The numbers are in, and 2013 was another record year for gaming in Macau, by a wide margin. Gaming revenue rose 18.6% to $45.2 billion, seven times the Las Vegas Strip's number, which helped drive gaming stocks all year.  

The year was highlighted by further expansion of Las Vegas Sands' Cotai Central and planning and construction starting in earnest for Las Vegas Sands, Wynn Resorts , Melco Crown , and MGM Resorts on Cotai, where the government's vision of an entertainment mecca is taking shape.

There were some emerging trends in 2013 that will drive growth in 2014. Here's what to keep an eye on.

Non-VIP players are picking up steam
One of the main reasons Macau wants to improve infrastructure leading to and around the area is to diversify its customer base. In recent history, VIPs have accounted for about 70% of gaming in Macau, and that's a relatively small market to count on for $45 billion in revenue.

Last year, the mass market started to play a much larger role in gaming. Mass-market baccarat grew from 21.8% of game play in 2012 to 24.8% in the first three quarters of 2013 (the most recent detailed data). By contrast, VIP baccarat fell from 69.3% of revenue to 66.6% in the same time frame.

Macau is still heavily reliant on VIPs, but the mass market is playing a bigger role every year in the special Chinese administrative region. Las Vegas Sands and Melco Crown took advantage of that last year and their presence on Cotai will help them with the mass market again this year.

Construction season is here
Investors looking at gaming stocks need to focus just as much on where new resorts are going up as where they already exist. The next growth phase for companies like Wynn Resorts and MGM Resorts really starts when they complete projects on Cotai in 2016.

Below is a map of the new construction for the U.S. traded companies. When open, they'll take away some revenue from existing resorts and also make the Macau Peninsula even less attractive to the mass market, like downtown Las Vegas of today.

The Parisian from Las Vegas Sands will complete the company's dominance of the Cotai Strip. Its neighbor Melco Crown's Studio City on the south side of Cotai is another high-potential resort, although it isn't currently approved for table games.

Watch to make sure construction goes off without a hitch this year. It'll be 2015 before any of these resorts are open, but the groundwork is being laid now.

Asia is taking notice
The biggest threat to Macau's gaming dominance comes from expanded gaming across Asia. South Korea, the Philippines, and Singapore have already opened up gaming, and Japan may be next. New resorts in these regions will be added competition for gaming dollars.

There's also the possibility that China opens up its currency to allow more money to flow out of the country. If it does, the junket structure that's driven Macau's growth could see those dollars fly elsewhere.

These threats have existed for years and thus far haven't derailed Macau's gaming growth, but they're worth keeping an eye on this year.

Macau is set up for another great year
It becomes harder to grow the bigger Macau gets, but there's nothing to indicate that 2014 won't be another strong year. Anything near double-digit growth should be considered a success and will drive gaming stocks higher.

Stealth taxes are not a line item you'll find on your income tax return. But millions of taxpayers end up paying them without even knowing they exist. Only by learning about stealth taxes can you take action to try to avoid them.

The basics of stealth taxes
Most people know that our tax rate on each additional dollar of income rises as we reach higher income levels. However, there's more to your total tax bill than higher tax brackets.

Say you're in the 25% tax bracket. You generally expect to pay 25% in federal income taxes on every additional dollar you make. If you could swear you're paying more than that, you may actually be right. There's a good chance you're paying higher taxes thanks to what I call "stealth taxes" -- the loss of tax benefits as your income rises past certain thresholds in the tax code. Rather than raising the tax rate -- a politically unpopular move -- the tax code phases out or eliminates your tax credits and other benefits when you make too much money.

High-income phase-outs: Not just for rich people
If you think you don't make enough money to lose out on tax breaks due to high income, think again. Many thresholds hit middle-income taxpayers right on the chin.

One example of how stealth taxes can hit ordinary Americans is education credits. If you have a kid in college, you may start to lose the benefits of certain tax credits at income levels as low as $52,000, depending on the credit and your filing status.

Education credits are fabulous -- if you can get them. The Lifetime Learning Credit pays back 20% of the first $10,000 you spend on tuition and other qualified expenses for yourself, your spouse, and qualifying dependents. That's a tax credit of up to $2,000.

But you start to lose that credit when your modified adjusted gross income (basically your total income before itemized deductions) is more than $52,000 (in 2014), if you are single. By the time your modified adjusted gross income, or MAGI, hits $62,000 -- hardly enough money to put you on Easy Street -- the credit is gone. If you're married filing jointly, the credit starts to phase out at an MAGI of $104,000 and disappears completely when your MAGI reaches $124,000.

Not all tax breaks phase out at the same income levels. The American Opportunity Credit is available to taxpayers in slightly higher income brackets. This education credit pays 100% of the first $2,000 you spend on you spend on tuition and other qualified expenses for yourself, your spouse, and qualifying dependents, plus 25% of the next $2,000, for a total credit of up to $2,500.

For the American Opportunity Credit, if you're single, your modified adjusted gross income can be up to $80,000 (in 2013) before it starts to be phased out. It's gone when your MAGI hits $90,000. If you're married filing jointly, the credit starts to phase out at an MAGI of $160,000 and disappears completely when your income reaches $180,000.

Common tax breaks and phase-out levels
For 2013, check out these income phase-out levels for common tax breaks:

Your tax benefit begins to phase out when your adjusted gross income, with certain modifications, is more than the lower end of the phase-out range. You cannot take the tax benefit if your adjusted gross income is more than the higher end of the phase-out range.

If you file as head of household or as married filing separately, your phase-out levels may be different. Some phase-out levels for 2014 are adjusted for inflation.

Itemizing deductions doesn't help
You can't lower your modified adjusted gross income by taking itemized deductions. Mortgage interest expense, charitable contributions, and other itemized deductions reduce your taxable income after MAGI. The same goes for dependency exemptions. They have no effect on your modified adjusted gross income.

Because your MAGI is the amount the IRS uses to determine whether certain tax breaks are phased out, itemized deductions and dependency exemptions do not help you avoid phase-outs of tax breaks due to high income. 

Tax planning for stealth taxes
You wouldn't turn down a raise because it would put you in a higher bracket and make you lose tax breaks. So long as your tax rate on incremental income is less than 100%, you're always better off earning a dollar than passing it up.

What you can do is plan ahead to lower your adjusted gross income in years when you may qualify for certain breaks.

You may be able to time your income and other tax items. For example, you can put off selling an investment at a gain so you still get that education credit or other tax benefit.

One of the best ways to lower your adjusted gross income and thus qualify for more credits and other breaks is to contribute to a qualified retirement account. Deductions from your paycheck into a traditional 401(k) plan reduce the amount of income you report on your tax return, and thus your adjusted gross income. If you make contributions to a retirement plan yourself, such as a traditional IRA, these also reduce your adjusted gross income.

Contributions to Roth IRAs and Roth 401(k) plans do not reduce your adjusted gross income or taxable income.

You can't change the IRS rules, but you can plan for them. Understanding how tax breaks are phased out at certain levels income is a good first step for better tax planning in 2014.

We've got great news about our Foolanthropy campaign, and a huge "thank you" for helping change the world for the better.

This year, we sought to raise funds to help Pencils of Promise build two schools in impoverished communities in Guatemala. However, the astounding generosity of The Motley Fool community has helped us exceed that goal -- and then some.

Together, we exceeded our original goal of raising $50,000 to build two schools, then $75,000 for three, and $100,000 for four... and counting.

The Motley Fool community's generosity has set records for this education-oriented organization. Here's the note we received last week from the Pencils of Promise team:

Team Motley Fool, 

We are astounded. Last night, your fundraising team surpassed the $100k mark. That's FOUR full schools plus a fifth that will be funded by Motley Fool on behalf of your amazing staff. You've also taken the record-holding spot in 2 categories: (1) Most funds raised on a fundraising team (2) Highest number of individual donations to a fundraising page. 

