The Original Behavioral Economist

“I’ve been doing the behavioral stuff for 35 years. It’s the basis of investing and economics. It’s only recently that it’s been popularized by academia. They’re reconstituting something in a trivial manner.”

Michael Aronstein doesn’t mince words. The president, chief investment officer and portfolio manager of the MainStay Marketfield Fund has a good thing going in the long-short equity space, due in part to his no nonsense style and the predictable unpredictability of human behavior. And it’s paying off. The fund has five stars, $7.4 billion in AUM, has returned 8.5% annually during the past five years (outdoing 95% of its peers) and is ranked third out of 45 long-short equity funds since inception its in 2007.

Aronstein, his partner Michael Shaoul and the team of analysts look for “ideas investors are acting on that we feel are incorrect.”

“We point to things they own that they shouldn’t be, and things they’re missing that they should,” Aronstein explains. “The markets are influenced by global market trends, but the two really are different. The global macro situation causes distortions in the domestic marketplace that will eventually correct themselves.”

It might sound like a value play, but it’s really anything but. To the contrary, Aronstein looks for growth companies with good balance sheets, those that “might be in controversial industries, but are strong themselves .”

When asked for an example of where this might occur, he immediately points to government statistics, an area he’s been studying for a year and a half.

“If government was subject to Sarbanes-Oxley, the producers of these numbers would be in jail,” he says. “Statistics is the easiest place for government not to spend money, if that’s what they’re looking to do.”

“If you have a story you’re writing about the New York State Legislature that is produced by the New York State Legislature, you wouldn’t need to be too innovative. People tend to be very lazy about taking numbers at face value. They don’t realize that most statistics are an estimate of a guess. When the revisions come out, it very often puts them in the opposite camp of the original conclusions.”

Aronstein says the real value comes in giving a sense of the forces at work in the world.

“Investing is avoiding the major sinkholes that could permanently take you out. We let clients know of the theme of the decade that has matured and is now too dangerous.”

With that in mind, he advises to “short bonds all over the world. The theme that’s matured is emerging-market fixed income. It’s been the most popular product on Wall Street recently.”

He noted the credit expansion “gave him pause in 2010 and 2011,” and we’re at an even higher level of credit exposure than 2003 through 2007, the period just prior to when the markets seized.

So what does he like?

Europe — little surprise given his philosophy.

“We have 25% of the fund in Europe. The north, in particular, is doing better than anybody could have guessed.”

He cryptically concludes that there are “forces that people have come to rely on that will be unseated,” noting energy as an example.

“This unseating will be an unmitigated positive for some and inherently unstable for others. Like the old saying in golf: every swing makes somebody happy.”

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Check out It’s Not Just Active and Passive, but Behavioral Finance That Best Meets Clients’ Needs on AdvisorOne.

Sallie Mae Stays Neutral - Analyst Blog

On Jul 4, 2013, we reiterated our Neutral recommendation on Sallie Mae, Inc. (SLM). The decision was based on the proposed split of the company, which is anticipated to help Sallie Mae navigate through the tough regulatory environment. However, reduced net interest income and higher operating expenses were the downsides.

Why Neutral?

Sallie Mae's first-quarter earnings of 61 cents per share marginally beat the Zacks Consensus Estimate and surpassed the prior-quarter figure by 11%. Over the last 60 days, the Zacks Consensus Estimate for 2013 increased 1% to $2.49, whereas for 2014, it dropped 0.4%. As a result, Sallie Mae currently carries a Zacks Rank #3 (Hold).

To boost the company's long-term growth in the present economic environment, Sallie Mae announced the decision to split the company's present business into 2 parts, namely an education loan management business and a consumer banking business.

We expect the company to benefit from this, as with the division, management's focus will be on Sallie Mae's growing consumer banking business and on tackling its education loan portfolios. Together, these are expected to aid bottom-line growth in the near term.

Moreover, the company's business shift toward private student loans and direct channel loans as well as cost reduction measures – to counter the legislative impact – are positives for the stock. Extensive capital deployment activities also continue to reinforce investors' confidence in the stock.

However, the scope and profitability of Sallie Mae's businesses are exposed to risks arising from legislative and administrative actions. Further, we remain concerned about the run-off of the company's FFELP loan portfolio, which will weigh further on interest income. In addition, the deteriorating credit quality is a negative for the stock.

Other Stocks Worth Considering

Other financial institutions that are performing better than Sallie Mae include Capital One Financial Cor! p. (COF), Discover Financial Services (DFS) and Regional Management Corp. (RM). All these stocks carry a Zacks Rank #2 (Buy).

What Does Wall Street See for MEDNAX's Q2?

MEDNAX (NYSE: MD  ) is expected to report Q2 earnings around July 30. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict MEDNAX's revenues will increase 18.4% and EPS will grow 11.5%.

The average estimate for revenue is $532.0 million. On the bottom line, the average EPS estimate is $1.36.

Revenue details
Last quarter, MEDNAX logged revenue of $502.7 million. GAAP reported sales were 19% higher than the prior-year quarter's $422.6 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, EPS came in at $1.10. GAAP EPS of $1.10 for Q1 were 12% higher than the prior-year quarter's $0.98 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 30.6%, 100 basis points worse than the prior-year quarter. Operating margin was 18.2%, 60 basis points worse than the prior-year quarter. Net margin was 11.0%, 40 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $2.16 billion. The average EPS estimate is $5.45.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 173 members out of 180 rating the stock outperform, and seven members rating it underperform. Among 62 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 60 give MEDNAX a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on MEDNAX is outperform, with an average price target of $91.00.

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Is Regal Beloit's Cash Machine Empty?

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 Regal Beloit (NYSE: RBC  ) , 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, Regal Beloit generated $257.4 million cash while it booked net income of $196.4 million. That means it turned 8.2% 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 Regal Beloit 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 questionable cash flows amounting to only 4.9% of operating cash flow, Regal Beloit's cash flows look clean. 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 3.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 26.3% 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.

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How Lowe's Hopes to Become No. 1

On Wednesday, Lowe's (NYSE: LOW  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Lowe's has played the role of sidekick to industry leader Home Depot (NYSE: HD  ) for a long time, with Home Depot having earned a spot in the Dow Jones Industrials while Lowe's has languished behind. Yet despite having a market cap just half Home Depot's size right now, Lowe's has plenty of growth opportunities that could help it catch up with its archrival. Let's take an early look at what's been happening with Lowe's over the past quarter and what we're likely to see in its quarterly report.

Stats on Lowe's

Analyst EPS Estimate	$0.51
Change From Year-Ago EPS	16%
Revenue Estimate	$13.45 billion
Change From Year-Ago Revenue	2.2%
Earnings Beats in Past 4 Quarters	3

Source: Yahoo! Finance.

Did Lowe's earnings get chilly this quarter?
Analysts have largely stuck by their views on Lowe's earnings, cutting just a single penny from their estimates for the just-ended quarter and the current fiscal year. The stock has done fairly well, rising about 8% since mid-February.

Lowe's has a much longer history of serving the home-improvement market than many investors realize. Even though the company has seen plenty of up and down cycles, Lowe's has managed to earn a spot among the Dividend Aristocrats by raising its annual dividend every single year for the past half-century. More recently, Lowe's has accelerated its dividend growth pace, with its payout having almost doubled in just the past five years.

But Lowe's hasn't done a good job of matching up against Home Depot's strength. While Home Depot has incorporated better use of its workers' skill sets and greater use of innovative technology to help improve efficiency and boost profits from its commercial customers, Lowe's has faced the headwinds of weakness in the appliance space and other pure do-it-yourself project materials.

