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Why Tiffany & Co. Sparkled Today

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Tiffany & Co. climbed nearly 2% today after Canaccord Genuity upgraded the jewelry retailer from sell to hold.

So what: Along with the upgrade, analyst Laura Champine boosted her price target to $83 (from $65), representing about 7% worth of downside to Friday's close. While Champine isn't exactly thrilled over Tiffany's appreciation prospects, she believes that continued margin expansion should limit the risks in 2014. 


Now what: Canaccord raised its 2014 EPS estimate for Tiffany by $0.41 to $4.51 on a gross margin increase of 195 basis points. "We think our prior gross margin outlook for Q4 and beyond was conservative given persistent metal and diamond cost deflation and price increases that have only recently begun flowing through the P&L," noted Canaccord. "Our longer-term projections also reflect further margin opportunity through fixed cost leverage and product mix as new products aim to revive the silver business." With Tiffany up more than 60% from its 52-week lows and trading at a P/E of 25, however, I'd wait for a wider margin of safety before buying into that opportunity. 

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The article Why Tiffany & Co. Sparkled Today originally appeared on Fool.com.

Fool contributor Brian Pacampara 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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A Value Play in the Big Data Sector

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Investors in Verint Systems and its rival NICE Systems have gotten used to some pretty solid performances in 2013. The two companies specialize in systems that capture and analyze customer and employee interactions. With the growth in data analytics that companies like NICE's partner IBM is seeing, you can expect both Verint and NICE to find it a lot easier to sell analytics as part of their packaged solutions (which is exactly what is happening.) Moreover, the shift toward analytics looks likely to favorably adjust their long term growth rates.

Verint Systems beats and raises
The recent third quarter results from Verint saw the company beat estimates and raise guidance.

  • The full-year revenue growth forecast was increased to 6.5%-7.5%, up from 6%-7% previously.
  • Full-year EPS guidance was raised to $2.75-$2.80. 
  • 2015 revenue and diluted EPS guidance were projected at of 7%-9% growth.


Verint differs from NICE by focusing more on security and government work, while NICE's strength lies in the enterprise (particularly in the financial sector) and call center markets. As such, the two Israeli companies will inevitably be discussed as merger candidates. The differences also mean that they report some contrasting results at times. Looking at Verint's quarter in detail, the standout performer was Verint's communications intelligence segment which recorded 30.6% revenue growth.


Source: Company presentations

If there was a disappointment, it was with the 3.3% rise in enterprise intelligence revenue. Verint's management argued that this was a consequence of weakness in Europe, because its Americas enterprise business was up "mid to high single digits."

NICE and Verint grow data analytics
Both companies are seeing growing analytics sales. The two already have an installed base of clients with their hardware solutions, so it's relatively easier for them to sell larger deals with analytics incorporated into the deal. Indeed, this is part of the reason why IBM has a deal with NICE, that involves incorporating its big data analytics within NICE's solutions.

The big advantages enjoyed by these companies is that their customers get to buy analytics and customer interaction capture systems (voice, video, online, and similar options) from one vendor. However, Foolish investors should note that the shift is changing some of the operating metrics.

  • Verint confirmed that it is seeing stronger average selling prices as its solutions are increasingly being sold with analytics.
  • Sales cycles appear to be getting longer as deal size and complexity increases.
  • Solutions that include analytics software are likely to see a trade-off between short-term revenue generation and longer-term service and support revenue.
  • Margins and cash flow should improve going forward as software tends to be higher margin.

Many of these factors are already playing out in Verint's results. During its conference call, Verint's management outlined that its operating cash flow would be around $160 million for the full year, and "we expect that cash flow to grow kind of commensurate with the earnings growth that we outlined in our guidance."  Assuming capital expenditures of around 1.8% of revenue (a conservative estimate) suggests that free cash flow generation will be around $144 million and $154 million for the next two years. These are impressive figures, especially given that its enterprise value (market cap plus debt) is only $2.28 billion.

Eagle-eyed readers will note that Verint's guidance implies no increase in margins next year, despite it selling more software analytics solutions. When pushed on the issue on the conference call, CEO Dan Bodner replied:

Our guidance is 7% to 9%... ...we are aiming at double-digit growth. So the trade-off here is between leverage that obviously exists in the software business and investing more organically to accelerate growth. And at this point, this is our initial guidance.

In other words, don't be surprised if Verint trades off its margin expansion in the near-term to generate stronger growth in future.

The bottom line
In conclusion, this was a pretty strong report from Verint. Along with NICE Systems, it represents a relatively cheap way to play the big data trend. These companies aren't over-researched glamor stocks, and I think this makes them even more interesting for Fools to look at. With a P/E ratio of 13.4 times 2014 estimates, Verint remains a good value.

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The article A Value Play in the Big Data Sector originally appeared on Fool.com.

Lee Samaha owns shares of Verint Systems and Nice Systems Ltd. (ADR). The Motley Fool owns shares of 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Is Volaris Aviation the Best Way to Invest in Mexico?

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A recent IPO might provide the a great opportunity to invest in Mexico's air travel boom. Volaris Aviation , a leading ultra-low-cost-carrier (ULCC) in Mexico, provides access to leading manufacturing hubs, and it could make a great play on the general overall growth in Mexico's economy and air travel.

Like most of Latin America, the majority of Mexicans travel around the country on buses. While the country's highly inefficient highway network makes bus travel time-consuming, the nation's many lower-income travelers prefer buses' cheaper fares, helping the system stay in business. But now, Volaris Aviation promises the ability to match bus fares in some areas, providing consumers with a much better travel alternative.

While the likes of Spirit Airlines have grown dramatically in the U.S. on the ULCC concept, Volaris might offer an even greater opportunity. The prospects of matching the gains of Copa Holdings , which has soared 200% in the last year thanks to strong growth from its base in Panama City throughout all of Latin America, is starting to attract investor attention.


Growing demand

Though the Mexican economy has only grown roughly 1.1% during the first eight months of 2013, the Mexican DGAC (Direccion General de Aeronautica Civil) reported that Mexican airlines' passenger volume increased 9.5%. In total, Volaris accounted for 48% of that growth.

Volaris continues to take market share by growing its operations. It launched six new domestic routes during the third quarter of 2013, leading to total departure gains of 15.6% year over year.

Strong margins despite low fares
Volaris Aviation lowered its average fare in the third quarter by 12.8% year over year, so its average revenue per available seat mile (RASM) dropped by 6.2%. The company targeted passengers who travel by bus with lower base fares, and partially offset those cheaper tickets with a 4.7% decrease in costs per available seat mile (CASM) to $0.088.

These costs compare very favorably to Copa Holdings, which has CASM costs of $0.109. Naturally, Copa has higher RASM averages, and even forecasts a load factor breakeven level of 60%, it does showcase how low the costs are for Volaris. Copa has been the leading in Latin America and Volaris can justify the ULCC claim with the lower costs.

Will Volaris match the success of Spirit Airlines?
Spirit Airlines has been a huge success in the U.S. The domestic ultra-low-cost carrier continues to grow, with third-quarter revenue surging 33%. While Volaris has been aggressive by pricing fares against bus tickets, Spirit Airlines has the advantage of undercutting the legacy carriers' pricing in the U.S. 

Spirit Airlines has some interesting cost comparisons to Volaris. One might expect a low-cost provider in Mexico to produce cheaper costs, but Spirit actually gets close to the CASM cost at only $0.10. Looking at the CASM ex-fuel, Spirit sits at $0.0586, which compares closely to the $0.051 costs at Volaris. Apparently, a large portion of the cost differential relates to Spirit paying higher prices for fuel.

