AP Business Writer Elaine Kurtenbach in Tokyo contributed to this report.

What to Watch Wednesday:
  • The Mortgage Bankers Association releases data on weekly mortgage applications at 7 a.m. Eastern time.
  • At 8:30 a.m., the Labor Department reports producer prices for September; the Commerce Department reports retail sales for September; and the Federal Reserve Bank of New York releases the Empire State Manufacturing Survey of business conditions in New York state.
  • The Commerce Department reports business inventories for August at 10 a.m.
  • The Federal Reserve releases its Beige Book survey of regional economic conditions at 2 p.m.
These major companies are scheduled to release quarterly financial statements:
  • American Express Co. (AXP)
  • Bank of America (BAC)
  • BlackRock (BLK)
  • Charles Schwab (SCHW)
  • eBay (EBAY)
  • El Paso Pipeline Partners (EPB)
  • KeyCorp (KEY)
  • Kinder Morgan (KMI)
  • Kinder Morgan Energy Partners (KMP)
  • Kinder Morgan Management (KMR)
  • Las Vegas Sands (LVS)
  • Netflix (NFLX)
  • PNC Financial Services Group (PNC)
  • St. Jude Medical (STJ)
  • United Rentals (URI)

 

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3 Reasons Red Box Instant Couldn't Kill Netflix

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Last week, Verizon and Outerwall announced they would be shuttering their joint venture: Once heralded as a potential Netflix killer, Redbox Instant is no more.

When it was first unveiled in 2012, Redbox Instant appeared to be a legitimate threat to Netflix's business model. With a combination of DVDs-by-vending-machine and a catalog of older movies available for streaming, Redbox Instant promised something Netflix couldn't match -- at least in theory. But as is often the case, reality proved quite different.

Why did Redbox Instant fail? Although it's hard to say definitively, three factors in particular stand out.


Lack of original and exclusive programming
Netflix's aggressive push into original programming has at times drawn the ire of investors: Its lavish spending on original shows like House of Cards and Orange Is the New Black have been questioned; its expensive deals for exclusive content have been criticized. But despite its steep price tag, Netflix's content has emerged as a key differentiator and advantage, one that has it allowed it to remain stalwart in the face of new challenges.

Shortly after the launch of Redbox Instant, there was widespread speculation that Verizon and Outerwall would follow Netflix's lead, perhaps investing in original programming of their own. While the executives involved hinted at the possibility, it never came to fruition: Although it offered thousands of movies, Redbox Instant was never able to offer its subscribers anything they couldn't get elsewhere.

Limited distribution
At the same time, Outerwall and Verizon's service was hampered by a lack of availability. A website and apps ensured that anyone with a laptop, PC, or mobile device could instantly access the service, but set-top boxes were something else entirely.

Netflix has an app for virtually every smart TV, blu ray player, and streaming device in existence (even a few cable boxes). Netflix management frequently updates its investors on its progress in this area, often using a portion of its quarterly investor to letter discuss changes in the consumer electronics market.

To be fair, Redbox Instant did launch on most major game consoles -- in the U.S., the most popular streaming media devices -- but it never made it to the Apple TV (with 20 million users, its importance cannot be understated) or most smart TV platforms.

A bad business model
But ultimately, the failure of Redbox Instant may have simply been the byproduct of a faulty value proposition: a bad bet that consumers wanted what its CEO once termed "disc plus."

When it was announced in early 2012, Redbox Instant appeared almost intentionally designed to take advantage of Netflix's then-recent blunder: the controversial splintering of its online streaming and DVDs-by-mail subscription plans. By separating disc rentals from streaming video (and charging a separate, minimum $8 fee for both) Netflix had indirectly raised prices on its customers by 60%, sparking a fair amount of backlash and some subscriber loss. The concern was real enough to devastate Netflix's stock -- in just four months, shares shed more than 75% of their value.

Around that time, Outerwall and Verizon came along, trumpeting their new service with a plan that would offer something approaching the Netflix of old: For $8 per month, customers could rent four DVDs from one of Outerwall's many Redbox kiosks, and stream unlimited video from the Redbox Instant app.

