2010 Q4 Earnings, Week 2: Good Quarter for Asset Management Firms

Despite concerns about outflows from equity and fixed income funds, the fourth quarter is shaping up to be an excellent earnings season for asset management firms.

To be sure, the stock market’s recent rally has cooperated with the firms that dominated the fourth-quarter 2010 earnings news headlines in the finance sector this week. Flows for many managers now remain positive as equity fund outflows and fixed income fund inflows have achieved some equilibrium, making asset management stocks more attractive.

“We think flows for many managers remained positive as equity fund outflows and fixed income fund inflows both moderated. We believe the risk/reward in asset management stocks is still attractive despite the recent rally, and our top picks include Franklin Resources (BEN), Invesco Ltd. (IVZ) and Calamos Asset Management (CLM),” wrote equity analysts Robert Lee and Larry Hedden of Keefe, Bruyette & Woods North America Equity Research in an asset managers preview earlier this month.

Their predictions were correct, as both Franklin and Invesco reported strong earnings on Thursday. Calamos is scheduled to report on Feb. 4.

Franklin’s profits rose 74%, with the mutual fund company posting earnings of $501.2 million, or $2.23 per share, on $1.70 billion in revenues versus. In 2010's third quarter, BEN had $372.9 million in net income, or $1.65 per share, on $1.53 billion in revenues. In the fourth quarter of 2009, net income was $355.6 million, or $1.54 per share, on $1.38 billion in revenues.

Invesco’s profits also rose—by 44%--but nevertheless disappointed analysts’ expectations as stronger stock market results were tempered by fallout from the firm’s June acquisition of Morgan Stanley’s mutual-funds business. EPS for the year was 32.9% higher, at $1.01 compared with $0.76 in 2009, while quarterly

EPS came in at $0.37 compared with $0.32 in the third quarter. Analyst consensus was for EPS of $0.40. Profits totaled $465.7 million versus $322.5 million in 2009.

The most recent addition to the positive earnings new, T. Rowe Price (TROW), on Friday morning reported a 26% earnings increase thanks to a nearly 20% gain in revenue and a rise in AUM; the earnings beat analysts’ estimates.

Both AUM and investment-advisory fees continue to rise for T. Rowe, leading President and Chief Executive James Kennedy to say that the company has "largely recovered" from the economic crisis. T. Rowe reported a profit of $190.8 million, or $0.72 a share (versus analysts’ expectations of $0.69/share), on a 19% revenue rise to $647.5 million. In the fourth quarter a year earlier, net income was $152 million, or $0.57 cents.

Earlier in the week, on Tuesday, investor willingness to put money into riskier securities pushed BlackRock (BLK) past analysts’ expectations, with diluted earnings per share at $3.42 versus consensus EPS estimates of $2.90. The world’s largest asset manager, clearly benefiting from its acquisition of Barclays Global Investors, broke its quarterly earnings record as profits rose 107% and annual revenue soared 157%.

Legg Mason (LM) on Wednesday announced a 37% jump in profits for the third quarter of 2011 along with a 5% rise in revenues, thanks to an increase in fees. But the firm also reported continuing outflows: $12.9 billion from bond funds and $3.3 billion from stock funds in the quarter. Profits totaled $61.6 million, or $0.41 per share, versus $0.28 a year ago.

Also on Wednesday, Piper Jaffray (PJC) reported strong sales and better-than-expected net revenues as the investment bank’s capital-markets unit saw an 18% increase in the quarter to $151 million. The firm saw profits of $9.4 million, or $0.49 per share, for the fourth quarter of 2010 versus $12.3 million, or $0.63, in the same period of 2009. Piper Jaffray’s results included a $9.1 million after-tax charge that reduced net income by $0.48 per share for a charge linked to Piper Jaffray restructuring of its European operations. Excluding that charge, the company earned $0.97 cents per share.

Another company that released Q4 2010 earnings on Thursday, Janus Capital Group (JNS), beat both EPS and revenue estimates, reporting net income of $65.9 million, or $0.36 per share, compared with net income of $37.0 million, or $0.20 per share, in the fourth quarter of 2009. Revenue was $275.7 million versus $250.6 million in the year-ago period and $243.8 million in the third quarter for the mutual fund company. This performance beat analysts’ earnings estimates of $0.21 cents a share and revenue estimates of $262.7 million.

Although Q4 was strong for asset managers, KBW’s analysts nevertheless viewed the group’s performance as lackluster in the last year.

“Considering the growth in AUM and earnings in 2010 and new business trends that have, overall, generally been positive, the overall performance of asset manager stocks in 2010 was lackluster at best, although it varies widely from stock to stock,” they said. “In general, we think investor unease with regard to the economic outlook has weighed on the group, while several stocks, including AllianceBernstein, Artio, BlackRock, and Janus were negatively impacted by concerns with regard to organic growth.”

“To some degree,” the KBW analysts added, “we attribute the lackluster performance for much of the year to the fact that over the course of 2010, many investors saw a lack of incremental catalysts, such as better flows or margins, or were generally concerned with the near-term outlook and fears of a double-dip recession. BlackRock, in particular, saw its premium valuation erode as investors became concerned with the ability to grow an asset manager with $3.4 trillion in AUM, among other things. Franklin Resources, despite generating strong organic flows and EPS growth, has been weighed down by concerns regarding future fixed income flow trends.”

Read a roundup of week one of 2010 Q4 earnings at AdvisorOne.com.

The Stock Market: Update On Increasing Perils And Possible Consequences

On October 17, 2011 I wrote a post titled "Danger Signs In The Stock Market, Financial System And Economy." Subsequent updates can be seen on articles dated April 20, April 12, March 6, February 2, January 12, December 20, and November 21. This post represents the latest brief update to that October 17 post.

My overall analysis indicates a continuing elevated and growing level of danger which contains many worldwide and U.S.-specific "stresses" of a very complex nature. I have written numerous posts of some of what I consider both ongoing and recent "negative developments." These developments, as well as other highly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

My analysis continues to indicate that there are many reasons for tremendous concern, as seen in almost innumerable fundamental economic, financial-market, and proprietary measures. While it may appear that the severe financial and economic problems are limited to Europe, my analysis indicates an array of highly problematic U.S. economic problems also exist. While the vibrant stock market, which as of yesterday has risen over 12% - the best start to a year since 1998 - undoubtedly serves as comfort to many, one of the notable aspects of 2008 is how the stock market can maintain lofty levels despite an impending crisis.

Predicting the timing and extent of a stock market crash is always difficult, and the immense complexity of today's economic situation makes such a prediction even more challenging. With that being said, my analyses indicate that the danger inherent in the financial system has reached a level at which a stock market crash - that would also involve (as seen in 2008) various other markets as well - has reached a level at which a near-term crash is a substantial concern (note: the "next crash" has outsized significance and implications, as discussed in the post of January 6, "The Next Crash And Its Significance").

As reference, below is a daily chart of the S&P500 since 2007, on a LOG basis, indicating both the 50dma and 200dma as well as price labels. The current price is 1396.06:

(Chart courtesy of StockCharts.com; chart creation and annotation by the author)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Top picks 2012: Enterprise Products

Enterprise Products Partners LP (EPD), a Houston-based master limited partership, operates over 50,000 miles of gas, crude oil natural gas liquids (NGL) and petrochemical pipelines.

It also operates 25 natural gas processing plants, 58 tow boats, 117 barges, 6 offshore hub platforms, and terminals and storage facilities for all the energy products it transports. Basically, if you've got energy in North America, EPD has a way to move it to market and store it.�����

New technologies that allow the extraction of natural gas from shale have been a boon to the US energy sector. US shale gas production more than tripled between 2007 and 2010.