Bottom line
Volaris Aviation provides an interesting play on not only the growth in the Mexican economy; but also the shift from using buses as the primary transportation vehicle for long distance travel. The high growth of Spirit Airlines and Copa Holdings highlight the potential for a stock such as Volaris if it continues to execute on taking market share in the promising Latin America markets -- and Mexico in particular.

The article Is Volaris Aviation the Best Way to Invest in Mexico? originally appeared on Fool.com.

Mark Holder 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Is Geron Finally Onto Something?

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What some investors might not know is that Geron turned 23 years old this year. And in all that time, it has never had a drug reach the market. Most biotechs in a similar situation would have gone bankrupt long ago, but Geron is alive and kicking. In fact, Geron's shares have more than doubled this year based on positive clinical trial results for the company's experimental cancer drug imetelstat, as a possible treatment for essential thrombocytopenia, or ET, as well as myelofibrosis, a form of blood cancer.

And what makes this dramatic turnaround so impressive is that most industry insiders believed Geron was doomed after the failure of its lead brain cancer drug GRN1005 late last year. Indeed, Wall Street dropped the stock nearly 50% in a single day upon announcing GRN1005's clinical failure and its plans to focus solely on imetelstat for hematologic malignancies.

So what makes Geron different?


Restructuring in late 2012 was a key development
After shuttering the GRN1005 development program and dropping imetelstat's solid tumor indications, CEO Chip Scarlett had little choice but to make some bold moves to keep the company alive. He decided to focus the company's remaining assets on imetelstat's hematologic malignancies, laid off 40% of the workforce, and changed a number of executives. Geron has continued reshaping itself this year by closing a deal to sell its human embryonic stem cell assets to BioTime , and closing its research facility in California last April.

To save money, Geron decided to hire third-party research organizations, instead of keeping full-time research staff on its payroll and paying the massive overhead that goes along with running a research facility. The net result has been that Geron has not had to tap its $50 million At-The-Market Sales Agreement of Common Stock to fund its operations since the agreement was put into place in October 2012.

Prior to Scarlett's arrival, Geron was heavily criticized for repeatedly dumping shares on the back of positive clinical trial results, thus putting the brakes on rallies before they even got started. Geron's new managerial team appears keen to avoid this scenario and is intent on creating value for shareholders.

Is imetelstat a game-changing cancer drug?
One of the major consequences of this restructuring is that it left Geron with only two experimental indications for a single drug -- imetelstat. By putting all its eggs in the imetelstat basket, management is betting the drug is a game changer in terms of treating hematologic malignancies. The good news is that the clinical trials are returning impressive results thus far.

In mid-stage ET trials, patients receiving imetelstat showed a 100% hematologic response rate without any notable adverse effects. But what is most encouraging is that some patients in an early stage trial for myelofibrosis went into complete remission.

To date, Incyte  and Novartis'  Jakafi is the only drug approved by the Food and Drug Administration for myelofibrosis. And while Jakafi is effective at alleviating symptoms resulting from myelofibrosis and improving overall survival, it's never led to complete remission. In 2013, Jakafi sales are on track to exceed $200 million and sales are growing at a steady clip year over year.  So there is a lot to be excited about for Geron's imetelstat.

That said, it's important to remember that these are still early-stage results, and expectations should be tempered by the fact that many oncology drugs fail in larger late-stage trials. So imetelstat's game-changer status remains an open question.

Geron's future
Geron is also busy looking into additional hematological indications for imetelstat. My take is that management wants to make imetelstat a one-stop shop for hematological malignancies in order to give it multiple potential routes to blockbuster status.

Even so, I think management's ultimate goal is to make Geron an attractive buyout target. While it's certainly easy to draw comparisons to Gilead Sciences buyout of YM Biosciences for its mid-stage myelofibrosis drug, Foolish investors would be wise to look into Scarlett's track record as a CEO.

Basically, Scarlett is famous for selling his companies to the highest bidder. In short, I think Geron is a strong buyout candidate going forward, especially if imetelstat continues to show promise as a treatment for myelofibrosis.

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The article Is Geron Finally Onto Something? originally appeared on Fool.com.

George Budwell 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Is the Fall in Lululemon a Buying Opportunity?

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Lululemon athletica  crashed by more than 11% on Thursday as the company's earnings report included a worrisome reduction in sales and earnings guidance. Is the recent dip in Lululemon a buying opportunity or will competitors like Gap and Under Armour capitalize on the company's problems to continue gaining market share in the yogawear business?

Strong earnings, concerning guidance
The numbers for the third quarter where actually better than expected, Lululemon reported a year-over-year increase of 20% in revenue to $379.9 million. Comparable-store sales increased by a healthy 5% during the quarter and direct-to-consumer revenues were also strong, with a 37.3% annual increase during the period.

Profit margins have been under pressure lately, and the recent quarter was no exception. Gross profit margins fell to 53.9% of revenue versus 55.4% in the third quarter of fiscal 2012, and operating margin declined to 24.3% of sales compared to 25.5% in the same quarter of the previous year.


Still, the company reported better than expected earnings per share of $0.45 versus $0.39 in year-ago quarter. Wall Street analysts were on average expecting earnings of $0.40 per share.

Guidance was a big disappointment, though: Management reduced its sales expectations for the fourth quarter of fiscal 2013 to between $535 million and $540 million versus a previous guidance of between $565 million and $570 million.

Same-store sales for the upcoming quarter are expected to be flat and management expects earnings per share to be in the range of $0.78 to $0.80, materially lower than the average Wall Street estimate of $0.84 per share. Lululemon also cut sales and earnings guidance for fiscal 2014.

CEO Christine Day pointed to macroeconomic factors and execution problems as the main reason for the disappointing guidance:

This so far has been a year of challenges, learning, and growth for Lululemon, and while our outlook for the fourth quarter is being affected by both macro and execution issues, I believe that the investments we are making in the business combined with the team in place create a strong platform for growth in the years ahead.

Mistakes and competitive pressure
Lululemon has made a series of expensive mistakes this year; in March, the company had to recall 17% of the yoga pants it had in stock due to excessive sheerness. Later in June, CEO Christine Day unexpectedly announced she was leaving the company once a replacement was found, which produced another steep decline in its stock.

Adding insult to injury, founder and chairman Chip Wilson made some very unfortunate comments insinuating that women's bodies may be to blame for the problems with the company's products. "Frankly, some women's bodies just actually don't work," Wilson said on Nov. 5 in an interview with Bloomberg TV.

On Dec.9 Lululemon announced that Laurent Potdevin has been appointed as new CEO. The executive, who most recently served as president of Toms Shoes, is taking charge in January 2014. In addition to this, Chip Wilson is resigning the chairman position. So, the recent disappointment comes at a time when investors in Lululemon were starting to have hopes of a better future as a new management team could streamline operations and leave the company's problems in the past.

A renewed management team is clearly positive news for Lululemon, but investors need to consider that the company is now facing growing competitive challenges by the likes of Gap's Athleta brand and Under Armour.

Athleta is opening new stores near existing Lululemon locations, benefiting from its traffic and undercutting Lululemon products in price by a considerable difference. In addition to this, Athleta is copying Lululemon's marketing strategy by hooking up with yoga instructors and sponsoring all kinds of classes and similar activities to increase brand awareness. Athleta offers a wider variety of sizes than Lululemon, providing an alternative for customers who prefer a more inclusive brand and capitalizing on Wilson's unfortunate comments.

Under Armour is also stepping up its efforts in women's apparel; CEO Kevin Plank believes women's apparel will generate around $1 billion in revenue for the company in 2016 and yoga could be a considerable opportunity for Under Armour in the coming years. Under Armour is clearly going after Lululemon with its marketing campaigns; the company recently launched a big campaign for its studio yoga line using the tag line "We've Got You Covered," in clear reference to Lululemon's sheerness problem.

