ADTRAN Upgraded to Outperform - Analyst Blog

We are upgrading our recommendation on ADTRAN Inc. (ADTN) to Outperform ahead of its second quarter of 2013 financial results, which will be released tomorrow before the opening bell.

Why the Upgrade?

ADTRAN continues to perform creditably despite a challenging business environment. The company is facing double-edged problems: (1) the communications equipment industry is currently going through a volatile phase due to uneven capital spending of telecom carriers and (2) increasing competitive pressure within the industry.

In the last reported quarter, ADTRAN stabilized its businesses with the U.S. Tier 1 carriers, while generating contracts from several Tier 2 carriers. The Enterprise division also complemented the effort with strong sales of IP gateway and switch products.

Looking ahead, we expect the company to benefit from market share gain, new product offerings, solid international sales and growing service revenues. We believe that free cash flow will also remain steady in the near future.

Apart from these, the company has also registered significant growth in its professional service activities that deploy the Total Access System components in telecommunication companies. The company has projected that professional services capabilities will remain accretive as both domestic and international carriers seek cost-effective methods to accelerate network deployments.

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ADTRAN is also moving into virtual wireless LAN solutions with the buyout of Bluesocket, a privately held U.S. company that specializes in wireless network solutions with virtual control system.

Other Stocks to Consider

ADTRAN currently has a Zacks Rank #2 (Buy). Apart from ADTRAN, other stocks in the industry which are also performing well include Calix Inc. (CALX), Crown Castle Int! ernational Corp. (CCI) and Equinix Inc. (EQIX). All these stocks currently carry a Zacks Rank #2 (Buy).

Are Shorts Right About Staples?

With shares of Staples (NASDAQ:SPLS) trading at around $15.50, is SPLS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

Staples has performed well this year, but is this trend sustainable? Longs will say yes, and they will most likely point to the merger between Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX). This merger will lead to many store closings for both Office Depot and OfficeMax, which will in turn lead to increased market share for Staples. As mentioned in the previous Staples article written for this column, Staples is well-positioned for the short term (for a trade), but the long-term prospects aren't good.

To put it simply, Staples will be competing against the largest brick and mortar retailer in the world in Wal-Mart (NYSE:WMT) and the largest online retailer in the world in Amazon (NASDAQ:AMZN). What makes this situation even worse is that Staples is selling its products for much higher prices. For instance, the average price of a product that is sold by both Staples and Amazon is 19 percent higher at Staples. In an economy where the consumer is displaying strength, this could be looked at a positive for investors. However, that doesn't describe the current situation. Consumers are currently looking for value over quality.

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Staples is cutting costs and more focused on its online operation. The cost-cutting could lead to earnings improvements in the near future, but investors want long-term returns. As far as Staples.com is concerned, traffic has been impressive over the past three months. According to Alexa.com, pageviews-per-user has increased 4.4 percent to 4.79, time-on-site has increased 1 percent to 4:41, and the bounce rate (only one pageview per visit) has declined 5 percent to 31.5 percent. These are all good numbers. Last quarter, online sales increased 3 percent on a year-over-year basis. Staples is doing something right in this area. However, it might just be that consumers are becoming aware of the site, which has led to increased visitation. It will be interesting to see if the positive traffic numbers above are sustainable.

Staples is also cutting costs by reducing square footage in its retail stores. At the same time, it's selling interesting products such as popular mobile devices and 3D printers in order to attract consumers to its stores. This tactic might have short-term effects, but once again, is it sustainable?

Staples is currently trading at 11 times forward earnings. This might look appealing considering Office Depot is trading at 52.5 times forward earnings, and OfficeMax is trading at 15 times forward earnings. However, Staples has had some margin problems. For example, profit margin is currently -0.94 percent, which puts Staples at the 55th percentile in the industry. Profit margin has ranged from -9.39 percent to 5.04 percent since 2011. This isn't a range that will lead to increased investor confidence. On the other hand, operational cash flow is solid at $1.42 billion. Another positive is the 3.10 percent yield. If Staples can effectively cut costs and increase profits over the next few quarters, then there will be potential for more capital to be returned to shareholders.

In regards to company culture and leadership, employees rate the company culture as subpar and leadership as slightly above average. According to Glassdoor.com, employees have rated their employer a 3.0 of 5, and 46 percent of employees would recommend the company to a friend. For leadership, 60 percent of employees approve of CEO Ron Sargent. The leadership number is impressive considering recent industry challenges.

Let's take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Staples has been a strong performer this year. Is it possible for this momentum to continue?

	1 Month	Year-To-Date	1 Year	3 Year
SPLS	10.27%	37.32%	27.99%	-22.54%
ODP	6.20%	27.90%	107.7%	-22.31%
OMX	6.81%	27.39%	193.0%	-24.30%

At $15.50, Staples is trading above its averages.

50-Day SMA	14.25
200-Day SMA	13.09

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Staples is close to the industry average of 0.30.

	Debt-To-Equity	Cash	Long-Term Debt
SPLS	0.32	1.44B	1.97B
ODP	0.64	549.26M	653.57M
OMX	0.85	579.16M	972.16M

E = Earnings Have Weakened

Earnings have weakened on an annual basis, but this has led to Staples increasing its cost-cutting measures. Therefore, earnings might bounce back this year. On the other hand, it’s difficult to determine what will happen on the revenue side.

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Fiscal Year	2009	2010	2011	2012	2013
Revenue ($) in millions	23,084	24,275	24,545	25,022	24,381
Diluted EPS ($)	1.13	1.02	1.21	1.40	-0.31

Looking at the last quarter on a year-over-year basis, revenue and earnings have declined. However, while revenue declined on sequential basis, earnings improved.

Quarter	Apr. 30, 2012	Jul. 31, 2012	Oct. 31, 2012	Jan. 31, 2013	Apr. 30, 2013
Revenue ($) in millions	6,104.83	5,498.50	6,353.14	6,567.98	5,814.57
Diluted EPS ($)	0.27	0.18	-0.89	0.12	0.26

Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

Staples had been a long-term winner, but it has underperformed the market during a massive bull run over the past several years. If a stock can't trade higher with the majority of the market in such an environment, then there is an underlying problem with the company or industry. In this case, it's the industry. Staples currently has to deal with weak international operations, a weak consumer in the United States, and amazingly fierce competition. All that said, with effective cost-cutting measures in place and increased market share likely after the Office Depot/OfficeMax merger, there is short-term potential.

11 Cheap High Beta Consumer Goods Dividend Stocks

You might know that I really love stocks from the consumer goods sector. They offer a very good risk profile for income-seeking investors with a desire for future dividend growth. The problem is that they are also highly valuated. This was one of the reasons why I needed to purchase more and more stocks from other sectors like industrials and health care stocks.

I'm not worried about this because with every single stock purchase of other industries and sectors, my diversification rises. The second negative item in terms of consumer goods stocks is that most of them are low-beta stocks. If you would like to make money in a strong upside market, you lose performance with low-beta stocks.

This is the reason why I discovered some high-beta stocks with attractive valuation figures this month in an article serial.

Back to the current screen about high beta consumer dividend stocks. I observed this time large capitalized consumer dividend stocks with a low forward P/E and a beta ratio above one.

My screen produced only 11 results with yields between 0.71 percent and 2.58 percent. Nearly all of them (10 stocks) have a current buy or better rating by brokerage firms.

Here are the highest yielding results:

Koninklijke Philips Electronics (PHG) has a market capitalization of $29.40 billion. The company employs 115,281 people, generates revenue of $32.856 billion and has a net income of $630.94 million. Koninklijke Philips Electronics's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3,967.23 million. The EBITDA margin is 12.07 percent (the operating margin is 4.16 percent and the net profit margin 1.92 percent).