In hindsight, Netflix's management was the more forward-thinking, correctly betting that online streaming was the future. In the years since, Netflix has added tens of millions of new streaming subscribers, and while the number of customers receiving DVDs by mail still numbers in the millions, it has experienced steady declines nearly every quarter.

Life after Redbox Instant
For Verizon, the closure of Redbox Instant doesn't mean much -- the telecom giant's core business still remains entirely centered around wireless and wireline services. Adding a subsidiary the size of Netflix would've helped, but its failure is not material.

Outerwall's future is far less certain. The company has been a persistent target of short-sellers, largely due to its reliance on Redbox. Last quarter, for example, its DVD rental kiosks generated more than 80% of its revenue, a precarious situation to be in, considering the persistent improvements in online infrastructure and Internet-connected TVs. Had it succeeded, Redbox Instant may have driven more business to Outerwall, and kept its DVD rentals somewhat relevant.

With Verizon and Outerwall out of the market, Netflix should benefit from having one less competitor to worry about. Redbox Instant never posed much of a threat to begin with, but its official shuttering stands as one less obstacle in Netflix's path.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

The article 3 Reasons Red Box Instant Couldn't Kill Netflix originally appeared on Fool.com.

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

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

 

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3 Reasons Why Altria Group Is a Top Dividend Stock

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Source: Altria Group.

The best dividend stocks combine high payouts with long-term dividend growth. On those metrics, it's hard to find a stock with a better track record than tobacco giant Altria Group , which sports decades of consistent dividend increases and a current yield of 4.5%. After having survived the ongoing threat of tobacco litigation, Altria now must deal with enhanced regulatory efforts to limit its revenue and deter potential customers from using its products. Yet even as rivals Reynolds American and Lorillard look to combine forces against it, Altria has several things going for it as a dividend stock in the years to come. Let's look at three reasons why Altria should sustain its value for investors as a top dividend stock.

1. Altria has the pricing power to offset volume declines.

For years, critics have pointed to the declining number of smokers in the U.S. as a reason not to invest in Altria and its tobacco-producing peers. But in focusing only on sales volume, bearish investors ignore the other part of the revenue equation: how much companies can charge for their products. Pricing is where the power of a tobacco company's marketing and brand awareness comes in, and Altria has an enviable track record of keeping its customers loyal.

Source: Nikita2706, Wikimedia Commons.


Altria brand leader Marlboro had a 44% market share as of mid-2014, giving it a dominant position in the U.S. cigarette market. As a result of its high-profile brand, Altria was able to boost prices on Marlboros enough to turn a nearly 5% year-over-year drop in volume in the second quarter of 2014 into a total dollar-revenue decline of less than 1%. That's particularly impressive given the high levels of tobacco taxes that smokers already pay, which should arguably give Altria even less room to make price increases without crushing demand. Nevertheless, Marlboro has shown that smokers still prefer premium brands even as prices rise, and that loyalty is a key asset for Altria's future.

2. Altria is looking at growth in electronic cigarettes and vapor products.

With the declines in traditional tobacco volumes, Altria has looked for other ways to bolster growth. One hot area is in e-cigarette and vapor products, where Altria and other industry players hope to find greater acceptance and looser regulation than in regular cigarettes. Altria has moved forward aggressively with its MarkTen e-cigarette line, making it available in tens of thousands of retail locations. Moreover, with its purchase of Green Smoke in April, the company has demonstrated an even deeper commitment to vapor products and their growth potential.


Source: Green Smoke.

Altria won't have free rein over the tobacco-alternative space, as Lorillard has been quite aggressive with its blu eCigs line. But with Reynolds planning to divest blu as part of its Lorillard acquisition in favor of its own Vuse brand, Altria has an opportunity to push development of MarkTen and Green Smoke more strongly in order to capitalize on any confusion stemming from the Reynolds-Lorillard merger.

3. Altria's beer and wine businesses offer the opportunity for profit-enhancing opportunities beyond tobacco.

Despite the popularity of e-cigarettes, some fear the FDA and other regulators will eventually clamp down on these products as much as they do regular tobacco products. But Altria has exposure completely outside the tobacco arena that should give nervous dividend investors some reassurances about its survival prospects.

Source: Altria Group.

Specifically, Altria's Ste. Michelle Wine Estate division is a wholly owned subsidiary that produces well-known brands like Columbia Crest and Chateau Ste. Michelle. While the unit produces just 2.5% of Altria's revenue, that figure has jumped by 50% over the past four years.