The level of commitment your team and community have displayed toward making the world a more fair place filled with opportunity for all children has left us speechless. (And we're talkers). Not to mention, you're a downright fun group to work with. 

We are foolishly grateful to have fallen onto your radar and to have worked together to inspire your community to change the world through education. We hope this is only the beginning and cannot wait to share more information and stories with you about the deep and lasting impact you've created. 

A warm welcome to the PoP family. We're so lucky to have you.

It's not too late to join in on this successful campaign to bring education -- and economic opportunity of all kinds -- to impoverished communities in Guatemala. If this campaign has shown us anything, it's that whether one donates $5 or $5,000, Fools banding together can make big things happen.

We're hoping to make one last push to reach 750 total donors -- even $5 or $10 makes a world of difference to each individual child helped. If we reach that goal, The Motley Fool will donate an additional $2,500. Click here to help us exceed one last goal.

Thanks to all who have helped, and here's to another great year of investing -- and making the world a better place!

link

Goldman Sachs resumed coverage of Celgene in December 2012 with a rating of "neutral" and a price target of $77 when shares were $81. In the wake of a near doubling since, the investment bank has now dropped its rating to "sell" from "neutral," knocking shares in Celgene down 5% on Monday.

But Celgene doesn't appear overpriced versus its peers, suggesting that investors may want to stay focused on the company's long-term potential rather than the short-term whims and whispers of these Wall Street analysts.

Building a cancer-killing franchise
Celgene is building an oncology powerhouse behind its blockbuster drug Revlimid, a treatment that won approval for myelodysplastic syndromes in 2005, multiple myeloma in 2006, and mantle cell lymphoma last June. Demand across those indications has Celgene expecting Revlimid's sales will total between $4.2 billion and $4.3 billion this year.

But Revlimid isn't the only drug succeeding for Celgene. Abraxane -- approved for breast cancer in 2005, non-small cell lung cancer in 2012 and pancreatic cancer this past September -- enjoyed 60% year-over-year sales growth on its way to $170 million in third-quarter sales.

The company also won FDA approval for Pomalyst as a treatment for multiple myeloma in February, which helped Pomalyst sales climb 35% year-over-year to $90 million in Q3. Across these three drugs and Celgene's other therapies, Vidaza and Thalomid, Celgene estimates that full-year sales will come in near $6.2 billion this year.

Yet, investors aren't overpaying relative to other biotechs
Amgen paid nearly 17 times sales to acquire Onyx Pharmaceuticals to get a hold of Onyx's oncology drug Kyprolis, which competes against Celgene in multiple myeloma. Despite that vote of confidence for the industry, Celgene is trading in line with other big biotechs like Regeneron , Gilead Sciences , and Biogen at 11 times sales.

Similar to Celgene, all three of those companies have blockbuster drugs on their hands and have pipelines likely to produce significant sales in the future.

Regeneron's revenue totaled nearly $1.5 billion over the first nine months of 2013 thanks to Eylea, its treatment for age-related macular degeneration. Eylea saw U.S. sales grow 79% to $1 billion over the period. Regeneron's PCSK9 LDL cholesterol-lowering drug alirocumab and rheumatoid arthritis drug sarilumab are both in phase 3 and offer potential future revenue growth.

Gilead had total sales of $7.7 billion in the first nine months of 2013, most of which has come from its antiviral drugs, including its $3.6 billion a year AIDS drug Atripla. The company won one of the most highly anticipated FDA approvals in recent memory in December, when the FDA gave the nod to its Sovaldi for hepatitis C. Gilead also has high hopes for idelalisib, a drug under evaluation for leukemia and lymphoma.

Meanwhile, Biogen augmented its $2.8 billion a year multiple sclerosis drug Avonex by launching Tecfidera this past summer. Sales for that drug have already reached $286 million in the third quarter. Treatments for hemophilia, leukemia, and lymphoma are in the late stage of development and could drive future sales growth for Biogen.

Comparing these big biotechs to Celgene shows all three are valued similarly to or arguably more expensively than Celgene.

Analysts have increased estimates for Celgene's earnings per share to $7.3 for next year, roughly 20% more than this year. That gives Celgene a forward P/E ratio of 22, lower than Biogen, Gilead, and Regeneron. Celgene's P/E to growth ratio of 1.24 is also less than both Regeneron and Biogen.

Source: Yahoo! Finance.

Future growth may mean Celgene is even cheaper
Celgene doesn't think Revlimid's opportunity is limited to its currently approved indications. While Revlimid failed in a late stage leukemia trial in July , Celgene reported positive data in newly diagnosed multiple myeloma patients last summer and is studying the drug as a treatment for non-Hodgkins lymphoma.

In addition to Revlimid, Celgene is evaluating 25 unique compounds for 30 diseases across hundreds of ongoing studies. One of the most promising of those drug candidates is apremilast, which is in trials for a range of autoimmune diseases including psoriasis and psoriatic arthritis -- indications with significant demand and blockbuster existing treatments like AbbVie's Humira. Celgene filed for FDA approval of apremilast in psoriatic arthritis and an FDA decision is expected early in 2014.

Celgene has also taken stakes in emerging biotechs with promising therapies or delivery mechanisms, including OncoMed . Onco's stem cell targeting oncology drug pipeline includes demcizumab. That drug is heading into mid stage trials for pancreatic, colorectal, non-small cell lung and ovarian cancer.

Celgene's other deals with young biotech companies include partnerships with Epizyme for its mixed lineage leukemia drug; blubird bio, which is working on reengineering T-cells into cancer killers; and Acetylon, which has an early stage myeloma prospect.

Fool-worthy final thoughts
Celgene's enthusiasm for expanding labels on its current drugs and reaping rewards from its collaborations with these emerging biotech companies, has the company projecting its sales will double to $12 billion by 2017. That heady forecast has the industry forecasting earnings per share could head north of $12 in 2016. If so, short-term sell-offs in Celgene's shares may provide long-term investors with an opportunity to build positions.

CELG EPS Estimates for Current and Next 3 Fiscal Years data by YCharts.

In 2005, trade groups and merchants sued Visa and MasterCard over exorbitant credit card transaction fees, alleging that the two companies were price fixing. Also referred to as swipe or interchange fees, transaction fees get tacked on to what you pay in exchange for allowing merchants to accept debit or credit card payments. Online retailers are particularly vulnerable to the fee structure as many online payments are conducted with debit or credit cards.

Both Visa and MasterCard are happy with the settlement
The suit started at $7.25 billion and then dwindled down to $5.7 billion as some retailers bowed out of the deal.  The settlement allows Visa and MasterCard to put the case behind them. Evidently the market thinks that's a good idea, as the stock prices for Visa and MasterCard have increased over 5% since the announcement was made on Dec. 13.

V data by YCharts

The settlement will also allow merchants to charge extra if customers use MasterCard or Visa -- a practice known as surcharging. Surcharging allows the merchant to pass the transaction fee directly on to the consumer, effectively giving the consumer a "choice" of whether or not to accept the fee.

This added transparency is akin to the "choice" airlines give you for checking large baggage -- if you have a large bag it needs to be checked. The perception of choice is an illusion, and smart shoppers know this. Likewise, merchants that charge a fee for using Visa may end up losing market share in an increasingly competitive marketplace with an increasingly smarter customer base.

So, while charging surcharges allows retailers an opportunity to recoup costs from customers there are some obvious drawbacks -- namely, the loss of market share. Additionally, surcharges are illegal in the states of California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

Not everyone likes the settlement
The National Association of Convenience Stores, the National Community Pharmacists Association, and the National Retail Federation (NRF) are all against the settlement. The NRF describes the settlement as "deeply flawed," and NRF President and CEO Mathew Shay said, "It does nothing to curb the anti-competitive behavior of Visa and MasterCard."