Financial Analysis: The total debt represents 15.59 percent of Koninklijke Philips Electronics's assets and the total debt in relation to the equity amounts to 40.70 percent. Due to the financial situation, a return on equity of 2.19 percent was realized by Koninklijke Philips Electronics. Twelve trailing months ear! nings per share reached a value of $0.42. Last fiscal year, Koninklijke Philips Electronics paid $0.99 in the form of dividends to shareholders. Forward P/E: 13.26.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 76.84, the P/S ratio is 0.96 and the P/B ratio is finally 2.00. The dividend yield amounts to 3.02 percent and the beta ratio has a value of 1.47.

Coach (COH) has a market capitalization of $14.96 billion. The company employs 18,000 people, generates revenue of $5.075 billion and has a net income of $1.034 billion. Coach's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $1.524 billion. The EBITDA margin is 30.04 percent (the operating margin is 30.04 percent and the net profit margin 20.38 percent).

Financial Analysis: The total debt represents 0.03 percent of Coach's assets and the total debt in relation to the equity amounts to 0.04 percent. Due to the financial situation, a return on equity of 47.00 percent was realized by Coach. Twelve trailing months earnings per share reached a value of $3.62. Last fiscal year, Coach paid $1.125 in the form of dividends to shareholders. Forward P/E: 12.27.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 14.51, the P/S ratio is 2.95 and the P/B ratio is finally 6.30. The dividend yield amounts to 2.54 percent and the beta ratio has a value of 1.47.

International Paper (IP) has a market capitalization of $21.11 billion. The company employs 70,000 people, generates revenue of $27.833 billion and has a net income of $693.00 million. International Paper's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3.377 billion. The EBITDA margin is 12.13 percent (the operating margin is 3.68 percent and the net profit margin 2.49 percent).

Financial Analysis: The total debt represents 31.54 percent of International Paper's assets and the total debt in relation to the equity amounts to 160.85 ! percent. ! Due to the financial situation, a return on equity of 11.57 percent was realized by International Paper. Twelve trailing months earnings per share reached a value of $2.19. Last fiscal year, International Paper paid $1.09 in the form of dividends to shareholders. Forward P/E: 10.50.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 21.60, the P/S ratio is 0.78 and the P/B ratio is finally 3.41. The dividend yield amounts to 2.45 percent and the beta ratio has a value of 2.30.

Take a closer look at the full list of cheap high beta consumer goods dividend stocks. The average P/E ratio amounts to 26.27 and forward P/E ratio is 11.57. The dividend yield has a value of 1.91 percent. Price to book ratio is 3.01 and price to sales ratio 0.97. The operating margin amounts to 9.56 percent and the beta ratio is 1.80. Stocks from the list have an average debt to equity ratio of 1.35.

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Related Stock Ticker Symbols:
PHG, COH, IP, F, CCE, WHR, JCI, BG, HOG, SNE, TTM

Selected Articles:
· Consumer Goods Stocks With Highest YTD Performance And Cheap Price Ratios
· Consumer Dividend Stocks That Are Highly Shorted
· 20 Cheapest Consumer Dividend Stocks
· The Safest Consumer Dividend Stocks | 20 Exclusive Shares

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First Allied’s Surprise Sale to Real-Estate Group Creates ‘Whole New Dynamic’ for BDs

A group led by real-estate investor Nicholas Schorsch said early Wednesday that it planned to buy independent broker-dealer First Allied Securities from its private-equity owner Lovell Minnick Partners, which has owned a majority stake in the IBD for less than two years.

“This brings a whole new dynamic to the broker-dealer world,” said Jonathan Henschen (right), president of the recruiting firm Henschen & Associates, in an interview with AdvisorOne. “It’s like in the ’80s when insurance firms were buying broker-dealers, but now maybe its real-estate conglomerates flush with money that will be buying BDs.”

First Allied’s buyer is RCAP Holdings, which owns Realty Capital Securities, a wholesale broker-dealer and affiliate of American Realty Capital Properties (ARCP) and several other entities.

It is led by Schorsch, William Kahane, Michael Weil, Peter Budko and Brian Block. "In 2007, my partners and I perceived an opportunity to build an open architected, wholesale broker-dealer to distribute best-in-class investment solutions," Schorsch said in a press release.

"Today, RCAP Holdings takes another step forward,” he said. “We believe that the challenges and opportunities we witnessed in the wholesale distribution channel exist in the broader retail network as well, and we see value and opportunity for growth in a paradigm shift toward a sustainable direct relationship between the mass affluent investor and their independent financial advisor."

San Diego-based First Allied, which acquired the Legend Group in late 2012, includes a network of about 1,500 independent financial advisors with more than 300,000 clients and over $32 billion in assets. In 2012, its revenue totaled about $233 million, with the average fees and commissions per advisor at $293,000 and average assets per rep at $29 million, according to Investment Advisor's 2013 Broker-Dealer Reference Guide.

"Lovell Minnick was a great owner for First Allied," said Chip Roame (right), managing principal of Tiburon Strategic Advisors, in an interview. "First Allied, with Lovell Minnick capital, was able to make several tuck-in acquisitions and also expand through the acquisition of clearing firm Legend ... RCAP in some ways is just a new capital partner, replacing Lovell Minnick."

Unexpected News

“I’m surprised," Henschen said. "Lovell Minnick has only owned First Allied for a year or so.” Private-equity firms usually hold onto BDs for four or five years and then sell them at a profit or build them up to scale and go public, he says.

This was the case with LPL Financial (LPLA), for instance, which was owned by TPG Capital and Hellman & Friedman from 2005 to late 2010, when LPL had its IPO.

“Lovell Minnick was probably offered a pretty good price for First Allied,” Henschen said. “This is something I’ve never seen before. I’ve seen insurance companies buy BDs to distribute products, but this seems like a first for a REIT-focused firm.”

“Speaking as a recruiter, this is good news. It means good financing for broker-dealers,” Henschen said.

Roame agrees. "I like that [First Allied's] management invested $10 million in the deal," he said. "It's a sign of confidence."

Insurance companies have been squeezed by low interest rates, which were high in the ‘80s when they went on their BD buying spree. Today, REITs have been benefitting from interest-rate levels, as investors seeking yield have piled in.

“Insurance companies have been consolidating into their core business,” the recruiter said. “But with interest rates low, people are hungry for yield. Now, real-estate conglomerates can do what insurance firms did in the ’80: buy firms in other areas that they like.”

First Allied CEO and President Adam Antoniades is upbeat on the situation for both advisors and investors, as well.

BofA Analyst: 'The Market Is Far From Overvalued'

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Richard Drew/AP Bank of America Merrill Lynch equity strategist Savita Subramanian is bullish on the stock market. Recently, she hiked her S&P 500 year-end price target to 1,750 from 1,600, one of the most optimistic forecasts on Wall Street. (The index closed Thursday at 1,697, so Subramanian's target implies an additional 3.1 percent upside through the rest of 2013.) "With the S&P 500 rising over 20 percent over the past twelve months and continuing to make all-time highs, the pervasive refrain is that the market has grown expensive," writes Subramanian in a note to clients. "Admittedly, the majority of 2013's gains have come from multiple expansion rather than earnings growth, but the market is far from overvalued. This suggests that the market has merely played catch up with fundamentals -- recall that earnings made new highs in 2010. Valuation remains a driver for our bullish view on stocks." The table below shows 15 popular S&P 500 valuation metrics: BofA Merrill Lynch US Equity & US Quant Strategy "The majority indicate that the market is still trading below or in-line with historical norms, suggesting that the rally has chiefly been driven by a recovery in multiples from very depressed levels," says Subramanian. The one metric of the 15 that says stocks are expensive is the Shiller price/earnings ratio: The Shiller P/E, which is based on inflation-adjusted earnings over the past 10 years, currently suggests that stocks are overvalued. However, this metric assumes that the normalized (cyclically adjusted) EPS for the S&P 500 is today less than $70 -- well below even our recessionary scenario for EPS. The methodology assumes that the last 10 years is a representative sample, but the most recent profits recession was the worst we have seen and was exacerbated by a high leverage ratio which has since been dramatically reduced. Assuming that this scenario is going to repeat itself is, we think, overly pessimistic. Subramanian argues that if stocks are expensive, "other asset classes are really expensive." "While the relative attractiveness of stocks versus bonds, as measured by the equity risk premium (ERP), has moderated from all-time highs, the ERP still remains well above historical norms," writes the BAML strategist. "And compared to commodities, stocks are sill attractive -- the price of the S&P 500 in WTI oil terms is currently 16 [oil barrels], vs. the historical average of 22 [oil barrels]. Similarly, the S&P is trading at 1.3x the price of a Troy oz. of gold, while it has historically traded at 1.5x." That's not to say some stocks aren't expensive. Subramanian flags the consumer discretionary sector as overvalued versus historical norms, along with "the more defensive, high-yielding, domestically-focused stocks within Telecom and Utilities."