Lululemon has been one of the most successful brands in the sports apparel business over the last several years. But success attracts competition, and the company is now facing growing competitive pressure while at the same time it needs to recover from recent mistakes hurting its brand and image. The new management team will clearly be facing a demanding challenge in the coming quarters.

Bottom line: A visibility problem
Is management playing it safe by providing an excessively low guidance so it can easily overdeliver in the coming quarters? Or is increased competition from players like Gap and Under Armour seriously hurting Lululemon? Uncertainty usually creates opportunity, and there is plenty of uncertainty surrounding Lululemon. The company offers material upside potential if the new CEO can leave its problems behind and reignite growth in the coming quarters. On the other hand, Lululemon's visibility problems go well beyond its pants.

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The article Is the Fall in Lululemon a Buying Opportunity? originally appeared on Fool.com.

Fool contributor Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica and Under Armour. The Motley Fool owns shares of Under Armour. 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Will General Mills' Second-Quarter Earnings Satisfy?

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General Mills is set to report second-quarter results for fiscal 2014 on Wednesday, Dec. 18. It has been a hot stock in 2013, rising 20.14% year to date. The current estimates call for growth on both the top and bottom lines, so let's take a look to see if we should consider buying before the report is released. 

The consumer goods giant
General Mills is the company behind some of the world's most popular brands, including Betty Crocker, Pillsbury, Haagen-Dazs, Green Giant, Progresso, Yoplait, Cheerios and numerous others. It provides products to the U.S. and international retail segments, as well as to food service providers and convenience stores. Currently, General Mills' products are available in more than 100 countries, with offices and manufacturing facilities in more than 30 of them.


Source: General Mills.

Last time out
On Sept. 18, General Mills released first-quarter results for fiscal 2014. Here's a breakdown of the report:

MetricQ1 2014Q1 2013
Earnings per share $0.70 $0.66
Revenue $4.37 billion $4.05 billion

Earnings per share increased 6.1% and revenue rose 7.9% year over year, as new businesses and products contributed to 5% of the growth. The company's gross margin declined 130 basis points to 36.9%, but this lost ground is expected to be regained throughout fiscal 2014. The U.S. retail segment grew a respectable 4% to $2.58 billion, but international growth was explosive, rising 22% to $1.32 billion. General Mills is an established American powerhouse, but I believe the international segment could one day become the company's largest by several billion dollars. 

Earnings due out
Second-quarter results for fiscal 2014 are due out before the market opens on Wednesday. Here are the current consensus analyst estimates:

MetricExpectationsQ2 2013
Earnings per share $0.88 $0.86
Revenue $4.96 billion $4.88 billion

These expectations would result in earnings growth of 2.3% and revenue growth of 1.6% year over year; growth of under 3% is far from impressive, but you must factor in that this is a slow-growth company that will consistently generate free cash flow to distribute to its investors. General Mills has paid dividends uninterrupted and without reduction for 115 consecutive years, and this is the primary reason people love it as an investment. It has raised this dividend for nine consecutive years and currently sports a yield of roughly 3.06%.

Competitor results
Kellogg , General Mills' largest competitor in the processed and packaged goods industry, reported third-quarter results on Nov. 4. Here's an overview of the report:

MetricQ3 2013Q3 2012
Earnings per share $0.95 $0.89
Revenue $3.72 billion $3.72 billion

Earnings per share increased 6.7% and revenue was flat, as Kellogg's gross margin declined 39 basis points to 39.02%. North American sales decreased by 1.3%, as sales of morning foods, snacks, and "others" saw declines and only the specialty foods segment reported growth. Internationally, sales in Europe and Latin America grew 6.4% and 3.4% respectively, while sales in the Asian Pacific declined 9.6%. Overall, it was not a great quarter for Kellogg, but its stock has only fallen about 2.9% since. Today, it trades more than 11% below its 52-week high, so investors can consider it a value play and may want to buy for upside as well as its 3.04% yield. 

The Foolish bottom line
General Mills is one of the greatest companies in U.S. history and it has been a star in the stock market for more than 100 years. It is set to report second-quarter results on Wednesday and I believe the current estimates are very attainable. Keep a close eye on it and consider buying going into the report or on any weakness following the release.

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The article Will General Mills' Second-Quarter Earnings Satisfy? originally appeared on Fool.com.

Fool contributor Joseph Solitro 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Why Shares of AerCap Holdings N.V. Jumped 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 aircraft leasing company AerCap Holdings N.V. jumped over 30% today after the company announced an acquisition.

So what: AerCap is buying AIG's aircraft leasing arm, called International Lease Finance Corp., for $3 billion in cash and 97.56 million shares of new AerCap stock. At today's stock price, the deal is worth about $6.2 billion and will make AIG the largest shareholder with 46% of AerCap's stock.  


Now what: This deal was rumored last week and became a reality today with the help of cash financing lined up by AerCap this year. It makes the company the largest aircraft leasing company in the world with a huge backlog of Boeing and Airbus orders. AerCap CEO Aengus Kelly said that was "the jewel in the crown" of the deal.

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The article Why Shares of AerCap Holdings N.V. Jumped Today originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: long January 2016 $30 calls on American International 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.

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Investing in Deep Value Outperformance With Pzena

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Pzena Investment Management has had a strong year, rising 85% year to date. More strong performance could be on the way, though, as Pzena's funds continue to outperform benchmarks, gather assets, and accrue performance fees.

The financial crisis was tough on Pzena. In the years leading up to the crisis, the company was winning new money, but it ran into capacity limits on its biggest funds, limiting the upside from the boom. When the crisis hit, Pzena moved into financials. These companies met Pzena's "deep value" investment style, but as we know, they turned out to be value traps. Performance suffered, and Pzena is still down 48% from the IPO price in 2008, despite its impressive performance this year.

Performance has picked up significantly the dark days of 2008; 2009 and 2012 were strong years. 2013 has been the best year in a decade on both an absolute and relative basis. The poor performance of 2007 and 2008 has just about rolled off the key performance periods. Over one-year, three-year, and five-year periods, Pzena has outperformed the benchmarket indicies strongly.


Deep value strategies are clearly back in vogue. Value cycles have historically lasted six years, and we seem to be about halfway through the current one, according to management. Further upside seems quite possible. Pzena has invested heavily in "old tech," particularly HP, and financials. The firm clearly has a great deal of confidence diving back into the sectors that burned it so badly in the past. This return to financials is justified internally by an improved investment process paying greater attention to the appropriate amount of leverage. Whether this new process really represents a significant change or not, the value cycle has turned, and Pzena should continue to outperform.

The evidence of this is that over three-year and five-year periods Pzena is now starting to show strong performance, and sales of funds have picked up considerably. Year-over-year assets-under-management growth of 33% shows that investors have readily embraced this turnaround in Pzena's performance. In 2005, the company's win rate at prospect meetings was around 75%. Through the crisis it fell to zero but has picked up to around 30% now. As performance continues to improve, so this momentum in sales will build.

Gains in the sub-advised fund area have been particularly important in this sales growth. From August last year, Pzena managed 28% of the Vanguard Windsor Fund. The relationship with Vanguard is building to more small mandates. Pzena manages the Pzena Europe Fund for ABN Amro. This relationship could build in the same way as Vanguard. Investors are still hesitant to invest, so these relationships have really done a lot to build Pzena's reputation. A sign of this is the company's decision to start building a presence in London.