Among the largest retailers against the settlement are Target., Macy's, Amazon, and Wal-Mart. All four rejected the initial settlement offer last year on the basis that it did nothing to protect them against price fixing and forced merchants to waive the right to sue over swipe fees in the future.

The cost to retailers and the effect on margins may be significant
According to the National Association of Retailers, the annual tab paid by retailers for transaction fees is $30 billion. These fees, which average around 2% of the purchase price, eventually find their way to the consumer in the form of higher prices and to merchants in the form of higher costs and lower margins.

There's a great deal of competition in the retail space, and merchants are desperate for earnings. Companies like Big Lots and Tuesday Morning posted negative earnings this quarter, and Target has been in earnings decline since the beginning of 2013.

BIG EPS Diluted (TTM) data by YCharts

For these companies, lower fees represent a real opportunity to put a permanent dent in the cost of sales and provide a much-needed boost to earnings.

The Foolish bottom line: competition is a good thing
Anything that levels the playing field for increased competition is good for investors. Judge John Gleeson, the presiding judge over the case, said the settlement has the "potential to unleash a new competitive force on interchange fees." This settlement should translate into higher margins for retailers, but if it doesn't then Wal-Mart and Target will probably be back in court with Visa and MasterCard in the very near future. There are simply too many dollars at stake for them to do otherwise.

Once again, Select Comfort is giving investors a reason to stash their money under a mattress instead of investing it in the mattress maker itself.

The company behind the Sleep Number air-chambered beds warned that its holiday sales fell woefully short of its mid-November guidance. Its preliminary read on fourth-quarter net sales is $231 million, a 5% increase over the prior year's period. Comps clocked in flat. 

This wouldn't be so bad if the $0.18 to $0.26 a share in earnings that it was forecasting on Nov. 12 wasn't based on low double-digit growth in net sales with comps at company-controlled stores rising in the mid-single digits. It naturally didn't even come close. Select Comfort isn't providing an initial take on how much it actually earned during the holiday quarter, but it's obviously going to be a lot less than it was originally targeting.

This isn't the first time that Select Comfort has come up short of its own expectations. It seems that a year doesn't go by without a miss or more. We can go back 10 months to find the last time that the shares got slammed on a disappointing business update, and Select Comfort has missed analyst profit estimates in each of the four past quarters. 

Select Comfort offers up that sales began to fall short of internal goals starting on Cyber Monday, but it's not as if premium mattresses are a big part of the holiday gifting process. You don't see too many Sleep Number beds on Santa's sleigh or sitting under a tree. The timing here is merely coincidental since Select Comfort expects the weakness to weigh on the company this year, too. 

"We expect this challenging environment to continue in 2014 and are planning accordingly," CEO Shelly Ibach is quoted as saying in this morning's press release.

Select Comfort remains one of the market's biggest winners since the market bottomed out five years ago. The stock fell as low as $0.19 at the time, and it's been firming up like a Sleep Number setting, heading higher ever since. 

The housing market's revival has been good to mattress makers, but this is still an inconsistent market, where a lot of the growth has come through consolidation. There's a reason Tempur-Pedic joined forces with Sealy to form Tempur Sealy a year ago. It's just easier to realize synergies in a combination. On the retail front, Mattress Firm has spent its two-year tenure as a public company acquiring smaller mattress stores in this highly fragmented niche. Select Comfort has tried to go it alone, preferring to sell its beds through its namesake stores and select retailers. It may not be enough, and this wouldn't be a bad time for it to consider partnering up with a more conventional mattress maker.

Select Comfort isn't the only company that's been riding the coattails of the housing recovery to come undone with a warning this morning. Appliance retailer hhgregg also took a hit after posting a disappointing preliminary report. However, hhgregg's undoing has come mostly from a sharp drop in consumer electronics. Its appliance sales actually grew during the period. 

Mortgage rates will likely continue to rise in 2014 with the Fed easing back on quantitative easing. It remains to be seen if these companies that have fared so well during the housing recovery will hold up if the real estate market cools down. Select Comfort will have more to prove than anybody here, especially the next time that it opens its mouth to provide another forecast to jaded ears that have been burned one too many times lately. 

FedEx and its main rival UPS are well-regarded in the marketplace for their exposure to long-term growth from e-commerce related deliveries.However, it's less well-known that FedEx is also undergoing a major productivity enhancement program which should enable it to catch up to UPS in terms of margins and cash flow generation. These two factors make FedEx one of the most interesting stocks in the transportation sector, and it's worth taking a closer look to see if FedEx's growth prospects can justify the stock moving higher in 2014.  

FedEx upgrades guidance
While e-commerce and its internal productivity improvements are the key to its medium term growth, FedEx will always be a correlated play on global trade. Indeed, its GDP forecasts are some of the most keenly watched data sets in the marketplace.

FedEx issues GDP forecasts because its revenues tend to correlate with global growth, and in particular global trade growth. Naturally, this means that the company has a pretty good handle on macro trends.  Consequently, the upgrades to its earnings and GDP forecasts were good news for FedEx and for the global economy.

Earnings per share are now expected to come in 8% to 14% ahead of last year, versus its previous guidance of 7% to 13%. As for its GDP forecast, the upgrade to U.S. and World expectations suggests a strengthening of growth in the fourth quarter.

Source: company presentations 

For 2014, FedEx is predicting stronger growth of 2.4% in the US and 2.8% globally.

E-commerce driving growth in ground services
Though FedEx originally took its name from its express delivery services, the bulk of its profits now come from its ground segment.

Source: Company Presentations

The driving force behind this shift in segment fortunes is that e-commerce revenues are growing in importance. In addition, the recession and the subsequent 'age of austerity' has created an environment where customers are trading off quicker delivery with express for the cheaper, but slower, option of ground.

UPS is seeing a similar dynamic. For example, its US domestic package segment grew revenue by 5% in the third quarter with its business to consumer business up 5%. Meanwhile, its international segment suffered a 2.5% revenue decrease with management noting on the conference call that  "the segment continued to be affected by shifting customer preference for deferred products."

In other words, UPS's customers are now more willing to accept slower delivery in exchange for a cheaper price.

FedEx's productivity improvements
FedEx is only two quarters into its plan to produce $1.6 billion in productivity improvements by the end of 2016. To put this figure into context, its trailing-year revenue currently stands at $44.8 billion, so FedEx's margins could see a few percentage points' improvement in the coming years.

Moreover, any margin improvement usually implies better free cash flow generation. Indeed, as the following chart points out, UPS has tended to sweat its assets better than FedEx has in recent years.

UPS FCF to Assets (TTM) data by YCharts

No matter, FedEx should have plenty of opportunity to increase free-cash flow conversion in future years. To put the following chart into perspective, note that UPS converted around 9.3% of its revenue into free-cash flow in 2012.

Source: company presentations

Moreover, FedEx's management declared in its recent conference call that it was "on track to be where we need to be" by the end of 2016.

Is FedEx still a buy?
Clearly, FedEx has an opportunity to catch up with UPS in terms of cash flow generation due to its profit improvement program. Furthermore, the productivity measures are the key to why analysts have FedEx earnings per share rising by 12.7%, 27.5%, and 20.2% in May 2014, 2015, and 2016 respectively.   If those predictions hold up, free-cash flow should grow strongly, too.

The analyst consensus would put FedEx on a P/E ratio of just 13 times its 2016 earnings. As an investor, you've got to decide whether you believe this is good value for the execution risk, and whether you think the global economy will let the company down.

This week Google announced it was starting an Open Automotive Alliance with chipmaker NVIDIA and automakers Honda, Audi, General Motors, and Hyundai to bring its Android platform into vehicles later this year.

Not only could this be a big step forward for the auto industry, but it could mean even more Android market share and additional revenue opportunities for Google.
 