US net imports of natural gas have fallen by about 1.2 trillion cubic feet over the last three years, primarily driven by these recently tapped resources.

New domestic sources of natural gas are driving the demand for new and expanded pipeline systems. And this is providing growing revenues for pipeline service providers like EPD.�� �Enterprise Products Partners (EPD)

On November 9, EPD announced record results for the third quarter of 2011. Revenues rose 40% compared with the same period last year. The MLP reported net income of $0.55 per unit, up from $0.18 per unit in the third quarter of 2010.

EPD raised its quarterly distribution to $0.6125 per unit. This was the 29th consecutive quarterly distribution increase for the MLP.

At current prices, EPD has a healthy yield of 5.4%. And more dividend increases may be in the offing for investors based on EPD's expansion plans.� �

The MLP has roughly $5 billion of infrastructure projects coming online or under construction. Their biggest project is the $1.2 billion Acadian Haynesville Extension in Louisiana, which began service on November 1.

It also has $2.5 billion worth of capital projects supporting the producers in the Eagle Ford Shale in Texas, which will start to come on line in 2012. �

Note: MLPs can pay a percentage of their distributions in the form of "unrelated business taxable income" (UBTI). There can be unfavorable tax consequence for investors if they earn more than $1,000 in UBTI in a tax-deferred account. For this reason, MLPs are best held in a taxable brokerage account..

Action to Take -->� As the US prioritizes the production of domestic energy sources, EPD is sitting in the sweet spot.

More global demand for NGL -- now driven higher by higher demand from Japan -- is also boosting EPD's revenues.

MLPs have gained in popularity and their prices have appreciated over the last year. But EPD is a great position to put on your shopping list and buy on market dips.

7 dividend Champs With Yields As High As 23%, Part II

This is part II of the dividend champ series. In part I we looked at seven stocks with yield as high as 15%. Extreme volatility is propelling more and more investors into dividend yielding investments in contrast to speculative investments. In coming up with this list we screened for the following;

1) A dividend payment history of 4 or more years, or 3 years or more of increasing the yearly dividend. The only exception is ARR and it has been included because of its stunning quarterly revenue growth rate (yoy) of 12484%

2) EBITD of $200 million or higher. The only exception is ARR and the reason for this has been listed under point 1.

3) A Yield of 5.5% or higher.

4) Quarterly revenue growth rate (yoy) of 26% or higher. We have 3 exceptions, BWP, KMP and ARR. The reason we included ARR is covered in point 1. BWP was included because it has a strong Operating cash flow rate of $450 million, a healthy levered free cash flow rate of $177 million and has increased its dividends for 4 consecutive years in a row. KMP was included because it is a true dividend champ; it has increased its dividend consecutively for 14 years in a row, has a very strong operating cash flow rate of $2.87 billion and a healthy levered free cash flow rate of $265 million.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a small amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa. Earnings can often be manipulated via accounting gimmicks, but it’s much harder to fake cash flow. As a result, many investors feel that free cash flow (FCF) provides a better picture of a company’s ability to generate cash. Negative FCF numbers do not necessarily bode badly for the company in question, for it could be a sign that a company is making large investments, which could lead to big payoff in the future.

Stock	Dividend	Market Cap	Forward PE	EBITDA (ttm)	Quarterly revenue growth	Operating margins	Revenue	Operating Cash flow
BWP	7.6	5.52B	19	650M	4.40%	37.12%	1.14B	455M
EEP	6.8%	8.45B	19	871.8M	25%	5.75%	618M	-420M
BBEP	9.65	1.06B	16.85	223M	26.9%	31%	366M	167M
TEO	11.5%	3.73B	5.84	1.27B	26.6%	22%	4.14B	1.06B`
ARR	23%	606M	5.8	N/A	--	136%	-18.98M	77M
NS	8%	3.48B	16	500M	60.3%	5.76%	5.84B	283M
KMP	5.8%	26.24B	34	2.64B	6.6%	20%	8.13B	2.87B

B= billion M= million

Boardwalk Pipeline Partners, LP (BWP)

It has enterprise value of $8.6 billion and price/sales value of 4.79. It has a positive levered free cash flow rate of $177 million and Quarterly revenue growth (yoy) of 4.4%. Insiders have a solid 53.4% stake in the company. Net income for the past 3 years is as follows; in 2008 it came in at $294 million, in 2009 it dropped down to $162.7 million and in 2010 it moved up to $289 million. The full upgrade and downgrade history can be accessed here.

· ROE 7.2%

· Return on assets 3%

· Total debt 3.2B

· 200 day moving average $27.01

· Book value $16.04

· Dividend yield 5 year Average 7.3%

· Dividend rate $2.19

· Payout ratio 171%

· Dividend growth rate 5 year average 10.8%

· Consecutive dividend increases 4 years

· Paying dividends since 2006

· Total return last 3 years 75%

· Total return last 5 years 23%

Enbridge Energy Partners (EEP)

Enbridge Energy Partners, L.P. owns and operates crude oil and liquid petroleum transportation and storage assets, in the United States. Transporting oil is one of the biggest opportunities in the Bakken shale area (ND). The roads in the Williston Basin are not sturdy enough to support a constant fleet of truck transporting oil day and night and so this provides an immense opportunity for pipeline companies. EEP is moving in the right direction by expanding its capacity to handle an additional 80,000 barrels of oil. The project is expected to be ready by 2013. It already has commitments for 70% of the rail loading capacity and expects to complete agreements for the remaining capacity soon.

The full upgrade and downgrade history can be accessed here.

· ROE 10.23%

· Total debt $5.61 B

· 200 day moving average $ 29.14

· Book value $13.03

· Dividend yield 5 year Average 8.8

· Dividend rate $ 2.09

· Payout ratio 212

· Dividend growth rate 5 year average 2.5%

· Consecutive dividend increases 4 years

· Paying dividends since 1992

· Total return last 3 years 188%

· Total return last 5 years 61.8%

Breitburn Energy Partners L.P (BBEP)

Breitburn Energy Partners L.P has enterprise value of $ 1.5 billion. BBEP has a levered free cash flow of $4.76 million and a price/sales value of 2.92 Net income for the past 3 years has been dropping and is as follows; in 2008 it came in at $378 million, in 2009 it turned negative to -$107 million and in 2010 it moved up to $34 million. Net income for 2011 so far is roughly $141 million.

Out of the 19 analysts following BBEP, 5 rate it as an outperform and 6 rate it as a buy.The full list can be accessed here

A potential warning signal

Beneficial owner QUICKSILVER RESOURCES INC sold over 8 million shares in November at $16.52 per share. They have been cutting back on their position since Jan 2011, but turned rather aggressive from June onwards. The full list of transactions can be accessedhere .

· Short percentage of float 0.7%

· Percentage held by institutions 27%

· Percentage held by Insiders 29%

· ROE 5.21%

· Quarterly earnings Growth (yoy) N/A

· Total debt $516

· 200 day moving average $ 18.45

· Book value $23.52

· Dividend yield 5 year Average -0.36%

· Dividend rate $1.69

· Payout ratio 145%

· Dividend growth rate 3 year average 6.27%

· Consecutive dividend increases 1 years

· Paying dividends since 2007

· Debt/equity ratio N/A

· Total return last 3 years 174%

Telecom Argentina S.A. (TEO)

Telecom Argentina has a very healthy levered free cash flow rate of $503 million, a quarterly revenue growth (yoy) rate of 26%, a quarterly earnings growth rate (y0y) of 36%, a ROE of 35.9%, a very strong levered free cash flow rate of $506 million and an impressive total return for the last 3 years of 166%.