If we are thinking about growth, capacity is clearly an issue. Here, Pzena has certainly learned from the crisis. The new Expanded Value Fund aims to build on the success of the flagship Large Cap Value Fund. Rather than being limited to about 40 stocks, the Expanded Fund will hold about 80. The Large Cap Fund ran into limits at about $20 billion, so the Expanded Fund has a lot of room left to grow.

Pzena has also been trying to move into new areas, most notably with the Emerging Market Value Fund. This is something of a niche and has had particular success overseas. More recently, a long/short strategy has been tested. With only a year-long record, this is unlikely to affect near-term performance -- assets will only build with a three-year record -- but this is also another unique product that may find some early success with investors.

As performance improves and sales increase, performance fees and margins will improve too. Roughly 5%-6% of Pzena's AUM earns performance fees. These fees amount to 15% of returns in excess of the benchmark over the past three years. Going forward, as Pzena rolls through better periods of returns, this could add as much $0.05 to EPS. Pzena's cost base is also more fixed relative to competitors, leading to significant operating leverage as AUM continues to grow. Pay at Pzena is top-quartile, but it is less variable regarding markets and company profitability. In 2007, margins were as high as 69%. In 2012, they averaged 49%, so there's clearly a lot of scope to grow.

Pzena currently trades on forward earnings of 20 times, but even conservative projections suggest that the multiple three years forward is close to 15 times. If we include the company's cash balance of $2.88 per share, this valuation starts to look pretty reasonable, especially given the fairly predictable nature of growth and margin expansion on offer, here. Pzena also pays out 80% of its earnings as dividends, a proportion that may rise in the future and that would lead to a substantial yield above 5%.

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The article Investing in Deep Value Outperformance With Pzena originally appeared on Fool.com.

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

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Aramark Holdings: Get to Know This Fresh IPO

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Aramark Holdings went public on Thursday at $20 per share, and the stock jumped 13.5% in its first day of trading. This is the third time the company has gone public, with the first two IPOs taking place in 1960 and 2001. The stock has continued to rise, so let's take a look at its financials to see if it should become part of your portfolio. 

The American giant
Aramark is a leading global provider of food, facilities, and uniform services to numerous industries. Its core market is North America, but it operates in an additional 19 countries and employs more than 272,000 people. The company has been recognized year after year as one of Fortune's most admired companies, and has also made the list of the National Business Group on Health's best employers and Ethisphere Institute's most ethical companies.


Source: Wikimedia Commons.

Whom does it serve?
In the prospectus filed with the Securities and Exchange Commission, Aramark detailed the following about who the company serves every day:

  • "We provide services to 86% of the Fortune 500 companies."
  • "We serve over 500 million meals annually to approximately 5 million students at colleges, universities, and K-12 schools."
  • "We service over 2,000 health care facilities, collectively representing over 75 million patient days annually."
  • "We cater to approximately 100 million sports fans annually through our partnerships with over 150 professional and collegiate teams."
  • "We put over 2 million people in uniforms each day."
  • "We operate in 22 countries in North America, Europe, Asia and South America."
The company is dedicated to increasing its global position through "selling excellence" and has noted that it will pursue strategic acquisitions. It is safe to say that Aramark is a crucial part of the United States' and the world's economies. Having the majority of Fortune 500 companies as its customers, along with universities, hospitals, and professional sports teams, shows that Aramark's revenue stream will be consistent over time and will benefit from overall economic growth. Additionally, the company will grow while operating ethically and treating employees like family, which is a recipe for success in any business. 

The financials
In the prospectus, Aramark also provided the financials for the last three fiscal years which ended in late September. Here's a breakdown of each year:

MetricFY 2013FY 2012FY 2011
Earnings per share $0.33 $0.49 $0.40
Revenue  $13.95 billion $13.51 billion $13.08 billion
Operating income $514.47 million $581.78 million $547.09 million
Diluted shares out 209.370 million 209.707 million 209.999 million

Source:SEC.gov. 

Aramark is not showing intense growth, but I do believe it can find acquisitions to drive growth, while also buying back shares and increasing its earnings. It has a long history of great acquisitions, mainly in the uniform and facilities services industry, and this will likely be the area of focus. It also has one of the best management teams in the business, led by the great Eric Foss, so there's no doubt in my mind that the money raised by going public will be put to good use.

Whom should Aramark acquire?
Two companies that would complement Aramark's current businesses are G&K Services and ABM Industries .

G&K is a leader in the branded uniform and facility services market in the United States and is the largest such provider in Canada. It currently commands a $1.2 billion market cap and has 170,000 customers in North America, which it serves through its 165 facilities. In its latest report, earnings grew 8.1% and revenue rose 3.1%, and the company provided positive guidance. 

I believe Aramark should acquire G&K to expand its presence and customer base, while becoming the largest uniform and facilities service provider in Canada. It could then implement its own methods to increase profitability and expand product offerings to G&K's current clients. 

Source: G&K Services.

ABM Industries is one of the largest facility management and services providers in the United States. Its service offerings include facilities engineering, commercial cleaning, energy solutions, HVAC, electrical, and landscaping, along with parking and security. ABM currently has a market cap of $1.5 billion and serves thousands of clients across the United States and in 20 international markets. 

In its latest release, EPS decreased 14%, but revenue rose 13.5%, driven by acquisitions and organic growth. Its buildings and energy solutions segment grew a strong 26.7% as more bundled energy solutions contracts were obtained. ABM would be a great addition to Aramark because of its broad offerings in the facilities services segment. Secondly, the strong growth in ABM's energy business would provide heightened growth to Aramark's energy and commissioning segment. Lastly, I believe ABM's motto of building value is an indicator of what it could do for Aramark.

The Foolish bottom line
Aramark is a global powerhouse and is a growing force in several industries. The company will continue to expand, whether through increased marketing or through strategic acquisitions. The stock has risen more than 18.5% since its IPO price, but I believe there is still plenty of room for it to run. Keep a close eye on this one and consider buying when you're comfortable. 

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The article Aramark Holdings: Get to Know This Fresh IPO originally appeared on Fool.com.

Fool contributor Joseph Solitro 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Why Revolution Lighting Technologies Inc.'s Shares Popped

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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 Revolution Lighting Technologies Inc. jumped 17% today after announcing a new contract with the U.S. Navy.

So what: The company was selected by the U.S. Navy's Military Sealift Command to supply 17,000 Seesmart two- and four-foot LED tube lamps. The Military Sealift Command operates about 110 ships daily and is the leading provider of ocean transportation for the military.  


Now what: Revenue has started to pick up for Revolution Lighting Technologies and this is a big win for the company's future success. Keep in mind that this is still a highly speculative stock with just $20 million in revenue over the past year compared to a $273 million market cap. That's too expensive for my blood and I'd rather see bottom-line profits before jumping in, so I'll sit out today's pop.

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The article Why Revolution Lighting Technologies Inc.'s Shares Popped originally appeared on Fool.com.

Fool contributor Travis Hoium 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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After Market: Exxon, IBM Power a Monday Stock Surge

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Exxon (XOM) and IBM (IBM) led the blue chips higher Monday as investors moved beyond talk about Fed tapering, at least for a day. After two straight weekly losses, the major averages posted strong gains to open the new week.
Markets Await Fed Announcement On Stimulus
Getty Images

The Dow Jones industrial average (^DJI) rallied 129 points, the Nasdaq composite (^IXIC) gained 28, and the Standard & Poor's 500 index (^GPSC) rose 11 points.

Among the blue chips, Exxon Mobil gained 2 percent after Goldman Sachs raised its rating to 'buy' from 'neutral.' Exxon shares hit an all-time high. IBM jumped 3 percent, but it's still the year's biggest loser among the Dow 30.