Moreover, some investors worry that the huge run-up in Lowe's stock price already indicates overheated expectations for the retailer. Earlier today, Oppenheimer downgraded the stock, maintaining its favorable price target on Lowe's but removing its buy rating in advance of the earnings release.

Still, Lowe's expects the good times to continue and is taking steps to capitalize, with plans to hire 9,000 permanent part-time employees. CEO Robert Niblock believes that the recent rebound in home prices is finally making customers willing to spend on improving their homes, and it expects to see greater remodeling activity in the near future.

In Lowe's earnings report, look closely at the impact of a fairly cold start to the spring season on its sales of garden and outdoor materials. Wal-Mart (NYSE: WMT  ) already identified the weather as a factor in its weak quarterly report, and many of its stores have extensive lawn and garden offerings. If Lowe's follows suit, it could prove to be the catalyst that sends the stock falling from its heights, at least temporarily.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Kimberly-Clark Reports First-Quarter Earnings

Consumer products manufacturer Kimberly-Clark  (NYSE: KMB  )  reported first-quarter earnings today that came in $0.02 short of consensus estimates while generally meeting top-line expectations.

Kimberly-Clark recorded revenues of $5.32 billion in the quarter that ended March 31, a 1.5% increase over last year's $5.24 billion, and pretty much in line with Wall Street's estimates of $5.36 billion. On the bottom line, the company generated $531 million, or $1.36 per share, up 15% from the year-ago figure but just shy of the $1.38-per-share estimate on a GAAP basis.

On an adjusted basis, however, excluding charges for costs related to its pulp and tissue restructuring actions, earnings per share were $1.48, a first-quarter record. Last year the company undertook changes to its consumer and professional businesses in western and central Europe where it will exit the diaper business while divesting or exiting some lower-margin businesses, mostly in the consumer tissue market. Italy's diaper business will remain unaffected.

Kimberly-Clark chairman and CEO Thomas J. Falk believes the consumer products company is off to a good start for the year, and noted, "As a result of our strong first quarter performance, we are raising our full-year outlook for adjusted earnings per share while we continue to invest for long-term success.  We are optimistic about our plans and believe that execution of our global business plan strategies will generate attractive returns to shareholders."

Kimberly-Clark now anticipates adjusted earnings for 2013 to be $5.60 to $5.75 per share, up 7% to 10% compared to adjusted earnings per share of $5.25 in 2012. It previously targeted adjusted per-share earnings of $5.50 to $5.65 for 2013.

In the first quarter, personal care segment sales rose 1% and were up 3% organically, while consumer tissue sales were up 4%. Both segments rose as a result of rising volumes and improved pricing, offset in part by the European changes noted above. Its K-C professional segment saw sales fall both here and abroad, and the health care division suffered a 2% decline in sales as higher manufacturing costs and increased expenses pushed the business lower.

link

Pentagon Spending Screeches to a (Near) Halt

Maybe there's something to this whole "sequestration" phenomenon after all -- because for all intents and purposes -- and certainly in comparison with recent trends -- Department of Defense spending has come to a screeching halt in recent days. On Wednesday, for example, DoD issued a grand total of three new contracts, totaling a mere Pentagon pittance of just $44.4 million.

Privately held Beechcraft Defense, still feuding with Embraer (NYSE: ERJ  ) over a contract award for fighter planes in Afghanistan, got a consolation prize of sorts. The $28.6 million firm-fixed-price contract extension it won Wednesday, to service Iraqi Air Force T-6 training aircraft through Dec. 31, was the largest award the DoD gave out Wednesday. A large step down from that one was an $8.3 million award to BAE Systems' (NASDAQOTH: BAESY  ) Maritime Services Division to supply "Archerfish neutralizers (destructor, mine neutralization, Airborne EX64 Mod 0 Archerfish)" as part of an upgrade to U.S. Navy MK-105 AMCM Magnetic Mine Sweeping systems produced by Exelis (NYSE: XLS  ) . BAE's expected to complete performance on this contract by September 2014. Finally, Comtech Telecommunications (NASDAQ: CMTL  ) subsidiary Comtech EF Data won at $7.5 million cost-plus-incentive-fee, cost-plus-fixed-fee, firm-fixed-price contract to supply Advanced Time Division Multiple Access Interface Processors -- Ethernet devices to be used by the U.S. Navy to connect ship, shore, and submarine platforms. Work on this contract will be complete by April 24, unless contract options are extended. In that case, the completion date could move out to March 2018, and the contract value could rise to $28.4 million.

Few Believe Gold Can Shine

By Poly

This is a special report from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%. 

Considering that Gold has risen $80 off its low and the precious metals Miners have screamed higher, it's surprising how little bullish cheering we've heard.  My discussion forum, Bull & Bear Talk, is very sensitive to Gold, but has barely seen an uptick in traffic during this move.  In past moves out of Investor Cycle Lows, Bull and Bear Talk has had an immediate surge in traffic and a significant rise in the number of excited posts.

This is just a small sampling of sentiment, but I think it's telling.  We've had a 3 year bear market in Gold that has battered and beaten the bulls into complete submission.  All speculative interest and fond memories of the past bull market have been completely erased.  This lack of interest was evident in the recent 3rd test of the bear market low – the volume and volatility was much lower than during the first two retests.  The bear market has achieved its goal – to clear sentiment on a longer timeframes and lay the foundation for a real change in trend.  The view of Gold and its sentiment on longer timeframes is a picture perfect example of the ebb & flow of Cycles.

The $40 “recognition day” last week was obviously more than enough confirmation to declare a new Daily Cycle (Daily Cycle is 24-28 trading days), but it was powerful enough for declaration of a new Investor Cycle (Investor Cycle is 22-26 Weeks) as well.  This is the development we've patiently waited for.  However, on shorter time frames, Gold has pushed the Daily Cycle into an extremely overbought state, so a $20 or more retracement is possible.

This is only a problem for short term traders; a decision to take a new position now at such overbought levels could mean entering just as the market cools off.  Nobody ever said that trading is easy, and determining when to enter a fast-moving asset is a frequent dilemma.  Getting the trend right is only part of the challenge.  Gold's 1st Daily Cycle typically rallies until day 18-20 before topping, so on day 13 here we're likely to see another push higher before Gold turns down into its 1st Cycle Low.  There is no way of knowing how powerful the remainder of the Cycle will be, but the average 1st Daily Cycle adds 10%.  If that happens this time, Gold will top at around $1,364.

While the prescious metals Miners are looking good, Silver looks potentially explosive.  Traders were caught flat footed and overly short, as is often the case at Investor Cycle Lows.  The current 5% surge has come primarily on short covering, and Silver's massive short position will need to be reversed.  The process of unwinding has only just begun, and it should provide enough fuel for Silver to move closer to the $23 level.

Beyond short covering, speculators will determine where Silver eventually tops.  If price continues to rise, speculators should begin to jump on the bandwagon and it will be interesting to see how far Silver gets pushed in the current Investor Cycle.  From a historical standpoint, it's very common to see Silver rally at least 20% – and typically close to 30% – in any given Investor Cycle.  In some cases, it did so while overbought for almost the entire move.  A similar move now would put Silver near $26, a level that tests former support.

I hope people keep their emotions contained while seeing these potential price projections.  I'm not a believer in picking targets, especially ones 20%-30% above current levels, because doing so can serve to fuel a trader's bias while diverting focus from the price action at hand.  It can also encourage a “can't lose” mentality and a tendency to over-trade or overleverage a move.  This can lead to being whipsawed out of positions and to undue stress even as positions do well.  Trading is more about execution that anything else, and proper timing (Cycles) of the markets is a key to success.

From an Investor Cycle standpoint, we've yet to break the bear market trend-line.  That's OK, because Gold is the slowest in this sector to react and it's only 14 days into what should be a 6 month Cycle.  What a new Investor Cycle shows, however, is the potential ahead – a normal Investor Cycle can add up to 20% in gains before topping out.