Source: Open Automotive Alliance

An alliance built out of opportunity
Google said on its blog that it wants to adapt the Android platform for cars and create new ways to integrate Android devices into vehicles, and develop "new Android platform features that will enable the car itself to become a connected Android device." The latest alliance is a strategic move by the company to not only compete head-on with Apple's iOS in the Car ambitions, but also a new way to keep users within its app ecosystem -- which could translate into additional revenue down the road.

Excluding Motorola, Morningstar estimates Google will earn about $7.5 billion in mobile revenue for 2013, without selling a single Android license to any phone makers. The vast majority of that revenue comes from its mobile advertising offerings, and adding Android to cars could help that number go even higher.

To be sure, Google isn't going to display ads on car infotainment screens. That would defeat any safety goals car companies have and would garner some serious opposition from the National Highway Transportation Safety Administration. But Google doesn't need users to click on ads on a vehicle's screen to make more money; it just needs to get people to use its services even more than they do now.

In its third quarter 2013 earnings report, Google said it would continue to invest in YouTube, Chrome, and Android because they are "[b]usinesses demonstrating high consumer success." Google has the opportunity to increase advertising revenue by getting current users to tap into its services more frequently -- and hopefully click on an ad -- and also lure new users to its services. The model is fairly straightforward: More usage means more ads served, which translates into more potential for ad clicks.

Google is still experiencing a transition from desktop advertising to mobile advertising, and moving the Android platform into cars could help increase Google app usage on mobile devices and hopefully increase ad clicks.

But it's not just advertising revenue that could see an uptick; an Android revolution in the car could bring additional Google Play revenue as well. The Android blog mentioned that the alliance will "create new opportunities for developers to extend the variety and depth of the Android app ecosystem in new, exciting and safe ways." Running Android in cars would allow developers to make apps that are specific to vehicles, on the No. 1 mobile platform in the world. While creating apps specifically for cars isn't anything new - even GM and Ford allow app creation for their systems -- it hasn't been done to the same level that this alliance will bring.

Foolish thoughts
Some investors may be wondering whether the Open Automotive Alliance could really take off and if Apple's own in-car platform will dominate instead. First of all, Google has smartly opened up this alliance to other carmakers and technology companies who want to join. So, while there's only a handful of car makers and tech companies now, that could change quickly -- think of how fast phone makers took to Android. That openness is the opposite of how Apple is likely running its iOS in the Car endeavor. Apple usually doesn't welcome other tech companies with open arms, and it's possible we could see Google take the lead in autos because of this.

The second reason this could be a huge opportunity for Google and its investors is that car companies are in need of a cohesive system that pulls the resources of more than one company and spreads the benefits across many companies. Having the latest tech in cars is expensive and time consuming. It can take years to develop a car and bring it to market, and the tech in that car needs to keep pace with what consumers are using. By teaming up with automakers, Google can give them something they need -- tech relevancy -- while spreading the cost of innovation among many companies and utilizing a free platform at the same time. Overall, it could be a big win for automakers, Google's platform, and hopefully Google investors.

As things are going, Microsoft  Windows and Office will suffer an increasingly rapid death. It might seem a long way off, but these long-protected profit centers for Mr. Softy will be vaporized.

Importance
Windows and Office represent a huge chunk of Microsoft's profits. Of course, it won't happen overnight, but if these cash cows were to be killed off, as I think will happen, Microsoft's stock would tank.

The fortress
Microsoft built its empire on a virtual monopoly. Windows and Office dominated the consumer and business landscape. For years, Microsoft had in excess of 95% market share and became entrenched as the default corporate OS.

While consumers got used to using Windows, corporations invested billions in storing their data, spreadsheets, and presentations with Microsoft, and it's difficult to switch. Mr. Softy does all the back-end work, and if a company were to make a change and data was lost, boards would face numerous shareholder lawsuits. It's often not worth it for companies to risk that potential headache just to save a few dollars.

Meanwhile, a drop to "a mere" 91% market share makes it seem like Microsoft is still the 800-pound gorilla in the room. But, that gorilla is not nearly as strong as it once was. Two companies in particular are mounting a multi-pronged attack on both Office and Windows. 

Big G
Google  has Chrome and Android operating systems. The Android system is the default choice for various mobile device OEM's, as it essentially eliminates the substantial cost of developing their own OS.

Additionally, Google Docs continues to become more popular with both consumers and businesses. While Google charges businesses for its use, as the software becomes more widely adopted it reduces reliance on, and familiarity with, Microsoft and erodes the company's economic moat.

Microsoft counterpoint and punch-back
Many knowledgeable investors will point out that Microsoft has successfully sued Google for patent infringement with regard to Android and, at least initially, makes more money than Google for each device sold. Plus, an argument can be made that Chromebooks are not nearly as powerful or effective as traditional PCs.

To counter, there is no doubt that Google engineers are developing a workaround to Microsoft patents. Don't expect Mr. Softy to be earning that revenue in perpetuity.

As for the Chromebook, the Google Fiber project and balloons bouncing Internet signals aim to bring high-speed Internet to every corner of the earth. In the future, you could be in the Australian outback and still be connected to the web via Google. As this vision plays out, there will be little need for a high-spec system, as all programs will be run from one gigantic cloud server.

Additionally, even if the Windows Phone and Surface tablets catch on, and Windows' perceived dominance extended, how much revenue is Microsoft generating from Windows licenses? 

Apple
The second front comes from Apple  in the form of its latest OS and iWorks. Apple has announced it will be giving away its software for free. You might pay for the free OS upgrades by buying a PC priced much higher than a comparable Windows-based system, but at least you won't have to pay for upgrades for the life of your hardware. This is certainly a powerful reason to consider buying an Apple product.

As for iWorks, if you have become part of the Apple ecosystem, there is no need to contemplate paying for an Office subscription. Loyalty among Apple users is incredibly high. Furthermore, Apple has gone on a hiring spree, attempting to market its software to corporations as an alternative to Windows, a direct attack on Microsoft's hallowed territory. Most recently, Apple was seen recruiting former BlackBerry employees with links to corporate IT departments.

IT departments
Microsoft leads in corporate infrastructure, and many would argue that no sane IT department would make what a potentially risky switch. People used to make the same case for Blackberry devices, citing security concerns. Yet, how many corporations have adopted a BYOD policy today, or have switched altogether?

The status quo will remain until a tipping point is reached, and that moment will likely be sooner than later. 

Final thoughts
The writing is on the wall. While Microsoft is armed with an incredibly strong balance sheet, a yield of 3%, a 13.8 P/E, and a hoard of cash (less the $7 billion recently paid for Nokia's handset business to keep the Windows phone alive), there are simply no exciting products (aside from the gaming industry-leader Xbox) replacing the revenue and profit that's likely to be sucked out of the Windows and Office divisions.

United Continental Holdings had a solid year in 2013, with its stock price up almost 60%, as it benefited from lower fuel prices and a better overall load factor on its flights. The company has made its mark as the top-ranked domestic airline for international departures, offering daily flights to a diverse network of airports on six continents. Like its remaining competitors, the company should also benefit from the elimination of major competitor American Airlines, recently acquired by US Air.  With nimble low-cost competitors on its heels in the domestic market, though, now is a good time for investors to take a closer look. 

What's the value?
United has a solid position as one of the top four domestic airline networks, shuttling approximately 140 million passengers to their destinations each year on its United and United Express-branded planes. The company gained immeasurably from its 2010 merger with major competitor Continental Airlines, a combination that added significantly to its capacity and generated roughly $1.2 billion in operating synergies. The net result has been an enterprise better able to weather the effects of rising energy prices, and a unionized workforce that accounts for 80% of its employee base.

In FY 2013, United has posted a marginally higher top line, up 1.8%, as higher average ticket prices were only partially offset by a conscious decision to reduce capacity. Despite the more favorable pricing environment, though, United's adjusted operating profitability slipped slightly, due to rising employee compensation and higher costs to repair and maintain its aging fleet.  On the upside, United's operating cash flow has enjoyed a solid gain in the current period, allowing the company to fund the development of new routes to popular destinations like Paris and Tokyo.