While there's still plenty of concern about retail buying this holiday season, credit card companies are expected to come out as winners. Discover Financial (DFS), MasterCard (MA) and American Express (AXP) all rose about 1 percent, and Visa (V) was slightly higher.

Among online retailers, eBay (EBAY) rose 3 percent. An article in Barron's said the stock could gain 20 percent. Amazon (AMZN) added 1 percent.

Another theme today was mergers and acquisitions. Sprint (S) is reportedly interested in buying T-Mobile US (TMUS). Both stocks rallied when the story broke just before the close on Friday, but they gave back some of those gains Monday. Sprint lost 1 percent, while T-Mobile fell 4.5 percent.

Also, Singapore-based chip maker Avago has agreed to buy LSI (LSI) for $6.6 billion. Both stocks rallied. LSI soared 39 percent and Avago gained 10 percent. And AIG (AIG) has agreed to sell its International Lease Financing unit for $5.4 billion. Its stock gained more than 1 percent. And Valeant Pharmaceuticals (VRX) gained 4 percent after agreeing to buy Solta Medical (SLTM). Solta jumped 40 percent, but still trades for less than $3 a share.

Herbalife (HLF) jumped 9 percent after releasing new audits for the past three years that show no material changes, despite charges that it is run like a Ponzi scheme.

And finally, Twitter (TWTR) fell 4 percent after downgrades from Wells Fargo and SunTrust. But Twitter is still up 29 percent over the past month.

What to Watch Tuesday:
  • Commerce Department releases current account trade deficit for the third quarter, 8:30 a.m. Eastern.
  • Labor Department releases Consumer Price Index for November, 8:30 a.m.
  • National Association of Home Builders releases housing market index for December, 10 a.m.
  • Federal Reserve policymakers begin a two-day meeting to set interest rates.
-Produced by Drew Trachtenberg.

 

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Outerwall's Job Cuts Are Not Good News

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Outerwall , the company behind the Coinstar and Redbox machines, is in a tough position. More than 80% of its revenue comes from Redbox, and the inevitable decline of physical media in favor of digital distribution services like Netflix promises to ravage the company's main source of income. Over the last few years, Outerwall has launched a variety of new vending machine concepts, some that seemed quite promising, but none of these could come close to replacing Redbox anytime soon.

Kiosks that served coffee from Starbucks seemed like the most promising initiative, but the concept still wasn't a Redbox replacement. With the company recently announcing major job cuts as well as the scrapping of three of these concepts, it seems that there is simply no path to long-term growth for the company.

A bad sign
Outerwall is eliminating 251 jobs, or 8.5% of its workforce, with the move expected to save about $22 million annually. With net income of $175 million in the trailing 12 months, these layoffs will boost earnings by a considerable percentage. Along with these job cuts, Anne Saunders, president of the Redbox division, has left the company after a little more than a year on the job.


There are two ways to interpret this story. The first is to assume that Outerwall is cutting out the fat and getting more efficient. The company raised its EPS forecast for the full year to $5.44-$5.59, up from $4.89-$5.04 previously, a move which was well received by the market.

Another interpretation is that, with more than 40,000 Redbox locations already, there's simply little room to expand. The slower growth, along with the shuttering of three concepts, means that the company doesn't need as many employees going forward. This is not a good development.

The problem with Redbox
There are few other companies for which the short-term picture and the long-term picture diverge more than Outerwall. Redbox is a wonderful product, providing an extremely convenient way to rent movies and games. The huge number of locations, coupled with the ability to reserve discs online as well as return discs to any kiosk, gives Redbox a competitive advantage in the DVD rental business.

But this competitive advantage is not durable, and technology is already disrupting the business. Internet connections are becoming faster. Services like Netflix are becoming even more ubiquitous. Add in the rise of digital downloads of video games on new game consoles, and the convenience of Redbox will slowly disintegrate.

Outerwall, in a partnership with Verizon, launched a video streaming platform last year in an attempt to better compete against Netflix. The service, called Redbox Instant, has so far failed to take any meaningful market share away from Netflix, which has a far larger library and is integrated into a huge number of devices. It's doubtful that Redbox Instant will ever amount to much of anything, and it certainly won't save Redbox from an eventual slow decline.

No plan B
The only glimmer of hope for Outerwall came from some new concept vending machines, such as the Rubi coffee kiosk. The company signed a deal for the kiosks to sell Seattle's Best Coffee from Starbucks last year, and in an analyst day presentation in February, the company announced an accelerated roll-out of the kiosks. Outerwall touted significant potential for growth, putting the potential at 70,000 kiosks and $800 million of annual revenue.

Less than a year after that presentation, the Rubi concept is being discarded, along with a few other failed initiatives. This is quite a shift for the company, and it seems that these new concepts didn't have the potential to become the next Redbox.

Coffee is a competitive industry, with Starbucks at the high end and McDonald's increasingly boosting its portfolio of value-oriented coffee drinks. Starbucks has managed to turn a cup of coffee into an experience, and a kiosk can't mimic that. Rubi isn't necessarily a bad idea, but it isn't differentiated from other coffee kiosk concepts out there. There's no advantage of scale like there is with Redbox, and margins would certainly be far lower.

The bottom line
Without any concepts capable of growing to the scale of Redbox, Outerwall is left to manage the decline of its DVD rental empire. The company can certainly extract profits for a long time, but I don't see any path to long-term growth. The stock seems inexpensive, considering the rapid growth of the past, trading at just 12.3 times the high end of its full-year EPS estimate. But with the long-term picture fuzzy at best, I don't see Outerwall as a viable investment.

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The article Outerwall's Job Cuts Are Not Good News originally appeared on Fool.com.

Fool contributor Timothy Green has no position in any stocks mentioned. The Motley Fool recommends McDonald's, Netflix, and Starbucks. The Motley Fool owns shares of McDonald's, Netflix, and Starbucks. 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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AerCap Soars on News of Big Deal With AIG

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American International Group's protracted effort to sell off its International Lease Finance Corp. division looks to be nearing a close. After four years of peddling the aircraft-leasing division's benefits, the insurer has finally landed a buyer: AerCap Holdings .

A long time coming
Investors following the story of AIG's attempts to sell ILFC will be familiar with the timeline. Ever since the company's near-collapse in 2008, ILFC had been deemed as a noncore asset and marked for sale. Most buyers balked at the high sale price, among other concerns, and AIG was left holding the bag. But in December 2012, the insurer struck a deal with a group of buyers that looked promising.

The insurer had been cooperating with a Chinese consortium for nearly a year, without a clear end in sight. The deal would have given the consortium 80% of the ILFC operations for $4.2 billion, with an option to buy an additional stake later. But when deadlines were missed and new investors needed, the consortium looked less capable of closing the deal.


The third-quarter earnings conference call this year marked a turning point for AIG. Analysts and other listeners noted a sense of urgency by management to resolve the ILFC sale. Finally, the company would be more proactive in seeking either a new buyer or pursuing an IPO.

Enter AerCap
AIG had been in talks with AerCap, an aircraft leasing company based in the Netherlands. AerCap was owned by DaimlerChrysler before being sold to a group of private equity firms. In 2010, the firms sold their share of AerCap to Waha Capital, which now owns a 26% stake in AerCap.

Though AerCap is today considered a small player in the aircraft leasing market, it is known for the purchase and sale of older planes. This is a healthy match for ILFC, which owns a large number of jets with an average age of eight years. Over the past four years, ILFC has taken $4.7 billion in writedowns over the value of its inventory. The company has ordered a number of new jets to help keep pace with the higher demand for leased aircraft.