From a technical standpoint, the $1,500 area stands out as a potential top for Gold's coming move.  At $1,500, Gold would test a key bear market resistance level and the point where bulls unsuccessfully mounted a defense.  For the investors who trade on the Investor Cycle timeframe, we've finally got the turn and confirmation we've patiently waited for.  All of that said, however, please remember that in investing, there are no guarantees.  I will never stop repeating this phrase.  But with a confirmed new Investor Cycle in play, the odds have dramatically shifted and the bulls should now be calling the action.

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report.  The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, and US Bond Cycles.  Along with these reports, members enjoy access to two different portfolios and trade alerts.  Both portfolios trade on varying timeframes (from days, weeks, to months), there is a portfolio to suit all member preferences.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Commodities Previews Markets Trading Ideas

Originally posted here...

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GM recalls another 2.4M for belts, bags, more

General Motors is recalling a total of 2.42 million vehicles in four separate action to fix safety flaws.

The total nearly matches the 2.6 million cars GM recalled in three stages earlier this year for a deadly ignition switch flaw. The biggest recent recall day, however, was last Thursday, when GM announced five recalls that totaled 3 million vehicles.

GM also said it now plans to take a $400 million charge against second-quarter earnings for the costs of recalls — double the $200 million it had forecast after the five recalls last week.

The automaker took a $1.3 billion charge the first quarter for recalls, almost wiping out its earnings.

GM says the new recalls are part of its "continuing effort to quickly address emerging safety issues."

The government fined GM the maximum $35 million last week for dragging its feet on the ignition switch defect — spotted within GM in 2001 but not recalled until this year.

By GM's count, its "house cleaning" has resulted in 29 recalls in the U.S. so far this year, including Tuesday's. Two involve fewer than 100 vehicles.

GM links 18 crashes and one injury to one of the problems in the latest recall, but no fatalities. The ignition switch fault is linked to 12 deaths in 46 accidents that involved injury or death in the U.S. and one fatal crash in Canada.

The vehicles involved, and their defects:

1,339,355 Buick Enclave, Chevrolet Traverse, GMC Acadia full-size crossover SUVs from the 2009-14 model years and Saturn Outlooks from 2009-10. Front safety lap belt cables can wear out due to people moving around while wearing the belts. GM told dealers they can't sell new or used versions of the vehicles until they are repaired.1,075,102 vehicles were added to an April 29 recall to fix a transmission shift indicator cable that can wear and fail to indicate the correct gear. Added in this action: 2004-08 Chevrolet Malibu and Maxx, 2007-08 Saturn Aura, 2005-08 Pontiac G6. This fault is the one linked to the 18 crash! es and one injury.58 Chevrolet Silverado HD and GMC Sierra HD full-size pickups from the 2015 model year because loose electrical connections in the engine compartment could cause a fire.1,402 Cadillac Escalades and Escalade ESVs from the 2015 model year because a flaw in how the passenger-side front air bag is connected to the dashboard could cause the bag to inflate improperly in a crash. Only 224 of those had been sold, and GM sent those owners overnight letters warning of the condition.

2015 Cadillac Escalade(Photo: General Motors)

Golden Star Continues to Lose Ground

At the end of 2013 I wrote about Golden Star Resources Ltd. (GSS)'s troublesome future and gave several reasons for my bearish stance towards the stock. A small market, high geopolitical risk in some of the countries the firm operates, along with overexpansion in times of fluctuating gold prices gave tune to the massive shedding of shares by investment gurus. Five months have past since I last considered Golden Star's potential, and everything indicates the situation has not changed.

Guru Activity Shows a Clear Tendency

Steven Cohen (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Arnold Schneider (Trades, Portfolio), had already sold their entire holdings in the company by October 2013, indicating they had little faith in the gold miner's recovery. By the end of the year, Jim Simons' (Trades, Portfolio) Renaissance Technologies took a similar decision, reducing its stake in the firm by 32%. This tendency towards the sale of Golden Star stock was duly noted by investors and analysts alike, and concurs with the company's poor performance.

A Look at the Numbers

In an industry plagued by fluctuating metal prices, operating with lofty margins can be quite helpful. Yet Golden Star cannot afford such luxuries. With an operating margin of 0.1% and a net margin of -56.8% the firm is in a tight spot, especially when compared to the industry average. Unlike its industry peers' median, which are of 2.26% and -0.09%, respectively, the Toronto-based gold miner is struggling to generate decent cash flow levels. Further metrics depict a even worse situation for shareholders: return on equity is currently at -370% and revenue growth is estimated to reach a poor 2.5%. Purchasing overpriced assets, relative to current gold prices, is surely one of the reasons for such grim figures, as financial losses have taken their toll on Golden Star.

The announcement of its 2013 full year, and fourth quarter earnings only helped to add to shareholders' concerns. A 15% decline in revenue was expected by those who took the year-long drop in gold prices into consideration, yet the net loss of $311 million is worrisome. With such hefty losses, Golden Star will struggle to meet its short-term obligations, and thus will need to build further debt in order to stem payments. Yet while liquidity remains an issue, some good news did arise, as the company announced it intends to reduce operating costs below the $1,000 mark in 2014. Whether this will be enough to regain its foothold is doubtful considering recent events; however, it does remain a possibility and thus, a beacon of light for shareholders.

Poor Performance, Low Price

Apart from mounting debt levels and reduced margins, Golden Star has yet to produce positive cash flow levels, largely due to poor production and operational issues. Considering this scenario, the only upside to this stock seems to be its price. It is currently trading at $0.64 per share, at 0.4 times its trailing sales. This entails a significant price discount relative to industry peers' average, which is currently at 1.63. However, the risks of investing in a small and troubled gold mining company such as Golden Star are clear, especially considering the existence of viable alternatives such as Barrick Gold Corporation (ABX). In the end, I choose to remain consistent with my past conclusion and consider Golden Star shares are something investors should stay away from, unless they intend to gamble on a losing horse.

Disclosure: Patricio Kehoe holds no position in any stocks mentioned.

Also check out: Arnold Schneider Undervalued Stocks Arnold Schneider Top Growth Companies Arnold Schneider High Yield stocks, and Stocks that Arnold Schneider keeps buying Chuck Royce Undervalued Stocks Chuck Royce Top Growth Companies Chuck Royce High Yield stocks, and Stocks that Chuck Royce keeps buying
About the author:Patricio KehoeA fundamental analyst at Lone Tree Analytics

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Avon vs. Herbalife - Which Should You Take In 2014?

Related AVP Earnings Expectations For The Week Of February 10: AIG, Cisco, Deere, PepsiCo And More Short Sellers Place Their Holiday Retail Bets (AVP, BBY, GME) Related HLF Ackman's New Strategy: Targeting Herbalife Distributors And Board Members Bill Ackman Tries To Spoil Herbalife's Party

For decades, companies that practice the direct-selling business model have promised distributors a healthy share of company profits. In the direct-selling model, the share that would have been invested in advertising is paid out to distributors, as the distributors themselves essentially handle that part of the business.

Though many companies in the direct selling space have been tarnished with the moniker of being “pyramid schemes,” several companies weathered the criticisms and made formidable reputations for themselves.

Some were even able to rise to the prominent positions of being publicly traded companies, including Avon (NYSE: AVP) and Herbalife (NYSE: HLF). We will take a look at how these two direct-selling companies fared in 2013 and beyond.