Options - another name for insurance

Almost every one of us has bought some sort of an insurance policy at some or the other point in our life. It may be in the form of life insurance, health insurance, accident insurance, house insurance or any other form of insurance.  The basic aim of almost all insurance is to provide financial protection against losses arising out of an undesired event happening in our lives.

For instance if we buy a house insurance to the tune of Rs 50 lakh by paying a small predetermined premium to the insurance company, it is legally bound to pay us the sum of Rs 50 lakh in case our house is destroyed in earthquake, flood or any other natural calamity. In other words, by paying a very small sum as premium, we can protect ourselves against a huge loss arising out of any unpleasant happening.

All this is just great. But, what about the hard-earned money that we invest in the stock markets?  For many of us this forms a sizable part of our investment kitty. However, no insurance company is foolish enough to insure something that is as uncertain and unpredictable as the stock market.

The insurance company would always be a loser in this sort of an arrangement. So are we left to the mercy of the market makers to decide the fate of our investments in the markets? Well, not really. There is some consolation though. This insurance exists in the forms of Stock Options.
Options are widely used by market players as a form of insurance. Only when it pertains to the markets, the commonly used term for this insurance is Hedging.

Hedging

A position established with the specific intent of protecting an existing position in case of an unwanted event happening is called hedging.
 In our previous issue, we dealt with the basics of options trading. For the benefit of all, the basic things to under-stand in options trading are:

Option

It is a contract that gives a buyer the right but not the obligation to buy or sell an underlying asset (index/stock) at a specific price on or before a particular date. There are two types of Options. One is the Call Option and the other is the Put Option.

Call Option

Gives the buyer/holder the right to buy the underlying asset at a fixed pre-determined price within a certain fixed period of time.

Put Option

Put Option gives the buyer/holder the right to sell the underlying asset at a fixed predetermined price within a certain fixed period of time.

Option Premium

The price paid by the buyer of an Option to the seller of an Option is called Option Premium.

How Options can help prevent the huge loss to your investment portfolio and even generate income:

After seeing the rip-roaring surge in the stock markets immediately following the recent elections, most of us had a feeling of being left in the lurch. The next big event on the cards was the budget.

Everyone wanted a piece of the action and so investors started buying stocks in huge quantities hoping that the budget would be a landmark budget and the Finance Minister would offer a lot of subsidies and perks to many beaten-down sectors.

Alas, the budget was a dud. The markets didn�t like what it had heard and therefore came crashing down. Overnight many people were staring at huge losses on their stock investments.

Even though the fundamentals and valuations of these stocks were sound, investors feared more equity erosion would be on the cards and they cut their open position and booked their losses. Those who held onto their investments into the markets spent many a sleepless night and had anxiety attacks waiting for the markets to bounce back so that they could recover their lost capital.

All this could have been easily avoided or at least minimized if the investors had bought something known as a Put Option as a hedge against their investments. (Note: A Put option gives the individual the right to sell the underlying shares at a predetermined price called as the �Strike Price�.)
Here�s how it works.

Let�s say you had bought 150 shares of Reliance Industries just prior to the budget. The total cost of the entire lot in accordance with the then-existing share price of around Rs 2,000 per share turned out to be Rs 3 lakh in totality.
Now you are afraid that an unexpected move in the stock market can cause a capital erosion of your portfolio value. So, in order to prevent this kind of a loss to your capital, you buy a �Put� option of Reliance Industries with a strike price of 2,000 worth Rs 3 lakhs. This Put can be bought by paying a relatively small amount called the Option premium.

This premium depends on a lot of factors such as the price of the stock, time to maturity, volatility, etc. This premium is exactly like the premium that you would pay to an insurance company if you have to buy a life or health or any other insurance for insuring yourself against a huge loss.

Scenario I

The price of Reliance Industries stock goes up after election: Say the stock price of Reliance Industries goes up from Rs 2,000 to Rs 2,400 you are making a profit of Rs 400 per share. You let the 2,000 Reliance Put lapse and expire worthless. That is, you lose the total amount of premium paid for it. But then again it is a very small loss when compared to the profit that you have made on each share.

Scenario II

The price of Reliance Industries stock goes down after the election.  Say the stock price of Reliance Industries crashes to Rs 1,500 from Rs 2,000.  You are making a loss of Rs 500 per share on your portfolio but then don�t forget that you have a 2,000 Put of the same stock, which gives you the right to sell the Reliance stock at Rs 2,000 even though the current market price is Rs 1,500.

So you go ahead, exercise your option of selling Reliance Industries at Rs 2,000. Now your only loss is the premium paid for the 2,000 Put plus the brokerage and taxes. Thus, a major loss of capital that could have arisen is averted.

Such a strategy is called the Protective Put strategy. The Protective Put strategy lowers risks and presents an opportunity for unlimited gain. You are also entitled to all the benefits with respect to the stock, namely dividends, bonus, voting rights, during the life of the put, till the time you sell your stock.
The only flip side of this strategy is that in India Options currently are traded only for 1, 2 or 3 months at the most at any given point of time.

So if you are a long-term investor, your duration of the Protective Put would last a minimum of 1 month and a maximum of 3 months depending on the term of the contract bought by you. After this, you would have to buy a new Options contract so that you can keep your insurance cover going.

Investing in the stock markets is like bungee jumping; it can have vicious and violent movements either ways, but with a firm harness in place, you can enjoy the adrenaline rush sans anxiety.

Source: Nirmal Bang

VIVUS Inks Deal on Spedra - Analyst Blog

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VIVUS, Inc. (VVUS) recently announced that it has entered into a license and commercialization in addition to a supply agreement for its erectile dysfunction (ED) drug, Spedra, with privately-held Italian pharmaceutical company, Menarini. Investors reacted positively to the news.

As per the terms of the agreement, Menarini will get the rights to Spedra in more than 40 European countries, apart from Australia and New Zealand. In exchange VIVUS will get an upfront payment of approximately $21 million and approximately $30 million in the first year. VIVUS will also be eligible to receive milestone and other payments of approximately $102 million, depending upon certain pre-specified criteria. Additionally, the company will get royalties on net sales of Spedra from Menarini.

VIVUS and Menarini also entered into a supply agreement for Spedra, according to which VIVUS will supply the product to the latter.

The partnership on Spedra, a phosphodiesterase type 5 (PDE5) inhibitor, will not only boost VIVUS' balance sheet but also go a long way in removing uncertainties related to the drug's launch in those territories.

We remind investors that the European Commission (EC) cleared Spedra, for ED, in the EU in Jun 2013. The approval did not come as a surprise as, in Apr 2013, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) recommended the approval of the drug.

The approval came on the basis of promising data from three phase III trials, REVIVE, REVIVE-Diabetes and REVIVE-RP, and a year-long safety study.

We note that the US Food and Drug Administration (FDA) approved the drug under the trade name Stendra for ED in April last year. VIVUS is looking for a partner in the US to market the drug.

We note that a few days back VIVUS announced encouraging data from a multi-center, p! lacebo-controlled study (TA-501) evaluating the efficacy of Stendra in men suffering from ED.