With the combined fleet of AerCap and ILFC, the new operation will rival the world's largest leaser, General Electric's  GE Capital Aviation Services, which boasts almost 1,700 planes. The combined fleet sits at 1,300 planes, with a book order of 400 more planes from various manufacturers.

The terms
The deal between AIG and AerCap is valued close to $5 billion, with AIG receiving $3 billion in cash and 97.5 million shares, approximately a 45% stake in AerCap. Set to close during the second quarter of 2014, the deal would allow ILFC to readjust its accounting treatment of its older aircraft so they are written down to current market value -- avoiding the need for AerCap to make the adjustments at a later date, which could hurt its stock performance.

USB and Citigroup are slated to provide $2.75 billion in financing for the deal, and AIG will provide AerCap with a $1 billion unsecured, revolving credit facility.

Though the deal still requires regulatory and shareholder approval, AerCap's largest investor, Waha Capital, has already approved the agreement. Since AIG will be AerCap's largest investor after the deal closes, investors can expect to see ILFC's operations in the insurer's reporting of continuing operations going forward.

It's about time
For AIG investors, news of the deal is a welcome relief. The uncertainty hanging hanging around the ILFC sale has been dragging down the company's share price, which jumped 2% this morning following the announcement. AerCap investors should also welcome the deal, as ILFC has consistently provided good earnings and has a large client base. Since AIG has been looking to sell off the aircraft leasing operations for so long, the transaction will allow it to return more capital to shareholders and to pursue new operational priorities.

Fueling your portfolio with dividends
Though it just reinstated its dividend in July, AIG is back in favor with income investors. And since the last piece of the non-core assets is officially headed out the door, now may be the time for the insurer to up its payouts.

While dividend stocks don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. In short, dividend stocks can make you rich. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

The article AerCap Soars on News of Big Deal With AIG originally appeared on Fool.com.

Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group, Citigroup, and General Electric Company and has the following options: long January 2016 $30 calls on American International 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Why Hanmi Financial Shares Popped

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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 Hanmi Financial soared 10% today after the Korean-American bank agreed to acquire Central Bancorp, parent company of Texas-based United Central Bank, for $50 million in cash.

So what: Hanmi expects the transaction to be immediately accretive to its 2014 earnings and significantly accretive to 2015 earnings, and to generate an internal rate of return of more than 20% for shareholders. More important, the $50 million purchase price represents just 62% of Central Bancorp's tangible book value, suggesting Hanmi is making a particularly shrewd move. 


Now what: The transaction is expected to close in the second half of 2014. "We believe the combined entity will be a significant competitive force in our markets and position the company for meaningful growth and earnings expansion," said Hanmi President and CEO C. G. Kum in a press release. "For shareholders, the combination is an attractive use of Hanmi's capital and is expected to be immediately accretive to earnings with minimal dilution to tangible book value per share, and will increase the earnings and growth profile of the combined entity."

With the Hanmi now up a whopping 70% from its 52-week lows and trading at a price-to-book premium to the industry, however, I'd wait for a wider margin of safety in case the integration doesn't go as smoothly as management expects.

More reliable ways to build wealth
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

The article Why Hanmi Financial Shares Popped originally appeared on Fool.com.

Fool contributor Brian Pacampara 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Is Dillard's a Good Bet in Broadline Retail?

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Family-run retailer Dillard's has created substantial shareholder value over the past five years by sticking to its core competencies, offering branded and private-label merchandise at affordable prices, and limiting its operations to its Southern and Midwestern home base. 

The company has also avoided the limelight, something that can't be said of major competitors J.C. Penney and Macy's , which have seen their battles escalate from the shopping mall to the courtroom over the past two years. So, should investors bet on this family affair?

What's the value?
Dillard's operates a midsize chain of department stores, with roughly 300 domestic stores that cater to its value-conscious customer base at relatively affordable price points. The company ended 2012 with its fifth straight year of merchandise margin gains, a trend that has benefited from greater exposure to the women's accessories category, accounting for approximately 15% of total sales. 


Like other department stores, Dillard's has also improved its margin by increasing its private-label offerings, including company-owned brands like Antonio Melani and Roundtree & Yorke.

In fiscal year 2013, though, Dillard's has found top-line growth hard to come by, hurt by lower overall sales volumes as a result of its decision to prune select underperforming stores from its network. However, the company's operating profitability has continued to improve in the current year, partially due to solid fee growth in the credit area, where it has a partnership alliance with GE's financial arm. 

The net result has been strong operating cash flow for Dillard's, approximately $173 million, which management is primarily using to enhance shareholder value, including a new $250 million stock-repurchase program announced in November.

Of course, investors are interested in future growth opportunities for the company, which seem limited at best, given management's plans to continue culling underperforming stores from its base. In addition, the company is currently forecasting only two new stores for fiscal year 2014. That said, Dillard's is financially well-positioned to pick up stores from any liquidity-constrained competitors that might be looking to sell, like J.C. Penney.

The once-proud retailer founded by James Penney in 1902 has been in survival mode in fiscal year 2013, raising nearly $3 billion through debt and equity underwriting activities that have allowed it to fund operating losses and maintenance-capital needs. Current management is attempting to overhaul its store base and return the company to its traditional promotional marketing strategy, a sharp reversal from former CEO Ron Johnson's "everyday low price" strategy that bombed with customers and led to lower sales and a large operating loss in 2012.

Lately, J.C. Penney's business retrofit seems to be taking hold to a degree, with management reporting a comparable-store sales gain of 10% in November. However, its sub-30% gross margin in the current year, due partially to inventory clearance markdowns, has led to a continuation of operating losses and an increasingly tenuous financial profile.  Barring a business resurgence, the company seems likely to eventually prune its network of more than 1,100 stores, which would play into the hands of Dillard's.

Follow the leader
In the meantime, Dillard's should follow the lead of industry giant Macy's in pursuing higher per-store productivity by focusing on growing product areas, like women's accessories and home goods. Indeed, at roughly 54% of total sales, the two categories are key product areas for Macy's and have been among its better-performing segments lately, helping the company to generate a comparable-store sales gain in fiscal year 2013. 

In contrast, Dillard's generates roughly 19% from the two categories, despite the women's accessories category accounting for its highest sales gain in the current period.

The bottom line
Dillard's runs a tight ship, which is not surprising given that members of the founding family are large shareholders and maintain management control. At roughly 26%, the company's spending on SG&A, or overhead, runs circles around similar ratios at both J.C.Penney and Macy's. 

Given its efficiency, though, the company's future profit growth will increasingly need to come from the top line, in the form of higher same-store sales or an expansion of its store base. Since the latter is unlikely in the near term and growth in the former has been creeping toward the flat line, investors would be wise to hold off on the story and stick with the industry's best of breed, Macy's.

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The article Is Dillard's a Good Bet in Broadline Retail? originally appeared on Fool.com.

Fool contributor Robert Hanley has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's and General Electric. 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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Biotech Week in Review

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Last week was a busy one in the biotech sector, with a number of public offerings, regulatory milestones, and clinical trial data read outs coming to pass. With that in mind, here are some of the key developments.

Avanir's drug for neuropathic pain fails
Avanir Pharmaceuticals announced last Tuesday that its drug AVP-923, indicated as a potential treatment for chronic neuropathic pain, failed to provide symptom relief in a mid-stage trial. Specifically, the drug failed to show a statistical difference in terms of pain scores compared to patients receiving a placebo. Avanir plans to review the drug's clinical trial results prior to deciding whether to mothball its development altogether.

