InvestMacro Forex News

By Michael Lombardi, MBA

I keep telling you about my suspicion that the backbone of any stock market—corporate earnings growth—is disappearing. Now, we see it in the numbers…

Of the 106 companies in the S&P 500 that have issued corporate earnings guidance for the fourth quarter, an astounding 94 of them have issued negative guidance—that’s 89% of the companies issuing guidance, warning it will be negative, which is well above the five-year average rate of 63%. (Source: FactSet, December 13, 2013.)

And analysts continue to drop their expectations for corporate earnings growth for the fourth quarter. As of September 30, analysts expected fourth-quarter corporate earnings growth in the current quarter would be 9.5%. By last week, that rate had come down to 6.5%. (Source: Ibid.) I expect corporate earnings growth for the fourth quarter will continue to disappear.

So we have 2013 ending with the smallest increase in corporate earnings since 2009. How can 2014 be any better?

The risks that disappearing corporate earnings growth creates for the key stock indices continue to be ignored. And problems in the global economy are mounting, not improving, with each passing day.

Economic growth in China, the second-biggest economic hub in the global economy, is declining rapidly. The country is expected to post a growth rate this year that is “embarrassingly” low compared to China’s historical economic growth rate. Manufacturing activity in the country is rapidly declining. The HSBS Flash China Manufacturing Purchasing Managers’ Index (PMI) dropped to a three-month low in December. (Source: Markit, December 16, 2013.)

We are seeing an economic slowdown in the stronger eurozone nations like France. In December, manufacturing activity in this second-biggest eurozone nation, and fifth-biggest economic hub in the global economy, plunged to a seven-month low. The Markit Flash France PMI registered at 47 in December, down from 48 in November. (Source: Markit, December 16, 2013.) Note: any reading below 50 on the PMI suggests a contraction (recession) in the manufacturing sector.

How long can this go on…the stock market rising but corporate earnings straining and economies around the world slowing? Dear reader, be very mindful of the bear dressed in bull’s clothing. The bear has done an excellent job in making investors comfortable with key stock indices again. Don’t believe it. Just at the point where the bear convinces the majority of investors the stock market is a safe haven again (we are almost there), that’s when the bear will pull the rug out from under investors one more time.

Note from Michael…

While the price of gold bullion doesn’t reflect it, consumer demand for gold bullion is going through the roof.

So far this year, the U.S. Mint has sold 237,000 ounces of gold bullion in 24-karat American Buffalo coins. In the entire year of 2012, the U.S. Mint sold only 132,000 ounces of the same coin! This represents an increase of almost 80% from the previous year. (Source: U.S. Mint web site, last accessed December 16, 2013.) Mind you, the year 2013 hasn’t ended yet; expect this number to be much higher by the year’s end.

I am not focused on the short-term movement of gold bullion prices. I am looking at how gold will perform over the long run. What we see right now in gold trading around $1,200 an ounce is an opportunity for long-term investors.

This article The Catastrophe Called Collapsing Corporate Earnings Growth is originally publish at Profitconfidential

Source: George S. Mack of The Life Sciences Report (12/19/13)

http://www.thelifesciencesreport.com/cs/user/print/na/15763

Combine the complexity of genomic testing with the high risk inherent in micro-cap stocks, and you have investment opportunities that require exceptional diligence. The reward for understanding the value proposition of budding companies? The payoff can be enormous. In this interview with The Life Sciences Report, Senior Medical Device Analyst Brian Marckx of Zacks Investment Research has selected eight micro-cap names that could return triples, quads and more for investors willing to do their homework.
The Life Sciences Report: You focus on the smallest of public companies, ranging from low double-digit market caps of about $10 million ($10M) to $70–80M. Clearly, that segment of the investing universe is where the most upside potential is, because it’s easy to move these shares with capital. Of course, the risk is proportional to these potential gains. How does your due diligence begin on these stocks, where there is so little coverage and prior exposure?

Brian Marckx: There is enormous potential upside in the stocks of many of the companies that I cover but also tremendous risk, given that many of them have yet-to-be-proven technologies or products, and may be burning a significant amount of cash. Oftentimes, they are companies with somewhat shaky balance sheets, and the shares may be thinly traded. All of that makes these types of investments inherently risky.

My due diligence typically starts with a general overview of the company. I’ll have a conversation with management, which can answer my initial questions and provide pretty good background on the company’s products, strategy, industry, competition, etc.

After my initial conversation with management, I talk to people in the industry, who typically offer information that mirrors what management provided, but with an outside perspective. I’ll also look at publicly available information. I typically generate a number of questions and then have another conversation with management, which is one of the best sources for answers. The process can be lengthy and sometimes tedious, but it’s always insightful and informative. Given that these companies are often working on novel products and are not household names, the process is necessary to understanding a company’s place in the industry.

TLSR: Analysts, like scientists, have to be skeptical, but they shouldn’t be cynical. Don’t you have to begin due diligence with the question of how a company with just an idea, a small amount of intellectual property (IP) and a handful of employees will ultimately compete with big pharmas, big biopharmas or big medtechs?

BM: Skepticism is a necessity for analyzing and investing in stocks. That’s particularly true in the small- and micro-cap space, where there is typically less information about the companies. Because the market caps are so small, there is also, unfortunately, more potential for price manipulation and even fraudulent behavior.

Often the first question I have to answer is, “How will this tiny company compete with the goliaths—or any other company in the industry?” Getting comfortable with the answer involves understanding the target market and the other companies and products competing in that market. Sometimes there aren’t any other products on the market. In those cases, particularly for companies with novel products that may have wide-ranging applications or target markets that are relatively large, the upside of the stock can look particularly attractive.

Other times, competing products are already on the market. In those cases, determining how competitive a company or its product may be is about understanding the advantages one product may have over the others. The product may be more efficacious or have a lower incidence of safety issues. Maybe it has a lower cost or a less frequent treatment burden, among other possible advantages. If a small company with a novel product has to compete with an already dominant product on the market, it had better have some obvious advantages.