Of course, much of the airline industry's recent profitability improvement has come from a better matching of industry capacity to consumer demand, thereby avoiding the tendency to engage in profit-busting price wars. Unfortunately, it is likely only a matter of time before the age-old profit motive causes more efficient competitors to pursue capacity expansion in a bid to gain further market share. Indeed, one needs only to look at the recent moves of industry leader Delta Air Lines for a potential precursor of things to come.

Delta has not increased its overall capacity in FY 2013, but it continues to significantly increase its operations at key hub locations, including a 40% capacity increase at New York's LaGuardia Airport and an upgrade of its terminals across town at Kennedy Airport. 

In addition, it bought a 49% stake in competitor Virgin Atlantic in June 2013, an aggressive move designed to increase gate access at London's Heathrow Airport, one of Europe's busiest locations. Delta's moves, along with its 2012 purchase of an oil refinery, position it to expand its flight capacity and profitably capture incremental passenger activity, even at lower average ticket prices.

A better way to go
Given the industry's history of engaging in competitive pricing, and the costs of maintaining global hub networks, investors will likely find better returns with low-cost niche players, which also have the benefit of being potential acquisition targets down the line.  One of the best positioned companies in the domestic travel market is Spirit Airlines , an ultra-low-cost airline that has leveraged its home base in tourism-heavy Florida into a network serving 54 airports throughout the Americas and the Caribbean.

Spirit has continued its strong growth trajectory in FY 2013, with a top-line gain of 24.7%, aided by the addition of aircraft to its fleet and a strong load factor for its flight network. The company uses a low-cost operating structure, including leasing all of its planes, to entice customers with low, no-frills fares, hoping to up-sell them with ancillary services at various prices.  Spirit's success with its up-sell strategy is evident from its operating margin, which increased to 17.4% during the current period, far above operating margins at either United or Delta.

The bottom line
The strong year-over-year gain for United's share price indicates that investors believe that the company will be able to maintain its profitability going forward.  However, the company's high exposure to energy prices, accounting for one-third of its costs, as well as the ever-present danger of work stoppages, means that investors would be better off looking for providers that can earn a profit throughout the business cycle. As such, investors looking to take flight in the sector should stick with low-cost niche players, like Spirit Airlines. 

SolarCity had a heck of a run in 2013, and it appears the company is starting this year on the same note: Shares of the solar-panel maker jumped more than 10% during morning trading following an upgrade from Goldman Sachs.

The firm raised its price target on SolarCity and placed it on Goldman Sachs' "Conviction Buy" list. Goldman expects SolarCity to benefit from rapid growth in rooftop solar installation.

Motley Fool analyst Taylor Muckerman expects a lot of growth for SolarCity across its geographies. He's a shareholder himself, and admits the volatility of the stock can be hard for investors to stomach, but thinks the payoff is worth it.

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

Stocks haven't made much progress in the new year after 2013's big run-up, and the first full week of 2014 isn't getting off to a very fast start, either. The Dow Jones Industrial Average has waded through losses through most of the day and only has pulled near breakeven as of 2:30 p.m. EST. More than half of the blue-chip stocks on the Dow still linger in the red, led by Microsoft's 2% drop. However, a few movers are making the most of the market's lack of enthusiasm, as Verizon has pulled higher today to rank among the Dow's leaders. Let's catch up on what you need to know.

Microsoft keeps up its consumer drive
Microsoft is dropping today despite good news from the company's up-and-down hardware division. The tech giant today announced that it has sold more than 3 million Xbox One gaming consoles since the device's launch in November, a fast start to the next generation of Microsoft's push to conquer the living room. The company has had to move quickly: Rival Sony has made impressive headway with its competing PlayStation 4, launched just a week before the Xbox One. Sony said in early December that it had sold 2.1 million PS4s since the launch; updated figures are expected sometime soon.

Even if Microsoft is behind in sales numbers, it's still a smashing success for one of the company's home runs in hardware. With some of Microsoft's recent forays into consumer tech receiving mixed enthusiasm -- notably the releases of the Surface tablets and Windows 8 -- the good news from the Xbox should have Microsoft fans excited.

However, it's only a prelude to what will be a much larger test for Microsoft in the future of the company's consumer business: turning its acquisition of Nokia's device business last year into a powerful platform to promote Windows Phone. Microsoft touted the buy in a big way in 2013, and this year it's time to start seeing the promised synergies pay off in grand plans for the company's wireless endeavor.

Speaking of the telecom world, Verizon's stock has jumped by 0.9% today to rank among the Dow's few leaders. A $3.3 billion deal announced today has T-Mobile  purchasing blocks of airwave licenses from Verizon. It's a big splash for T-Mobile, which is looking to beef up its high-speed network with the low-frequency bands it's picking up. Verizon, meanwhile, continues its push to secure its dominance in the U.S. wireless market. BTIG analyst Walt Piecyk cited the sale as garnering a 38% profit margin for Verizon on its original acquisition of the airwaves, according to a report from Bloomberg.

The company's leadership hasn't translated to stock gains, however: Over the past six months, Verizon's stock has shed more than 5%. Nonetheless, much of Verizon's appeal on the Dow comes from its stellar dividend. The stock's 4.4% yield is among the highest on the blue-chip index. Considering Verizon's dominant position in the U.S. telecom industry, this is one great dividend stock that any long-term investor can appreciate.

Is dinner and a movie transforming into dinner at the movies? That is one of the hopes of AMC Entertainment Holdings , which competes with theater-exhibition operators like Cinemark Holdings and Regal Entertainment Group .

In recent years, entertainment-technology providers like IMAX  have helped theater operators provide another reason for moviegoers to forgo their home-entertainment systems and visit a movie theater. But since the last time AMC Entertainment was publicly traded in 2004, the movie-theater experience has evolved, and betting on AMC Entertainment today goes beyond movies.

By Cptimes, via Wikimedia Commons

How to truly compare AMC Entertainment to Cinemark and Regal Entertainment
The movie-theater industry generates $14 billion a year in sales and has had 0.9% annual growth from 2008 to 2013. The top-three theater-exhibition operators based on market cap are Cinemark, AMC Entertainment, and Regal Entertainment.

2013 third-quarter earnings for both Cinemark and Regal Entertainment showed that revenue for each increased 19.6% and 17.3%, respectively, despite the fact that movie-theater attendance has been relatively flat for the past several years.

Concession sales are driving revenue and, consequently, net income throughout the theater industry. Because top movie theaters bid for the same movies and keep the same small percentage of box office sales, concessions are what differentiate one company from another.

Source: Each company's latest prospectus and earnings reports.

The table above shows that AMC Entertainment is able to attract moviegoers that prefer to watch movies in 3D, IMAX, or RealD premium formats, which demand higher ticket prices. In fact, nearly half of AMC Entertainment's 4,950 screens are either in IMAX or RealD 3D formats.

This is a huge positive for AMC Entertainment since 3D box office sales throughout the industry were nearly the same in 2012 as in 2011, despite fewer 3D film releases.

Additionally, AMC Entertainment's five-year deployment plan to add more alcoholic drinks, full-service dining, and made-to-order options will only help boost its industry-leading average concession revenue in the future.

AMC Dine-In Theatre.  Credit: AMC Website

It isn't necessarily about the movies
In 2012, frequent moviegoers increased to 57% of all movie-ticket sales. This means that those who prefer to see movies when they are released in theaters will continue to do so more often, and as a result, continue to make up a larger portion of all box office sales.

Furthermore, people are starting to ask what is showing at specific movie auditoriums instead of where particular movies are being played. This suggests that movie-theater locations are starting to become landmarks to visit.