Gross profits have been steadily increasing for the past 3 years; in 2008 they stood at $1.4 billion, in 2009 they jumped to $2.57 billion and in 2010 they surged to $3.01 billion. Net income also surged during the same time period; in 2008 net income was $278 million, in 2009 it rose to $373 million and in 2010 it surged to $491 million.

· ROE 35.9%

· Quarterly earnings growth (yoy) 36%

· Quarterly revenue growth rate 26%

· Total debt 34.(M

· 200 day moving average $22.10

· Book value $8.48

· Dividend rate $1.57

· Payout ratio 70%

· Dividend growth rate 3 year average 0

· Consecutive dividend increases 0 years

· Paying dividends since 1994

· Total return last 3 years 166%

· Total return last 5 years 19.8%

ARMOUR Residential REIT Inc. (ARR)

It has a stunning quarterly earnings growth rate (yoy) of 12,484%, a ROE of -8.13%, and total 3 year return of 11.9%. Net income surged from negative $1.1 million dollars in 2009 to a massive gain of $6.5 million dollars in 2010. The short percentage of float is a huge 30.30%, which makes ARMOUR Residential REIT Inca very good candidate for a short squeeze. Gross profits have increased from $369,000 in 2009 to $7.8 million in 2010. Net income also surged nicely from negative $1.14 million in 2009 to $6.53 million in 2010.

ARMOUR Residential REIT Inc. has been named as a Top 10 Real Estate Investment Trust (REIT), according to Dividend Channel, which published its most recent ”DividendRank” report. The report noted that among REITs, ARR shares displayed both attractive valuation metrics and strong profitability metrics. For example, the recent ARR share price of $6.87 represents a price-to-book ratio of 1.0 and an annual dividend yield of 19.21% — by comparison, the average stock in Dividend Channel’s coverage universe yields 4.4% and trades at a price-to-book ratio of 1.9. The report also cited the strong monthly dividend history at ARMOUR Residential REIT Inc., and favorable long-term multi-year growth rates in key fundamental data points.

There were several Insider purchases for the month of October. Director Thomas Guba invested $275,000 in 50,000 shares at a cost of $5.50 per share. Director Daniel Staton purchased 150,000 shares at $6.29 a share, an investment of $943,000. The full list of insider transactions can be accessed here.

· ROE -8.19%

· Quarterly earnings growth (yoy) N/A

· Quarterly revenue growth rate 12,484.26%

· Total debt 5.32 billion

· 200 day moving average $7.26

· Book value $6.78

· Dividend rate $1.32

· Payout ratio 135%

· Consecutive dividend increases 0 years

· Paying dividends since 2010

· Total return last 3 years 11.73%

NuStar Energy L.P. (NS)

It has enterprise value of $6.02 billion and price/sales value of 0.60. It has strong quarterly revenue growth (yoy) of 60%, a total return of 72% for the past three years, a 5 year dividend growth rate of 4.19%, and has been paying dividends since 2001. Out of a total 5 stars we would assign NS 3.5 stars.

Net income for the past 3 years is as follows; in 2008 it came in at $254 million, in 2009 it dropped down to $224 million and in 2010 it moved up to $238 million. Net income for 2011 so far is roughly $191 million. The full upgrade and downgrade history can be accessed here.

· ROE 3.8%

· Return on assets 9%

· Total debt $2.57B

· 200 day moving average $ 58.64

· Book value $37.98

· Dividend yield 5 year Average 7.8%

· Dividend rate $4.34

· Payout ratio 138%

· Dividend growth rate 5 year average 4.19%

· Consecutive dividend increases 9 years

· Paying dividends since 2001

· Total return last 3 years 70%

· Total return last 5 years 32%

Kinder Morgan Energy Partners LP (KMP)

Kinder Morgan Energy Partners LP has a market cap of $ 25 billion and enterprise value of $ 38 billion. KMP has a levered free cash flow of $265 million and a price/sales value of 3.07. Out of a possible five stars we would assign Kinder Morgan Energy Partners LP four stars. For such a large cap stock insiders have a very healthy 18% stake in the company.

· Percentage held by Insiders 18%

· ROE 15.97%

· Quarterly earnings growth (yoy) -33

· Total debt $13.62 billion

· 200 day moving average $ 71.90

· Book value $22.16

· Dividend yield 5 year Average 7.10

· Dividend rate $4.58

· Payout ratio 93%

· Dividend growth rate 5 year average 7.31%

· Consecutive dividend increases 14 years

· Paying dividends since 1992

· Debt/equity ratio N/A

· Total return last 3 years 93%

· Total return last 5 years 97%

Conclusion

Our favorite two plays are KMP and NS; both have stellar records of consecutive dividend increases. In addition KMP has a very strong levered free cash flow rate of $265 million and NS has a very strong quarterly revenue growth rate of (yoy) of 60%. Value players might also be interested in the 4 stocks we recently covered that are trading significantly below book value in our latest article;4 Magnificent Value Plays With Dividends

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Momentum Ideas: 7 Stocks Hitting 52-Week Highs on Rising Call Volume

Below is a list of 7 stocks that have recently hit a new 52-week high. These stocks have also seen significant decreases in their put/call ratios within the last ten trading days (3/21 to 4/1). In other words, these companies have seen significant growth in the number of open call option positions relative to put option positions.

Do you think these bullish trends can continue for these names? Read below, using this list as a starting-off point for your own analysis.



List sorted by decrease in put/call ratio.

1. Time Warner Cable Inc. (TWC): CATV Systems Industry. Market cap of $25.66B. Put/call ratio decreased 79.04% over the last two weeks (from 1.67 to 0.35). TWC has a relatively low correlation to the market (beta = 0.69), which may be appealing to risk-averse investors. The stock has gained 38.71% over the last year.

2. Cooper Industries plc (CBE): Conglomerates Industry. Market cap of $11.50B. Put/call ratio decreased 61.80% over the last two weeks (from 0.89 to 0.34). CBE is exhibiting strong upside momentum--currently trading 9.9% above its SMA20, 10.47% above its SMA50, and 31.52% above its SMA200. The stock has had a couple of great days, gaining 7.8% over the last week.

3. BorgWarner Inc. (BWA): Auto Parts Industry. Market cap of $9.06B. Put/call ratio decreased 32.26% over the last two weeks (from 0.93 to 0.63). The stock is a short squeeze candidate, with a short float at 12.17% (equivalent to 6.68 days of average volume). The stock has gained 111.18% over the last year.

4. CIGNA Corporation (CI): Health Care Plans Industry. Market cap of $12.09B. Put/call ratio decreased 29.73% over the last two weeks (from 0.74 to 0.52). The stock has gained 20.53% over the last year.

5. Fastenal Co. (FAST): General Building Materials Industry. Market cap of $9.71B. Put/call ratio decreased 26.92% over the last two weeks (from 0.78 to 0.57). The stock is a short squeeze candidate, with a short float at 10.13% (equivalent to 16.15 days of average volume). The stock has gained 34.69% over the last year.

6. China Telecom Corp. Ltd. (CHA): Telecom Services Industry. Market cap of $93.41B. Put/call ratio decreased 21.62% over the last two weeks (from 0.37 to 0.29). The stock has gained 6.42% over the last week.

7. Tenaris SA (TS): Steel & Iron Industry. Market cap of $29.52B. Put/call ratio decreased 10.81% over the last two weeks (from 0.37 to 0.33). The stock has had a couple of great days, gaining 7.69% over the last week.