The study enrolled 440 patients with mild-to-severe ED with or without diabetes. Data from the study revealed that on an average Stendra was effective after 10 minutes and 12 minutes of taking the 200 mg and 100 mg formulation of the drug, respectively.

According to the company, ED therapies recorded combined sales of over $5.5 billion in 2012. The ED market is expected to grow further in the coming years.

Currently approved PDE5 inhibitors including Pfizer Inc.'s (PFE) Viagra and Eli Lilly and Company's (LLY) Cialis are recommended for ingestion one to two hours prior to sexual activity or daily. We believe Stendra's fast action could help the drug gain share once launched.

VIVUS currently carries a Zacks Rank #3 (Hold). Companies that currently look attractive include Santarus, Inc. (SNTS) with a Zacks Rank #1 (Strong Buy).

3 Active ETFs Beating The Market

Though there have been some bumps in the road, 2013 has been a year of smooth sailing for investors as bullish momentum continues to be a dominant force in the market. And as risk appetites continue to rise, more and more investors have poured into equities in hopes of capturing more promising returns. But for those willing to pay a slightly higher price, one corner of the equity ETF market has seemingly paid off – actively-managed ETFs .

Though many argue the higher costs of active management are not worth it, some of these funds have been able to deliver stellar returns that certainly warrant investors to take a closer look. Below, we highlight three active ETFs that are beating the market so far in 2013 (data as of 7/26/13):

1. Trim Tabs Float Shirnk ETF , Up 29%This AdvisorShares' offering seeks to generate long-term returns in excess of the total return of the Russell 3000 Index, while at the same time minimizing volatility. TTFS's investment thesis is based on the idea that stocks should perform best when their outstanding shares decrease over the past 120 days (float shrink); taking into consideration the basic laws of supply and demand, if the same amount of money is chasing a smaller number of shares, then the share price increases. And though the methodology is quite simple, a look at the fund's performance indicates that perhaps simplicity does actually work.

2. Mardona Forward Domestic ETF , Up 26%Another AdvisorShares' fund, the Mardona Forward Domestic ETF is designed to provide long-term capital appreciation above the S&P 500 Index. Unlike traditional equity products that utilize market cap-weighting methodology, FWDD uses forward-looking financial data to determine allocations. The management expertise offered through this product has been worth the extra fees so far in 2013, although investors should note that the fund trades less than 2,000 a day and that shares are limited to less than 600,000 .

3. U.S. Equity Rotation Strategy ETF , Up 21! %Huntington's US Equities Rotation Strategy ETF employs a compelling sector rotation strategy that is applied to the S&P 1500 index. The managers have the flexibility to underweight or overweight certain sectors as deemed necessary; in certain environments, the difference between the best and worst performing sectors can be substantial. Currently the fund is titled toward the health care sector, which has delivered stellar returns so far this year. HUSE also features meaningful allocations to information technology and financials equities .

Follow me on Twitter @DPylypczak.



Disclosure: No positions at time of writing.

Budget Analysis: Impact of Budget 2013 on investments

On the eve of budget 2013, there was a lot of hope that the finance minister will address the middle class investors concerns on increasing inflation by increasing the tax exemption slab and provide more deductions on tax saving investments. But budget 2013 has just been unraveled and the initial reaction is that of some disappointment on the investor's front as a lot could have been done. I present you the highlights and the aspects of the budget related to investments.

Tax free bonds: In order to provide a boost to the infrastructure sector, infrastructure finance companies have been allowed to issue tax free bonds to the tune of Rs. 50000 crores in the next financial year. This is good for investors in the highest tax slab as it would provide assured and better long term returns than fixed deposits. But considering the fact the interest rates are likely to fall going ahead, it has to be seen what rates the issuers will offer.

Inflation indexed bonds: The government in consultation with RBI has proposed to introduce " Inflation indexed bonds" or savings certificates in order to help investors provide a hedge against inflation. This will ensure that investors have a better fixed income alternative to combat inflation. Only the tenure and tax implications, which will be announced later, will decide if this turns out to be a good alternative or not. These bonds are linked to inflation rates and the interest rates are periodically reset to take care of varying inflation rates.

Additional Deduction on 1st home loan: First time home loan seekers upto Rs 25 lakhs will be eligible for an additional interest deduction of Rs 1 lakh provided they take a loan in financial year 2013-14. This would amount to a total interest deduction of Rs. 2.5 lakhs which is a great positive. If the limit is not utilized in the financial year 2013-14, then the balance can be carried forward in the next financial year. Considering the present home loan interest rate of 10.5% for a 15 year period, the total additional savings will be Rs. 20000 if the investor is in the 20% tax slab and Rs. 30000 if he is in the 30% tax slab. This benefit is likely to spur first time home buyers into finally buying their dream home.

Rajiv Gandhi Equity Savings Scheme (RGESS): The much delayed scheme has been proposed to be extended for 3 successive financial years and the income eligibility criteria has also been raised from Rs. 10 lakhs to 12 lakhs for next year. Under this scheme one can invest in specified stocks, Exchange traded funds or mutual funds upto Rs. 50000 a year and claim a deduction of Rs. 25000. The compulsory redemption of this scheme after 3 years is a dampener though as at the time of redemption if the markets are down, the returns might get affected.

TDS on property: From next financial year, on the sale of any property worth Rs. 50 lakhs and above there will be a compulsory deduction of TDS at the rate of 1%. This may increase paperwork for claiming the deduction for investors especially if the sale proceeds are to be invested in capital gains instruments or another property for saving tax. 

No change in Capital gains tax norms & STT: With the finance minister mentioning that the DTC (direct tax code) will be revised and introduced in the budget session, as of now the short term and long term capital gains tax parameters remain as they were earlier. Even the STT (securities transaction tax) for equities and mutual segment has been retained while the same has been reduced for equities futures category and non agricultural commodities.

It is very likely that the DTC may get the nod during the budget session and get implemented too in this financial year. That may be one of the reasons that the finance minister did not tinker with the tax slabs. The only benefit that has been provided to investors is the Rs. 2000 tax credit for income tax slab ranging from Rs. 2 lakhs to 5 lakhs. One only hopes that there is more clarity at the earliest on DTC so investors can plan their investments at the beginning of the new financial year rather than having to react to last minute clarifications.

The author is a member of The Financial Planners' Guild, India (FPGI) . FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.

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Hot Gold Stocks To Own Right Now

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

What: Shares of Ebix (NASDAQ: EBIX  ) have soared today by as much as 14% after the company agreed to sell itself to a Goldman Sachs (NYSE: GS  ) affiliate.

So what: The total value of the deal is roughly $820 million, including the assumption of outstanding debt, and represents an offer of $20 per share to shareholders. That's a premium of 18% over Ebix's average closing price over the past month.

Now what: CEO Robin Raina said a special committee of independent directors unanimously approved of the deal, saying it will deliver significant and immediate value to shareholders. There is a 45-day window where Ebix can garner alternative bids. Investors are more skeptical of the deal though, as there have been a handful of shareholder lawsuits announced in the wake of the announcement, alleging that the proposed deal is riddled with conflicts of interest regarding Raina's 19% stake in the company.

Hot Gold Stocks To Own Right Now: CalAmp Corp (CAMP.O)

CalAmp Corp. (CalAmp) develops and markets wireless technology solutions that deliver data, voice and video for critical networked communications and other applications. The Company has two business segments: Wireless DataCom, which serves commercial, industrial and government customers, and Satellite, which focuses on the North American Direct Broadcast Satellite (DBS) market. In May 2012, CalAmp Corp announced that it has entered into a five-year supply agreement to provide fleet tracking products to Navman Wireless. As part of the transaction, CalAmp has acquired certain products and technologies from Navman Wireless and established a research and development center in Auckland, New Zealand. The assets acquired by CalAmp include technology for Mobile Display Terminals (MDT) and an MDT product line marketed to telematics original equipment manufacturers (OEMs) globally. In March 2013, it completed the acquisition of the operations of Wireless Matrix Corporation.