TLSR: Let’s talk about some companies. In the first interview I did with you this past summer, we talked about a few companies I’d like to follow up on. You discussed Verisante Technology Inc. (VRS:TSX.V), which makes a noninvasive device for detection of skin cancer called the Aura.

BM: Verisante has a CE mark, meaning that it is approved and can be marketed in Europe, and in October 2011 it got a medical device license from Health Canada to market the Aura in that country. The device is for sale in both Europe and Canada, and also in Australia. Distribution is lined up in Canada and Europe, including in Germany. U.S. approval probably will not happen in the near term. Approval will require a U.S. clinical trial, probably through a premarket approval (PMA) pathway. That’s down the road, but it is certainly a goal.

The Aura technology uses what’s called Raman spectroscopy, named after C.V. Raman, who won the Nobel Prize for physics in 1930. A laser is used to determine the biochemical composition of the tissue, which is then compared to a database. The technology has racked up a number of awards in the last few years. The beauty of the skin cancer market is that, as far as detection goes with a device, the market is virtually untapped. Verisante is one of two companies with a marketed device for skin cancer detection.

TLSR: Brian, address that other company and explain any differences between the two, please.

BM: The company is Mela Sciences Inc. (MELA:NASDAQ). Verisante’s device looks very competitive relative to Mela’s MelaFind device. There have not been any head-to-head studies comparing the two, but based on data from both devices, it looks like Verisante’s Aura is superior in accuracy and is certainly much faster, which is important if clinicians want to be able to do full body scans. Verisante’s technology is also potentially applicable in other cancers, such as lung and oral cancers, which are derivative applications that Verisante is looking at.

TLSR: It sounds like you’re not modeling any U.S. revenues for Verisante’s Aura system. You implied that it could be years before regulatory approval in the U.S., and the company has not begun clinical trials yet. Is this the same technology as in the already approved MelaFind system?

BM: It is not the same technology; it’s different.

TLSR: And that’s why the FDA would require a PMA rather than a 510(k) clearance (premarket notification), where the device would be treated as substantially equivalent to a product already on the market.

BM: At this point it’s still not clear exactly how FDA will treat the Aura in terms of a regulatory pathway, but if the agency does not characterize it as a substantially equivalent device to MelaFind, then, yes, Verisante will likely have to pursue FDA approval via PMA.

TLSR: A PMA means clinical trials that would take a lot of time, and the company would have to run at least two. With Verisante’s $18M market cap, is it realistic to expect approval of the Aura system in the U.S.?

BM: It is realistic to assume that the Aura can be approved in the U.S., yes. Mela’s device was approved with less-than-compelling clinical data, and U.S. approval of MelaFind was a surprise for some people, analysts included. The hurdle has been set fairly low based on the MelaFind approval, which may figure into an approval decision.

TLSR: Your target price for Verisante is $2, with a recent share price of $0.27/share. That is huge implied upside. What is the timeframe on that?

BM: A year.

TLSR: I understand, from reading your research report, that the MelaFind rollout has been below expectations. Is the product so difficult to use that dermatologists don’t want to bother with it? Of course, my question goes to whether or not Aura would find the same level of resistance in the marketplace.

BM: I don’t know that the jury is back on what the issue is with MelaFind. My suspicion is that a few different things are coming into play. One is that it’s a new technology, a different way for dermatologists to screen for skin cancer. Just the fact that it is novel is somewhat of a headwind.

Another thing is that there is no reimbursement for the device, so the patient has to pay out of pocket. Everyone suspected that, at least at the beginning of the rollout, the lack of reimbursement would hinder uptake and utilization. But from Mela’s comments, it seems that at least some patients are willing to pay. Cost may not be a hindrance over the long term.

Another factor is that Mela’s device may not have the utility and functionality that dermatologists want. It may not be as fast as they need, and they may find it difficult to do full body scans. It is also only a screen for melanoma, and not the other skin cancers.

TLSR: The Aura device can also screen for basal cell and squamous cell carcinoma, in addition to melanoma?

BM: That’s right. There is a real opportunity in the U.S. for the Aura. It has significant advantages versus MelaFind.

TLSR: I have BioLife Solutions Inc. (BLFS:OTCBB) on my list of companies you follow. Can you talk about it?

BM: BioLife makes biopreservation media for cells, tissues and organs. These solutions are used to maintain the viability of biological material during storage and transportation. Today, most of the biopreservation market is dominated by what are called “home brews,” or in-house solutions. BioLife has its own proprietary biopreservation media, and it has been doing very well. Revenue has been very strong over the last few quarters. In fact, BioLife set revenue records in 11 of the last 12 quarters, and the stock is up about 100% in the last six months, even with a very significant pullback during the month of November.

BioLife also has a contract manufacturing business, which has been helping with revenue and cash flow. Its media products are being used in several clinical trials to preserve tissues and cells. The hope is that, when and if the products in trials get FDA approval and are commercialized, they could be big winners for BioLife Solutions. This company clearly has a lot of traction.

TLSR: Are the BioLife media products also used to preserve organs harvested for donation and transplantation?

BM: They can be, yes.

TLSR: Brian, I’m thinking the size of this market must be limited. How large is it?

BM: One source estimates the market at roughly $200M today, with expectations it will grow to about $500M by 2018. That’s the biopreservation media market as a whole.

TLSR: Are there competitors beyond the home brews? Are other companies doing this?

BM: The main competitors right now are the home brews, and that’s how BioLife gauges the competitiveness of its product. A relatively large market is there for the taking.

TLSR: If there’s one thing you want to do in medicine—and especially in research—it’s to standardize your formulations, and a branded product would be a great way to do this.

BM: That’s right, absolutely.

TLSR: Can you speak to CytoSorbents Corporation (CTSO:OTCBB), which is also in your coverage?