Even more important is Altria's 27% stake in SABMiller, which produces beer brands including Miller and Foster's. With that stake producing nearly $1 billion in profit last year, SABMiller is a key producer of the earnings that shareholders count on to give Altria the ability to keep its dividends climbing higher over the long run.

The tobacco industry's challenges make it tough for some investors to count on Altria's ability to remain a top dividend stock. Yet after handling so many other threats to its business model, Altria appears to be taking the necessary steps to preserve its dividend for years to come.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their nondividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

The article 3 Reasons Why Altria Group Is a Top Dividend Stock originally appeared on Fool.com.

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

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

 

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Cheap Stocks Wall Street Loves: Qihoo 360 Technology

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Qihoo 360's game platform. Source: Qihoo 360.

The Internet has always gotten investors excited: Even after the U.S. tech bust in the early 2000s, investors didn't hesitate when Chinese Internet companies started popping up. After years of dominance by industry giant Baidu , up-and-comer Qihoo 360 Technology made a huge splash in the space in 2013. Last year, Qihoo shares almost tripled as the company built up considerable market share to present a potential challenge to Baidu. Yet this year it's been a different story, with the stock having lost almost half its value since March as investors worry about the company's future.

Nevertheless, Wall Street still likes Qihoo 360's prospects, with analyst opinions being almost universally positive and price targets representing aggressive calls for big gains in the near future. Let's take a closer look at Qihoo 360 to see what has Wall Street's brightest so excited.


Stats on Qihoo 360

2014 YTD Return

(23.2%)

Average Price Target

$123.38

Implied Potential Return

96%

Ratings

9 Strong Buy, 10 Buy, 5 Hold

Source: Yahoo! Finance.

Why Wall Street loves Qihoo 360
Wall Street gravitates toward growth stocks, and companies seeking to tap China's Internet have huge prospects for future growth as more of the nation's population becomes technologically savvy. In analysts' eyes, the faster the growth, the better the stock, and that helped make Qihoo 360 a favorite over even Baidu in terms of positive predictions for share price movement, as it came from a much smaller position to play a larger role in the Chinese Internet space.


Qihoo 360's Internet Security product. Image source: Wikimedia Commons.

Despite its share-price challenges, Qihoo hasn't stopped delivering on growth. In its most recent quarter, revenue more than doubled from year-ago levels, as Qihoo saw a nearly 90% gain in its mobile user base. More than 640 million users have Qihoo security software on their mobile devices, and although the company hasn't yet fully figured out how to monetize those users effectively, it nevertheless sees them as a huge opportunity for future profit. Moreover, on the important search traffic metric, Qihoo has likely hit its goal of 30% market share earlier than it expected, and efforts to increase cash flow from search are part of a larger initiative aimed at overall profit generation.

Of more immediate importance has been Qihoo's move into gaming. Revenue from the company's value-added services division, which includes its games, made up more than 45% of total sales during the quarter and is on pace to beat out advertising as Qihoo's top moneymaker.

What's holding Qihoo 360 back?
The bad news for shareholders, though, has been that despite solid revenue growth, fears about Qihoo 360's future profitability have weighed heavily on the stock. Competition from Baidu has led to price reductions in many key areas, and following suit has caused Qihoo's margins to contract which naturally harms profits. Qihoo's response has been to hire industry expert John Liu as its chief business officer, with the specific task of addressing better monetization of the company's search traffic. If Liu can deliver more revenue per user, then Baidu's huge advantage in that area could disappear quickly.


Qihoo's search engine. Source: So.com.

Still, there's reason to feel confident about Qihoo 360's long-term prospects despite the share-price decline. Some of the drop in Chinese Internet stocks generally has come from global investors reassessing their exposure to emerging markets, and the rise of U.S. tech stocks earlier this year might have taken some attention away from China's tech counterparts. Plus, even as Qihoo keeps margins somewhat thin now, it is also investing in its future, and that could pay off with accelerated growth once investors become more comfortable with China's macroeconomic situation and recent regional tensions.