On January 2, 2013, a share of Avon stock cost $15.00. Investors who held the stock for the 18 months preceding January 2013 were undoubtedly worried about the stock, as it had seen its share price cut in half in that time frame. Investors were given some positive signs in early-2013, as the stock popped above $21 in February, and continued to climb to a yearly-high in May of $24.43. Though the stock did pull back some, there was still plenty of time for investors to sell Avon and get out with a decent profit.

However, those who didn't liquidate the stock before late-October were in for a November surprise. Though the stock began its disappointing year-end skid on October 31, it was in November that Avon showed that there was no wind left in its sails. After a promising start, Avon limped to the finish line and closed 2013 at just $17.22. 2014 bought more bad news for the stock, as it tumbled below $15.00 in most recent trading.

Related: CVS vs. Altria - Which Would You Rather Invest In?

Herablife has had a rough go of it over the past few years. The three-year charts for the company show many ups and downs, but show the stock was on a solid upswing in January 2013, trading in the range of $32 to $34. As 2013 really got underway, so did Herbalife's stock. Herbalife trended steadily upward for the entire year, and closed the year at 78.70 - near its yearly-high. In early 2014 the stock pulled back from those highs, falling below $60 in late-January 2014, before revering some to $67 in recent trading.

Both Avon and Herbalife have expanded their businesses offerings into international markets in order to sustain growth. But while Avon struggled in 2013, Herbalife had a stellar year. Going into 2014 both stocks saw significant pulls back, and Herbalife even suffered public allegations about the legality of its business model and expansion practices. The 2014 fates of these companies depends on many unknowns, including the U.S. economy, the economies of countries into which the companies have expanded, and in the case of Herbalife – the result of public accusations relating to alleged wrongdoing.

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Posted-In: Markets Best of Benzinga

(c) 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Healthcare Stocks: No Longer a Sure Thing

Popular Posts: 5 Stocks to Sell in FebruaryThe 3 Charts That Matter Most Right NowWhat Traders Can Learn From Super Bowl Sunday Recent Posts: Healthcare Stocks: No Longer a Sure Thing The 3 Charts That Matter Most Right Now What Traders Can Learn From Super Bowl Sunday View All Posts

Healthcare stocks were one of the best areas of the market in 2013, and they have continued to outperform so far in 2014.

Source: Flickr

In the most recent phase of the market correction, however, healthcare has begun to show some cracks. So is this a sign of things to come?

Healthcare stocks: Healthy Growth, Defensive Attributes Provide Support

First, the good news. The Health Care SPDR (XLV) is flat in 2014 (a total return of -0.07%, to be exact) compared with a return of -5.4% for the S&P 500. This places healthcare second only to utilities — up 1.6% based on the Utilities SPDR (XLU) — in terms of year-to-date performance among the 10 major sectors. This comes on the heels of a year in which healthcare stocks outpaced the S&P 500 by more than 9 percentage points.

One reason for this outperformance is that healthcare continues to deliver the goods in terms of earnings. According to FactSet, a full 86% of healthcare companies had reported better-than-expected fourth-quarter earnings through Jan. 31, tops among all sectors. In terms of top-line revenues, the number was the same: 86% exceeded expectations, second only to the telecom sector.

Healthcare stocks also led the way in terms of the extent to which they beat top-line estimates, coming in at an aggregate 2.7 percentage points ahead of expectations. Not least, their revenue growth rate of 5.4% was the highest of the 10 major sectors.

At a time in which investors have grown nervous about broader economic conditions, this type of fundamental strength is a magnet for those looking for a safe haven.

Perhaps even more important, healthcare stocks are largely immune to the broader issues that have plagued the stock market in 2014. The non-discretionary nature of their products and services means they aren't as vulnerable to the concerns about slower global growth, emerging markets contagion and higher natural gas prices that have combined to weigh heavily on performance elsewhere in the U.S. stock market.

Biotech, Pharmaceutical Stocks Beginning to Diverge

Based on the factors above, healthcare continues to look good on the headline level. More recently, however, the biotechnology industry has lost its leadership role. The table below shows the shifting relationship between pharmaceuticals and biotech stocks since XLV peaked on Jan. 22:

Sector	ETF	2013	YTD	Since Jan. 22
Healthcare	SPDR Health Care (XLV)	41.4%	-0.1%	-3.5%
Pharmaceuticals	Market Vectors Pharmaceutical ETF (PPH)	32.4%	1.1%	-3.1%
Biotechnology	iShares Nasdaq Biotechnology ETF (IBB)	65.5%	6.1%	-5.0%
S&P 500	SPDR S&P 500 ETF (SPY)	32.3%	-5.0%	-4.8%

One reason for this is the "risk-off" environment in which institutional investors are forced to sell winners in order to raise liquidity. This puts fund-manager favorites (and big 2013 winners) such as Biogen Idec (BIIB), Amgen (AMGN) and Celgene (CELG) in the crosshairs. Further, Celgene's earnings miss last month has depressed performance across the entire biotech sector since the news hit the wires.

In contrast, pharmaceutical stocks have held up relatively well. Merck (MRK) has bucked the broader-market downtrend to post a return of 6.9% year-to-date, while Pfizer (PFE) and Eli Lilly (LLY) are up 2.6% and 4.1%, respectively, through Tuesday.

This shift highlights a potential headwind to healthcare as a whole: valuations. With expectations high and stocks having performed so well in recent years, the latitude for disappointment is high. FactSet reports that as of Jan. 31, healthcare stocks were trading with a price-to-earnings ratio of 16.6 on 2014 earnings estimates. This isn't just higher than the S&P 500's forward P/E of 14.7, it's also higher than historical levels. In the past five years, healthcare has traded at an average of 12.2 times forward earnings; on a 10-year basis, the average is 14.1. This puts healthcare stocks at a valuation that’s nearly 18% above its long-term average.

That would be fine if the sector could deliver above-average earnings growth. However, FactSet estimates earnings growth of 7.3% for healthcare in 2014, behind the 9.6% for the S&P 500 and ninth among the 10 major sectors. (Only utilities are lower.)

It’s true that the estimates for healthcare are probably more reliable than that 9.6% number for the broader market, which looks destined to fall before the year is out. Still, investors are clearly paying a premium for the defensive characteristics of healthcare stocks at this point. This puts a potential damper on returns, especially if the recent selloff is just a blip and economic growth is indeed as strong in 2014 as investors were expecting coming into the year.

The Bottom Line

Healthcare stocks have demonstrated the ability to outperform in both up and down markets in the past few years. However, with valuations far richer than they were a year ago, investors need to take care to be selective and not overpay for growth.

At this stage, healthcare investors can no longer count on the "rising tide" to fuel uniform outperformance throughout the sector. Manage your positioning accordingly.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.

PVH Corp (NYSE:PVH): An Under-Appreciated Long-Term EPS Play

Shares of PVH Corp (NYSE:PVH) touched a new 52-week high of $138.68 on Friday. The retailer could record significant EPS upside in the long-term after reinvestment in the first half of 2014.

New York-based PVH, or Philips Van Heusen, is one of the world's largest apparel companies with more than 75 percent of revenues coming from its two global designer lifestyle brands – Calvin Klein and Tommy Hilfiger. As such, PVH is most focused on the moderate- to high-price point apparel, handbags, and accessories market.

Investors seem over-focused on near-term risks of stepped-up investment, ongoing inventory reduction, and distribution right-sizing for the Calvin Klein (CK) jeans/underwear business (acquired from Warnaco in 2013).

UBS analyst Michael Binetti views that PVH has the most visible algorithm for EPS growth over the next three years at the high end of the large-cap apparel peer group. He expects EPS to grow at a rate of more than 18 percent CAGR in the next three years.

By the second half of 2014, PVH should transition to a significant CK margin improvement story, with the Warnaco CK business currently under earning its long-term EBIT margin potential by 500 basis points (80 cents in EPS).