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Wireless DataCom

The Wireless DataCom segment provides wireless technology, products and services for industrial Machine-to-Machine (M2M) and Mobile Resource Management (MRM) market segments for a range of applications, including optimizing and automating electricity distribution and ancillary utility functions; facilitating communication and coordination among emergency first-responders; increasing productivity and optimizing activities of mobile workforces; improving management control over valuable remote and mobile assets, and enabling emerging applications in a wirelessly connected world.

The Company's Wireless DataCom segment is comprised of a Wireless Networks business and an MRM business. CalAmp's Wireless Networks business provides products, systems and services to industrial, utility, energy and transportation enterprises and state and local governmental entities for deployment where the ability to communicate with mobile personne l or to command and control remote assets is crucial. Util! it! ies, oil and gas, mining, railroad and security companies rely on CalAmp products for wireless data communications to and from outlying locations, permitting real-time monitoring, activation and control of remote equipment. Applications include remotely measuring freshwater and wastewater flows, pipeline flow monitoring for oil and gas transport, automated utility meter reading, remote Internet access and perimeter monitoring. CalAmp is among the leaders in the application of wireless communications technology to Smart Grid power distribution automation for electric utilities.

MRM wireless solutions include global positioning system (GPS) location, cellular data modems and programmable events-based notification firmware as key components, allowing customers to know where and how their assets are performing, no matter where those mobile assets are located. Commercial organizations, vehicle finance providers, city and county governments, and a range of other enter prises rely on CalAmp products and systems to optimize delivery of services and protect valuable assets. Applications include fleet management, asset tracking, student and school bus tracking and route optimization, stolen vehicle recovery, remote asset security, remote vehicle start, and machine-to-machine communications. In addition to functioning as an OEM supplier of location and communications hardware for MRM applications, CalAmp is a total solutions provider of turn-key systems incorporating location and communications hardware, cellular airtime and Web-based remote asset management tools and interfaces.

The Company competes with Motorola Solutions, GE-MDS, Freewave, Sierra Wireless, GenX, Spireon, Novatel Wireless-Enfora and Xirgo.

Satellite

The Satellite segment develops, manufactures and sells DBS outdoor customer premise equipment and whole home video networking devices for digital and high definition satellite television (TV ) reception. CalAmp's satellite products are sold prim! arily ! t! o EchoSt! ar, an affiliate of Dish Network.

The Company's DBS reception products are installed at subscriber premises to receive television programming signals transmitted from orbiting satellites. These DBS reception products consist principally of outdoor electronics that receive, process, amplify and switch satellite television signals for distribution over coaxial cable to multiple set-top boxes inside the home that can acquire, recognize and process the signal to create a picture.

The Company competes with Sharp, Wistron NeWeb Corporation, Microelectronics Technology, Pro Brand and Global Invacom.

Hot Gold Stocks To Own Right Now: Cred Valtellines(PCVI.MI)

Credito Valtellinese Societa Cooperativa provides financial and investment products and services to private and business customers primarily in Italy. The company offers various investment and bancassurance products, such as savings products, unrestricted deposits, current accounts, certificates of deposit, repurchase agreements, and bonds, as well as life insurance and non life insurance products. It also provides various lending products and services comprising mortgages, credit cards, personal loans, salary backed loans, finance leases, consumer loans, and production household loans. In addition, the company offers various transfer products and services, including a range of services to deposit money, and manage collections and disbursements. As of December 31, 2010, it operated a network of 543 branches in Lombardia, Piemonte, Trentino Alto Adige, Veneto, Emilia Romagna, Toscana, Marche, Umbria, Lazio, and Sicilia, as well as operated 663 ATMs. The company was founded in 1908 and is headquartered in Sondrio, Italy.

Top Small Cap Stocks To Invest In 2014: TAL Education Group(XRS)

TAL Education Group, together with its subsidiaries, provides K-12 after-school tutoring services in the People?s Republic of China. It offers tutoring services to K-12 students covering various academic subjects, including mathematics, English, Chinese, physics, chemistry, and biology. The company provides tutoring services through small classes; personalized premium services, such as one-on-one tutoring; and online course offerings. As of May 31, 2011, it operated a network of 199 physical learning centers in Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Hangzhou, Chengdu, and Xi?an; and eduu.com, an online education platform for online courses. The company also offers education and management consulting services, as well as sells software. It operates under the Xueersi brand. The company was founded in 2003 and is headquartered in Beijing, China.

5 Stocks Setting Up to Break Out

DELAFIELD, Wis. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.

One example of a successful breakout trade I flagged recently was biopharmaceutical player Idenix Pharmaceuticals (IDIX), which I featured in July 18's "5 Stocks Under $10 Set to Soar" at around $3.60 a share. I mentioned in that piece that shares of IDIX had recently gapped down sharply from $5.25 to $3.35 a share with heavy downside volume. Shares of IDIX went on to hit a low of $3.15 a share, but I was noticing that the stock was starting to rebound off that low and moving within range of triggering a major breakout trade. That trade was set to trigger if IDIX managed to take out some near-term overhead resistance at $3.72 a share and then once it cleared its gap down day high at $3.75 a share with strong volume.

Guess what happened? Shares of IDIX didn't wait long to trigger that move, since the stock started to break out on July 30 with strong upside volume flows. This stock continued to boom to the upside after breaking out, with shares hitting an intraday high on Thursday of $4.69 a share. That represents a gain of well over 30% since the time of my original article. You can see here how powerful breakout trading can be once key resistance levels are taken out with volume. I don't think this stock is done going up and it has a great chance to re-fill the rest of its gap back towards $5.20 to $5.50 a share in the near future.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.

Walter Energy

One name that's quickly pushing within range of triggering a major breakout trade is Walter Energy (WLT), which is a producer and exporter of metallurgical coal for the global steel industry. This stock has been rocked by the shorts so far in 2013, with shares off sharply by 66%.

If you take a look at the chart for Walter Energy, you'll notice that this stock has been downtrending badly for the last six months, with shares plunging from over $40 to its recent low of $9.87 a share. During that downtrend, shares of WLT have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of WLT have now formed a double bottom over the last month, with shares finding buying interest as $9.87 and then at $9.96. This stock has started to rebound higher off that double bottom area, and it's now quickly moving within range of triggering a major breakout trade.

Traders should now look for long-biased trades in WLT if it manages to break out above some near-term overhead resistance at $11.94 to its 50-day moving average of $12.39 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 9.32 million shares. If that breakout hits soon, then WLT will set up to re-test or possibly take out its next major overhead resistance levels at $14.74 to $17.50 a share. Any high-volume move above those levels will then give WLT a chance to tag $20 a share.

Traders can look to buy WLT off any weakness to anticipate that breakout and simply use a stop that sits right below today's low of $11.59 a share, or right below $11 a share. If we get weakness below those levels, then I would key off of those double bottom levels at $9.96 to $9.87 a share. One could also buy WLT off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

This stock is loved by the bears, since the current short interest as a percentage of the float for WLT is ridiculously high at 40.7%. The bears have also been increasing their bets from the last reporting period by 4.6%, or by about 1.10 million shares. If that breakout hits soon, then WLT could see a big short-squeeze, so make sure to have this name on your breakout trading radar.

U.S. Steel

Another stock that looks poised to trigger a big breakout trade is U.S. Steel (X), which is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. This stock has been hit hard by the sellers so far in 2013, with shares off by 22%.

If you take a look at the chart for U.S. Steel, you'll notice that this stock has been trending sideways and consolidating for the last three months and change, with shares moving between $15.76 on the downside and $19.70 on the upside. Shares of X have just started to trend back above its 50-day moving average of $17.87 a share and it's quickly pushing within range of triggering a big breakout trade above the upper-end of its sideways trading chart pattern. If this breakout hits soon, then it would take X out of its consolidation pattern and potentially into a new uptrend.