Overall, Qihoo 360 has shown typical share-price behavior for a growth stock, going through wild swings in both directions. Yet the bullish thesis for the stock remains intact, and if Qihoo can keep up its momentum in the mobile space, then it has the potential to keep fighting with Baidu for dominance of the important Chinese Internet industry for years to come.

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"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and others. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

The article Cheap Stocks Wall Street Loves: Qihoo 360 Technology originally appeared on Fool.com.

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

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The Micron Technology Inc. Roller Coaster: Is the Stock Cheap For a Reason?

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Micron Technology is not a stock for weak stomachs. Shares of the computer memory chip maker recently doubled year over year -- only to drop back by 21% in about two weeks.

The stock is back to prices not seen since the end of May. Micron's stock is still beating the S&P 500 market index over the last 52 weeks, but by a smaller margin. So what's the deal with this roller-coaster experience?

Source: Micron.

Going up...
The story behind Micron's rising shares is quite simple. The memory market has boiled down to just a handful of serious players after a series of buyouts and bankruptcies, and Micron is one of the largest pure-play memory chip specialists left standing.


All-around tech giant Samsung leads the field with a nearly 40% share in some key markets. In these areas, Micron and SK Hynix go neck-and-neck in a battle for second place, each holding global market shares in the mid-20% range.

But then, Samsung doesn't try to make a profit on memory chips. The South Korean giant has far bigger fish to fry, and can afford to sell memory chips at a microscopic profit or even a loss. Samsung's own smartphone and consumer electronics departments absorb much of the memory product flow, after all. It doesn't make sense to charge high component prices when the customer is part of the same company.

Micron, on the other hand, lives and dies by its memory business. That's why the 2013 acquisition of bankrupt rival Elpida was such a game changer for the company. Thanks to that transaction, Micron now holds a very significant slice of the global memory market, and can play games with the economies of scale that follow.

And that's exactly what Micron has done. The company revamped some of Elpida's commodity-level production lines to focus on more profitable specialty products. At the same time, the reduced overall production stabilized memory prices across the board.

For example, Micron is now the No. 1 supplier of memory chips to the automotive industry. Thanks to Elpida's mobile memory heft, Micron also owns 40% of the mobile DRAM space. As cars grow ever more digital, with self-driving autos on the far horizon, the need for memory chips and other electronic components will only grow for years to come.

So thanks to the Elpida deal, Micron's sales are soaring while margins expand. That's a fantastic combination, leading to a huge cash flow:

MU Revenue (TTM) Chart

MU Revenue (TTM) data by YCharts

That's why, in a nutshell, Micron shares have soared in 2014. The company's management plays the supply-and-demand game like Joshua Bell plays his Stradivarius. I mean, it's a beautiful thing.

What about the big drop, then?
So why have Micron's shares plunged more than 20% lower in the last two weeks?

I think it's a big misunderstanding. And I'm not alone.

When Micron reported fourth-quarter results three weeks ago, the stock jumped more than 6% higher overnight. Micron impressed on all counts, matching analyst-beating results with strong forward guidance. Micron CEO Mark Durcan boiled it down to "continued favorable market conditions and steady execution," which is what I've been talking about today. That's the real story here.

But then fellow chipmaker Microchip Technologies reported a revenue miss and issued a dire warning.

"Microchip often sees the turn of the industry ahead of others in the semiconductor industry," said Microchip CEO Steve Sanghi. "We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future."

The next biog thing: DDR4 memory modules. Source: Micron.

Investors hung on Sanghi's every word, and semiconductor stocks of all kinds plunged the next day. Micron shares fell more than 9%.

All of this makes sense if you can approach every semiconductor company from the same angle. But that's not the case at all.

Summit Research analyst Srini Sundararajan immediately shouted "apples and oranges!" from the rooftops. Microchip mainly works with low-margin commodity products, which is exactly the type of business that Micron is distancing itself from.

In short, Micron shares got a haircut because an unrelated business had a bad hair day. Moreover, Micron shares were cheap before the 20% slide, and now trade at just 6.7 times forward earnings.

Micron's price management tools are easy to understand, and yet Mr. Market tends to misread the company's market position anyhow. What we see today is a big discount on a high-quality stock, and I'm tempted to buy some more Micron shares while the mismatch lasts.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

The article The Micron Technology Inc. Roller Coaster: Is the Stock Cheap For a Reason? originally appeared on Fool.com.