*Options data sourced from Schaeffer’s, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Nokia Downgraded on Increased Competition

Monday Fitch Ratings downgraded credit rating of Nokia Corp. (NOK), the largest mobile handset maker in the world. Nokia’s long-term senior unsecured debt is now assigned A- rating by Fitch, lower than its previous rating of A. At the same time, Fitch also downgraded Nokia’s short-term debt to F2 from F1. Outlook for the long-term debt remains stable.

Fitch cited major reasons for this downgrade as significant top-line volatility of Nokia, increased business and competitive risk, margin erosion, and concern related to the company’s cash flow profile. The rating agency is of the opinion that the profit margin for Nokia’s core Devices and Services segment is unlikely to re-achieve its previous level as quickly as predicted by Nokia and the Nokia Siemens Network division, which is a 50-50 joint venture between Nokia and Siemens AG (SI), is expected to further loose ground.

Severe economic recession has forced the telecom carriers to significantly reduce their capital expenditures and network upgrade plans throughout the world. This situation has resulted in a huge fall in the top-line of almost all the major telecom equipment manufacturers globally. However, we believe Nokia Siemens Network is suffering the major part of it. The company is the second largest telecom infrastructure developer of the world with 20% market share. Telecom infrastructure and related services market is likely drop by 5% -10% in 2009 compared to the previous year. Management of Nokia Siemens Network has already predicted that the company will loose its global market share more than what was estimated earlier.

In the mobile devices front, the only growing segment is the high-end smart-phones. However, in this market Nokia remains way behind Research In Motion (RIMM) and Apple Inc. (AAPL). Till today, Nokia has been unable to come out with any high-end phones that can compete with new BlackBerry or new iPhone models.

IMF Leadership and German Debt Problems

Europe will always have an excuse for why a European should head up the IMF. Europeans will be reluctant to allow someone from the emerging countries take the top spot, but that day is coming. Frankly I don't think it really matters. DSK lost his last bid for French presidency . He was given the IMF as a consolation prize. Largarde will likely be out of a job next year after the French national election. This is a consolation prize for her. I think the IMF is an institution and that the variance of different MDs pales in comparison to their similarities.

For me this is yet another reason why the European integration experiment has to continue. Most of Europe is composed of small countries and if Europe as a political and institutional construct fails, what will be the role of these small countries in the Pacific Century? Marginalized at best. Inconsequential at worst.

Calix: Morgan Stanley, Jefferies Launch Coverage With Buys

Calix (CALX) this morning picked up recommendations from analysts at both Morgan Stanley and Jefferies, both firms participants in the company’s March IPO. Yesterday, fellow underwriters Goldman and UBS launched coverage with Buy recommendations on the the telecom equipment company.

• Moragn Stanley analyst Ehud Gelblum launched with an Overweight rating and $14 price target. “Calix is well-positioned to benefit from the U.S. federal government’s $7.2 billion broadband stimulus program, the largest spending driver in our sector.”
• Jefferies & Co. analyst George Notter launched with a Buy rating $16 target. “Calix is a direct way to play the broadband stimulus plan,” he writes. “We expect Calix to begin recognizing revenues from this spending in late 2010, with the bulk of the benefit hitting the top-line in 2011 and 2012.”

CALX is down 8 cents, to $11.96.

Still Buffett Quality, Expensive For Graham

Warren Buffett loves drinking Coca-Cola (KO), and has been publicly advocating buying Coca-Cola Company stock at least since he purchased over $1 billion of it in 1988. While Buffett is perhaps the quintessential fundamental analyst, he bases his approach to investing on that of his mentor, Ben Graham, who taught investing based, as he put it, “not on optimism, but on arithmetic.” Graham applied a rules-based, quantitative style to his investing decisions that is sometimes at odds with the Buffett approach.

Here at Turnkey Analyst, we wanted to apply some current, academically-proven quantitative methodologies (of which Ben Graham likely would have approved) to Mr. Buffett’s KO investment, in order to explore how Ben Graham might have viewed an investment today in his protégé’s favorite soft drink company.

The Coca-Cola Company is the world’s largest manufacturer, marketer and distributor of non-alcoholic beverages. Coke has been sold in the U.S. since 1886, is currently sold in over 200 countries, and is perhaps the most recognizable brand in the world. Below is the summary output for our fundamental and quality quantitative factors:

(Click to enlarge)

KO generates an overall Turnkey Score of 56.4%, consisting of the average of a Quality Measures score of 70.1%, and a Pricing Measures score of 42.7%. At first glance, the quality score looks strong, as might be expected from a Buffett investment, yet the pricing score is below average. Let’s take a closer look at the makeup of these numbers and see what we can learn about the company.

(Click to enlarge)

Based on our output, KO’s economic moat looks very strong indeed. Normalized (8 yr average) return on assets of 14.9%, and return on capital of 21.5%, place the company in the top 3%-4% of our screening universe which includes even very small companies (>$250mm). This is nothing short of astonishing for a company with a $150 billion market capitalization. Margin stability is rock solid at 54.7%, placing the company in the 94th percentile. If you look at the gross profit graph, above left, you will see that margins remained essentially unchanged through the great recession of the late 2000s. The company is also a cash cow, generating a normalized (8 yr average) cash from operations – capex / assets return of 56.5%, which puts it in the 84th percentile. Finally, the company has not lost money in any of the past eight years. Clearly, as Mr. Buffett can tell you, KO has a wide economic moat, which will serve to protect its cash flow and market share for many years to come.

(Click to enlarge)

In reviewing our Recent Operation Improvements screen, above, we see a few items impacting the company in the short run that could merit additional scrutiny. Notwithstanding KO’s overall margin strength, we see that gross margins have declined this year by 3.4%. The asset turnover ratio has decreased by 12.9% over the past year, suggesting the company is using it assets with less efficiency. There are signs liquidity is getting squeezed; the quick ratio fell by 15.8%, and receivable turnover fell by 1.2%, which means the company has to tie up cash as it awaits payment. Additionally, the debt to capital ratio has increased by 13.7%. KO scores a 44% in our overall recent improvement assessment, so a fundamental analyst would probably want to review some of these trends to assess whether they could evolve into more significant issues in the future.

(Click to enlarge)

The output from our Earnings Quality screen was frankly puzzling to me. The ratio of operating accruals to assets was abysmal at 4.6%, landing KO in the 6th percentile of our universe. Operating accruals / net income was also high at 29.2%, leaving KO in the bottom quartile. Net operating assets / total assets of 16.6% is also below average. This would be an area where an analyst could dig in and figure out why these accruals seem to be creeping into the financials. Companies with a lot of accruals tend to underperform the market, and the condition is not sustainable in the long run.

(Click to enlarge)

Turning to our Shareholder Yields output, we can see in the graph above how net income has recently shot up above unlevered FCF, reflecting the accrual issue. It makes sense then that the net income yield on market cap of 8.1% is the company’s best score across our screening metrics. Normalized (8yr average) net income is about average at 4.2%.

Normalized (8yr average) EBIT and FCF yields of 4.8% and 4.5% are both below average in our universe, while TTM EBIT and FCF to TEV yields, at 5.9% and 3.3%, are even worse, and put the company in the 36th and 37th percentiles. Finally, book to market is also low at 22.6%, which is the bottom quartile of our universe. Overall, it would be hard to argue that the company is especially cheap.

Turnkey tends to overweight the value of the economic moat, versus other quality metrics, which is why KO’s overall quality score remains high at 70.1%, despite some questions around recent improvements in operations and the accruals issue. So the output suggests KO undoubtedly continues to be a very high quality company, but in particular the low Earnings Quality score of 24% would be worth some further review. Additionally, our Shareholder Yields score of 42.7% means the market requests that you pay up if you want to own KO’s powerful brand, and the hefty long run returns on capital and assets its economic moat generates.