BM: The company is led by a very smart and capable physician, Phillip Chan. CytoSorbents has a blood purification filter, CytoSorb, that removes cytokines and other toxic substances from the blood. This device is installed in-line with a dialysis machine, but with the dialysis filter removed. The company’s patented polymer beads, which capture unwanted toxic substances in the blood, are inside the unit’s cartridge. The target market for the device is the critically ill patient population, particularly those who havesepsis, which is a very difficult problem to treat and often results in death. It’s also targeted for trauma patients, patients in respiratory distress and even can be used in surgical applications.

In a clinical study in Europe, the device was shown to be safe, and significantly reduced key cytokines. It’s CE-marked and being commercialized in Europe. The rollout is not a shotgun approach; it is somewhat slow but seems to be effective, and the company has already booked commercial sales. The product is in several investigator-led studies right now, which CytoSorbents is promoting with clinical trial data to increase clinical experience and help market the product. The company is saying, “Let’s show the clinical community that this works.” On its last update call, management sounded optimistic that growth and the relatively successful rollout to date will continue.

TLSR: My understanding is that the idea behind CytoSorbents’ hemoperfusion product is to remove cytokines from the plasma to reduce inflammation so that doctors can deal with an acute problem without the patient dying. Is that accurate?

BM: You hit it on the head; that’s exactly what it is.

TLSR: Brian, I’m noting CytoSorbents, with a $29M market cap, has been infused with nondilutive capital in the form of grants.

BM: Yes, the company has received several government-sponsored grants, including a Defense Advanced Research Projects Agency (DARPA) grant that is worth almost $4M. That grant is for developing a dialysis-like device that would treat sepsis by removing cytokines and pathogen-derived toxins. The company is now in the second year of the five-year contract with DARPA. The U.S. Army awarded a $1.2M contract for treating trauma and burns, and the U.S. Air Force has funded a 30-patient pilot study in trauma.

TLSR: Is there a competitor in this space?

BM: There isn’t—not specifically for critically ill patients, CytoSorbents’ target population. There are at least two other devices on the market that have an application in sepsis, but that is not necessarily the company’s only target market. The product would be essentially brand new. If CytoSorb works, its market opportunities are enormous.

TLSR: Pick another name.

BM: Let’s go to Zecotek Photonics Inc. (ZMS:TSX.V; W1I:FSE; ZMSPF:OTCPK). This is a very unique small company, which is typical in my coverage universe. It was founded by theoretical physicist Faouzi Zerrouk, who is also the company’s chairman and CEO.

Zecotek owns all the key elements for positron emission tomography (PET) scanners. Those key elements are the scintillation crystals, the photodetector and the acquisition board. At the forefront are the scintillation crystals, which are used as the light source in PET scanners. The performance of the crystals is directly related to the performance of the scanner.

Higher performing crystals are a big deal for PET scanners, and Zecotek’s crystals look to be the highest performing crystals on the market. The competitive landscape includes only a handful of other manufacturers. Zecotek already has a distribution agreement with Hamamatsu Photonics K.K. (HPHTF:OTCPK), which is the world’s largest supplier of optoelectronics to PET manufacturers. It already has orders worth $2M from Hamamatsu. The company’s crystals could be a really big deal.

Another intriguing aspect of Zecotek is its lawsuit against Saint-Gobain S.A. (SGO:EN Paris) andPhilips Healthcare/Koninklijke Philips N.V. (PHG:NYSE) for patent infringement. The company claims that Saint-Gobain, which is also a crystals supplier, infringed on one of Zecotek’s crystals-related patents. Philips is named in the lawsuit because it used these specific Saint-Gobain crystals in its PET scanners. The lawsuit is currently in the courts. It could take some time for a decision to be handed down, or for a potential settlement agreement. But based on similar precedent cases, it appears Zecotek has a strong case and, depending on the outcome, the company could see a sizable award.

TLSR: Is there any visibility on the timeframe for this lawsuit against Saint-Gobain and Philips?

BM: Part of my due diligence was talking to a patent lawyer for guidance in what to expect. He could only provide general information, but the thinking is this could take 12 months or more. It’s possible that a decision won’t take that long, and it’s also possible there will be a settlement. In the PET scanner space, there is reason to be friendly because there are so few parties involved in the space. The different parties need to work together. It would not be unreasonable to see a settlement, but that’s complete speculation on my part at this point.

TLSR: Another one?

BM: Aethlon Medical Inc. (AEMD:OTCQB) is similar to CytoSorbents in that it has an extracorporeal blood filtration device, the Hemopurifier, which also hooks up to a standard dialysis machine. There are several differences, but the big distinction is that the initial target market for Aethlon’s device is the hepatitis C virus (HCV). The device helps rid the blood of the virus and could be used with standard HCV drugs on the market now.

Aethlon’s longer-term market may also include cancer, whereby the Hemopurifier would target the collection of exosomes, which are small particles released from cells that act as messengers and have been shown to possibly facilitate tumor progression.

But the initial target is those patients with end-stage renal disease, who are very sick and have to be hooked up to a dialysis machine anyway. The expanded market includes people who still have functioning livers but have contracted the virus and either failed or relapsed with standard-of-care drug therapy. The device is not commercialized yet. It’s in some small studies, and is being used in studies in India.

The most recent exciting news for Aethlon is that it has FDA approval to run a small, U.S.-based pilot study treating 10 patients with end-stage renal disease. The study is focused on safety, but it’s also expected to provide some insight into efficacy and how much of the virus is captured. That study is supposed to start in Q1/14. It should wrap up in relatively short order.

Also, Aethlon, like CytoSorbents, has been very active under DARPA grants. It is part of a DARPA sepsis grant program, and has been awarded three one-year contracts under this grant, with the potential to be awarded two more one-year contracts, for a total of five years. The first three contracts were for a total of approximately $5M; the fourth- and fifth-year contracts, if awarded, would be worth another $1.8M. For a small company like Aethlon Medical, with a $26M market cap, these DARPA contracts are a relatively big deal. The DARPA awards are important not only to fund research and development, but also to provide credibility to the technology. Kudos to Aethlon Medical.

TLSR: Brian, you have Aethlon rated Neutral with a target price of $0.20. Recently, the stock price was about $0.14. What would make you move in a more positive direction with your rating?