Anders Bylund owns shares of Micron Technology. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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Why Lenovo Continues Crushing HP, Dell, and Apple in the PC Market

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Lenovo  widened its lead over rivals Hewlett-Packard , Dell, Acer, and Apple in the PC market during the third quarter of 2014, according to research firm IDC.

Lenovo, which evolved into a personal computer giant after acquiring IBM's PC business a decade ago, now controls a fifth of the world's PC market. Rivals HP, Dell, and Apple also posted market share gains, while Acer's market share plunged by over 11%.

Quarter

Lenovo

HP

Dell

Acer

Apple

Others

3Q 2013

17.7%

17.5%

11.9%

8.4%

5.7%

39.7%

3Q 2014

20%

18.8%

13.3%

7.4%

6.3%

33.1%

Global PC market shares. Source: IDC.


What's impressive about Lenovo's 11% market share gain is that it was accomplished as global PC shipments declined 1.7% year over year during the quarter. So why has Lenovo been so successful while other PC makers have blamed the rise of tablets for their misfortunes?

Know how to diversify geographically
In fiscal 2014, just 38% of Lenovo's revenue came from China, its home market; 25% came from Europe and the Middle East and 21% came from the Americas. Lenovo's dependence on China, where it faces cheaper domestic competitors, has decreased dramatically over the years (down from 60% to 70%), and it now mainly relies on foreign markets for growth.

HP faces the same situation. Last year, 64% of the company's top line came from outside the U.S. But as Lenovo strategically decreased its dependence on China, HP expanded there in hopes that it would offset stagnant growth in the U.S.

The decline of China's PC market can clearly be seen in Western tech companies. Cisco recently warned of declining Chinese demand, while IBM reported a sales decline of over 20% in Chinese revenue. That's bad news for HP, which relies on China for roughly 20% of its top line. Therefore, If Lenovo is retreating from the Chinese market, it would be wise for HP to do the same.

Don't stop believing in laptops
Lenovo reacted calmly to the rise of tablets that started with the debut of Apple's iPad in 2010. Despite dire predictions that tablets would eventually kill the laptop market, Lenovo pumped out new laptops, released Android tablets and smartphones to offset possible losses in the PC segment, and gradually modified its Windows laptops into convertible forms.

Today, those businesses are clearly defined -- Lenovo's Yoga laptops are easily recognizable with their foldable "tent" form factor, its Yoga tablets continue to surprise customers with innovations such as built-in projectors and subwoofers, and its phone business will get a lot bigger when the acquisition of Motorola Mobility from Google closes next year.

Lenovo Yoga 3 Pro. Source: Lenovo.

Although Lenovo remained in firm control of the PC market in the third quarter, it steadily decreased its dependence on desktops and laptops while increasing its dependence on mobile devices:

 

Laptops

Desktops

Mobile

Others

2013

53%

31%

9%

7%

2014

51%

28%

15%

6%

Percentage of annual revenue. Source: Lenovo annual report.

Don't overreact to a technological shift
HP, by comparison, overreacted to the arrival of the iPad with a series of painful blunders. In July 2011, the company launched the TouchPad, a $500-$600 webOS tablet that lasted for a single month before being discontinued and sold in a humiliating "fire sale" for $99. That same month, HP stunned investors by mulling a spinoff of its PC business.

HP's TouchPad. Source: Wikimedia Commons.

The company then abruptly acquired enterprise software company Autonomy for a whopping $10.3 billion to decrease its dependence on the PC business -- which turned out to be its worst acquisition in recent history. Those errors led to the replacement of CEO Leo Apotheker, who had been on the job for less than a year, with former eBay CEO Meg Whitman. Dell followed in HP's footsteps: After launching a series of unpopular consumer-facing devices over the past decade, the company became an IT company in 2012. A year later, founder Michael Dell took the company private.

Overreacting during a critical technological shift not only cost HP and Dell the PC market, but they also missed the opportunity to capture a meaningful share of the mobile space. In the end, HP's absurd anti-PC reaction was unjustified and enabled Lenovo to dethrone it as the world's top PC company. Gartner now predicts that shipments of traditional PCs (desktops and laptops) will decline 5% between 2014 and 2015 -- hardly a decline heralding the end of the PC industry.