Avanir also announced in its earnings release that net losses increased to $15.4 million for the quarter, compared to $11.7 million a year ago, despite strong sales of its flagship drug Nuedexta for pseudobulbar affect. As a result, Avanir shares ended the week down more than 30%. Personally, I find this drop a bit overdone, and think the stock will rebound soon. So you may want to keep Avanir on your radar.


Merrimack's breast cancer drug shows promise
Merrimack Pharmaceuticals announced Friday morning that its experimental therapy, MM-302, for the treatment of advanced HER2-positive breast cancer was well tolerated and showed signs of effectiveness in an early stage trial. Namely, the study showed that patients treated with MM-302 had an estimated progression-free survival of 5.6 months.

The company didn't release any information on its plans to further development the therapy, however. While these early stage results are encouraging, all eyes are on Merrimack's late-stage pancreatic cancer drug MM-398 that is set to read out topline results in the second half of next year. Until those results are known, the company's risk-reward ratio appears slanted toward the risk side.

Orexigen refiles Contrave's application with the FDA
Orexigen Therapeutics officially resubmitted its new drug application, or NDA, for Contrave to the U.S. Food and Drug Administration last week. As a refresher, the FDA rejected Contrave in 2011, citing the drug's potential risk for adverse cardiovascular events. Following the rejection, the FDA informed Orexigen that it would reconsider the drug for approval if it performed a large cardiovascular outcomes trial to clarify Contrave's safety profile. And Orexigen has now met the FDA's request after releasing interim results from the LIGHT study.

As my Fool colleague Brian Orelli aptly points out, it's a tad unusual for the FDA to accept interim results from a safety study for a NDA. As such, I echo his sentiment that it appears that the FDA is going to give Contrave the green light this time around, and approval may come quicker than expected. I am of the belief, however, that 2014 is going to be a good year for obesity drugs in general. With Arena Pharmaceuticals and its marketing partner Eisai laying the necessary groundwork this year, I think the stage is finally set for obesity drugs to live up to their hype.

XOMA makes a public offering
XOMA put the brakes on its astounding year-long rally last Friday after announcing a public offering of 9 million shares at $5.25 per share. Per the release, the offering should net the company around $43 million in proceeds after fees. My take is that these funds will go toward financing XOMA's two late stage clinical trials for gevokizumab to be initiated next year.

As a reminder, gevokizumab showed encouraging results as a potential treatment for both a rare type of skin ulcer and erosive osteoarthritis of the hand. With the EYEGUARD trials expected to release results next year, XOMA is growing its lead clinical candidate at a breakneck pace. As such, I believe this offering is only a temporary setback for the stock before it pushes even higher. So Foolish investors should definitely keep a watch on this one.

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The article Biotech Week in Review originally appeared on Fool.com.

George Budwell owns shares of Orexigen Therapeutics and Merrimack Pharmaceuticals. 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Don't Chicken Out on Costco

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Costco moves a lot of rotisserie chicken; this product offering is major enough to be mentioned in the company's last quarterly conference call as a popular, high-volume product in its stores. Lately, though, Costco has moved a lot of chicken investors to fly the coop, causing the stock price to lose some traction.

One of the recent bouts of rare Costco pessimism related to its recent fiscal first-quarter earnings. To many, the company's lower-than-expected profit blamed on operational costs sounded like a major step in the wrong direction.

Still, it isn't like Costco's looking individually weak in the current landscape. The entire retail industry is duking it out for consumers' dollars this holiday season. Many consumers don't feel comfortable with their budget constraints. In the last quarterly earnings period, big companies like Wal-Mart and Target warned about their coming fourth-quarter outlooks.


In just one example of current big-box desperation, last week Wal-Mart announced it will sell Apple iPhone 5c's for just $27 (with a two-year contract) for the holiday season in one of several deals on Apple electronics including the iPhone 5s.

Given the overall environment, though, long-term investors should carefully choose which retail stocks they buy or flee. As has been the case even during the bearish financial crisis marketplace, buying and holding the highest-quality retail stocks has been a smart and more secure way to go.

Speaking of current Costco questions, Amazon.com has been a major thorn in almost every big-box retailer's side. Best Buy has been one of the highest-profile companies that suffered from Amazon's prices and convenience, and the online retailer has often been blamed for Best Buy's ills.

Although many investors believe that Best Buy is well on the road to recovery, it's still reporting losses and simply has to aggressively address holiday price wars.

Costco, on the other hand, hasn't received as much attention as possibly suffering from Amazon's aggressive competitive power.

A prime pantry
In fact, right now, word of an Amazon service called Pantry is also ruffling some feathers. It's viewed as a direct shot at Costco's strength, not to mention Wal-Mart's Sam's Club. Pantry, which is rumored to launch next year, will help Amazon expand its tendrils into groceries.

Amazon hasn't commented on Pantry yet; it's still a private matter. However, according to the always mysterious "people familiar with the matter" in financial reportage, the service targets the center of the grocery store. This is where shoppers get sometimes annoying items like cleaning products, pet supplies, and paper goods like toilet paper and paper towels.

Still, we can make a parallel to Best Buy, actually shining a more positive light on Costco's strength. In Best Buy's case, it isn't as if Amazon had suddenly begun shipping electronics and started putting the pinch on Best Buy when the brick-and-mortar electronics retailer began to flail. It had been doing that all along. Best Buy's problems were largely its own doing, including years of instability with CEO changes and its chairman and founder Richard Schulze's departure.

On the opposite side of that argument, Costco has already been competing with Amazon on many fronts. Amazon already allowed consumers to order bulk items like toilet paper for delivery. This isn't a new competitive jab at Costco, and clearly it hasn't hurt Costco so far.

Costco and competitive advantage
Costco does many things right in its actual business operations, and that's part of why it's one of the strongest and most stable companies investors can hold in their portfolios.

Pitting these two giants against each other may in fact mean very little to either one; there's room for both. Costco's solid employee treatment and customer loyalty give it competitive advantage against brick-and-mortar retailers.

Amazon, which isn't known for good employee treatment -- and it could do much better in this area, by the by -- also manages to drum up customer loyalty through low prices, the ability to get pretty much anything, and sticky services that drive more business, like Prime.

Right now, there's little reason to believe these two retailers won't be able to coexist in the competitive environment. It's the conventional, less well-run companies that really face a scarier environment with services like Amazon Fresh and Pantry.

At some point lower prices won't be worth the hassle of going to retailers that lack serious competitive advantage, and have to draw more traffic by offering, say, Apple products for the cost of a dinner out.

It's no time to chicken out and sell shares of Costco. Investors may want to wait for a cheaper price on the stock in case investors continue exhibiting unwarranted pessimism, but this gold-standard stock is arguably just about always a solid purchase for buy-and-hold investors. It's one of the best companies out there.

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

The article Don't Chicken Out on Costco originally appeared on Fool.com.

Alyce Lomax owns shares of Costco Wholesale. The Motley Fool recommends Amazon.com, Apple, and Costco Wholesale. The Motley Fool owns shares of Amazon.com, Apple, and Costco Wholesale. 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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A Look Back at Nike's Performance in 2013

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Nike has performed extremely well for shareholders this year, and although the company only joined the Dow Jones Industrial Average in September, it looks to end 2013 as one of the index's top-performing members. A share-price return of 48.64% year to date makes the athletic apparel maker the second-best Dow stock, behind only Boeing's 79.18% gain in 2013 and just ahead of American Express' 47.3% rise. The chart below shows how Nike compared to the Dow and S&P 500 since Jan. 1.

NKE Chart

NKE data by YCharts.


As you can see from the chart, Nike clobbered both the Dow and the S&P 500 this year. Nike's share price tracked the indexes fairly closely throughout the year. Similar peaks and valleys can be seen across the time frame, except for two big divergences; the first came in late March after Nike's performance had lagged the indexes for a few weeks, then in September Nike pulled away from the market's slow rise. So what happened at those times? Let's take a look.