What is a brand worth? In the case of KO’s brand, it can be worth a lot. Many questioned in 1988 why Warren Buffett would pay such high P/E and cash flow multiples for KO, but since then his investment has compounded at high rates. Yet KO is not infallible; it has underperformed the S&P for significant stretches. Ben Graham probably would have struggled to assess KO’s intrinsic value, and might have had questions about the accruals issue. His rigorous, detail-oriented methodology lends itself better to identifying and purchasing companies that are extremely cheap versus their liquid cash value or an earnings stream. KO is not necessarily cheap on either of these dimensions.

Graham recognized that his approach was not for everyone; he believed that some investors, with less time to devote to analysis, should opt for a passive approach, and put their capital into stable and reliable long-term businesses. KO definitely qualifies in this respect, and maybe this was part of Buffett’s thinking when he bought KO.

So at the end of day, perhaps an investment in KO boils down to a question of style. If you buy KO you will probably have a satisfactory outcome, but if you are dyed-in-the-wool Grahamite, ready to roll up your sleeves and do the hard work to find deep value, there are better statistical bargains out there, waiting to be uncovered.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Chart of Week: Historical Volatility Plummets in Seasonal Swoon

‘Tis the season for the annual holiday effect in which historical volatility (HV) has a strong tendency to plunge and drag implied volatility down with it. This is a subject I have tackled on a number of occasions in the past (see links below) and is really just a longer variant of what I call calendar reversion – the tendency of the VIX to fall an extra 1% or so on Fridays due to market makers adjusting prices ahead of the weekend.

The lack of volatility all boils down to the same root cause: fewer trading days during the 30 calendar day window specified by the VIX (and implied volatility in general) means there are fewer opportunity for stocks to stray significantly from the path projected by efficient markets, standard deviations and the rest of the normalcy regime.

As of Friday’s close, the S&P 500 index had a 10-day historical volatility of 5.5, which is the lowest reading since May 2007. In this week’s chart of the week below, I have elected to show the 10-day historical volatility of the Russell 2000 small cap index (RUT), which traditionally has higher volatility than the SPX and is also more susceptible to the winds of economic change and uncertainty.

As the chart shows, 10-day historical volatility (white line) sits at a two-year low and has helped to pull the implied volatility (red line) of the index down below 20. Note that last week the CBOE Russell 2000 Volatility Index (RVX) dipped as low as 19.55 and is threatening to drop below the 19.00 level for the first time since June 2007.

After the first of the year I expect to see the holiday effect magically disappear and HV, IV and volatility indices begin to reflect a more accurate view of investor expectations.

(Click to enlarge)

Related posts:

• SPX Historical Volatility at Two Year Low
• Historical Volatility and Seasonality Push VIX Below 20
• Historical Volatility Pointing to a Sub-20 VIX
• VIX Holiday Crush
• Sideways Markets, Covered Calls and the RUT

Disclosure: Livevol is an advertiser on VIX and More

Top 10 Most Overbought and Oversold S&P 500 Stocks

The following is a list of the 10 most overbought and 10 most oversold S&P 500 stocks, based on the RSI(14) indicator. We've also included an interactive visualization of analyst ratings for the oversold stocks mentioned in the article.

A reading close to 70 usually indicates overbought conditions, while a reading close to 30 reflect oversold conditions. RSI data sourced from Finviz.

We won't go into a detailed discussion about these companies. The goal here is to give you a starting point for your own analysis.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six most oversold stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

Your browser does not support iframes.

Top 10 Most Oversold S&P 500 Stocks

1. Family Dollar Stores Inc. (FDO): Discount, Variety Stores Industry. Market cap of $5.36B. RSI(14) at 19.22. Short float at 5.68%, which implies a short ratio of 3.11 days. The stock has gained 37.59% over the last year.

2. Monster Worldwide, Inc. (MWW): Advertising Agencies Industry. Market cap of $2.07B. RSI(14) at 19.43. Short float at 14.42%, which implies a short ratio of 5.11 days. The stock has lost -0.87% over the last year.

3. Tellabs Inc. (TLAB): Communication Equipment Industry. Market cap of $1.96B. RSI(14) at 21.46. Short float at 3.94%, which implies a short ratio of 2.21 days. The stock has lost -18.71% over the last year.

4. Southwest Airlines Co. (LUV): Regional Airlines Industry. Market cap of $8.85B. RSI(14) at 22.52. Short float at 2.3%, which implies a short ratio of 3.1 days. The stock has gained 2.78% over the last year.

5. RadioShack Corp. (RSH): Electronics Stores Industry. Market cap of $1.73B. RSI(14) at 23.07. Short float at 10.47%, which implies a short ratio of 3.69 days. The stock has lost -23.07% over the last year.

6. Mead Johnson Nutrition Company (MJN): Processed and Packaged Goods Industry. Market cap of $11.85B. RSI(14) at 24.95. Short float at 0.93%, which implies a short ratio of 1.46 days. The stock has gained 28.24% over the last year.

7. Hospira Inc. (HSP): Drug Delivery Industry. Market cap of $9.2B. RSI(14) at 25.43. Short float at 1.6%, which implies a short ratio of 2.62 days. The stock has gained 6.89% over the last year.

8. Hudson City Bancorp, Inc. (HCBK): Savings and Loan Industry. Market cap of $5.79B. RSI(14) at 26.54. Short float at 3%, which implies a short ratio of 2.35 days. The stock has lost -13.87% over the last year.

9. Gap Inc. (GPS): Apparel Stores Industry. Market cap of $11.99B. RSI(14) at 27.86. Short float at 6.08%, which implies a short ratio of 2.79 days. The stock has gained 2.2% over the last year.

10. Urban Outfitters Inc. (URBN): Apparel Stores Industry. Market cap of $5.58B. RSI(14) at 27.95. Short float at 11.46%, which implies a short ratio of 4.33 days. The stock has gained 4.1% over the last year.

Top 10 Most Overbought S&P 500 Stocks

1. Baker Hughes Incorporated (BHI): Oil and Gas Equipment and Services Industry. Market cap of $29.56B. RSI(14) at 82.17. Short float at 2.11%, which implies a short ratio of 1.91 days. The stock has gained 46.44% over the last year.

2. Exxon Mobil Corp. (XOM): Major Integrated Oil and Gas Industry. Market cap of $423.12B. RSI(14) at 81.2. Short float at 0.76%, which implies a short ratio of 1.76 days. The stock has gained 28.7% over the last year.

3. Marathon Oil Corporation (MRO): Oil and Gas Refining and Marketing Industry. Market cap of $33.08B. RSI(14) at 80.34. Short float at 1.77%, which implies a short ratio of 1.74 days. The stock has gained 55.64% over the last year.

4. Helmerich & Payne Inc. (HP): Oil and Gas Drilling and Exploration Industry. Market cap of $6.25B. RSI(14) at 80.05. Short float at 5.52%, which implies a short ratio of 4.65 days. The stock has gained 37.07% over the last year.

5. Corning Inc. (GLW): Communication Equipment Industry. Market cap of $35.46B. RSI(14) at 79.25. Short float at 1.74%, which implies a short ratio of 2.03 days. The stock has gained 22.71% over the last year.

6. Micron Technology Inc. (MU): Semiconductor Industry. Market cap of $10.78B. RSI(14) at 78.71. Short float at 8%, which implies a short ratio of 2.1 days. The stock has gained 15.61% over the last year.

7. Teradyne Inc. (TER): Semiconductor Equipment and Materials Industry. Market cap of $3.08B. RSI(14) at 77.86. Short float at 11.02%, which implies a short ratio of 3.41 days. The stock has gained 73.47% over the last year.