The Foolish takeaway
In addition to being the largest PC maker in the world, Lenovo is now also the second-largest PC/tablet maker and the third-largest smartphone supplier. PCs are still clearly its core competency, but it will eventually rely on three key pillars of growth: PCs, mobile devices, and enterprise solutions, thanks to its acquisition of IBM's low-end server business.

Lenovo has become a force to be reckoned with thanks to its disciplined approach to geographic expansion, its slow and steady approach to diversifying its businesses, and a natural evolution of form factors for its products that keeps customers interested in its products.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

 

The article Why Lenovo Continues Crushing HP, Dell, and Apple in the PC Market originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

 

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Bose vs. Apple's Beats: The NFL Tests Its Limits

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In a deal to monetize anything semi-related to the game, the NFL recently signed another partnership naming Bose as the "Official Sound" of the NFL -- a nebulous title that apparently includes headphones. As a part of the deal, NFL players were banned from appearing on camera with any headphones besides Bose until 90 minutes after a game or face fines in excess of $10,000.

And while the collective bargaining agreement is rather comprehensive, giving the NFL the power to draft these repressive rules in order to increase its marketing deals, at what point does it go too far? If the first couple of weeks has been of any indication, many players are ignoring the ban and instead opting to get fined as a general statement.

As far as investors are concerned, Apple seemed to have inherited Beats' competition with Bose in the headphones accessories space. Although the companies decided to end their court case in which Bose accused Beats of infringing upon its noise cancellation technology, this NFL dispute and rumors that Apple will remove Bose from its online store point toward an uneasy relationship. Apple investors should ask if Bose could present headwinds for their next possible $10 billion business.


Apple's accessories is an important business
Over the last four reporting quarters, Apple's accessories business has become even more important to the company. First, the company provides investors a level of diversification against its star product -- its iPhone. Reliance on the iPhone is a double-edged sword; on one hand, investors benefit as a larger part of sales go toward the higher-margin product. But on the other hand, if Apple becomes overly wedded to one product, the investment becomes riskier.

Next, the accessories business is one that is growing: Over the last four quarters, Apple's accessories business has roughly matched its overall growth -- and that's before buying the Beats' high-growth headphone business. The visual below gives you some context:

Source: Apple's 10Qs. Left Y-axis figures denote revenue and are in millions. Right Y-axis figures are in percentage points and denote year-over-year growth.

While many consider Apple's accessories line to be an afterthought, a way to book sales of EarPods and wireless keyboards, Apple's accessories business is rather large. Consider this, over the last 12 months if Apple's accessories business was its own business, it would be a Forbes Fortune 500 company coming in at No. 432, between Lennar and Sanmina. The iconic brand Harley Davidson, actually comes in two spots lower.

How Bose's missed opportunity became Apple's gain
But it didn't have to be this way. Bose could have dominated the premium headphone market if it would have attempted to. Although Bose was one of the first to market with a premium set of headphones, the company underestimated demand. Famously known for its home audio, premium car audio, and Wave Radio products, the company appeared to spend more money and time marketing those products rather than its earphones.

Even when it marketed its headphones, the company missed out on many in the younger demographic by focusing solely on sound. Apple's Beats positioned itself as a fashion accessory in addition to providing studio-quality sound. And it appears to have worked; estimates vary but most peg Beats as grossing nearly $1.25 billion last year, up from $350 million in 2011 -- 48% revenue growth per year with the vast majority being its headphone business. Although Bose is a private company, Forbes reports Bose grossed $2.5 billion in revenue last year on all its products.

Final thoughts
Although Bose secured the "Official NFL" moniker, one has to wonder if that was the best usage of its ad budget. As far as news coverage goes, this appears to be one large commercial for Apple's Beats with the NFL and Bose appearing to be rather vindictive -- especially so with NFL players with Beats marketing deals.

Bose's best chance to establish headphone dominance was to design a fashion-focused line when Beats was in infancy. Now that Apple (and its $165 billion war chest) owns the brand, Bose will find it tougher to compete, and no amount of NFL fines will change that.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

The article Bose vs. Apple's Beats: The NFL Tests Its Limits originally appeared on Fool.com.

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

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

 

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