Traders should now look for long-biased trades in X if it manages to break out above some near-term overhead resistance levels at $19.26 to $19.40 and then once it clears more resistance at $19.70 with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action 7.31 million shares. If that breakout triggers soon, then X will set up to re-test or possibly take out its next major overhead resistance levels at $21.30 to $24, or even $25 a share.

Top 10 Undervalued Stocks To Watch Right Now

Traders can look to buy X off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $17.87 a share, or below more support at $16.86 a share. One could also buy X off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

This stock is another favorite target of the short-sellers, since the current short interest as a percentage of the float for X is very high at 30.1%. This stock could easily see a powerful short-squeeze if that breakout hits soon, so make sure to keep it on watch.

AthenaHealth

One name that's starting to trend within range of triggering a near-term breakout trade is AthenaHealth (ATHN), which is a provider of Internet-based business services for physician practices. This stock has been on fire so far in 2013, with shares up sharply by 57.4%.

If you look at the chart for AthenaHealth, you'll notice that this stock recently gapped up sharply from $92.50 to its high of $116.18 a share with heavy upside volume. Following that gap, shares of ATHN pulled back to a low of $107.68 a share, before entering a consolidation pattern between $112.50 and its new 52-week high at $116.44 a share. This stock now looks ready to trigger a breakout trade and take out the upper-end of its consolidation chart pattern.

Traders should now look for long-biased trades in ATHN if it manages to break out above some near-term overhead resistance levels at $116 to its 52-week high at $116.44 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 500,969 shares. If that breakout triggers soon, then ATHN will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $125 to $130, or even $140 a share.

Traders can look to buy ATHN off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $112.50 a share, or down near more support at $110 a share. One can also buy ATHN off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

This is another name that is very popular among the bears, since the current short interest as a percentage of the float for ATHN is extremely high at 23.9%. If that breakout triggers soon, then ATHN could explode higher, so make sure to keep this name on watch.

Western Refining

Another stock that's starting to trend within range of triggering a near-term breakout trade is Western Refining (WNR), a crude oil refiner and marketer of refined products. It also operates service stations and convenience stores. This stock is off to a decent start in 2013, with shares up 10.8%.

If you look at the chart for Western Refining, you'll notice that this stock has been uptrending strong for the last month and change, with shares soaring higher from its low of $25.47 to its recent high of $32.09 a share. During that uptrend, shares of WNR have been consistently making higher lows and higher highs, which is bullish technical price action. This stock has also moved back above both its 50-day and 200-day moving averages, which is bullish. That move has now pushed shares of WNR within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in WNR if it manages to break out above some near-term overhead resistance at $32.09 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.96 million shares. If that breakout triggers soon, then WNR will set up to re-test or possibly take out its next major overhead resistance levels at $34 to $36.50 a share. Any high-volume move above $36.50 will then give WNR a chance to tag its 52-week high at $39.42 a share.

Traders can look to buy WNR off any weakness to anticipate that breakout and simply use a stop that sits right below either its 200-day at $30.06 a share or its 50-day at $29.30 a share. One can also buy WNR off strength once it takes out that breakout level with volume and then simply use a stop that sits a comfortable percentage from your entry point.

This is yet again another name that the bears are in love with, since the current short interest as a percentage of the float for WNR is crazy high at 39.7%. A monster short-squeeze could easily trigger here if that breakout hits soon, so make sure to put this name on your trading radar.

Himax Technologies

My final breakout trading prospect is Himax Technologies (HIMX), which designs, develops and markets semiconductors that are critical components of flat panel displays. This stock has been a monster mover to the upside so far in 2013, with shares up a whopping 181%.

If you look at the chart for Himax Technologies, you'll notice that this stock has been uptrending strong over the last two months, with shares moving higher from its low of $4.56 to its recent high of $7.81 a share. During that move, shares of HIMX have been consistently making higher lows and higher highs, which is bullish technical price action. Over the last two week, shares of HIMX have come out of its uptrend and simply started to consolidate its gains between $6.27 on the downside and $7.15 on the upside. A high-volume move above the upper-end of its recent range could now trigger a big breakout trade for HIMX.

Traders should now look for long-biased trades in HIMX if it manages to break out above some near-term overhead resistance levels at $7.15 to $7.85 a share and then once it clears its 52-week high at $8.19 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 6.30 million shares. If that breakout triggers soon, then HIMX will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $12 to $15 a share.

Traders can look to buy HIMX off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $5.95 a share. One could also buy HIMX off strength once it clears those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

How To Break Your Bad Financial Habits

Top Blue Chip Stocks For 2014

While the U.S. economy may be distinguished by contradictory data and trends, there is a perception that it is beginning to showcase tangible signs of growth. The statistics concerning consumer debt in the U.S. best reflect this expansion, with households managing to reduce their liability by 1% during the first financial quarter of 2013.

This drove cumulative household debt down to its lowest level since 2006, and has helped to dramatically improve the economic sentiment in the U.S. Tentative growth in the labor market has also created a more positive outlook among consumers, as the national rate of unemployment fell from 7.9% to 7.6% between January and April this year.

The Dangers Posed by Soaring Consumer Confidence
Questions concerning the validity of job market growth in the U.S. have provided cause for concern, however, especially in terms of its capacity to sustain the current rate of consumer spending. According to statistics released by the Department of Labor, low-paid temporary jobs accounted for more than 55% of the 175,000 employment positions created in May, as the ranks of the rising poor have continued to swell. Despite this, consumer confidence has soared from 69 to 81.4 during the second financial quarter, which suggests that some households may be spending disproportionately to the amounts that they earn and their long-term financial prospects.

With this in mind, it is important that consumers spend within their means and work hard to correct any errant financial behavior. If the current level of economic growth is to be maintained and improved upon, citizens must play their part by heeding the lessons that were taught by the Great Recession and subsequent periods of austerity.

Eliminate Emotion and Sentiment from Financial Decision Making
It is clear that improving economic sentiment has an impact on households, as it introduces emotion and impulse into the typical consumer's financial decision making. For individuals who like to indulge in emotional spending as a way of improving their mood or self-esteem, positive economic sentiment encourages them to act on impulse and purchase big-ticket or unnecessary items. As the current state of the U.S. economy proves, however, positive sentiment can be slightly misleading, as it may mask underlying issues in the labor and financial markets. It is therefore wise to make expenditure decisions based solely on your own financial circumstances, paying particular attention to your annual income, expenses, nature of employment and long-term fiscal goals.

Distinguish Between Actual Wealth and Credit
During the peak of the recent recession, revolving credit card debt accounted for approximately 98% of all household liability. While consumers have strived hard to diminish this debt and use their plastic wealth more responsibly, credit card borrowing has risen by $6.6 billion since May and even triggered a 4.1% rise in retail sales during the last month alone. This news is largely positive for the economy, although recent history suggests that today's consumers must make the clear distinction between corporeal wealth and credit if they are avoid incurring cyclical debt. More specifically, citizens should avoid making short-term credit card purchases that are disproportionate to their monthly salaries, as this ensures that they can repay their balance each month and avoid the accrual of long-term debt and interest.

Embrace a Frugal and Sustainable Lifestyle
There are often clear parallels between government and consumer spending during periods of recession, as harsh austerity measures may often be applied to compensate for spells of irresponsible and disproportionate spending. These two extremes are likely to trigger fluctuating periods of boom and bust in an economy, or leave households struggling to accumulate wealth and achieve long-term financial stability. There are some economies that may offer an example to consumers, however, with the Australian model renowned for its resilience and capacity to sustain growth during periods of stagnation. This was most evident during the recent recession, when banking institutions were managed conservatively and capital was invested into supporting long-term reforms rather than short-term solutions. Consumers can learn a lot from this, as responsible lending and the development of a long-term, frugal lifestyles can help to create financial security.