AMC Entertainment seems to think so as well. In its prospectus, the company states that after more than nine decades of business models driven by quantity of theaters, screens, and seats, it now believes quality of the movie experience will determine long-term and sustainable success.

AMC Entertainment's 343 theaters comes in third behind Cinemark's and Regal Entertainment's 506 and 576 theaters, respectively.

Why investing in entertainment technology providers like IMAX is risky
Entertainment-technology providers like IMAX are too dependent on specific movie titles. While theater-exhibition operators make money off of concessions, IMAX needs IMAX-compatible films each quarter.

2013 third-quarter earnings showed what happens when the movie titles are not there. During a recent conference call, the company admitted to the lack of blockbuster movies that demand IMAX fans. Revenue fell 36% when compared to the same quarter of 2012.

Currently, IMAX is betting on nine films for 2014, which include hopeful moneymakers like Robocop, Godzilla, and The Hobbit: There and Back Again.

AMC Entertainment in 2014 and beyond
Food, drinks, and other amenities are starting to become commonplace within the entertainment industry. Modern sports arenas have evolved from hot dogs and fries to steak dinners and wine. Similarly, the same evolution is taking place for movies theaters.

Theater-exhibition operators like AMC Entertainment are becoming luxury situations with a middle class price point. Despite the advancements in home entertainment technologies, which include surround sound systems, HDTV's, and even high-definition home-projector systems, it is the luxury and amenities at theaters that will attract business.

Babysitting options may be the next step for theater-exhibition operators. Finding a babysitter is one of the top inconveniences that prevent people from going to the theater. Babysitting alternatives are already offered at gyms and malls throughout the U.S., so the possibility that they are introduced in theaters isn't out of the picture.

The bottom line
Movie titles will always be an important factor for all theater-exhibition operators. However, AMC Entertainment may have a head start against its peers Cinemark and Regal Entertainment in transforming the classic business model from dinner and a movie to dinner at the movies.

In recent years, increases in movie-ticket prices have resulted in a flat attendance. But, if full-service dining and other amenities are added to the mix, attendance may start to rise again, and this would help the bottom lines for all parties involved in the movie-theater business.

For quite a while this year, homebuilders were some of the best-performing stocks in the market. Renewed strength in the US housing market, as well as favorable prices and mortgage rates, helped boost the top and bottom lines of the broader industry.

However, the rally was interrupted by a fairly stiff correction, largely related to rising interest rates that erased much of the homebuilders' share-price gains. Now, momentum seems to be heading up again for stocks like PulteGroup , D.R. Horton , and Toll Brothers . Let's see what's moving the sector at the moment.

Strong housing figures
Some of the rebound in housing stocks can be related to the most recent housing-market figures released by the Federal Housing Finance Agency and the Commerce Department. According to the reports, US house prices rose 0.5% between September and October. Year over year, prices were up some 8.2%, which was largely in line with the consensus estimate as compiled by Bloomberg.

According to experts, the rising market owes largely to a relatively low supply of new homes, coupled with a slowly improving employment picture. Some believe that the market is entering a period of normalization, where investors are moving out and traditional buyers are moving back in. Also, the increase in prices seems to be leveling out. Geographically, the best-performing states for the month were Colorado, Arizona, California, and Oregon, with prices rising around 1%.

For November, the picture is a bit more mixed. While the month's 464,000 new sales for single-family houses beat the 433,000 analyst consensus, those sales were down around 2.1% from the revised October count. Still, things don't look too bad at all, with November sales up 16.6% year over year, and October sales up 17.6%. In any case, analysts seem comfortable with the numbers.

Stocks on the move
Predictably, these robust figures have boosted housing stocks. Shares of companies like D.R. Horton, PulteGroup, and Toll Brothers all posted solid gains following the news. After a tough time since May, during which rising mortgage rates and a dramatic increase in home prices deterred potential buyers, things seem to be looking up again.

In any case, analysts are forecasting some pretty huge earnings growth. PulteGroup is expected to grow earnings by a whopping 882% for the year. Historically, the company has bounced back from some very dark days indeed, bending an annual loss of $9.02 per share in 2007 to a profit of $0.73 per share last year.

Toll Brothers isn't doing too badly, either, expecting a 41% earnings-per-share increase for 2014. Furthermore, the company has a very strong land position, which has allowed it to capitalize more easily on the surging housing market.

D.R. Horton hasn't been doing quite as well, according to Zacks, missing its estimates for the top and bottom lines. Still, the company's full-year 2013 performance was quite impressive. Pretax income increased by 171%, on a 19% net sales order increase. Gross margin was up 310 basis points for the year, reaching 20.8%. Finally, the number of homes closed was up around 28%.

In terms of valuations, forward numbers may be the way to go, as it has been a choppy trailing twelve months for homebuilders. D.R. Horton is by far the cheapest, trading at 11.33 times forward earnings, followed by Toll Brothers' 16 and PulteGroup's 17.6. While the latter two are a bit high, they are not outrageously so. Price-to-sales paints the same picture, with D.R. Horton the cheapest at only 1.13 times sales. 

The bottom line
The recovery in the US housing market still has a fair bit of traction, as a tight supply and an improving jobs picture are boosting sales. The news has signaled something of a turnaround in homebuilder stocks, which have received a beating since May. Strong housing figures, combined with reasonable valuations, could propel housing stocks a lot higher in the coming year. However, investors should be wary of a potential bubble forming, despite a slowdown in home prices.

Lately, it seems that the market is achieving a new record high every day. However, it's easy to forget that there is no such thing as a universally good market. That is, there will always be companies that are struggling and/or trading at a steep discount.

Two businesses fitting that description are RadioShack and Sears Holdings . Let's take a look at both companies to determine if either is worth taking a chance on.

Can RadioShack adapt to the new retail environment?
At $2.67 per share as of this writing, RadioShack has lost almost 75% of its value over the past five years. RadioShack has a market capitalization of around $260 million, which means it is worth just over $46,000 for each of its 5,600 locations, one of the lowest per-location valuations of any retailer. 

There are no other large retail chains that are direct competitors to RadioShack, but Best Buy is pretty close.  Even though Best Buy stores are much larger and carry a much wider range of products, both companies compete in such key areas as mobile phones, tablets, and other consumer electronics. Best Buy's current market cap is just over $14 billion, meaning that each Best Buy store accounts for around $7 million in market cap, or 152 times that of each RadioShack.  Each Best Buy is about 15 times the size of the average RadioShack (38,500 vs. 2,500 square feet), so its easy to see how disproportionately low RadioShack's valuation is.

RadioShack has been hemorrhaging money over the past couple of years, having lost $1.39 per share in 2012 and expecting losses of around $2.08 this year. In other words, RadioShack's combined losses over the past two years are actually more than the current share price! The consensus calls for losses of more than $1 per share for the foreseeable future, which raises the question: Will it turn around?

In order to survive and be viable, RadioShack needs to be able to profitably compete with large retailers with much better economies of scale, such as Amazon.com or Best Buy. The other option is to offer a truly unique product (or products) that consumers simply can't get anywhere else. It's certainly possible, but RadioShack has a long uphill battle ahead.

How is Sears still in business?
In my opinion, Sears is one of the great mysteries of the stock market. I really can't think of any good reason that Sears is still in business. Sears has been losing money at an alarming rate for three years now, and there is no end in sight. The company has tried many strategies over the past few years, including a renewed emphasis on its rewards program, new brands, new partnerships, and a stronger focus on the online side of the business.

Still, Sears has found little success and the company's losses continue to mount. In fact, the current fiscal year (2014) is expected to be the company's worst yet, with a projected loss of $6.20 per share. For its 2016 fiscal year, analysts are projecting losses as much as $8.71 per share. Sears is also very cheaply valued, currently trading at just under $2 million per store, terrible considering the sheer size of the average Sears or Kmart, but still a pretty generous valuation for a company that is losing so much money with no end in sight. 