8. FLIR Systems, Inc. (FLIR): Aerospace/Defense Products and Services Industry. Market cap of $5.1B. RSI(14) at 77.61. Short float at 5.85%, which implies a short ratio of 6.66 days. The stock has gained 6.88% over the last year.

9. Weyerhaeuser Co. (WY): REIT. Market cap of $12.8B. RSI(14) at 77.29. Short float at 4.56%, which implies a short ratio of 4.32 days. The stock has gained 53.34% over the last year.

10. General Electric Co. (GE): Conglomerates Industry. Market cap of $221.43B. RSI(14) at 76.81. Short float at 0.58%, which implies a short ratio of 1.01 days. The stock has gained 26.91% over the last year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

WisdomTree Launches Emerging Markets Corporate Bond ETF (EMCB)

WisdomTree, the firm behind an already robust suite of international fixed income ETFs, announced on Thursday the launch of another first-to-market fund that expands the universe of bonds available to U.S. investors. The new Emerging Markets Corporate Bond Fund (EMCB) will be an actively-managed ETF that offers exposure to dollar-denominated corporate bonds from issuers in the developing world. The new ETF will be actively managed, with Western Asset Management serving as the sub-advisor and the JPMorgan Corporate Emerging Markets Bond Index Broad serving as the benchmark. EMCB will utilize a top down macro analysis combined with fundamental credit research.�

Unique Opportunity In Emerging Markets

EMCB is the first U.S.-listed ETF to exclusively target debt of emerging market corporations; the existing ETF lineup included products such as the PowerShares International Corporate Bond Portfolio (PICB) and the SPDR Barclays Capital International Corporate Bond ETF (IBND), both of which hold exclusively debt of developed markets outside the U.S. That puts EMCB in a unique position to help investors round out their exposure to emerging markets, potentially complementing equity positions and investments in sovereign debt of emerging markets issuers.�

The yields offered by emerging markets corporate debt generally represents a meaningful upgrade from both emerging markets sovereign debt and corporate bonds from U.S. issuers. With interest rates at record lows throughout much of the developed world, EMCB represents a potentially useful tool for enhancing current returns. Moreover, corporate debt represents a new way to tap into the compelling long-term growth potential for emerging markets; as the middle class of the developing world continues to grow at a rapid pace, the credit quality of issuers will improve along with demand for the debt. �

�WisdomTree is pleased to offer the first Corporate Bond ETF that offers access to a rapidly growing asset class, the debt of a broad array of quality corporate issuers in the emerging markets. These bonds are supported by the same favorable growth rates, attractive demographics, and improving fundamentals which have driven strong relative returns in emerging market assets in general,� said Bruce Lavine, President & COO, WisdomTree.

Under The Hood

The benchmark for EMCB includes more than 300 individual debt securities from 35 different countries; the new ETF will generally hold between 35 and 70 bonds from about 15 different countries. At launch, the largest individual holdings of the portfolio included debt of Petroleos Mexica (7%), Petrobras (6.8%), Hutch Whampoa (5.5%), and Vale Overseas 4.2%). Though EMCB spreads exposure around the globe, there is a meaningful tilt towards Latin America in the portfolio.�

About 23% of the portfolio is rated A or higher, with the bulk of EMCB rated between BB or BBB.�

Dollar Denominated & Actively Managed

Many of WisdomTree’s existing fixed income products, such as the Emerging Markets Local Debt Fund (ELD) and Asia Local Debt Fund (ALD), focus on individual bonds that are denominated in the local currency of the issuers. EMCB, however, will target dollar-denominated debt, thereby removing the impact of exchange rate fluctuations on returns. That feature results largely from the current state of the debt markets in emerging economies; many corporations continue to issue bonds primarily in U.S. dollars, and in many cases there is not yet a liquid market for securities denominated in the local currency. The development of local currency denominated sovereign debt in many emerging markets is still a relatively recent phenomenon, so it could be several more years before it’s realistic to access local currency corporate bonds through an ETF [see Emerging & Frontier Markets ETFdb Portfolio].�

EMCB’s status as an actively-managed ETF might be appealing to investors hesitant to utilize an index-based approach in certain emerging market asset classes. Besides the difficulty in replicating a benchmark of emerging market corporate bonds–the benchmark includes more than 300 issuers in almost three dozen different countries–there are the potential drawbacks of cap weighting in many bond indexes. Moreover, there should be some appeal in the ability to tap into the expertise of an experienced manager familiar with the local trading environments and nuances of credit analysis.�

EMCB represents the first partnership in the ETF space between WisdomTree and Western Asset Management, a subsidiary of Legg Mason.�EMCB will charge an expense ratio of 0.60%, which falls in the range of existing products in the Emerging Markets Bonds ETFdb Category.�

[For updates on all new ETFs, sign up for the free ETFdb newsletter]

Usiminas reshuffling staff: union

RIO DE JANEIRO (MarketWatch) -- Brazilian steelmaker Usinas Siderurgicas de Minas Gerais (USIM5.BR, USZNY), or Usiminas, is reshuffling employees in the interests of efficiency but isn't firing en masse, a union leader representing workers at the company's Ipatinga works said Wednesday.

Usiminas's new management has decided to move about 1,400 maintenance workers from its capital-goods subsidiary Usiminas Mecanica, or Usimec, at Ipatinga in Minas Gerais state to the Ipatinga steelworks, Luiz Carlos Miranda, president of the Ipatinga Metalworkers' Union Sindipa, said in an interview.

Around 800 of the total have already been transferred and around 200 jobs will be lost as a result of the move, mainly by natural wastage including employees entering retirement, Miranda said.

Brasil Economico newspaper reported Tuesday that Usiminas was preparing to fire 1,300 people, of which 300 had already left the company with the remaining 1,000 to leave the steelmaker in coming months. Usiminas said it had no comment on the report and Sindipa said the report was untrue.

In 2009, when Brazilian steelmakers Usiminas, Companhia Siderurgica Nacional SA (CSNA3.BR, SID) and mining company Vale SA (VALE, VALE5.BR) all laid off workers as steel markets slumped amid the global economic crisis, Usiminas decided to shift 1,300 maintenance workers from Usiminas to Usimec, Miranda said.

Because this move wasn't entirely successful, according to the unionist, Usiminas's new management has decided to move the maintenance workers back to Usiminas's Ipatinga steelworks, where they will basically be doing the same jobs as before. Usiminas currently has 7,200 employees at Ipatinga and 6,500 at Usiminas Mecanica, Miranda said.

The workforce is protected from layoffs by a accord between the union and the company, Miranda said.

A Usiminas spokesman said he was unable to speak on labor questions at the steel company.

Sindipa's Miranda said Usiminas's employees are reasonably satisfied with the new management at the steelmaker, following Latin American steelmaker Ternium SA's TX entry into Usiminas in January as a controlling shareholder.

"The last four months have been better than the last four years," he remarked.

Miranda said he understood plans may be proceeding to open Usimec's capital so that it may be traded on the Bovespa stock exchange as a separate company. Usimec is "doing well" because of new orders for capital goods and equipment needed for infrastructure work in the run up to Brazil's hosting of events including the World Cup in 2014, the union leader said.

The Quest for Homemade Solar Cells Manuals

Life is not a series of accidents. Surely, there is a good explanation why a thing happened. Take the case of the massive drought experienced by the world today, this is very alarming but we cannot just blame it to nature because we have a role to play as humans who are supposed to serve as caretaker of the world. What is happening right now is actually the result of our neglect. We were very wrong these past few years; we failed to take good care of the Earth. But understand that things are never to late to change, we can always opt for what is best. We can become more sensitive over the earth by making sure that whatever we do, we do it with good intentions. Now in case you are thinking that helping earth is all about planting trees or clearing out water waste, you need to understand that by being wise enough in choosing your kind of electricity can be of great help. Now, this is when homemade solar cells come into the scene.