The first big jump came on March 22 after the company reported earnings. As my colleague Jeremy Bowman said at the time, Nike was playing above the rim that day -- shares rose more than 12% at one point during trading. The company reported earnings-per-share growth of 20%, revenue growth of 9% during the quarter, and a big gain after selling its Cole Haan brand for $203 million. Additionally, the company reported strong growth in North America and Europe, while China and other parts of Asia struggled. This was largely seen as good news because the U.S. is still Nike's largest market and primary source of profit.  

The move in September can be contributed to two things. First, on Sept. 10, the Dow Jones announced that it had chosen Nike, Goldman Sachs, and Visa to replace Bank of America, Alcoa, and Hewlett-Packard among the index's 30 members. This announcement affected the stock price because it meant that some funds now had to buy Nike shares to meet their guidelines. For example, your average Dow Jones index fund is required to hold all 30 of the stocks on the index. Being added to the Dow instantly increased the demand for Nike shares and thus the stock price rose.  

Nike also delivered a strong fiscal first quarter earnings release on Sept. 26, reporting that it increased revenue by 8% during the period and earnings per share by 54%. The results were a sign that the competition wasn't hurting business. The stock jumped 4.7% after the earnings announcement and moved above $70 per share, where it remains today.  

Moving forward

Looking down the road, Nike can be expected to continue to perform well and produce strong returns for shareholders, but perhaps not as strong as what we saw in 2013. The move to the Dow was a big win for the company and shareholders, but that sort of thing doesn't happen every year.

Over the past few years many have wondered what the likes of Under Armour and lululemon athletica may do to Nike and its growth. However, we have yet to see any meaningful market-share erosion from the competition into Nike's core business. I personally believe the athletic apparel industry has enough space for a number of different players. Nike is still clearly the top dog, which I expect to remain true for at least the next few years.

More Foolishness

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


 
 
 

The article A Look Back at Nike's Performance in 2013 originally appeared on Fool.com.

Fool contributor Matt Thalman owns shares of Bank of America, Under Armour, and Lululemon Athletica.  Check back Monday through Friday as Matt explains what causing the big market movers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter @mthalman5513 . The Motley Fool recommends Bank of America, Goldman Sachs, Lululemon Athletica, Nike, Under Armour, and Visa. The Motley Fool owns shares of Bank of America, Nike, Under Armour, and Visa. 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Wednesday's Top News Headlines

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Here are today's top news headlines from Fool.com. Check back throughout the day as this list is updated, and follow us on Twitter at TMFBreaking.

Keep an Eye on Onconova, Enzymotec, DepoMed, and Omeros Today


Lennar Corporation Delivers on Earnings as Revenue Jumps 42%

The article Wednesday's Top News Headlines originally appeared on Fool.com.

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

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Is Microsoft Going to Release Its Own Gaming PC?

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With Microsoft now defining itself as a "devices and services" company, it seems likely that the Surface and Surface Pro won't be the last hardware Microsoft makes. But will the next Microsoft-made PC be dedicated to gaming?

According to Kara Swisher at AllThingsD, Microsoft CEO Steve Ballmer has floated the idea. With Ballmer set to retire, he probably won't be there to see the project through (assuming, of course, that it makes it past the planning stages) but the very fact that it's being discussed suggests that Valve's Steam Machine project has caught Microsoft's attention.

If Microsoft plans to take PC gaming more seriously, it could have an immense impact on how PC games are currently distributed -- in particular, Electronic Arts and GameStop could be affected.


Valve's Steam Machine project
This week, PC gaming giant Valve hit a major milestone in its ongoing Steam Machine initiative, shipping 300 test units to a select group of users. Some have characterized Valve's Steam Machine as a rival to Microsoft's Xbox One -- indeed, it's Valve's attempt at bringing PC gaming to the living room.

However, from a hardware standpoint, the Steam Machine is largely indistinguishable from any other gaming-class PC. In fact, in the future, anyone will be able to make their own Steam Machines just by plugging their gaming PC into their HDTV. Where the Steam Machine differs from a traditional desktop PC is the operating system. Rather than run Microsoft's Windows, Steam Machines are powered by Valve's upstart, open-source, Linux-based SteamOS.

Valve's decision to create a rival operating system only makes sense in light of Microsoft's move to introduce its own competing app store in Windows 8. Valve's Steam is perhaps the largest "app store" in the PC universe, doing hundreds of million of dollars in annual revenue.

Although the Windows Store might best be characterized as a barren wasteland, it still poses a significant threat to Valve should it ever catch on. As with other app store models (including Valve's with Steam) Microsoft takes a cut of developer revenue. As Microsoft owns the Windows platform, it could, in theory, force (or highly encourage) developers to use its app store for software distribution in future versions of Windows.

In short, the Steam Machine project is Valve's attempt at heading off competition from the company that owns the very platform it depends on.

Is Microsoft going to take PC gaming seriously?
Microsoft has long been criticized in the gaming community for failing to take PC gaming seriously. Its "Games for Windows" project was discontinued in 2012, after six years of largely being ignored by Microsoft.

But as Microsoft embraces its new strategy, it may be viewing PC gaming in a new light. Earlier this year, it hired one of Valve's top employees to lead a renewed push into PC gaming, and has planned on bringing some of the Xbox's most promising exclusive titles, including Project Spark to the PC.

The focus of that push will probably be centered around getting more PC games into Microsoft's Windows Store. Microsoft's recently released Halo: Spartan Assault must be purchased through the Windows Store, for example; future Microsoft PC games would almost assuredly be handled through the Windows Store as well.

Rival digital distribution platforms could struggle
This emergence of a dueling PC app store landscape could pose a threat to other companies that run rival distribution platforms (Valve's Steam may be the largest, but it is not alone). In particular, Electronic Arts' Origin and GameStop's Impulse could be threatened.

Electronic Arts owns a number of popular PC franchise, including SimCity and Battlefield. Most of EA's older PC games are available on Steam, but new titles, including Battlefield 4 and the SimCity reboot, are not. Instead, they're available on EA's own rival app store Origin. EA has said this is due to technical limitations more than competition concerns, but I think it's clear that EA has an obvious incentive to restrict its PC games to its own distribution network.

EA is more a video game publisher than a seller of games, so even if Origin were to be marginalized by the rise of SteamOS and a greater focus around Microsoft's Window store, the company could still thrive. However, given all the resources EA has poured into Origin, it certainly wouldn't be a positive development.

GameStop, too, could suffer from a more restricted gaming distribution system. GameStop acquired Impulse in 2011 as a way to keep it business relevant in an era where videogames are increasingly moving toward digital distribution. Its digital sales aren't a major part of GameStop's business -- last quarter, digital sales accounted for about $138 million of GameStop's $2.1 billion net sales -- but it is growing (up 8.6% from last year).

Is PC gaming becoming more console like?
In contrast to consoles, PC gaming has always had an air of the Wild West to it. With such an open platform, all manner of different distribution systems flourished.

But as Microsoft is now taking greater control of Windows (in particular, Windows software distribution), Valve has responded with its own Steam-centered operating system. If Microsoft comes to see gaming as strategically important to Windows -- something that would be confirmed by a Microsoft-built gaming PC -- PC gaming distribution could become far more centralized, becoming more console-like in the process. Investors in companies that run their own PC gaming distribution networks (GameStop and Electronic Arts) should keep a close eye on how Microsoft treats PC gaming in the coming months.

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The article Is Microsoft Going to Release Its Own Gaming PC? originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of GameStop 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 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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