BM: Again, I think Aethlon has done a lot of good things. I like management, especially its tenacity. But since I’ve covered the company, it has had issues with its balance sheet. I could get a bit more comfortable if the balance sheet were strengthened, which would be positive. The company has done a good job of addressing that issue, but it still has a ways to go.

Aethlon also has some debt that is not performing, but it has been able to convert some of that debt to equity. The company has been able to raise capital, which I see as positive. It has interested investors. If I could see more strength in the balance sheet and continued progress elsewhere, that could be a potential catalyst to upgrade.

Aethlon also recently launched a subsidiary called Exosome Sciences Inc., which will be focused on how tumor-secreted exosomes may facilitate the progression of cancer. Depending on how Exosome Sciences progresses, it could also factor into my rating.

TLSR: What about the 10-patient pilot study? Would that be a catalyst for turning these shares upward, or turning your rating upward?

BM: George, when Aethlon applied for the U.S. study, there was a real question mark as to whether it was going to get FDA approval to run the study. When FDA gave the study the green light, I saw that as a derisking moment. I increased my price target at that point, but left the recommendation at Neutral. If the pilot study comes out positive, certainly that would add to my confidence, even if it didn’t necessarily trigger an upgrade.

TLSR: Another name?

BM: FluoroPharma Medical Inc. (FPMI:OTCQB) makes nuclear imaging agents for cardiac applications. These radiopharmaceutical agents are injected in the bloodstreams of patients getting PET scans to help provide better images.

The generic imaging agents now on the market are not intended specifically for the heart. FluoroPharma’s imaging agents are specifically for cardiac applications and also specifically for PET scanning procedures. PET has been used generally in oncology applications, but is now being used for more cardiac purposes.

The broad target market is heart disease, which is the No. 1 killer in the U.S. It’s become a real epidemic, and a huge opportunity. FluoroPharma’s imaging agents will be used in several applications, including during myocardial perfusion imaging (MPI), used to evaluate patients with heart disease that are in such tough shape that they can’t undergo a standard heart stress test. Imaging is also used to identify the presence of vulnerable plaques, which could potentially rupture and put a person at risk of heart attack or stroke.

FluoroPharma has three agents in development, two of which are in phase 2 studies now. The images from the initial studies have shown very high-quality results—significantly better than the comparator.

TLSR: What about milestones or catalysts? When could we see these?

BM: The company expects to have additional data from these studies in the next few quarters. That could give us insight into how competitive these tracers are. Phase 3 trials potentially could start in 2015. We’re most likely looking at a commercial launch three or four years out. But the market is huge for this.

TLSR: I know that most cardiac studies are done with single-photon emission computed tomography (SPECT). Are you looking to see movement away from SPECT to PET?

BM: Yes, there is a shift going on from SPECT to PET. SPECT has, for the longest time, been the standard of choice, but changes in reimbursement and lower-cost PET scanners are making PET a better choice. PET scans also provide better pictures. For FluoroPharma, this is a real opportunity. There is nothing on the market that would aggressively compete with its agents right now.

TLSR: What about another name?

BM: Interleukin Genetics Inc. (ILIU:OTCQB) is also a very small company. It makes genetic tests focused on personal health. The majority of its revenue to date has been from its genetic test for weight management. Based on a person’s genetic makeup, the test helps an individual choose which diet will be most effective. This test was a real revenue driver, and got a lot of mainstream media attention over the last few years. But that attention dried up perhaps 12 months ago.

TLSR: What’s the driver now?

BM. Again, Interleukin has a test that, based on a person’s genetic makeup, helps determine how susceptible that person might be to periodontal disease. The test was used in a large study done by the University of Michigan, and is currently in the early stages of commercialization. It will launch in January 2014. The company has secured partial insurance reimbursement through Renaissance Health Services. From that standpoint, it’s a real breakthrough.

TLSR: Your target price on Interleukin Genetics is $1.10/share, and its recent price was about $0.35/share—a very nice implied upside. Did you have one more name that you could talk about?

BM: Yes. Cryoport Inc. (CYRX:OTCBB) provides cryogenic shipping for biological materials, typically for pharmaceutical and biotech companies. The company competes against dry ice in a cooler, which is how most biological material is shipped these days. There are issues of temperature excursions with dry ice and, for long-distance travel, dry ice must be replenished. The CryoPort Express is a liquid nitrogen container; it doesn’t have the temperature excursion problem and it does not have to be replenished for a long trip, which makes it ideal for international shipping.

TLSR: Are there no other liquid nitrogen competitors for this purpose?

BM: Other liquid nitrogen containers on the market may be considered somewhat competitive relative to holding time, but no other company out there has both the container and the logistics service that Cryoport has, with its Web-based billing and tracking system. Cryoport has a reliable and low-cost solution for cold-chain shipping. It is, essentially, a one-stop shop.

The company has an agreement with FedEx Corp. (FDX:NYSE) to handle all cryogenic shipping needs that will fit in its particular containers, and is listed on FedEx’s website. It has agreements with several other freight forwarders and biotech-related companies. In fact, it recently signed an agreement with Pfizer Inc. (PFE:NYSE) to handle the logistics for shipping one of its key animal vaccines. This could be a real game changer in cryogenic shipping.

TLSR: It seems like the Pfizer agreement for its animal vaccine is a real validation of this service. Is Cryoport actively talking about that?

BM: It is, absolutely. Having companies like FedEx and Pfizer interested in the service is a real vote of confidence, and adds real credibility to what Cryoport does—they wouldn’t be interested in Cryoport if it didn’t have a quality service. Cryoport’s container was mentioned in a 60 Minutes piece about stem cells, just briefly, as the most reliable cryogenic shipping company. That was about two years ago.

TLSR: Thank you, Brian. I enjoyed it very much.

BM: Thank you too.