Solar energy is a growing trend of folks as of these days. As the rays of the sun is just about robust as of present and folks would no longer would like to sum up to the suffering of the Earth, they’re brooding about strategies on how they can create homemade solar cells as to be in a position to gather the energy coming from the sun without trouble. Working on this system completely alone isn’t impossible because of DIY manuals which may teach you about the method confidently. Now in buying these manuals, these are some things worth considering :

1.The vital issue to take into account is the fact that you won’t be able to get a perfect manual if you don’t read reviews about it. Because of this, it pays to search around for information regarding the product before you spend your hard earned cash for it. Check out the online world for reviews on homemade solar cells manuals.

2.Bear in mind that the background of the author plays a big part in knowing the outcome of your solar energy project. In this regard, check who the author is and know about his background in this field.

3. Don’t think that expensive products will guarantee you of good result. There are products that are inexpensive but essentially work fine in giving you the process on the way to make homemade solar cells. this don’t always work this way.

Lowest prices ever on homemade solar cells, grab yours now while they last at Reviews of Power4home. Better hurry because supplies are limited.

How To Gauge Risk Appetite

With investor risk appetite often driving market performance these days, it's important to know where current sentiment is when making investment decisions.

To help with this task, my team has created a new "Risk Appetite Dial" that we're publishing monthly in our Investment Directions market commentary. Here's how the dial looks this month:

The bolded arrow shows where we believe current market risk appetite is now versus last month. Since last month, the measure has turned slightly more negative, signaling a more cautious mood in the markets.

So how do we come up with this measure? We determine where risk appetite lies monthly on a scale of -3 (low risk appetite) to 3 (high risk appetite) by analyzing and combining data about equity market returns, corporate credit spreads and expectations for future US economic growth.

Equity Market Returns: We consider equity market returns (as measured through the monthly performance of the MSCI All Country World Index) in our analysis as investors' risk appetite is heavily dependent on the market prices they are observing.

Corporate Credit Spreads: We also look at the spread between the average yield of Moody's Aaa-rated and Baa-rated corporate bonds. This spread is widely considered to be one of the most representative measures of how much investors are fleeing for safety by reallocating their corporate credit exposure. When this spread is high, investors are scrambling to exit lower quality corporate debt and vice versa. For instance, over the past 20 years, the average Baa and Aaa yield spread has been roughly at 150 basis points. But at the height of financial crisis in 2008 and 2009, this spread skyrocketed to 350 basis points.

Future US Growth Expectations: Finally, to measure growth expectations, we use the Chicago Fed National Activity Index (CFNAI), which is our preferred real-time gauge of US economic activity. It's an excellent measure of current quarter US gross domestic product growth and offers a good prediction of next quarter's GDP growth as well.

When taken together, high equity returns, narrow credit spreads and a good growth outlook tend to coincide with positive investor sentiment and stronger appetite for risky assets, while low equity returns, wide credit spreads and a poor growth outlook tend to mean investors don't want to take on as much risk.

Currently, risk sentiment is at -0.6 on our dial scale, down from -0.4 last month, as investors have turned more cautious toward risky assets, as indicated by widening US corporate credit spreads and falling expectations for US growth amid heightened macroeconomic uncertainty.

So what does this mean for investors? As I write in the latest Investment Directions, in light of today's uncertain and volatile market environment, I continue to favor investments that potentially offer some downside protection while still potentially producing a reasonable yield and allowing for participation in market gains. These include:

1.) Dividend-paying stock funds such as the iShares High Dividend Equity Fund (NYSEARCA: HDV) and the iShares Emerging Markets Dividend Index Fund (NYSEARCA: DVYE).

2.) Defensive sectors such as global telecommunications, accessible through the iShares S&P Global Telecommunications Sector Index Fund (NYSEARCA: IXP).

3.) Minimum volatility funds such as the iShares MSCI All Country World Minimum Volatility Index Fund (NYSEARCA: ACWV).

In addition, besides viewing the measure as a helpful guide for tactical portfolio tilts such as those mentioned above, investors can also use the risk sentiment measure to help them on tactical selection decisions such as which countries to invest in. For example, if risk appetite is low, investors may want to consider avoiding more risky countries such as those I recently highlighted in my post, "Where in the World is Risk Today."

Source: Bloomberg, Investment Strategy Group Research

Disclosure: The author is long HDV and IXP

Original post

4 Reasons to Avoid Tech & 3 Stocks to Short

In the aftermath of the market plunge, many tech stocks have seen big markdowns in valuations. No doubt, investors and analysts see this as a nice opportunity. In fact, there has been a surge in upgrades.

Despite all this, there still is much risk in the markets. And this is likely to be magnified with tech stocks.

Actually, that�s just one of my four reasons why you should be cautious on tech stocks for now. And I even have three interesting short candidates.

Let�s take a look:

Reason #1: Economic Uncertainty

It�s far from clear if the global economy is headed for a recession. But there is growing evidence of a slowdown. For example, the U.S. economy has grown at a 1.3% pace for the first half of this year.

Yet even if there is not a recession, there likely will be problems for tech stocks. All in all, corporations have little visibility. In other words, it�s a good bet that the reflex reaction will be to cut back on information technology spending.

Reason #2: The Move to Austerity

While there is skepticism about the budget deal, the fact is the U.S. federal government will see some spending reductions. This also will be the case throughout Europe.

Keep in mind that a big portion of IT spending comes from government expenditures.

Reason #3: Consumer Pain

According to the latest data, consumer confidence in the U.S. hit its lowest point since 1980. And this negativity might continue for a while — or, at least, that basically was the message from the Federal Reserve.

Consumer spending is a big part of technology, as seen with things like cell phones and laptops/PCs.

Reason #4: Disruptive Change

With the success of companies like Facebook, Twitter and Zynga has come a huge amount of investment from venture capitalists. They are helping to create new businesses that can wreak havoc on existing tech operators. Some of the biggest trends include social networking, cloud computing and mobile applications.

Next: 3 Tech Stocks to Short

3 Tech Stocks to Short

OK, this is grim stuff. But there is some good news — that is, it is possible to make money when stocks fall. This is done through a process known as short selling.

Now, it can be risky, so it is a good idea to make sure the positions are a relatively small part of your portfolio (as should be the case with any investment).

So, which stocks are good shorts? Here�s a look at three:

Tech Short #1: LinkedIn

LinkedIn (NYSE:LNKD), which is a social network for professionals, was one of the year�s hottest IPOs. After all, it has been growing at a torrid rate, as seen in its latest quarterly report.

But there are some concerns. Consider that several Wall Street firms — like JP Morgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) — have downgraded the stock because of the high valuation.

But the biggest problem could be the expiration of the lock-up period, which comes in November. This will be the first time that insiders, VCs and employees can sell their shares. The result could be lots of pressure on the stock price.

Tech Short #2: SolarWinds

SolarWinds (NYSE:SWI) develops network management software and has a customer base of more than 95,000. While the company has been growing at a nice pace, it faces heavy competition, including biggies such as Hewlett-Packard (NYSE:HPQ), IBM (NYSE:IBM) and CA Technologies (NASDAQ:CA).

There�s another big issue: A �meaningful portion� of SolarWinds� sales come from the federal government.

Tech Short #3: Garmin

People increasingly are using their smartphones as GPS devices. It�s convenient and often cheaper than the alternatives.