The Bottom Line
If the global economy is to achieve long-term growth and avoid the unenviable cycle of boom and bust, it is vital that government bodies and citizens heed the harsh lessons of the previous recession. The approach to spending is particularly important, especially among consumers who have previously borrowed money irresponsibly or spent outside of their existing means. By being responsible in their approach and basing spending decisions on relevant facts and personal circumstances, however, it is possible for citizens to correct their behavior and enjoy a more financially secure existence.

Is Standard Motor Products a Cash Machine?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Standard Motor Products (NYSE: SMP  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Standard Motor Products generated $63.8 million cash while it booked net income of $45.3 million. That means it turned 6.6% of its revenue into FCF. That sounds OK.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Standard Motor Products look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 20.1% of operating cash flow coming from questionable sources, Standard Motor Products investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 11.1% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 15.8% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

If you're interested in companies like Standard Motor Products, you might want to check out the jaw-dropping technology that's about to put 100 million Chinese factory workers out on the street – and the 3 companies that control it. We'll tell you all about them in "The Future is Made in America." Click here for instant access to this free report.

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We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

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Britvic's Interim Profit After Tax Up 52%

LONDON -- Britvic (LSE: BVIC  ) , the soft-drinks producer with its own brands including Robinsons and Tango in addition to third-party PepsiCo brands Pepsi and 7UP, revealed in its half-year results that group revenue was up 0.4% to £639 million, group EBITA rose 27.6% to £54 million, and profit after tax jumped 52% to £29 million at constant exchange rates. 

The EBITA margin -- earnings as a percentage of revenue -- rose from 6.5% to 8.4%, leading to higher profit despite the relatively modest increase in revenue.

The Robinsons brand is growing market share for Great Britan still, while carbonates in general saw price growth. Fruit Shoot is recovering from the recall setback, and sales appear to have regained the levels seen previously. Britvic International is set to build on good progress and roll out to 30 U.S. states, doubling distribution to more than 41,000 outlets.

Adjusted earnings per share rose an impressive 47.6% to 12.4 pence, and the interim dividend increased by 1.9% to 5.4 pence per share. Group adjusted net debt decreased by 5.7% from £534 million to £504 million.

Chief executive Simon Litherland commented:

Britvic has delivered strong first-half profit growth, a material improvement in cash flow and a reduction in net debt. This has been achieved by growing our average realized price, a continued focus on cost and the substantial progress we have made in improving the underlying strength of our business.

We intend to change our operating model to generate stronger performance in our core markets and accelerate the increasingly attractive international opportunities, underpinned by a reduction in the cost base of £30 million per annum by 2016... we are confident that we will deliver full year EBIT toward the upper end of our previously communicated range of £125 million-£131 million.

In February the proposed merger with A.G.Barr lapsed when referred to the Competition Commission, which will release its final decision on the transaction in July. At that point Britvic will reconsider completing the merger.

Along with the cost-savings initiatives outlined above, which include the closure of two factories and a warehouse, the group is planning to increase investment by £10 million per year by 2015 in the international business. There has already been a partnership agreement with Narang Group to sell Fruit Shoot in India from mid-2014. Investors have reacted positively to what is a hugely encouraging set of results and initiatives: The share price is up 11% as of 9:30 a.m. EDT. The market clearly feels Britvic has significant opportunity for further growth.

Indeed, Britvic has been a growth success story with a 48% gain in the last 12 months. If you are interested in tapping into similar opportunities, take a look at this free report, which could help you on your way. The report explains how taking a contrarian view and backing unloved companies can be a vital step on the path to the magic £1 million milestone. Maybe one day a resurgent Britvic could be the share that transforms your wealth. Just click here to download the report today, but hurry -- all Fool reports are free for a limited time only.

PetSmart Picks New CFO

PetSmart (NASDAQ: PETM  ) will soon have a new CFO to go with its new CEO and COO.

In January, the pet supplies superstore confirmed that David K. Lenhardt would become its new chief executive officer, and Joseph O'Leary would assume the chief operating officer's post. That was two down, one to go, and the company named the third member of its C-level triumvirate Monday: Carrie Teffner, who will become chief financial officer effective June 3.

Teffner comes to PetSmart from an unusual direction, having most recently worked as CFO of privately held barbecue grill manufacturer Weber-Stephen Products LLC, and before that, as CFO of Timberland Company.

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In a filing with the SEC Monday, PetSmart revealed that it will be paying Teffner an annual salary of $550,000, plus:

short-term incentive pay targeting 75% of base salary an extra incentive bonus for her first year of work (if she stays through year-end) $500,000 in stock options and "performance share units" (PSUs) vesting over three years an additional one-time initial equity grant worth $200,000, also divided between stock options and PSUs an additional $100,000 one-time cash bonus and assorted other benefits

Adding to the attractiveness of the offer, PetSmart shares declined 2.7% in price on Monday, and the dollar value in which Teffner's equity awards are stated should be worth a few extra shares as a result.

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The Dow's 5 Highest-Yielding Dividend Stocks

It's no secret that investors have been craving high-yielding dividend stocks over the past five years. Since the onset of the current economic malaise, the Federal Reserve's easy monetary policy has made respectable income-earning investments increasingly hard to come by. At the beginning of last year, many analysts were even speculating about the onset of a dividend bubble. With this in mind, every once in a while I like to check in on the status of the biggest dividend stocks on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) .

Company

Yield

YTD Performance

AT&T (NYSE: T  )	4.82%	13.53%
Verizon (NYSE: VZ  )	3.91%	24.45%
Merck (NYSE: MRK  )	3.77%	12.63%
Intel (NASDAQ: INTC  )	3.76%	17.45%
General Electric	3.37%	8.41%

Source: Finviz.com.

The perennial high-yielding telecoms, AT&T and Verizon, continue to dominate the rest of the dividend stocks on the Dow. The key to these companies' success over the past few years has been the ability to offset their contracting landline business with expanding wireless volume thanks to the proliferation of smartphones. As my colleague Rick Munarriz discussed recently, their regional competitors, such as Frontier Communications, Windstream, and CenturyLink, haven't been as fortunate.

Pharmaceutical giant Merck comes in third, with a yield of 3.77%. At the beginning of this month, the company disappointed analysts with worse-than-expected first-quarter earnings. For the three months ended March 31, Merck saw earnings per share and revenue fall by 14% and 9%, respectively, on a year-over-year basis. For what it's worth, its competitor Pfizer notched similar results. Drugmakers are struggling to overcome a series of patent expirations known as the "patent cliff" -- click here to read about why the patent cliff exists.

Intel comes in fourth, with a 3.76% yield. Like the pharmaceutical companies, Intel is fighting its own demon -- a dying market for personal computers. Sales for PCs fell a staggering 14% in the first quarter of the year, the worst such showing since independent research company IDP began tracking the statistic. What's the culprit? According to fellow Fool Evan Niu, investors have Microsoft's Windows 8 largely to thank. "The new interface may be a bit too much for the average consumer to take in," Evan recently noted. "After all, killing an interface element like the Start menu that's been around for 17 years is a big risk."

Finally, General Electric rounds out the top five, yielding 3.37% at the close of the market last week. While it may not be obvious at first glance, GE is arguably one of the Dow's five most-loved stocks. What would lead Fool Sean Williams to proclaim this? The answer is that GE has one of the lowest short-interest ratios on the blue-chip index, coming in behind only Coca-Cola. This is good news for income investors with shares of GE in their portfolios, as it suggests an absence of negative sentiment in the market toward the popular stock.

Want to learn more about Intel's juicy yield?
When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.

3 Earnings Reports That Caught My Attention Last Week

As second-quarter earnings reports begin to kick into gear, I can't help but point out that the majority of earnings reports we've covered over the past year have been better than expected. With so many companies reporting during the weeks that comprise earnings season, it's easy for some earnings reports to fall through the cracks.

Each week for the past year, I've taken a look at three companies that could be worth further research after either beating or missing their profit expectations. Today, we'll take a gander at three more companies that reported earnings last week. They may have slid under your radar, but they deserve a look.