Brian Marckx is the senior medical device analyst with Zacks Investment Research, and has covered the medical device, pharmaceutical and biotechnology industries since joining Zacks in 2007. Prior to joining Zacks, Marckx worked as a high-yield bond analyst on Wachovia Securities’ institutional trading desks, where he specialized in the healthcare and industrials industries. Before that he was an analyst in corporate finance at First Union National Bank. Markx has been quoted in numerous publications, including The Wall Street Journal, Barron’s, Bloomberg-Businessweek and Kiplinger. His work has also been cited in various market studies and working papers, including those from Massachusetts Institute of Technology, Deloitte & Touche, and Pharmaceutical Manufacturing. He graduated with a bachelor’s degree in finance from St. John Fisher College and received his master’s degree in business administration from Wake Forest University. He is also holds a Chartered Financial Analyst designation.

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DISCLOSURE:

1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: BioLife Solutions Inc., Verisante Technology Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Brian Marckx: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Verisante Technology Inc., BioLife Solutions Inc., CytoSorbents Corp., Zecotek Photonics Inc., Aethlon Medical Inc., FluoroPharma Medical Inc., Interleukin Genetics Inc., Cryoport Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By Mitchell Clark, B.Comm.

It can only be described as a huge vote of confidence. The Boeing Company (BA) announced a whopping 50% increase in its dividends to $0.73 per share. And beginning this January, the company will begin a new $10.0-billion share repurchase program, in addition to the $800 million left from its previous share buyback plan.

The higher quarterly dividend will be paid out March 7, 2014 to shareholders of record on February 14, 2014. While Boeing is playing some “payout catch-up” with other dividend paying stocks, company management said increasing cash flow from a boost in jetliner production is the catalyst for renewed confidence in its business.

A two-for-one stock split from Boeing wouldn’t be a surprise at all. It’s been one of the strongest performers in the Dow Jones Industrial Average this year, and the stock will keep upward near-term pressure on the index.

Countless large-cap companies have been increasing their dividends—some significantly so—as balance sheets continue to get stronger.

This time of the year, the financial media loves to make forecasts about the stock market and other capital markets. It’s such folly, because it’s only guesswork.

But for equity investors, what corporations say about their businesses is key, and with so many large-cap companies in a strong financial position, any improvement in sales volume or pricing will translate immediately into earnings. I think there’s a good chance corporate earnings will surprise to the upside next year.

3M Company (MMM) caught the market off guard with a 35% increase in its dividends and a solid 2014 outlook. Johnson Controls, Inc. (JCI) just effected a 16% increase in its quarterly dividends and a new $3.65-billion share buyback program. (See “A $35.0-Billion Company Poised for Growth?”) NIKE, Inc. (NKE) recently boosted its dividends by 14%, and The Walt Disney Company (DIS) did so by 15%.

MasterCard Incorporated (MA) just announced a 10-for-one stock split, a huge 83% increase to its quarterly dividend, and a new $3.5-billion share buyback program. General Electric Company (GE) just raised its quarterly dividend 16%, and Pfizer Inc. (PFE) announced an eight-percent dividend gain, citing renewed confidence in its operational growth.

Increasing dividends are material news, and rising payouts are a reflection of improving business conditions at the corporate level and strong balance sheets. It all bodes well for earnings results next year.

Arguably, current valuations already reflect solid earnings outlooks, the expectation for more share repurchases, and higher quarterly dividends. If this is the case, it is still a foundation for more capital gains in stocks, even with the reasonable expectation of technical correction that’s so warranted.

With pressure on interest rates highly likely in 2014, they are still low enough to provide corporations with very cheap money to finance operations at this time. And with this backdrop, we’ll probably get more of the same over the coming quarters, with companies hoarding cash and avoiding bold investments in new plant and equipment.

Overall, the outlook for rising dividends, share repurchases, and stock splits remains excellent.

This article Large-Cap Stocks the Place to Be in 2014? is originally publish at Profitconfidential

By George Leong, B.Comm.

The holidays are just around the corner, and for the restaurant sector, that means big business, as people shop, dine, and head to the theaters.

From fast food outlets like McDonalds Corporation (NYSE/MCD) to steakhouses like Ruths Hospitality Group, Inc. (NASDAQ/RUTH), the holidays are a key time for the restaurant industry and a buying opportunity for investors in this sector.

The upward move in the sector has been strong, as shown on the chart of the Dow Jones U.S. Restaurants & Bars Index below. Note the upward trend marked by several breakouts. We are currently seeing some hesitancy, but I would look at weakness as a buying opportunity.

Chart courtesy of www.StockCharts.com

And as we move into the New Year, the key will be the jobs market and the economic renewal. Continued jobs growth will offer consumers added confidence to want to spend on non-essential goods and services, such as restaurant dining.

At the top of the food chain, in my view, continues to be McDonald’s, which remains a strong buying opportunity. (Read “McDonald’s Proving Position as ‘Best of Breed’ in the Fast Food Sector.”)This is the company every fast food operator wants to emulate.

However, the stock that I feel has the right blend of ingredients to succeed and is a possible buying opportunity is Chipotle Mexican Grill, Inc. (NYSE/CMG). While the price point is slightly higher than McDonald’s, the availability of ultra-fresh ingredients at Chipotle are a selling point for consumers, making the company a threat to steal market share away from others and a possible buying opportunity in the fast food sector.

Chart courtesy of www.StockCharts.com

On the other hand, if you prefer more of a sit-in, moderately priced restaurant where you can enjoy a steak, drink a “Bud,” and watch sports, then Texas Roadhouse, Inc. (NASDAQ/TXRH) may be worth a look as a buying opportunity. The chain includes more than 400 restaurants across 48 states and two countries.

Chart courtesy of www.StockCharts.com

The company is a model of consistency, reporting higher sequential revenue growth over the past 11 years, from $159.91 million in 2001 to $1.26 billion in 2012. The growth is expected to continue, with revenues estimated at $1.42 billion this year, up 12% year-over-year, and rising another 10.4% to $1.56 billion in 2014, according to Thomson Financial.