Starting in 2015, Binetti believes that PVH can re-accelerate revenue growth with better pricing power, new categories and new geographic opportunities for the Calvin brand as well as an ongoing Europe white space opportunity, and accelerating owned-retail business in the US for Tommy Hilfiger brand.

Calvin Klein margin improvement story is PVH's most powerful near-term opportunity. PVH can improve margins for the legacy Warnaco CK business (Jeanswear/Underwear) by about 500 basis points by 2016.

The market assumes only 6 percent revenue growth for CK in 2014 (below PVH's long-term outlook for 8-10 percent annual growth). But, the company is already well underway in reducing CK inventories, right sizing distribution that over-skewed to low-end channels, and improving product quality to re-establish pricing power and re-accelerate revenues to the 8-10 percent long-term range.

Binetti estimate that the legacy Warnaco business is currently generating 7.5 percent operating margins (with the $1 billion revenue Jeanswear business currently at low single digit operating margins), but should improve to 12.5 percent by 2016.

Every 100 basis points of improvement in legacy Warnaco CK margins is 15 cents of EPS to PVH. On a pro forma basis, Calvin Klein EBIT margins can improve by 400 bp (to 19 percent by 2016 from 15 percent in 2013).

A key near-term concern for investors has been PVH's comments that Tommy Europe orders will be only up about 1 percent after several years of solid growth. However, Tommy orders should not remain sluggish. Even in the third quarter call, the company commented that it expects better growth by fall.

For Tommy, there is significant opportunity to extend the brand into new geographies—especially leveraging legacy Warnaco assets in Latin America and Asia.

Meanwhile, Binetti said an analysis of past PVH and Warnaco company presentations points to up $1.4 billion in revenues from additional licenses for Tommy Hilfiger and Calvin Klein that PVH could consolidate in the coming years—which could add an incremental $1 in EPS.

The 2014 will largely be a year of completing the repositioning of the Warnaco CK businesses. In 2015 and beyond, PVH will begin to roll-up these licenses. If PVH acquires about 50 percent of these outstanding licenses over the next three years, it could add 50 cents in EPS by 2016.

As the Warnaco business starts showing signs of stability, PVH will transition into one of the best three-year EPS stories in large-cap apparel. Investors could own the stock ahead of the turn in the fundamentals.

PVH shares currently trade at a forward P/E of 16.8 times, a discount to peer group average of 17.6 times. They gained 20 percent in the last one year and traded between $102.72 and $138.68.

Advisors Move to Raymond James, Securities America, Wells Fargo

Santa Claus has been kind to several firms just ahead of Christmas, rewarding them with a handful of recruited representatives — and, in one case, a returning rep.

Raymond James (RJF) said late Thursday that it added three advisors from Wells Fargo: Scott Haley, CFP; Judy Mansfield, CFP; Jason Koptish, AAMS; and Scott Glaze, CRPC.

The team, which will now do business as Mainsail Wealth Advisors, is joining Raymond James’ independent channel. It works out of Gloucester, Va., manages $210 million in client assets and has had annual fees and commissions of $1.6 million. (It previously used Glaze Wealth Management Group as its brand.)

“For some advisors and teams, going independent is the best choice,” said Scott Whitley, regional director of Raymond James Financial Services, in a press release. “I am pleased that this team chose to affiliate with Raymond James’ independent channel. They have a true client-first mentality, a value that Raymond James also shares, and we look forward to supporting their practice and clients.”

“We looked at several firms before deciding to go independent,” said Haley, branch manager and managing partner of Mainsail, in a statement. “Raymond James clearly won. The culture was a perfect fit. It was like returning home from where we once were, back to the mindset that our firm is there to help us help our clients.”

Haley began his career as an advisor more than 13 years ago at A.G. Edwards, while Mansfield has more than 35 years of experience in financial services.

Securities America

Securities America, part of Ladenburg Thalmann (LTS) said Thursday that Kathy Keadle is once again affiliated with the independent broker-dealer. She formerly worked with Lincoln Financial Securities.

Keadle and her team joined Securities America in 2005 but left in 2011. The practice, which has about $2 million in yearly production and $140 million in assets, does business as Keystone Financial Services in Augusta, Ga. Keystone includes seven advisors and five staff members.

“I felt that Securities America’s significant technology platform along with an advisor-centric environment was the best place for me to take my firm to the next level,” Keadle said, in a press release. “We look forward to working with Securities America because of the unparalleled support we will receive.”

Keadle joined the financial services industry 16 years ago as a recruiter and trainer. She later managed a branch at AXA in Atlanta. She also runs the Keystone Foundation for Financial Education.

“We are proud to welcome Kathy Keadle and her team back to the Securities America family,” said Gregg Johnson, senior vice president of branch office development and acquisitions for Securities America, in a statement.

“Open communication allows former advisors to see the continued growth of our company,” Johnson said. “This, coupled with a culture that we value greatly, has developed into a trend that has drawn advisors back to our firm, such as the case most recently with Kathy Keadle, in September with Wayne Maier and in June with Shannon Case and Mark Slattery. These three groups alone total more than $454 million in client assets.”

Wells Fargo

Early Friday, Wells Fargo Advisors (WFC) said it had recruited an advisor from UBS in New York.

Bruce Gelfand joined Wells Fargo at its Liberty Plaza Private Client Group office, where he will report to Bill George, manager of the office.

Gelfand has client assets of $89 million and yearly fees and commissions of about $665,000.

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Check out LPL Names Chetney President of Retirement Partners on ThinkAdvisor.

Obama threatens to veto bill to delay DOL fiduciary-duty rule

Bloomberg News

The House approved legislation Tuesday evening, 254-166, that would delay – or possibly kill – a Department of Labor regulation that would strengthen advice standards surrounding retirement plans.

The measure, written by Rep. Ann Wagner, R-Mo., would prohibit the DOL from proposing its regulation until 60 days after the Securities and Exchange Commission has finalized a similar rule to raise standards for brokers providing retail investment advice. It attracted the support of 30 Democrats.

On Monday, the Obama administration threatened to veto the legislation, saying that it undermines DOL efforts to protect workers and retirees from conflicted investment advice as they build their nest eggs through 401(k) plans and individual retirement accounts.

Supporters of the bill say the SEC must go first to ensure coordination between the agencies and avoid duplicative costly fiduciary-duty requirements that would ultimately limit investment advice for smaller investors. Opponents say it would effectively kill the DOL rule if the SEC declines to propose its own regulation.

The legislation, which also would require the SEC to prove that investors are being harmed by the differing advice standards between investment advisers and brokers before it proceeds with its own rule, faces an uncertain future in the Democratic-led Senate.

So far, no similar bill has been offered on that side of Capitol Hill. Ms. Wagner is hopeful that an Aug. 2 letter from 10 Democratic senators to DOL urging it to delay the rule signals that there is momentum for the issue on that side of Capitol Hill.

“We are working on some things behind the scenes with the Senate to move this through both chambers of Congress and to the president's desk,” Ms. Wagner said in an interview. “We're just in the middle of the game, and I want to see it all the way through.”

The Financial Planning Coalition – comprised of the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planner Board of Standards Inc. – is trying to stop Ms. Wagner's bill.

“This legislation is…a 'back door' attempt to undermine investor protection provisions in the Dodd-Frank Act and prevent the SEC and DOL from requiring advisers to put investors' interests ahead of their own,” the FPC said in a statement after the House vote.

Originally proposed in 2010 and withdrawn amid fierce financial industry backlash, the DOL rule is slated to be proposed again sometime in the next few months. It would expand the definition of “fiduciary” under federal retirement law.

Investment advisers currently must act in the best interests of their clients, or meet a fiduciary duty, while brokers meet a! less stringent suitability standard that allows them to sell higher-priced products to clients as long as they meet their investment needs.