So, yes, there is growing pressure on Garmin (NASDAQ:GRMN). True, the company has been trying to bolster its other businesses in other fields, such as fitness, marine and aviation. But these do not have nearly the scale of the consumer segment.

Garmin reported an 8% drop in revenues for the latest quarter. Basically, it looks like the company is suffering from a technology disruption. And this can be horrible for shareholder value. Just look at Nokia (NYSE:NOK) and Research In Motion (NASDAQ:RIMM).

Tom Taulli is the author of various books, including �All About Commodities� and �All About Short Selling.� You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

Top Stocks For 7/29/2012-6

Dr Stock Pick HOT News & Alerts!

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FREE Daily Stock Alerts From DrStockPick.com

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Thursday April 1st, 2010

DrStockPick.com Stock Report!

Most Active NYSE Stocks

Symbol	Company	Last	Chng.	%Chng.	Volume
C	Citigroup Inc	$4.17	+0.12	+2.96%	277,351,080
F	Ford Motor Co	$12.64	+0.07	+0.56%	207,983,962
SPY	SPDR S&P 500 ETF	$117.79	+0.79	+0.68%	135,092,532
EEM	iShares MSCI Emerging Markets Index ETF	$43.20	+1.08	+2.56%	88,551,294
BAC	Bank Of America Corporation	$18.01	+0.16	+0.87%	87,609,117
PFE	Pfizer Inc	$17.07	-0.08	-0.47%	65,224,076
CIM	Chimera Investment Corp	$3.93	+0.04	+1.03%	58,318,830
UNG	United States Natural Gas ETF	$7.28	+0.37	+5.35%	50,781,610
IWM	iShares Russell 2000 Index Fund	$68.29	+0.49	+0.72%	50,551,299
EWJ	iShares MSCI Japan Index Fund	$10.60	+0.16	+1.48%	48,825,871
FAZ	Direxion Shs Etf Tr	$13.16	-0.31	-2.32%	46,092,627
EWT	iShares MSCI Taiwan Index ETF	$12.90	+0.35	+2.79%	45,685,525
S	Sprint Nextel Corp	$3.90	+0.10	+2.63%	44,863,692
XLF	Financial Select Sector SPDR ETF	$16.08	+0.13	+0.82%	43,487,874
GE	General Electric Co	$18.32	+0.12	+0.63%	41,981,092
LVS	Las Vegas Sands Corp	$21.31	+0.16	+0.76%	33,881,524
SDS	ProShares UltraShort S&P500 ETF	$30.57	-0.42	-1.36%	30,650,318

Most Active AMEX Stocks

Symbol	Company	Last	Chng.	%Chng.	Volume
ULU	Uluru Inc	$0.17	-0.00	-1.79%	5,229,182
LNG	Cheniere Energy Inc	$3.52	+0.43	+13.92%	3,735,143
ANX	Adventrx Pharmaceuticals Inc	$0.23	+0.01	+5.56%	3,626,591
AEN	Adeona Pharmaceuticals Inc	$1.51	-0.42	-21.76%	3,358,168
TGB	Taseko Mines Limited	$5.43	+0.25	+4.83%	3,196,887
NG	NovaGold Resources Inc	$7.58	+0.44	+6.16%	2,418,710
KOG	Kodiak Oil & Gas Corp	$3.50	+0.09	+2.64%	2,357,017
AIS	Antares Pharma Inc	$1.54	+0.17	+12.45%	2,346,282
CNAM	China Armco Metals Inc	$8.89	-0.50	-5.29%	2,310,533
KRY	Crystallex International Corporation	$0.39	+0.06	+17.97%	2,243,116
HEB	Hemispherx BioPharma Inc	$0.73	-0.01	-1.47%	2,151,654
NXG	Northgate Minerals Corporation	$3.01	+0.01	+0.33%	2,009,713
NGD	New Gold Inc.	$4.51	+0.15	+3.44%	1,876,464
GSS	Golden Star Resources Ltd.	$3.95	+0.08	+2.07%	1,860,656
CXM	Cardium Therapeutics Inc	$0.47	+0.03	+7.15%	1,829,473
PAL	North American Palladium Ltd.	$4.23	+0.15	+3.67%	1,822,273

Most Active NASDAQ Stocks

Symbol	Company	Last	Chng.	%Chng.	Volume
SIRI	Sirius XM Radio Inc	$0.84	-0.03	-3.41%	223,005,475
MU	Micron Technology Inc	$10.17	-0.20	-1.93%	125,374,078
QQQQ	PowerShares QQQ	$48.16	unch	unch	78,273,667
MSFT	Microsoft Corporation	$29.12	-0.17	-0.57%	70,269,273
CSCO	Cisco Systems Inc	$25.80	-0.23	-0.88%	53,052,941
RIMM	Research in Motion Limited	$68.40	-5.57	-7.53%	48,909,598
INTC	Intel Corporation	$22.38	+0.09	+0.40%	43,120,037
SKIL	SkillSoft PLC	$11.11	+0.79	+7.61%	39,391,610
AMAT	Applied Materials Inc	$13.35	-0.12	-0.87%	34,651,645
ORCL	Oracle Corporation	$25.49	-0.22	-0.86%	24,032,236
APCVZ	Fresenius Kabi Pharmaceuthld	$0.17	+0.02	+10.67%	22,043,660
AAPL	Apple Inc	$235.70	+0.70	+0.30%	20,835,573
YRCW	YRC Worldwide Inc	$0.53	-0.01	-1.97%	20,138,357
YHOO	Yahoo! Inc	$16.29	-0.24	-1.45%	19,119,367
GNVC	GenVec Inc	$0.72	-0.06	-7.41%	17,367,306
CMCSA	Comcast Corp New	$18.84	+0.01	+0.05%	17,179,093
PALM	Palm Inc New	$3.91	+0.15	+3.86%	16,803,234
QCOM	QUALCOMM Inc	$42.27	+0.31	+0.74%	15,067,284
DRYS	DryShips Inc	$6.00	+0.16	+2.74%	14,387,238

Most Active OTC BB Stocks

Symbol	Company	Last	Chng.	%Chng.	Volume
CYBL	Cyberlux Corp	$0.00	unch	unch	164,565,088
CMGR	Camelot Entmt Group Inc	$0.00	unch	unch	140,142,906
ELCR	Electric Car Company Incorpo	$0.01	+0.01	+191.89%	127,251,496
AGEL	Angel Acquisition Corp	$0.00	unch	unch	104,320,000
CBAI	Cord Blood Amer Inc	$0.01	unch	unch	62,019,599
GERS	Greenshift Corporation New	$0.00	unch	unch	60,075,820
FNXC	Fonix Corp Del	$0.00	-0.00	-16.67%	53,549,062
UNCO	Unico Inc	$0.00	-0.00	-25.00%	45,504,166
CICS	Carbonics Capital Corporatio	$0.00	unch	unch	41,975,501
ZVTK	Zevotek Inc	$0.01	+0.00	+8.16%	37,701,898
IDOI	Ido Security Inc	$0.00	unch	unch	29,214,889
LFBG	Left Behind Games Inc	$0.01	+0.00	+84.85%	26,021,483
BGNN	B Green Innovations Inc	$0.00	+0.00	+20.00%	23,956,685
WLSI	Wellstar Intl Inc	$0.00	unch	unch	23,650,886
CCTR	China Crescent Enterprises I	$0.02	-0.00	-2.42%	18,807,344
SLPO	Superlattice Power Inc	$0.04	-0.01	-20.00%	17,325,698
TGLN	Tbc Global News Network Inc	$0.00	-0.00	-12.50%	13,243,465