Texas Roadhouse has also delivered on the earnings end, reporting higher earnings in 10 of the last 11 years, continuing into 2013 and 2014, which presents a possible buying opportunity.

A contrarian small-cap restaurant stock that may be worth a look as a buying opportunity for speculators is Ruby Tuesday, Inc. (NYSE/RT), which has struggled and could still be years away from a turnaround. The company is losing money and is expected to see revenues contract 6.9% this year; however, they’re expected to edge up 1.7% in 2014, according to Thomson Financial. Ruby Tuesday may be worth a look on weakness toward the $6.00 or under level; otherwise, it’s a work in progress.

This article My Favorite Restaurant Stocks This Holiday Season is originally publish at Profitconfidential

US Dollar Index: With the Index bullish and threatening further upside, more strength is expected. However, it will have to break and hold above its declining trendline currently at the 80.61 level to trigger further strength. This if seen will extend recovery higher towards the 80.98 level where a violation will aim at the 81.48 level. A push through this level will set the stage for a run at the 82.00 level and possibly higher towards the 82.50 level. Its daily RSI is bullish and pointing higher supporting this view. Conversely, as long as it continues to trade below its declining trendline, expect a push back lower. Support lies at the 80.50 level where a violation will aim at the 80.00 level. Further down, support lies at the 79.75 level with a turn below here paving the way for a run at the 79.00 level. All in all, the Index continues to face upside threats in the short term.

Article by fxtechstrategy.com

Guest Post By Dennis Miller – Turn off the Tube, Tune out the Media, and Drop out of December Madness

Overconsumption of mass media during the month of December can cause emotional whiplash. Navigating images of smiling shoppers and candy-cane merriment while reading about a derailed train in the Bronx or Syrian refugees has left me pining for the days of yore—when Christmas was still vaguely related to a guy who wore sandals and annoyed his local government, and the only bad news you heard about was the drought or oxcart accident in your own village. Sure, folks still capitalized on religion and lots of bad stuff happened, but there was no 24-hour news/commercial cycle feeding us the play-by-play.

So, I unplugged from mass media and cleared some headspace to consider what my fellow retirees and I have to be grateful for.

1. The annual gift tax exclusion and the combined lifetime exemption. I will die a happy man if I never have to fill out IRS Form 709. The very idea of a taxable gift is downright nuts. I am, however, grateful for the annual gift tax exclusion ($14,000 in 2013) and the combined lifetime gift and estate tax exemption ($5,250,000 in 2013).While I discourage bailing out ne’er-do-well family members, giving ought to be a non-punishable choice. To exercise this freedom, Jo and I give our grandchildren silver coins each year, which I wrote about in The Greatest Investment I Ever Made.

   The freedom to give tax-free shouldn’t end with your dying breath, either. Between you and your spouse, you can give and bequeath a lot of money before either the federal gift or estate tax becomes a real hurdle. And for those of you with enough dough to dread the estate tax, there are fancy tools like a Grantor Retained Annuity Trust (GRAT) to drain your taxable estate and eliminate the problem.

2. Ted Benna and Subsection 401(k) of the Internal Revenue Code. The law providing for defined contribution pension accounts was enacted 1978, when most retirements depended on private pensions and Social Security. Enter Ted Benna two years later, then co-owner of a benefits consultancy, who figured out how to use the provision to create a straightforward, tax-advantaged way to save for retirement.Benna received quite a bit of press earlier this year for criticizing the overwhelming complexity of 401(k) plans today. Still, the tax benefits and employer-matching programs make contributing to your 401(k) well worth the small chore of understanding and managing it.
3. The Employee Retirement Income Security Act of 1974 (ERISA). Since the ’75 tax year, ERISA has allowed individuals to save pre-tax assets in a traditional IRA. Since then, a handful of IRA cousins have popped up—Roth, SEP, SIMPLE, and Self-Directed. Depending on your circumstances, one or more of these accounts can help you create substantial wealth for retirement.I struggled to open and contribute to my first IRA at age 35. Now its balance is proof positive that IRAs work—a truth I’m always eager to share with my children and grandchildren.
4. Increased longevity. Thanks to dramatic advancements in medicine, you can now expect to live to a ripe of old age (78.62 on average here in the US). When Roosevelt signed the Social Security Act of 1935 into law, women in the US had an average life expectancy of 63.9 years and men, 59.9 years. Yes, it’s a challenge to save for these extra years of retirement, but the flip side is: there is more life to enjoy.I just learned that our second great-grandchild is due on July 4. Had I been born one generation earlier, it’s unlikely I could have expected to live to enjoy such a happy moment, and I definitely could not have expected to live long enough to truly get to know the little munchkin. Today I expect to see this newborn off to high school, at the very least.
5. Time. Control over your own time is the single biggest perk of retirement. You’ve worked hard to reach your retirement goals. That work is what allows you to spend your time as you choose: traveling, relaxing with your spouse, playing with your grandkids, standing on your head—whatever floats your boat.Money plus time equals options. Be thankful to have both!
6. The option to enjoy a second career post-retirement. Turning 65 does not suck out your life force. If, like me, you choose to spend retirement working in a second (or third) career, there are countless ways to make that happen.A wonderful team of truly talented people surrounds me here at Miller’s Money. More than one senior has confided to me that he wished he could have worked with his current team during his first career; life would have been a lot more fun that way. I wholeheartedly agree.

It is you, our readers and subscribers who make our jobs possible. We are all very thankful for each and every one of you, particularly those of you who’ve written to share feedback and helpful suggestions. Your input helps us serve you better, which we will continue to strive to do.

On behalf of the entire Miller’s Money team—Alex, Andrey, Ann, Chris, Donna, Sam, and myself—happy holidays! Enjoy this month, savor the time with family and friends, and do not allow elves and advertisements to bog you down.