During the House floor debate on Tuesday, Rep. Maxine Waters, D-Calif., opposed the bill. She said that lawmakers should support the DOL rule because it would protect workers' retirement nest eggs from high fees that could come with some broker product recommendations.

“Whose side are we on?” said Ms. Waters, ranking member of the House Financial Services Committee. “Are we on the side of the brokers, who can say any old thing?”

Opponents of the DOL rule contend it would place a fiduciary duty for the first time on those providing advice to individual retirement account holders. They argue that would raise costs for brokers, potentially forcing them to abandon the market for investors with modest assets.

“All we're trying to do is preserve investment advice and investment opportunities for working Americans,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee.

If You Like Rare Element Resources as a Trade Right Now, You'll Love This Competitor (REE, AVL)

Rare Element Resources Ltd (NYSEMKT:REE) has been getting more than its fair share of attention of late.... bullish attention, to be precise. The stock's benefited from the attention too, with REE shares up 58% in the past two and a half weeks. As compelling as that move is, however, it's not the best rare earth bet at this point. If you like Rare Element Resources, you'll love Avalon Rare Metals Inc. (NYSEMKT:AVL). Unlike REE, AVL isn't already overbought. Indeed, it's just getting started.

First and foremost, it's worth noting that the undertow pushing Avalon Rare Metals and Rare Element Resources Ltd shares upward is doing the same for most rare earth metal miners. That undertow is simply a broad price improvement for rare earth elements. Since July's low, neodymium ("the biggie) prices have advanced from $75/kg to the current price of $103/kg, and are still going strong. Some observers have already suggested the proverbial bottom has been made, and their arguments actually hold up pretty well. That's why REE and AVL have been such - no pun intended - hot commodities of late... this rebound in rare element prices seems to be the real deal.

So what's wrong with Rare Element Resources Ltd that isn't wrong with Avalon Rare Metals? In simplest terms, AVL isn't overbought right now, while REE is.

With just a quick glance at the chart of Rare Element Resources Ltd we can see that shares had already been hot, gapping higher back on the 16th, yet never looking back. Now it's up huge, and on huge volume. In fact, today's big 11% pop will be the highest volume day we've seen in months.

On the surface it seems bullish, but this is one of those "too much of anything is still too much" situations. REE may be hot, but it's well overextended already, and today's extreme bullishness may be actually be a blowoff top.

AVL, on the flipside, isn't nearly as overextended right now. In fact, it appears to just be getting started. Though it too is surging on huge volume today, this is the first time we've seen any real technical progress from the stock. Make no mistake, though - this progress should be catalytic. Not only has Avalon Rare Metals Inc. just now hurdled a key horizontal line at $0.96, but it's just not toying with its 200-day moving average line; Rare Element Resources Ltd shares have already blown well past their 200-day line, and if anything that long-term indicator line is ready to reel REE back in.



The tricky part here is dealing with the reality that both stocks are still subject to any fluctuations in rare earth element prices. If they fall, so too will REE, and most likely AVL will as well. But, Avalon shouldn't fall as much since it's not as overextended, which means it's going to rekindle the uptrend much better and much stronger (and at a much higher level) than Rare Element Resources shares will.

To make matters trickier, it's possible rare element prices won't fall anytime soon, or even in the distant future.

Regardless, if you're willing to bet that rare earth element prices have already seen their worst and can only get better from here - for the long haul - then Avalon Rare Metals Inc. is a much more palatable pick than Rare Element Resources Ltd is at this point.

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Top Insider Trades: PCI BTH HALL MDGN

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By Jonathan Moreland, founder of Insider Insights and author of Profit From Legal Insider Trading.

NEW YORK (TheStreet) -- It is a victory for common sense. Tracking the trading behavior of company executives, directors and large shareholders in the stocks of firms they're registered in as "insiders" has proven to be profitable, according to both academic studies and (more importantly) the experience of professional investors.

Below are lists of the top 10 mainly open-market insider purchases and sales filed at the Securities and Exchange Commission Thursday, Sept. 19, 2013 as ranked by dollar value. Please note, however, that these are only factual lists, not buy and sell recommendations. Dollar value is only one metric to assess the importance of an insider transaction, and, frankly, often not even the most important metric that determines if an insider transaction is significant. At InsiderInsights.com, we find new investment ideas just about every day using these and more intricate insider screens to determine where we should focus our subsequent fundamental and technical analysis. And while stocks don't (or shouldn't) move up or down based on insider activity alone, insiders tend to be good indicators of when real stock-moving events like earnings surprises, corporate actions, and new products may be in the offing. So use these regular Top Insider Trades columns as the initial research tools they are meant to be, and click the links in the tables to analyze a company's or insider's full insider history. Also feel free to contact us with any questions on our proprietary insider data, and how it is best analyzed.