For comparitive purposes, consider that each of Macy's stores contribute over $23 million in market cap to the company.  Macy's simply has been a better-run business, and the company has been successful as using the Internet as a complement to its in-store business.

Sears has some of the same hurdles facing it as RadioShack does, including staying competitive with larger, more efficient competitors. However, it's not as if Sears doesn't have the sales volume. I would think a company with $40 billion in annual sales could figure out how to turn a profit.

Is either company worth the gamble?
The short answer is "no," but shareholders of both companies could be very handsomely rewarded if a turnaround were to take place. Of the two, I think RadioShack is the more viable candidate for a turnaround, due to its much lower overhead (smaller stores) and its rather successful partnerships with mobile phone companies.

In my opinion, RadioShack is in a much better position to get customers into its stores, while Sears may have fallen too far behind to recover. Whatever happens, it will be interesting to watch, but I'll be doing it from the sidelines.

Staples needs refreshing. No longer is it enough to be the destination for paper, pens, and ink toner; the office supplies leader wants you to know it's really more like a maintenance, repair, and operations specialist, providing everything from hard hats and goggles to tools and cleaning products. And, yeah, you can still get rubber bands if you need them.

To drive home the message that it's no longer just a stodgy pencil pusher, Staples is launching a major advertising campaign, dubbed "What the L is going on at Staples?", to highlight just how much you don't know about its products. Along with changing the corporate tagline from "That was easy" to "Make more happen," the office supply leader will also change its corporate logo by removing the paper clip that appeared as the letter "L" in the word "Staples" to a rotating collection of products, including a hand truck, paint brush, chair, and a boot. 

As the ad above shows, Staples isn't completely shedding the popular "easy" button, but it is expanding its product lineup to enter a space normally occupied by MRO specialists like Grainger and MSC Industrial Direct. With a fragmented market in which even top dog Grainger admits it has just 6% of the $118 billion market, and the top 50 companies control less than a 30% share, it's possible for Staples to carve out a niche for itself.

Since the recession, at least, facility and breakroom supplies have been what's driving Staples' growth. Total revenues rose 1% last quarter to $2.1 billion despite the decline in sales of traditional office supplies, paper, ink, and toner. Staples notes that it's because of these adjacent categories that it's been able to expand into new segments such as technology products, medical and safety supplies, packaging and shipping, and office decor.

Yet because it's still primarily thought of as the go-to place for office supplies, it's not widely recognized that Staples has the second-biggest Internet presence behind Amazon.com in terms of SKUs offered. Even though it already features hundreds of thousands of items, it's adding thousands more every day as it continues to focus more on the online aspects of its business and less on the brick-and-mortar portion.

Staples is in the midst of cutting the size of its physical footprint while pushing for greater availability on its website. The new omnichannel stores sport fewer SKUs in a smaller format, while putting kiosks on the sales floor to help customers order from its website. At the same time, its sales associates provide customers with more product information and stocking data through use of tablets.

Still, the elbows are getting sharper in the online arena. Amazon is now a recognized competitor in the MRO space through its aptly named Amazon Supply business, while MSC Industrial launched major e-commerce system upgrades to facilitate its customers' ordering capabilities. Staples may not be stocking heavy equipment just yet, but by going well beyond just breakroom supplies and office furniture, it's venturing further outside its core competency where others already dominate.

Like its ill-timed acquisition of Corporate Express that had it wandering in the wilderness for several years trying to get its bearings, this new path being blazed in the broad maintenance, repair, and operations field is likely to have investors once more wondering what the heck Staples is thinking.

The International Air Transport Association, IATA, estimates that the U.S. domestic air travel market will grow 2.2% through 2017, making the U.S. the largest national market for domestic air travel. The airlines mentioned below each chose a strategy to meet that increasing customer base head-on. In 2014, customers will vote with their dollars and tell the airlines which strategy is most appreciated. Here are the three budget airlines to watch this year.

Southwest Airlines  
At Houston's Hobby, Southwest is building its first international terminal. Service to the Caribbean, Central and South America, and Mexico is planned. While AirTran currently flies to select Caribbean and Mexican destinations, Central and South America is a new market. 

International travel is a focus for Southwest, but the United States has not been left out of the expansion plan.    This summer, Southwest will increase traffic from San Diego with five new routes. Portland will see three new flights and increased frequency on some existing routes.  

In May, Southwest will expand at New York's LaGuardia, using flight slots that American gave up as part of its merger agreement with the DOJ. Nashville and Akron/Canton will get one new flight each.   Two new flights will go to Houston's Hobby and two to Chicago's Midway. With the new flights between Midway and LaGuardia, Southwest alone will service the route eight times daily. 

Currently the Wright Amendment prevents Southwest from flying out of Dallas Love Field past states bordering Texas. When this restriction is lifted in October, expect new flights from Dallas to New York and destinations across America. 

Southwest's expansion is focused on competing with the legacy carriers for more market share. By expanding service on the Midway-LaGuardia route, one of America's most popular, Southwest is jockeying to win over the higher-paying business passenger.  Its domestic and international expansion out of Texas will also put it in direct competition with American and its partners.

In 2014, Southwest's trend of increasing passenger revenue will continue.   Additionally, Southwest indicated a desire to complete the integration of AirTran by the end of the year. When the temporary expenditures of combining ground operations and changing over the livery end, investors should see net income stabilize and better reflect Southwest's increasing operational revenue.  

JetBlue also announced Mint, a new class of service for business travelers. Mint will take to the skies in June on flights from New York's JFK to San Francisco and Los Angeles. These routes will be operated by JetBlue's brand new Airbus 321 aircraft. Priced at just $599 one-way, JetBlue seeks to gain back customers lost to the legacy carriers who in 2013 all introduced new transcontinental premium service products.    

The competition on this route will be fierce. American flies brand-new aircraft, and the only aircraft with three classes of service, on its transcontinental routes. However, with passengers looking for connectivity and comfort, along with modest pricing, JetBlue is prepared to compete. The IATA agrees citing product innovations as a successful revenue growth strategy.

Much like Southwest, JetBlue's new services will help it capture more market share, especially from the higher fare paying business passenger. If successful, JetBlue will have better luck retaining customers and gaining new ones. This will see its profit margins, market share, and passenger revenue all increase.

Spirit Airlines  
 . From 2012-2013, Spirit Airlines increased its employee ranks by 24% while American, Delta, United, and even budget carriers Frontier and Southwest, all cut staffing. 

Spirit's profits are another sign of steady growth. Annual passenger revenue and net income have both increased steadily since 2010. This year was no different; each quarter of 2013 saw increases in both metrics. Net income in the third quarter of 2013 was nearly double that of the first quarter. 

Spirit's oft-complained-about fee structure is the driving force behind its success. Bloggers and analysts take a look at Spirit's strategy each time a new fee is introduced. Each time the votes come in, the strategy is called a success. This ever-increasing nickel-and-dime approach saw Spirit out of near bankruptcy, and transformed it into a viable contender for market share.  

Final Takeaway
Southwest, JetBlue, and Spirit all have a unique vision and a unique growth strategy. Whether a strategy of route expansion, new products, or high fees, there is one commonality among these budget airlines. Each is led by a CEO committed to the chosen strategy who ensures that every action taken is in line with that strategy. No matter how many complaints come in, the CEOs realise that they can only please a certain segment of passengers at once. This method of operating has worked to date and should work just as well this year. 

Post Holdings , the third-largest ready-to-eat (RTE) cereal manufacturer in the U.S., has seen its revenue stagnate in the past few years as part of private-label manufacturer Ralcorp. But since being spun off as an independent listed company in 2012, it has worked hard to reverse some of its past branding mistakes. Recent results show that Post is now better positioned to compete with its peers such as Kellogg and General Mills .