Oh! There is one last thing I am thankful for: the success of the Money Forever portfolio this year and our new Bulletproof Income strategy spearheaded by our lead analyst, Andrey Dashkov. Our mantra is: preserve capital and avoid catastrophic losses. Personally, I’m thrilled at how well we’re living up to that goal. Thus far, our total yield for 2013, including all positions bought, sold, and held for a partial year is 9.8%. And our current holdings are up 15.2%—and those are not annualized numbers. Other model portfolios may shout about even bigger gains, but I don’t know of any consistently performing that well while prioritizing safety as much as we do. For that I tip my hat to our research team.

In our current issue, we outline our portfolio allocations and our direction for 2014. If you have not taken advantage of our premium subscription at its current promotional price of $99/year, I strongly suggest you do so by clicking here. Consider it a holiday gift to yourself! The best part is you can download all of our material, my book, and special reports and see for yourself how nicely our portfolio has come together. Should you decide it’s not right for you, cancel within the first 90 days and receive a 100% refund, no questions asked. Please click here to learn more.

By George Leong, B.Comm.

Spain just rejected a massive $30.0-billion proposal from Las Vegas Sands Corp. (NYSE/LVS) to build a casino and entertainment resort near Madrid. The project would have been significant, with 12 hotels, six casinos, and many other amenities injecting some life into the stagnant country where the unemployment rate sits around 26%.

Now, the Spanish government had its reasons to turn down the deal; they centered largely on the associated activities that could surface when casinos and gambling arose. The same thing occurred in Toronto Canada, in which a $5.0-billion casino hotel project was also rejected.

But as is usually the case, a region’s loss is another area’s gain. Casino operators are always looking for growth and much of it has been focused on emerging markets outside of Las Vegas and the United States, in areas such as Asia and, more specifically, China where there is incredible wealth being created. But whether or not you like the casino industry and for whatever reasons, there will always be regions around the world that will welcome multibillion-dollar investments.

At this point, the top destination for casinos is Asia, or more specifically, the Macau region in China, which the Chinese government has supported as a region for gambling. China has designated economic development zones across the country and Macau has been designated a special administrative region for legalized gambling to attract the newfound wealth. (Read “China’s Expected Baby Boom a Boon for U.S. Business.”)

Make no mistake about it: Macau could eventually become the most sought-after region in the world for casino operators.

After its rejection in Spain, Las Vegas Sands shifted its capital and sights to adding more casino space in Macau. Having been to Macau, China, I have to say it’s truly a place to visit. The region combines the old world charm of this former Portuguese colony and the modern push by China to develop the “Vegas of the Orient” and attract money.

In the region, you have the old established casino areas, but there has been a major push over the recent years to build new colossal casinos and hotels in the Cotai Strip in Macau.

If you want to bet on the growth in Macau, and the Cotai Strip in particular, the two key players to watch are Las Vegas Sands and China-based Galaxy Entertainment Group Limited (OTC/GXYEY).

Las Vegas Sands, via its Sands China Ltd. subsidiary, currently owns four properties in the Cotai Strip, where it attracts tens of millions of visitors. The growth for Las Vegas Sands has been impressive there, with revenues in the billions per quarter.

Chart courtesy of www.StockCharts.com

Galaxy Entertainment is also an aggressive player in the region, with two core properties—Galaxy Macau and StarWorld Hotel and Casino—currently operating in the area. The company is set for more expansion at these existing developments.

Two other players with a smaller presence in Macau, China may be more familiar names: Wynn Resorts, Limited (NASDAQ/WYNN) and MGM Resorts International (NYSE/MGM).

If I was a betting man, I would put my money on Macau as the big-growth buying opportunity in the casino space for the next decade.

This article China’s Macau Gambling Region: The Growth Opportunity is originally publish at Profitconfidential

By John Whitefoot for Daily Gains Letter

It might not be as flashy as precious metals or the biotech industry, but the $27.0-billion U.S. yoga industry has some pretty strong numbers and corresponding retail stocks.

Over the last year, 15 million people regularly participated in yoga here in the United States, spending more than $27.0 billion on yoga products. Over the last five years, spending on yoga products has soared 87%. And the average annual increase of the number of people who practice yoga is expanding at a rate of 20%. (Source: “Yoga Statistics,” StatisticBrain.com, July 27, 2013.)

Furthermore, almost three-quarters (72.2%) of yoga participants are women and 68% earn at least $75,000 a year. On top of that, more than 40% of participants are in the lucrative 18–34 age demographic, and 41% are between the ages of 35 and 54.

While a number of publicly traded retail stocks operate in the yoga apparel industry, none are quite as well-known, for better or worse, as lululemon athletica inc. (NASDAQ/LULU).

Of course, the “for worse” part refers to the barrage of negative public relations (PR) that has helped to drop this retail stock’s share price down 24% so far this year. Lululemon has been under severe PR pressure since March, when the retail stock recalled its popular black yoga pants for being too see-through. Company CEO Christine Day stepped down in June; and in July, the company was dealing with another PR nightmare after insiders said the company shuns plus-sized shoppers. To make matters worse, company founder Chip Wilson blamed quality control concerns regarding the yoga pants on “women’s bodies” (more specifically, thick thighs).

Clearly, the bad PR has been hurting Lululemon’s share price. At the same time, the yoga apparel retail stock is posting solid numbers. The company recently announced that third-quarter results were better than expected, with revenues increasing 20% year-over-year to $379.9 million; earnings climbed 15% to $66.1 million, or $0.45 per share. (Source: “lululemon athletica inc. announces third quarter fiscal 2013 results,” lululemon athletica inc. web site, December 12, 2013.)

Unfortunately, the company’s fourth-quarter guidance was its undoing; sending it down by more than 16%. Management revised the company’s fourth-quarter guidance lower to between $535 million and $540 million, versus its previous guidance of $565–$570 million. That’s a top-end miss of 5.2%.

The 16% hammering the stock’s share price took might be a little rich, especially when you consider consumer confidence levels are up and the jobs numbers are strengthening. And over time, everybody eventually forgets a PR fumble.

Interestingly, shareholders have not lost all confidence in the company synonymous with yoga retail stocks; in spite of the recent tumble in its share price, Lululemon is still trading in a tight two-year range; albeit, it’s near the bottom, but it does have support.