Sunday, May 10, 2015 A Rental Housing REIT The Intelligent REIT Investor's Brad Thomas discusses a new rental housing REIT and shares his view on whether it is something that investors should consider. SPEAKER 1:  My guest today is Brad Thomas and we are talking about housing rates.  Hi, Brad, and thanks for joining me. BRAD:  Glad to be here, thank you. SPEAKER 1:  Yeah, I know there is a new IPO of a company.  It is called American Homes 4 You. BRAD:  4 Rent, American Homes 4 Rent. SPEAKER 1:  4 Rent, okay, and that is a REIT that it is my understanding is they go out into the single-family housing market, they buy some of these properties that need to be renovated, and then they are not selling them or flipping them, they are renting them.  Is that correct? BRAD:  That is correct, and first of all, I want to make a point about this company specifically.  When you invest in a REIT today, you are not only investing in these hard assets, which in this case, would be single-family housing for rent, but you are also investing in the management team.  SPEAKER 1:  Sure. BRAD:  When you invest in a company, one value that you have in a REIT structure is you have not only the liquidity, the transparency, and the diversification but you also get a management team.  One thing I can tell you about American Homes 4 Rent is that they have an exceptional management team.  One of the key figures behind the company is a guy named Wayne Johnson.  Wayne has a long history of creating shareholder value in a company that he created many years ago called Public Storage, which is the largest public storage company in the world.  Mr. Johnson is, every year, in the Fortune billionaire list.  He has made a large wealth but he has also made a lot of wealth for his shareholders so I want to point that out.  That is what backing American Homes 4 Rent.  Now, the business model itself is fairly new.  We have only had I think now two public rental housing REITS, the other one being Silver Bay, that came out with their IPO I believe in December of last year. SPEAKER 1:  Correct, and they were a division of another larger company, right? BRAD:  That is correct.  I believe they were an offshoot as well.  Now, American Homes 4 Rent is now the second largest in the sector.  The largest is actually a private equities firm. SPEAKER 1:  It is Blackstone. BRAD:  Blackstone, that is correct.  American Homes 4 Rent, they are very scalable.  Obviously, their name, American Homes, they are scaling this, trying to create the critical mass, so there are some questions out there in terms of how they can manage effectively at such a large portfolio and all of these multiple markets.  My opinion is I think I would, on this particular IPO, I would wait it out.  There is nothing better than patience and seeing how this company performs.  I would personally like to see that company create the track record for managing the large groups of housing because, again, they are in subdivisions.  It is not like an apartment complex where you are aggregated.  SPEAKER 1:  Exactly. BRAD:  They are in a lot of different places so I would like to see some management track record and I would also like to see, for most investors, the most important thing is the dividend track record.  I would like to see that. SPEAKER 1:  Sure, sure.  And you are not a big fan of REIT IPOs in general. BRAD:  Correct.  I mean, I think, you know, there is really no reason to invest in a REIT today who comes out.  Let’s wait on that company to perform and let’s wait on a bargain.  I like to buy with a margin of safety so let’s wait on that stock to fall, it will come down, and then you can pounce on it then and if you want to load up the truck, load up the truck. SPEAKER 1:  Are there any other housing type REITS that you like? BRAD:  You know there are.  There is a niche sector, which is the modular housing sector, and they are not mobile homes.  That is a misconception. SPEAKER 1:  Yes, right, right. BRAD:  The one I really like is called UMH.  They are headquartered up in New Jersey, run by a fellow named Sam Landy.  The family has been around a long, long time.  They invest mostly in the Northeastern markets.  They are getting down to the Southeast now but they have a really attractive dividend in the seven-plus range SPEAKER 1:  That is very healthy. BRAD:  It is and they have been able to sustain that more recently so I like that sector some.  I think there is a lot of demand for that space and, again, they are not mobile homes.  They are really providing attractive housing for families. SPEAKER 1:  That is sort of like the Habitat for Humanity homes, right.  Those are modular homes, that they bring in the walls. BRAD:  Exactly.  I tell you, Warren Buffett owns a piece of Clayton Home, so that will tell you something. SPEAKER 1:  Sure, yes, exactly.  Thanks for being here, Brad. BRAD:  Thank you. SPEAKER 1:  And thanks for joining us at the MoneyShow.com video network.  Tuesday, April 28, 2015 All you need to know about fund raising tools Here is the transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video. Q: What exactly does one mean when one talks about instruments of fund raising? Nayar: I think as a company looks at its growth plans and capital expenditure requirements, they obviously take care of it through internal resources first. Over and above that they have options of raising either debt or equity. Within equity also there can be pure equity or convertibles, which are equity like instruments which get converted to equity or can stay as debt. Q: Is this always done in order to do capital raising or sometimes it is also done in order to get in a strategic investor etc. In that, are there different layers to why a company chooses to do fund raising or is it just as simple as the capex issue? Chatterjee: From a pure corporate finance point of view, there would be several angles to look at it. If one looks at fund raising for capex, which is the most obvious, whether it is in capex or growth, one first one needs to ensure that the company's long-term strategy is aligned to growth. And, within growth then to use fund raising as the enabler to make it happen. Sometimes one looks at the capital structure and the need to balance capital structure either ways, whether it is towards debt or equity, it depends on where that structure is, if it is over capitalized in terms of equity and you are paying too much taxes, you would certainly want to get some tax shield to ensure that there is a rebalancing and it can be vice-versa. The third thing is the instrument selection or the financing strategy. One looks at what instruments work for that particular company, given its track record of cash flows and earnings. And, finally one looks at the market and sees what is the right time to access the market and in which form. Did you read: Tata Power ends $300M PE fund-raising with Olympus Cap Q: From a minority shareholders point of view, how should one read these fund raising exercises by a company? Do they have an impact on the company's core business or performance as a stock as well? Sharma: Yes, certainly. Depending on what kind of fund raising it is, whether it is equity or debt and also from perspective of which investor base it is raising. The existing minority shareholders if they do not participate in that equity offering will get diluted. So to that extent they will be impacted. As long as it is debt, they also need to look at how it impacts the capital structure and the future growth of the company. Q: On the equity side, one can raise money via an initial public offering (IPO) which is step one, but how beneficial is it going down the equity route whether it is an IPO or a preferential share issue from a company's point of view? Chatterjee: Equity is obviously a form of capital raising where one has to be very careful in the context of two to three things. One is in the earnings per share (EPS) implications of raising equity. Whether one goes through an IPO or a private placement or bring in strategic investors, is functional of again where the capital structure wants to be. And, if one wants to have an equity-biased capital structure we need to look at raising equity. A listed company would perhaps go in for a follow-on public offer (FPO) or a private placement or induction of a strategic partner or even a preferential allotment to the existing shareholders. For an unlisted company, it could be in the form of an IPO or simple private placement by a financial or strategic partner. So, the key consideration is whether that equity which is effectively costlier than debt can be serviced and can be value accretive going forward for the shareholders. Q: What exactly should a retail investor or any shareholder actually look at when a company announces equity offering because there is a) potential dilution that will happen b) potential dilution on the earnings itself. I guess if it's preferential you will have to wonder about which kind of parties are coming into the company. Sharma: I think from the perspective of any investors, categorized into two'one who is an existing shareholder and two is somebody who is coming in new. What they need to look at is going top down in terms of what the industry dynamics are. How the company is doing in that industry and finally what the backing of the promoters or other strategic investors is. Also they need to look at what is the planned fund raising going to be used for. That is also important consideration because it would have an impact on future growth of the company. Q: You have participated and run many follow-on offers for companies, how does one marry this mismatch that starts happening between the listed price and the way it starts reacting to news of a follow-on because immediately for many stocks especially from the public sector there is a deceleration in the price performance expecting the FPO to be at a much lower price point? Nayar: Usually follow-on have little more flexibility on pricing. Also, since it's a more intensive an effort in terms of distribution and there is whole host of cost that go along with it, the feeling is that one will try and price it in such a way that the follow-on goes through and doesn't lead to an overhang. Any retail investor would not like to pay a premium because they can buy that stock in the market at market related prices. So, most follow-ons always happen at a discount of about 5%. So usually in that sense investors start expecting 3-5% discount and start playing on that arbitrage. Q: How elegant an option is it when you look at equity fund raising instruments because you have to consider the retail minority shareholder, you have to consider some kind of discount and you also have to take into account the kind of pressure your stock may face because of that impending follow-on offer? Chatterjee: In India the route to access the capital markets especially in the secondary side, for a listed company, depends on how the stock performs post the announcement. The period to close fund raising is very critical to ensure that there is a balance between what the company wants and what the investor wants. I still believe that rights and FPO should be done in a shorter period of time and that would be a great benefit both to the issuer as well as the investor. 1 2 .gD_15nRedN{font:15px/20px Arial;color:#FF0000 !important;text-decoration:none;font-weight:normal;} Related News India relaxes steel import standards Adanis close to acquiring Dhamra Port  .gD_15nRed{font:15px/20px Arial;color:#FF0000 !important;text-decoration:none;font-weight:bold;} .GoogleNewsTitle{font:14px/16px Trebuchet MS,Arial,Helvetica,sans-serif;color:#005066;text-decoration:none;} .GoogleNewsTitle:hover{text-decoration:underline} .GoogleNewsURL{font:12px Trebuchet MS,Arial,Helvetica,sans-serif;color:#000;text-decoration:none;} .GoogleNewsURL:hover{text-decoration:underline} .GoogleNewsTitleLine{font:20px/22px Trebuchet MS,Arial,Helvetica,sans-serif;color:#F01414;text-decoration:none} .GoogleNewsTitleLine:hover{text-decoration:underline} .GoogleNewsLineURL{font:12px family:Trebuchet MS,Arial,Helvetica,sans-serif;color:#000;text-decoration:none} .GoogleNewsLineURL:hover{text-decoration:underline} Set email alert for Tata Steel Tags: fund raising, Informed Investor, Mitali Mukherjee, Koushik Chatterjee, Tata Steel, Falguni Nayar, Kotak, Sanjay Sharma, Deutsche Equities Know the finer points in clubbing income with spouse Hilton Worldwide launches new global careers website .scroll_hv .panel{width:250px !important; padding:10px 10px 25px !important} #scroll13{width:540px;} .hv_bx{margin-left:-10px;} .tab_data1{padding:0px;} Carlyle Gaming (CGME) Summer Wind BO 6,127,000 4,350,170 Pimco Dyn Cr Inc (PCI) Gross W O 123,800 2,728,080