Failure to invest
Post was a century-old brand that was simply outspent by its competitors. Furthermore, Post had to compete with Ralcorp's private-label cereal business for a share of the group budget.  

In fiscal 2010, Post spent 8.9% of its revenue on advertising and promotion (A&P), which amounted to $88.6 million. By fiscal 2013, A&P spending was increased to $118.4 million, representing 11.4% of its net sales. This compares favorably with the 7.9% of net revenue that Kellogg reinvested in advertising in fiscal 2012.

Apart from capturing the attention of consumers with flashy advertisements, new innovative products are needed to gain market share. Post has lacked groundbreaking product innovations since the launch of its flagship brand Honey Bunches of Oats in 1989. This is reflected in its relatively low research and development spending, which accounted for a mere 0.8% of Post's historical average net sales.

In comparison, General Mills invested 1.3% of its revenue in R&D in fiscal 2013. But Post has made plenty of changes, launching seven new products in 2013. This contrasts sharply with its lackluster product-development efforts in the past.

Post's recent trend of increased investments in both A&P and R&D expenses have showed initial success. Its market share of the RTE cereal market stabilized at 10.4% in 2013, effectively halting the gradual market share erosion in the past few years.

Detached from its customers
Under Ralcorp, Post faced two big problems in reaching out to its customers, given its reliance on a broker network. Firstly, Post couldn't draw sufficient insights about customer preferences working with intermediaries. Secondly, the brokers carried multiple brands and weren't solely committed to promoting Post products.

Realizing the deficiencies associated with its prior distribution system, Post has decided to gradually do away with brokers. By May 2012, all of its customers were served by its in-house direct sales force. Post also invested in customer analytics to ensure that it understood customer needs and had the ability to adapt its marketing strategies accordingly.

Investing in the wrong positioning
Unlike its peers, Post didn't position its brand to drive customer purchases even as customers became increasingly more concerned about health and nutrition.

General Mills has started producing the original version of its cereal brand Cheerios free of genetically modified organisms (GMOs), which should be on shelves early this year. Besides launching products targeted at health-conscious consumers, Kellogg went a step further in making sure that it understood how 'healthy' its products are. Kellogg put up a Facts Up Front label on the front of its products that simply presents the key nutritional facts in a manner that is more eye-catching for consumers, compared with the detailed nutrition panel at the back of the package.

But Post is slowly changing. Its September 2013 acquisition of Premier Nutrition, a marketer of ready-to-drink protein shakes and protein bars, is a strong sign that it is back in touch with customer needs and trends. Consumers are increasingly eating on the go and becoming more health conscious. Adding Premier Nutrition's products into its portfolio is a step in the right direction for Post.

Next steps
Post registered a decent 2.5% revenue increase in fiscal 2013, compared with negative sales growth in the past few years. This is a validation of its recent brand-rebuilding efforts. Going forward, Post should build on the positive momentum to gain market share at the expense of its larger competitors.

Mel Watt

Shares of Fannie Mae and Freddie Mac had a wild ride in 2013, as both ended the year up nearly 1000% as investors regained confidence that shareholders may ultimately receive a share of the companies' profits. Now, changes are brewing atop Fannie and Freddie's conservator, the FHFA. Mel Watt, a lifetime Democrat, is now leading the agency and could make some big changes. 

In this segment of The Motley Fool's financials-focused show, Where the Money Is, banking analysts Matt Koppenheffer and David Hanson are joined Motley Fool One analyst Morgan Housel to discuss how Watt could potentially be a good and bad thing for shareholders.

Walgreen , the country's largest drug store chain, kicked off the first quarter of fiscal 2014 on a very strong note. The company recorded an awe-inspiring 68% year-over-year net income increase as its tie-up with Alliance Boots started to pay off handsomely. That blistering bottom-line growth rate belies the company's huge size, and serves as an indicator of the major changes taking place in the drug distribution landscape. The growth looks even more impressive when you consider that it came with a backdrop of a rather soft macro environment.

Express Scripts showdown a blessing in disguise
Walgreen reported its fiscal first-quarter 2014 results on Dec. 20, 2013 and posted sales of $18.35 billion, a 6% increase from the same period in 2013. Comparable-store sales climbed 5.5%. The company finally seems to have fully recovered from the Express Scripts fiasco.

Many investors still remember the showdown between Walgreen and Express Scripts, the country's largest pharmacy benefit manager, or PBM, in 2011. During the standoff, many Walgreen customers fled to rivals CVS Caremark , the second-largest PBM, and Rite Aid. Consequently, this led to a heavy decline in sales for the company. By the end of 2012, Walgreen was on the ropes and seriously bleeding after its sales tanked by a jaw-dropping 8.1%. The company was left with little choice but to acquiesce to Express Scripts' terms.

The showdown served as a wake-up call for Walgreen, and the company came to appreciate the sheer importance of size in this business. Express Scripts was able to call the shots and arm-twist Walgreen so easily simply because with a huge 37% share of the market, it was probably the only PBM large enough to handle Walgreen's business comfortably.

What seemed like a dead-end for Walgreen has turned out to be a blessing. The company quickly moved to reorganize its operations to avoid a repeat of the Express Scripts drama. The company took a 45% stake in Alliance Boots, Europe's largest drug-led retailer, in 2012 for a total of $6.7 billion. It is now, thankfully, reaping the rewards.

Walgreen regains pharmacy market share
Walgreen filled 213 million prescriptions in the first quarter of 2014, a record for the company. Its pharmacy market share improved to 19.4%, exceeding the industry growth rate by 2.9%. The Express Scripts showdown had seen Walgreen's pharmacy market share fall from 19.6% to 17.4%. Luckily for the company and its investors, Walgreen has almost recovered the lost ground, and even looks to overtake it in the coming quarters.

Walgreen believes that the growth in market share occurred because of the return of Express Scripts customers after the two drug distribution giants resolved their differences, as well as Walgreen winning new Medicare Part D customers. Walgreen's growth in Medicaid Part D outpaced the industry average by a mile.

The company has also been recording a high demand for flu shots, with the company administering 1.1 million more flu shots in the first quarter of 2014 than it did in the same period last year, which brought the total shots provided during the season to 6.4 million.

New partnerships help to expand global operations
Walgreen has been busily restructuring its operations in a bid to become a global pharmacy. To this end, the company has pursued new market opportunities, optimized its global supply chain, and expanded its brand portfolio. Walgreen is using its partnership with Alliance Boots to gain a foothold in the European market.

Walgreen achieved $154 million in net combined synergies with Alliance Boots in fiscal 2013, and it expects these synergies to grow to $300-$400 million in fiscal 2014. Alliance Boots contributed $0.14 per diluted share to Walgreen's first-quarter 2014 results.

Walgreen also entered a huge 10-year agreement worth $400 billion with AmerisourceBergen . By combining its distribution in both the U.S. and Europe with AmerisourceBergen, Walgreen will be in a better position to negotiate better prices for both generic and branded drugs. The company expects to realize the full benefits of lower drug distribution costs by fiscal 2015.

AmerisourceBergen will also benefit hugely from the Walgreen deal, since a good 30% of its $81 billion in annual sales is already covered for the next ten years. This provides excellent future revenue visibility for the company. It also eliminates a huge competitive risk element for AmerisourceBergen that the company faces whenever its contracts expire, as it faces bare knuckle competition with its bigger-and better-heeled rivals Cardinal Health and McKesson.

Rapidly shifting drug distribution landscape
Walgreen is not the only drug distribution company that has been hunkering for huge deals and bulking up. Express Scripts merged with Medco Health in 2012 to form the biggest PBM in the country. The new Express Scripts commands almost twice the market share of its closest rival CVS Caremark with a 37% share of the market vs. a 20% share for CVS.

CVS Caremark also tied up with Cardinal Health in 2013 to form the largest generic-drug-sourcing entity in the world.

 

Read | Permalink | Email this | Linking Blogs | Comments