To improve its image, Lululemon has implemented a new management team and will be introducing new products to its growing legion of customers. That said, its one-year misstep has allowed competing retail stocks like Under Armour, Inc. (NYSE/UA) and NIKE, Inc. (NYSE/NKE) to step up to the yoga mat.

Will image problems in 2013 be the undoing or the beginning of the rebirth for the retail stock in 2014? Even though Lululemon goes hand-in-hand with high-end yoga wear and products, it’s not the only retail stock investors should consider.

There are more than a number of retail stocks willing and able to step in and take up Lululemon’s slack. And when it comes to high-end yoga gear, some consumers will spend quite a bit to look good—even when they’re not in yoga class.

Original: http://www.dailygainsletter.com/investment-strategy/should-you-give-lululemon-a-chance-in-2014/2252/

Article by Investazor.com

Even though yesterday not many expected a tapering of the Quantitative Easing program, it happened. Federal Reserved announced that they will cut the monetary easing program from 85B to 75B. Now everybody says that this decision was semi expected, to say it like that, by the market and that is why the reaction was like it was.

We actually think that the real explanation of the market reaction is that even though the FED cut the QE with 10B dollars, but equilibrated the balance with the fact that they will keep the interest rates as low as possible even after the unemployment rate had touched 6.5%. The main banks are expecting low interest rates until late 2015.

They are going to reduce even more the program but this will happen if the economic data will be accordingly to their forecast. The inflation rate is below FED’s target and they will keep a close look over it during the next period.

All these together have appreciated the US dollar and triggered a drop in Gold’s price, but it also triggered big rallies for the indices.

Today the main economic releases were the Current Account for the Euro Area, which rose at a surprisingly 21.8B; UK’s Retail Sales which grew by 0.3% and the Unemployment Claims from USA which went up to 379K.

Up next the markets are still waiting for the Existing Home Sales, the Philly Fed Manufacturing Index and CB Leading Index.

After all of these, the EURUSD is trading around 1.3670, where it has encountered a powerful trend line. On an intraday interval a break above 1.3700 could trigger a rally targeting 1.3750, but a continuation of a drop under 1.3650 would be a good selling signal targeting 1.3600.

USDJPY jumped to 104.20 from 102.70, after last night decision. The current trend might continue only if the local high will be broken, but we would carefully look also after a corrective move under the 103.75 low. AUDUSD is currently trading around 0.8840 but the pressure seems to be on the downside.

Dow Jones Industrial, on features, rallied above 16000 and continued to 16100. At this point the consolidation is fragile and the up move might continue targeting 16200.

XAUUSD bumped into 1200$ per ounce, but it seems that bears are still trying to break this level. Silver is heading for 19$ per ounce with no local support to stop the fall.

Crude Oil is knocking at 99.00$ per barrel and the bulls power seem to keep growing, so we expect a breakout above this level during the next trading hours. Brent Oil has encountered a good resistance at 110.35$ per barrel but it might not be enough to stop its rally. A break above this level could target 111$ per barrel.

Do you remember our yesterday’s article What are investors expecting from the FOMC meeting?  Our option expired today outside the range we mentioned for the EURUSD and we cashed in the full payout.

The post What did really happen with the Markets? appeared first on investazor.com.

By Mitchell Clark, B.Comm.

There are so many esoteric good businesses out there, but very few attractive investment opportunities for new money right now.

In equities, I search for consistency from a company—consistency of corporate operating performance, diligent management in good times and bad, and a good track record of return on investment on the stock market. A stock’s past performance isn’t directly indicative of its future performance, but I find it goes a long way to improving your odds.

One company that provided the kind of consistency I’m referring to, and which I reviewed at the beginning of the year and again in October, is A. O. Smith Corporation (AOS). This is a Milwaukee-based water heater company. This stock has proven to be an exceptional moneymaker as of late. (See “How This Solid Old Economy Company Keeps Beating Tech Stocks.”)

But while the company’s business is growing, it’s not growing exceptionally; it’s not some highflying new technology company or some 3D printer manufacturer. A. O. Smith simply manufactures and sells water heaters, and while I really like this business, I don’t think it’s worth 23-times its forward earnings.

The Fed’s unprecedented monetary stimulus has boosted the share price performance of the most mature enterprises to the point that they’ve significantly outperformed their historical track records. This company is one of those enterprises. A. O. Smith’s 20-year long-term stock chart is featured below:

Chart courtesy of www.StockCharts.com

While shareholder return in a company like A. O. Smith has been great over the last few years, there is seemingly little value in accumulating the stock now. Price momentum can always surprise with its duration, but there’s just not that much to buy in a market that’s at its all-time high.

This is why a meaningful and prolonged stock market correction would be so useful for equity investors who can’t seem to find any attractively priced businesses in which to invest.

Over time, most of the best publicly traded businesses have been consistently hitting new record-highs on the stock market, peppered with periods of nonperformance.

As share prices increase, I view investment risk as going up commensurately. While the opportunity cost of not being in equities has proven to be significant, a little “GARP” (or growth at a reasonable price) is a useful reminder.

So for those investors considering new positions, there’s not a lot of action to take in this stock market, considering the amount of investment risk associated with elevated valuations and record-high share prices.

With the exceptional performance this year of the S&P 500, the NASDAQ Composite, the Russell 2000, and the Dow Jones Industrial Average, this isn’t the time to be a buyer.

In terms of portfolio strategy, I’m reticent about buying this market and a company with a good track record like A. O. Smith. Given current information, the next major price correction in stocks will likely be an attractive buying opportunity, so long as deflation isn’t in the cards.

I like an old economy company like A. O. Smith, but I wouldn’t be a buyer of the stock currently. If the position corrected to below $40.00 a share, that would be another story.

So many mature enterprises like A. O. Smith have experienced an expansion in valuation and record-high share prices. The water heater business is a good one long-term, but it’s only worth considering when it’s a real value.

This article The One Place New Money Can Go to in This Stock Market Right Now is originally publish at Profitconfidential