Company

Consensus EPS

Reported EPS

Surprise

Advanced Micro Devices (NYSE: AMD  )	($0.18)	($0.13)	28%
Marten Transport (NASDAQ: MRTN  )	$0.26	$0.32	23%
Philip Morris International (NYSE: PM  )	$1.34	$1.29	(4%)

Source: Yahoo! Finance.

Advanced Micro Devices
It's certainly a gamble, but perhaps the calls for AMD's demise were a bit premature after all. I certainly didn't expect anywhere near the quarter that AMD delivered given that microprocessor giant Intel (NASDAQ: INTC  ) missed Wall Street EPS expectations by $0.01 in the first quarter. Overall profit tumbled 25% from the year-ago period because of weak PC sales. Furthermore, research firm IDC noted that PC sales dipped a whopping 14% in the first quarter -- essentially their worst quarterly dip on record. Even with Intel backing its full-year profit forecast, no one was expecting much from AMD.

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Yet, for all intents and purposes, AMD's cost-cutting and ongoing restructuring is beginning to show the first signs of a turnaround. AMD's loss and sequential revenue decline was much lower than many had forecast (including AMD), and had a lot to do with its 18% decrease in operating expenses, and its key wins in the gaming sector as the processing core provider for Sony's Playstation 4 and Microsoft's new Xbox console. With a renewed focus on graphics, gaming, and mobile, AMD just might be able to pull off the impossible and return to profitability before the year is out -- even as PC sales continue to slump. I never thought I'd say this, but don't count out AMD just yet!

Marten Transport
Late last year I went out on a limb and predicted that three underperforming sectors were going to see the sunshine in 2013. One of those was the PC sector, and, thus far, I've been dead wrong in that respect. On the other hand, my forecast that trucking stocks would see relief has been pretty much spot-on.

Marten Transport, a provider of temperature-sensitive trucking solutions, reported its first-quarter results last Tuesday and absolutely drove over Wall Street's profit estimates by 23%. Operating revenue increased 8.6% and net income spiked 32.2% as the company managed to efficiently cut costs and boost its fuel surcharges to counteract any shipping weakness that may have been apparent. 

One factor set to work in Marten's favor -- since it does transport food -- is that food inflation is relatively tame across nearly all tradable commodities. With food costs stable, consumers are more apt to buy and demand is unlikely to fall. It also doesn't hurt that diesel fuel prices have been stuck in a tight range for two years now, giving trucking companies like Marten Transport a chance to boost their prices to make up the difference. I'll be looking for trucking companies like Marten to continue to outperform in 2013.

Philip Morris International
Philip Morris International's first-quarter report is proof that even a tobacco company that services nearly every country around the globe can have a snafu arise once in a while.

For the quarter, Philip Morris, known best for its premium Marlboro brand, reported an adjusted profit of $1.29 as revenue inched higher by nearly 2% to $7.58 billion. Unfortunately, underground cigarette trading in parts of southeastern Asia and the Philippines took its toll as cigarette volume declined sharply, by 6.5%. Philip Morris' saving grace is its amazing pricing power, which helped push revenue higher despite the shipping volume retracement. 

Some might see this action as all the more reason to hunker down at home with Altria (NYSE: MO  ) , which commands nearly half of all premium brand market share in the U.S. and has one of the safest-yielding dividends imaginable. However, I contend that the U.S.' antismoking regulations are too strict and poised to get even stricter as the years progress. Furthermore, President Obama's 2014 budget proposes a 93% federal government tax increase per pack to $1.95 from $1.01. In my opinion, the geographic diversification of Philip Morris will trump the domestic concerns Altria will face in the coming decade any day of the week!

Foolish roundup
Sometimes an earnings beat or miss isn't as cut-and-dried as it appears. I've given my two cents on what's next for each of these companies -- now it's your turn to sound off. Share your thoughts in the comments section below and consider adding these stocks to your free and personalized watchlist.

Add Advanced Micro Devices to My Watchlist. Add Marten Transport to My Watchlist. Add Philip Morris International to My Watchlist.

Is this the smart way to play the tobacco sector?
Tobacco companies have been under siege in the U.S. for decades, as waves of litigation, regulation, and antismoking campaigns have given the industry a black eye. Yet Philip Morris International focuses on overseas markets, where business prospects generally look brighter. Investors have been happy with its stock's performance, but is Philip Morris still a buy? Find out in The Motley Fool's premium research report on the company, which includes in-depth analysis of its opportunities and challenges ahead. To claim your report just click here now.

Will Manitowoc Earnings Get a Big Lift?

Manitowoc (NYSE: MTW  ) will release its quarterly report on Monday, and even with the sluggishness in the economies of many of the fastest-growing countries in the world, shareholders believe that stock still has a lot of promise. The rapid growth in Manitowoc earnings in recent years is expected to slow for the quarter, but investors still look forward to a rapid acceleration in earnings growth in the years to come.

Most of Manitowoc's success has come from its production of cranes, with products ranging from the traditional building-top cranes that you've seen atop skyscrapers to specialized mobile telescopic cranes that allow workers to do heavy lifting in rough-terrain environments. But Manitowoc also has a food-service equipment business that diversifies its exposure somewhat from the construction industry. Let's take an early look at what's been happening with Manitowoc over the past quarter and what we're likely to see in its quarterly report.

Stats on Manitowoc

Analyst EPS Estimate	$0.35
Change From Year-Ago EPS	9.4%
Revenue Estimate	$1.07 billion
Change From Year-Ago Revenue	6.2%
Earnings Beats in Past Four Quarters	2

Source: Yahoo! Finance.

What's holding Manitowoc earnings growth back?
Analysts have trimmed their views on Manitowoc earnings in the past few months, reducing their June-quarter estimates by a nickel per share and their full-year 2013 projections by more than twice that figure. Yet the stock has held up relatively well compared to its peers, rising 12% since late April.

Interestingly, Manitowoc actually started the quarter on the wrong foot, as it disappointed investors with a poor earnings report at the beginning of May. Although its crane segment posted reasonable sales growth of 7.8%, the food-service equipment business saw much slower revenue growth of 2% and actually reported a 3.7% drop in operating income.

The entire construction sector has taken huge hits due to sluggishness in Chinese growth, the continued European financial crisis, and unrest in areas like Brazil. Peer Terex (NYSE: TEX  ) had to cut its full-year earnings guidance last month, with its construction and material- and port-handling businesses showing particular weakness. Yet the potential silver lining for Terex was its aerial works platforms division, which saw 21% growth in its most recent quarter. The aerial segment's success points to strength in the niche that Manitowoc shares with Terex.

Moreover, Manitowoc has managed to maintain a healthy backlog of orders that show the company's potential to sustain its long-term growth. With $776 million of outstanding crane orders as of March, the backlog represents about four months' worth of revenue for the segment, roughly in line with what industry giant Caterpillar's (NYSE: CAT  ) $20.4 billion in order backlog equates to as a proportion of its much larger total revenue. Yet Manitowoc hasn't seen Caterpillar's substantial contraction in sales recently, pointing to the crane-maker's greater resiliency.

The big question facing Manitowoc is which of its promising segments has more potential. Food service has actually been a growth area lately, with commercial-oven maker Middleby (NASDAQ: MIDD  ) seeing huge gains in its business and its stock as restaurant companies go through massive expansions around the world. Even if global construction activity stays depressed, the rising consumer classes in many emerging markets could help Manitowoc weather the storm by encouraging continued restaurant expansion.

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In the Manitowoc earnings report, watch to see which segment produces the greater growth both this quarter and in company projections for the future. As long as the setbacks in the global economy prove to be normal cyclical downturns rather than permanent slowdowns, then Manitowoc's prospects to produce outpaced growth in future years look bright.

Manitowoc shows how you can profit from our increasingly globalizing economy just by investing in your own backyard. The Motley Fool's free report, "3 American Companies Set to Dominate the World", shows you more great ideas along the same lines. Click here to get your free copy before it's gone.

Click here to add Manitowoc to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.