GET QUOTE Get Quote Stock Chart Future Price Option Price NAVs News Business Earnings Management Interviews Announcements Stock Views Brokerage Reports Announcements Board Meetings AGM/EGM Bonus Rights Splits Dividends Information Company History Background Board of Directors Capital Structure Listing Info Locations Block Deals Financials Balance Sheet Profit & Loss Quarterly Results Half Yearly Results Nine Monthly Results Yearly Results Cash Flow Ratios Annual Report Directors Report Chairman's Speech Auditors Report Notes to Accounts Finished Goods Raw Materials Peer Comparison Price Price Performance Market Cap Net Sales Net Profit Total Assets Most Popular Top News Experts laud Cipla Q1 results; doubt Sun Pharma guidance Reliance, IOC, ONGC bid for Guj terminal stake Continue buying pharma; bullish on HCL Tech: Sanju Verma Here's what to expect from SBI Q1 earnings Sun Pharma posts Rs 1276 cr loss in Q1 on Pfizer settlement Govt approves setting up of 12 mega food parks RBI's tightening measures can pull GDP to sub 5%: Experts  Micromax co-founder 'steps down from his duties' RBI takes further step to stem rupee's slide against USD  Here's what to expect from SBI Q1 earnings Analysts worry GDP downgrade as bankers remain upbeat Eicher aims to be global mid sized motorcycle provider Robert Vadra falsified documents for Gurgaon land: Khemka Further rupee steps expected in Indian debt/FX RBI's tightening measures can pull GDP to sub 5%: Experts  Jeff Bezos pretty close to be next Steve Jobs: John Sculley   Companies Bill: Here are the pleasure and pain points Pak violates ceasefire again, fires 7k round of ammunition  Here's what to expect from SBI Q1 earnings Analysts worry GDP downgrade as banker Monday, April 20, 2015 Tracking Volatility: How The VIX Is Calculated When market volatility spikes or stalls, newspapers, websites, bloggers and television commentators all refer to the VIX®.Formally known as the CBOE Volatility Index, the VIX is a benchmark index designed specifically to track S&P 500 volatility. Most investors familiar with the VIX commonly refer to it as the "fear gauge", because it has become a proxy for market volatility. The VIX was created by the Chicago Board Options Exchange (CBOE), which bills itself as "the largest U.S. options exchange and creator of listed options". The CBOE runs a for-profit business selling (among other things) investments to sophisticated investors. These include hedge funds, professional money managers and individuals that make investments seeking to profit from market volatility. To facilitate and encourage these investments, the CBOE developed the VIX, which tracks market volatility on a real-time basis. While the math behind the calculation and the accompanying explanation takes up most of a 15-page white paper published by the CBOE, we'll provide the highlights in a lite overview. As my statistics professor once said, "It's not so important that you are able to complete the calculation. Rather, I want you to be familiar with the concept." Keeping in mind that he was teaching statistics to a room full of people who were not math majors, let's take a layman's look at the calculations behind the VIX, courtesy of examples and information provided by the CBOE. A Lite Look for the Mildly Curious The CBOE provides the following formula as a general example of how the VIX is calculated: The calculations behind each part of the equation are rather complex for most people who don't do math for a living. They are also far too complex to fully explain in a short article, so let's put some numbers into the formula to make the math easier to follow: Delving into the Details The VIX is calculated using a "formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls". Using options that expire in 16 and 44 days, respectively, in the example below, and starting on the far left of the formula, the symbol on the left of "=" represents the number that results from the calculation of the square root of the sum of all the numbers that sit to the right multiplied by 100. To get to that number: The first set of numbers to the right of "=" represents time. This figure is determined by using the time to expiration in minutes of the nearest term option divided by 525,600, which represents the number of minutes in a 365-day year. Assuming the VIX calculation time is 8:30am, the time to expiration in minutes for the 16-day option will be the number of minutes within 8:30am today and 8:30am on the settlement day. In other words, the time to expiration excludes midnight to 8:30am today and excludes 8:30 am to midnight on the settlement day (full 24 hours excluded). The number of days we'll be working with will technically be 15 (16 days minus 24 hours), so it's 15 days x 24 hours x 60 minutes = 21,600. Use the same method to get the time to expiration in minutes for the 44-day option to get 43 days x 24 hours x 60 minutes = 61,920 (Step 4). The result is multiplied by the volatility of the option, represented in the example by 0.066472. The result is then multiplied by the result of the difference between the number of minutes to expiration of the next term option (61,920) minus the number of minutes in 30 days (43,200). This result is divided by the difference of the number of minutes to expiration of the next term option (61,920) minus the number of minutes to expiration of the near term option (21,600). Just in case you're wondering where 30 days came from, the VIX uses a weighted average of options with a constant maturity of 30 days to expiration. The result is added to the sum of the time calculation for the second option, which is 61,920 divided by the number of minutes in a 365-day year (526,600). Just as in the first calculation, the result is multiplied by the volatility of the option, represented in the example by 0.063667. Next we repeat the process covered in step 3, multiplying the result of step 4 by the difference of the number of minutes in 30 days (43,200), minus the number of minutes to expiration of the near-term options (21,600). We divide this result by the difference of the number of minutes to expiration of the next-term option (61,920) minus the number of minutes to expiration of the near-term options (21,600). The sum of all previous calculations is then multiplied by the result of the number of minutes in a 365-day year (526,600) divided by the number of minutes in 30 days (43,200). The square root of that number multiplied by 100 equals the VIX. Heavy on the Math Clearly, order of operations is critical in the calculation and, for most of us, calculating the VIX isn't the way we would choose to spend a Saturday afternoon. And if we did, the exercise would certainly take up most of the day. Fortunately, you will never have to calculate the VIX because the CBOE does it for you. Thanks to the magic of computers, you can go online, type in the ticker VIX and get the number delivered to your screen in an instant. Investing in Volatility Volatility is useful to investors, as it gives them a way to gauge the market environment. It also provides investment opportunities. Since volatility is often associated with negative stock market performance, volatility investments can be used to hedge risk. Of course, volatility can also mark rapidly rising markets. Whether the direction is up or down, volatility investments can also be used to speculate. As one might expect, investment vehicles used for this purpose can be rather complex. VIX options and futures provide popular vehicles through which sophisticated traders can place their hedges or implement their hunches. Professional investors use these on a routine basis. Exchange-traded notes - a type of unsecured, unsubordinated debt security - can also be used. ETNs that track volatility include the iPath S&P 500 VIX Short-Term Futures (NYSE:VXX) and the Velocityshares Daily Inverse VIX Short-Term (NYSE:XIV). Exchange-traded funds offer a somewhat more familiar vehicle for many investors. Volatility ETF options include the ProShares Ultra VIX Short-Term Futures (NYSE:UVXY) and ProShares VIX Mid-Term Futures (NYSE:VIXM). There are pros and cons to each of these investment vehicles that should be thoroughly evaluated before making investment decisions. The Bottom Line Regardless of purpose (hedging or speculation) or the specific investment vehicles chosen, investing in volatility is not something to jump into without taking some time to understand the market, the investment vehicles and the range of possible outcomes. Failing to do the proper preparation and take a prudent approach to investing can have a more detrimental result to your personal bottom line than making a mathematical error in your VIX calculation. Subscribe to: Posts (Atom) Blog Archive ►  2019 (34) ►  March (14) ►  February (20) ►  2018 (20) ►  August (2) ►  July (7) ►  June (2) ►  May (9) ►  2016 (1) ►  November (1) ▼  2015 (84) ▼  June (8) The Original Behavioral Economist Sallie Mae Stays Neutral - Analyst Blog What Does Wall Street See for MEDNAX's Q2? Is Regal Beloit's Cash Machine Empty? 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